In this week’s Futurum Tech Podcast, our team of Fred McClimans, Daniel Newman, and Olivier Blanchard take a look at the disruptive power of Amazon, plus the Fast Five, Tech Bites, and weekly Crystal Ball Prediction.
Our Main Dive
At the risk of becoming the guest who wouldn’t leave, Amazon has put a new twist on being Home Alone, as in it doesn’t ever want you to be truly home alone.
With a slew of product announcements, from better, faster, cheaper Echo products to Alexa-enabled microwaves to in-car kits, Amazon is staking a serious claim on the privacy of our homes. It’s not alone in its effort, there are plenty of players who have been targeting the home automation market for years, from security companies like Alarm.com to local utilities looking to capture your power-usage data.
There are hundreds of “turn on/off the lights” gadgets out there, not to mention the likes of Google & Apple, two major potential threats to the “smart-home” market that have never quite materialized, nor do we think they are likely to at this point.
This is Amazon’s game. Low-cost, mass-market products that cater just as much on enabling product and services sales through Amazon Prime as they do on actually automating the home.
Is it too much? Is there risk? Can Apple, Google, or even Walmart compete? And what type of a moat is Amazon building this time? We dive in on your behalf.
Bottom Line: Amazon is a beast.
- It has the sales & delivery engine to sell just-about anything into the home, from entertainment & cleaning services to grocery staples and Alexa products wrapped inside a microwave (I’m not sure this isn’t a “product w/ shade” for conspiracy theorists who fear the ever-listening eyes of Big Brother);
- It has the ability and desire to subsidize its entry into the market;
- It has the benefit of being perceived as a non-threatening company (unlike Facebook, Google, Twitter, et al) that provides us with all-things-tech-and-non-tech.
There are some risks for Amazon. Increased regulatory and monopoly scrutiny is likely, even with Amazon’s recent move to upgrade and expand its small & mid-sized retailers through its StoreFront offering. And the more successful Amazon is in the home, the more competition it will face, meaning prices will only decline from here on in (and its shareholders are only so willing to let AWS subside Amazon’s margins and EPS, particularly if competition from Microsoft, Google, & IBM continues to improve).
But for now, Amazon looks like a winner in this space, and will likely be the 2nd US-based company to top $1 trillion in market capitalization.
Our Fast Five
We dig into this week’s interesting and noteworthy news:
- At the cost of a mere $4.75 billion, the creative-focused Adobe has expanded its ability to compete in the marketing cloud against the likes of Salesforce, Microsoft, and Oracle with its acquisition of Marketo.
- Lost in the mix of Apple’s big iPhone reveal and claims of more performance, less power draw was an innovative L-shaped battery inside the XS (that provides less talk time than the X).
- Amazon ships a lot, not just to houses but often inside of houses. It takes a lot of trusted employees to handle that job, and apparently Amazon has a few less trusted employees than it would like. To counter theft by drivers, it has started planting bogus packages to tempt employees who don’t think anybody is looking. They are.
- China has a data privacy problem. No, not that problem. The one where somebody went around stealing personal data from hotels, only to try and sell it back to the hotels.
- Life Insurance provider John Hancock has stopped selling traditional pay now/collect later policies. In their place is an expansion of a wellness program it’s been trailing. With a focus on “better living today, rather than paying your beneficiaries tomorrow,” John Hancock is changing its Life Insurance business into a Lifestyle business of sorts. You can still get life insurance, but only if you wear a fitness app and agree to some slight behavioral change.
Our winner of this week’s “tech that bites” award is Google. It wasn’t a difficult choice. The same company who stopped scanning user emails for marketing insights has acknowledge that it still allows 3rd-parties to practice the invasive, and revenue-generating, maneuver. Does anybody still trust Google? They shouldn’t. That doesn’t mean you should stop using all Google products. You can, if you like. I’m not. But if you do keep on Googling, don’t buy the hype – Google is a business that puts shareholder’s first. And while that isn’t likely to change, users should at least be second on the list.
Crystal Ball: Future-um Predictions and Guesses
Our Crystal Ball this week follows the topic in our Main Dive: Amazon. Is there anybody that can compete with Amazon in the smart-home, home-automation, home-assistant, home-shopping market? Across the board, we don’t think so.
There are few, if any, competitors who can effectively step up right now and counter this move. Perhaps Walmart (though its online presence is essentially brand-less and it has nowhere near the last-mile logistical operation) or Apple (if it decides to buy its way in), but that’s about it right now.
And there you have it, this week’s Futurum Tech Podcast.
On this week’s Futurum Tech Podcast. Amazon’s really big week. Adobe buys Marketo. Chinese hackers get caught in the act fighting package theft and life insurance reboots through the IoT.
Daniel Newman: Welcome back to another episode of FTP, Futurum Tech Podcast. I’m Daniel Newman, Principal Analyst at Futurum Research joined today by Olivier Blanchard and Fred McClimans two of the esteemed Futurum analysts and my co-hosts each and every week here. Although today is my day to take the helm. Now before I start, I want to remind everybody we will be talking about companies. We will be talking about their stocks, their prices, their values, but we are not giving financial advice and we do not recommend you making financial decisions based on anything we will say over the next 30 minutes or so. We have an action-packed jam show. We will be talking a lot about Amazon, more than once, more than twice because of Olivier, we will talk about them at least three times. We will also be heading down a few other interesting roads, events taking place in China.
We will be talking about what’s going on with Adobe’s big new acquisition and even a little bit of insurance digital transformation, but let’s get started. Today’s topic and how could it be anything else? Last week we talked about Apple because of the Apple launch. This week we’re talking about Amazon and talk about a launch. So, a week ago, our group was wildly underwhelmed except for Fred per the norm with Apple’s launch of new products that lacked innovation. Although he didn’t seem to think so, but overall, we came to the conclusion that apple still are doing a lot of things well, but there are big opportunities for its competitors to come into the market. And so far, the reviews, not to go down a tangential road right off the bat here. But the reviews are kind of agreeing with Olivier and I, well Apple did some things right.
They do have some opportunities to do things better and their competition are going to have some opportunities to compete. Of course, those are the reviews I’m reading. Amazon though, totally different, right? A company that really started off being a book company that quickly became the largest manufacturer on the planet, of smart speakers, AI enabled devices, and really with them and Apple, Siri have become the personification of what most people think of when they think of AI. And that really comes down to Amazon and the echo. But yesterday at their launch they launched products and products and products, and I’m talking about smart microwaves. I’m talking about smart sub woofers. I’m talking about in car devices that drive a Bluetooth and enable non-intelligent smart cars to become a little bit smarter. We’re talking about plugs that you can plug in, taking ordinary electronic devices and making them smart and controllable by Echo. So, Olivier, Fred, let’s start off. Let’s get at it. What do you guys think? And I’ll start with you Fred. What do you guys think about all these announcements coming out of Amazon this week?
Fred McClimans: Well, to compare Amazon to Apple, which I have to do because you brought it up. This was the type of announcement that gets you excited about things. In contrast to the apple announcement. And by the way, I was not impressed by their innovation at Apple’s big event. In fact, it was kind of not there, but what did get me was their shift into the medical, the health tech sector. So that’s where I think their value is. And that’s a smart move for Apple there. But Amazon, this is almost a turning point, I think for Amazon because the whole market has been hotly contested. There are any number of players from the tech providers all the way down to your local electric utility that are trying to get inside the home, trying to provide that value add, trying to get access to your data and figuring out ways that they can monetize that. With this pushier you’re right, they came out with a slew of products that, I think kind of make it very clear that Amazon’s intent here is definitely to move closer into the home and they’re already there in many ways.
You know the rent a maid or hire a maid service through Amazon. Have Amazon deliver your products inside the home. Uh, you know, this is sort of a step back perhaps in that they’re accessing virtually, but this is a strong push, a very strong push and I think you got companies like alarm.com that are getting hit because of it, ADT even perhaps.
Daniel Newman: Well, Amazon joked they said that, they had 70 things to announce when they launched their keynote. But the funny thing was, is when you actually started adding up all the devices, it wasn’t that far away. Olivier, what’s your current situation? Do you have Amazon in your house right now?
Olivier Blanchard: I do not have Amazon in my house. I have Amazon on my devices.
Daniel Newman: Are you a prime member?
Olivier Blanchard: I am a prime member. I watch their TV shows, I read their books, so I’m kind of like a light user, a light Amazon prime user, but I agree with Fred here. I think that these announcements and this pretty big play into smart everything is an inflection point for Amazon it’s a natural evolution. And I think that the real battle here is going to be at least for the foreseeable future, is going to be between Amazon and Google or the smart home and smart environments market. And to Fred’s point as well I think, where apple I think has kind of dropped the ball is they focused on iterations of existing devices and just kind of like this incremental improvement on laptops, phones and wearables.
But they’ve pretty much completely missed an area in which they could have been an absolutely dominant with incredible designs with really cool tech and that’s the smart home. I’m sure that they’ll get into it at some point, but with Amazon and Google both competing for that space now and being years ahead of where Apple is, I think Apple may have missed the boat, and good for Amazon and good for Google. And if I could say one more thing, it’s somebody mentioned it earlier today, I thought it was kind of funny. Amazon is now the new better digital version of RadioShack. And when you really think about it, you know, you used to go to RadioShack to kind of get all your home electronics and put stuff together. Amazon is trying to be that. They’re the retail vehicle and they’re also the supplier of technology.
Daniel Newman: You actually made me kind of laugh when you said that Olivier, because I was actually just looking at their stuff and just thinking how it just looks like all these giant plastic pieces of crap that do really cool stuff and that’s kind of what a RadioShack was. I remember in 1997 I was 16 years old and I wanted to put a sound system in my car and I couldn’t afford to go to Best Buy and do it right. So, I went to RadioShack and they had like optimists’ brand carpet box speakers and you could buy their amps and I bought amps and speakers and wiring. And I did it all at RadioShack for like 200 bucks. And I was running wires and doing it all myself and it didn’t sound great, but that’s kind of like the old day of, self-driven automation. Except that was my car.
My point is, yeah, for the last 20 years, home automation was kind of one of those things that was really for the elite. There was companies like Crestron, companies like Lutron that did lighting and automation and then we saw is it called X10? There were some different technologies that came along over the last 10 years or so that was trying to make home automation less expensive. And then we heard for a long-time kind of the Apple home kit, we heard that apple was going to do these things for the home. And I see Fred is in the video, putting his thumbs down going, that stuff’s crap. And it’s nice to hear that from you, Fred, so you don’t always … I always sound like I’m the guy beating up Apple. But I think to your point, Olivier, what will you absolutely got spot on was had they done it right?
Had they built an echo or a home product and got it out early and made it affordable, they would have won that market straight away ’cause everybody would have wanted to get connected with Apple. Hold on Fred. I’m going you bring in here. You need it anyway so I can’t hear you.
The bottom line though is Amazon came first and Amazon’s products are ugly, and that’s kind of my point is. Is like there is a job at Amazon for an Apple person where they should be like the chief product design officer because Amazon makes ugly products by and large, but they’re also selling a microwave for 60 bucks. They’re selling video enabled touch panel control screens that listen to your commands, play music, order your pizza for like 200 bucks. They’ve made it completely affordable and done it with enough quality that people are able to get behind it and they’re giving all their privacy, all their personal data.
They are letting Amazon own the home because they’ve made it affordable. And Amazon realizes they may only be making 20, 30, 40% margin on this hardware, but they are going to make exponential dollars with that data. Fred, I will let you stop holding your breath.
Fred McClimans: Yeah. Got to take a deep breath here. You know when you talk about the ability or the opportunity that Apple had to move into the home. They had an incredibly narrow window, and, in my mind, they shut that window on themselves when they didn’t do anything with the Apple TV. It was there. They had a great opportunity to really move into the home space and they just could not execute on that. And I think that’s part of the challenge with Apple in this whole space. They don’t think of Siri being on your phone as being accessible into the home.
They don’t think about things in a commoditized product mindset. They don’t have the distribution channel that Amazon does. In fact, speaking of that, you know, Olivier, you mentioned, Google is sort of a prime, no pun intended competitor here, but I just don’t see Google being able to compete with Amazon in this space. I mean, Amazon has that look, that feel, and people recognize Amazon as a name that they buy from. Google, that’s a name that you kind of shield your data from it. It’s a very different culture.
Daniel Newman: The connotations are different. I mean, Google Pixel, if they can build a little more trust and quality with that device, and I know Olivier, you’re going to be first to jump off that plank and when the next one comes up. Actually, you already have that with a new one when it comes out. I think Fred, you’re spot on. I think people are a little nervous and apprehensive to share with the big bad Google and because they get their diapers and their power bars from Amazon, they also think it’s safe to share their data. So, Jeff Bezos, kudos to you. We’re not sure if you’re a good person or not. The jury’s still out on that, but you’ve definitely figured out the human psychology and you applied that into your way too many, many billions of dollars. Furthermore, Fred is Apple could have done it and Google also is on the way out. They’re not going to do it either. I really don’t think they can or will.
And the reason I actually say that is, and guys, raise your hand if I’m wrong, but I actually don’t know a single person that has a Google Home. I don’t. I don’t know anybody. I tried to think about. I just racked my brain. I’m like, that product sells, somebody’s buying it or at least Google is sending them to somebody or they’re sitting on warehouse shelf somewhere. Everyone I know that’s using one of these devices has a dot or has know has the echo or has one of the new ones with the screen, which the name is escaping me. But the point is, I think Amazon wins the day with low cost designs. They found their way into our cars, into our clocks, into the food we eat, into our kitchens, into our music, and now into our hearts. Now we just need a wearable device that goes, or you know, 100 bucks. And they’ve completely displaced the Apple Watch, which in my opinion wouldn’t be all that hard to do.
Any last comments guys before we move on to our fast five section or do we have to give two thumbs up to Amazon even though they are taking our data, monetizing the crap out of it, and there’s nothing we can do about it?
Fred McClimans: Well, I’ll give them a thumb and a half up at this point because I think the closer they get into the home and the more data they start collecting here, the more attention they’re going to get from a regulatory perspective. And this does open them up a bit in that area. When people start to say, Ooh, Amazon, the monopoly out there. They have lots of competition. It’s not a great analogy for them to compare them to some of the monopolistic companies of the past. But I think they’re going to get some attention from this.
Daniel Newman: I think the EU is just about to bang them with a fine. You’ve been following that, Olivier?
Olivier Blanchard: Yeah. Well EU is going after everybody, so.
Daniel Newman: It’s a matter of time, but I think it might be deserved. I’ll give credit where credit’s due. I like that though, a thumb and a half. Although I don’t want to know where the other half a thumb is. Okay, gentlemen, let’s move on to the Fast Five. I’m excited about this, we have some really interesting topics. Olivier, I want to start off with you. Some positive news on the cyber security front in China.
Olivier Blanchard: Yeah, yeah. Both of my fast fives today are gonna deal with cyber crime or ways that technology can help us fight cyber crime. So, a hacker had apparently been stealing hotel guest data in China, and not just little bits and pieces of it. This guy targeted a hotel chain with over 5,000 hotels, 13 different brands, and 1,000 cities, so this was a huge operation. A bunch of guest data, and initially tried to sell it back to the hotel, kind of like in this blackmail scheme, like, “I have your data, pay me to get it back.” And he was selling it to them, or trying to sell it to them in small packages. And also, trying to sell some of it on the dark web. Good news, the guy was caught. He managed to not sell any of the guest data, none of it got sold on the dark web. So, all is well that ends well, and he was caught. But, if there’s one guy doing this, there’s probably a lot more, so hopefully they’ll get caught too.
Daniel Newman: Yeah, it’s good that he got caught. I’d be interested in how exactly the authorities got him, and if I may say, I’m sort of interested in how you can be so smart to collect all that data, but so dumb to get caught on the very first time that you try to use it. Fred, I wanna jump over to you. You’ve been tracking very closely something going on in the insurance industry with John Hancock, and I thought this was a fascinating story that may deserve more than a fast five in the near future.
Fred McClimans: Yeah, this is sort of the ultimate that we look for when we talk about digital transformation. Not the digitalization or digitization of technology, or the upgrading or the spot injection of tech. But, actually what happens when you really use digital transformation as a way to increase agility, the ability to move quickly, the ability to rethink business processes, and develop new streams of revenue.
So, John Hancock, they’ve long been sort of a pioneer in my mind, I think back two, three years ago, they were already knee deep in blockchain technology looking at what they could potentially do there with smart contracts. They recently, a few years back, started going through a digital transformation process with Infosys as their service provider for that. They have come out of that phase and they have decided now is the time to change our process itself. So, from a life insurance perspective, the traditional model of life insurance from a sales perspective has always been you pay every month, you buy your policy, and when you die somebody gets cash. That’s great for the people who get the cash, not so great for the person who’s spent all these years paying. Along the way, there’s this sort of fundamental shift of mindset that’s taking place within the insurance industry and John Hancock to say, “Rather than go into a situation where it’s about giving you benefits back, let’s help you stay healthy and live longer itself.”
In the insurance industry, John Hancock is no longer writing traditional life insurance policies. Instead, what they’re going to do is, they will offer a combination of wellness programs as insurance, and this builds off of a prior program that they had in place for the last six, nine months or so, where when you get your insurance you get a Smart Watch, you get a Fitbit, or you get an Apple Watch, you get some device that they will require you to wear and to monitor your health, your fitness activity, your sleeping activity, your travel activity. They will provide suggestions to you on how to improve your daily health and live longer. This is sort of a breakthrough moment, I think, for the insurance industry, and I do expect a lot of other providers to follow suit in some way, because everybody that we speak to in the industry says, “Yes, we don’t want to be in the business of giving people cash, we wanna help them live longer. And, they wanna get access to our data as well, by the way.” So interesting move from John Hancock in the insurance space.
Daniel Newman: Yeah, so not that fast, but definitely one of the five, and a very interesting topic. I do think there’s something to be said for getting the money back to the people who are living, instead of only making it for the people who are dying. That is a disruptive process. My fast five, quick and dirty. Marketo was acquired this week by Adobe. This was an interesting acquisition to me. I think it is a really strong sign of Adobe’s intentions. Salesforce next week has Dreamforce, Microsoft next week has Ignite. Adobe and Microsoft are partnered much more closely, whereas Salesforce and Google tend to be seen as more aligned here. I think this is just another strong move by Adobe, who did acquire Eloqua several years back to show their commitment to the B2B marketing space, and to being a partner to companies in B2B marketing, and being more than just a company that brings you PDFs and Photoshop.
I thought the timing was very interesting, the size of the acquisition at being, I believe, nearly $5 billion shows a lot of ambition. Adobe took their cash down to under $5 billion right now in the short term, which I guess you could say is not a lot, or is a ton of cash. But, for a company of Adobe’s size, that’s a lot of risk. But, I think in the short term they looked at Marketo’s operating revenues and saw the operating capital that it will create and said, “This is a strong move, we’re going forward.” It’s gonna be interesting to see Salesforce’s reaction next week at Dreamforce. And overall, I can pretty much assure everybody out there listening to this podcast, we will be talking next week about Dreamforce and Microsoft Ignite at length. So, moving on, Olivier, back to you. Let’s talk about cyber, or kind of not so cyber security security.
Olivier Blanchard: Yeah, so actually just a quick note first. The story that Fred was just talking about with John Hancock and the wearables, is the topic my deep dive article today on the Futurum Insights blog. So, if you wanna read an in-depth analysis of what’s going on with that, definitely log on to that. Okay, enough with the plug. My second story this week is, to go back to Amazon, it has nothing to do with their releases and announcements this week. It’s this clever trick. I guess there’s a lot of packages going missing, and it’s not just an Amazon problem, it’s just a problem in general. You order something, it doesn’t arrive. You expect a birthday check from grandpa and it doesn’t arrive.
So, Amazon is trying to do something to combat this in its own ecosystem. What they’ve done to identify potential delivery drivers who steal packages is, they occasionally place empty or semi-empty boxes with fake shipping labels to be delivered. And, what they test here is whether or not the driver will return the undelivered box to the warehouse or if the box will just never make its way back, and if the box doesn’t make its way back they know that they’ve caught a driver who steals packages. I thought that was a really kind of clever, semi-digital, semi-analog way of solving a problem. Just so you know, Amazon is doing this, so if you’re missing packages, Amazon is on it.
Daniel Newman: So, they’re on it. One quick thing I’d love to understand though. So, when the driver that’s stealing the empty package goes home, opens the empty package, realizes it’s an empty package, how do you think they react to that, because now they’ve just gotten themselves busted for stealing a package and they didn’t even get anything out of it.
Fred McClimans: I bet next stop is LinkedIn or Monster.
Olivier Blanchard: That’s right.
Daniel Newman: Yeah, well you know, nowadays we make up our revenues … Our revenues, yeah, we do that too. But, no, we make up our LinkedIn jobs and careers, people get hired. I have a great story for another time about big resumes that when you actually do a little background check, you realize how often people just lie a ton on their resumes these days, because companies are moving so fast and they’re not checking. So, with all this technology, we’re actually taking a lot of data at face value. Okay, moving on. This is how the fast five ends up being a slow five is you let me host the show. Fred let’s get back to you, one more, something about an iPhone and a smaller, crappier battery.
Fred McClimans: Yeah, given that I’m the most optimistic fanboy out there about Apple, it’ll be a shock to everybody that yeah, I’m not always a big Apple fan. In this case, they’re doing something that is a little bit sneaky out there with their battery life. Now, during the announcement they talked at length about the improved processor capabilities and the lower power draw, and a lot of people assumed that meant better battery life. However, what we’re realizing here through a couple of tech sites and some filings in China by one of the manufacturers, that the iPhone XS actually has a smaller battery than the X. And, the X, I think it had around a 2700 milliamp battery, was notoriously poor battery life. So, they’ve trimmed down the size of this year, and assume they get a bit more processor power, and that’s sort of their pitch, “Don’t worry about it, everything’s great. We use less power.”
However, the talk time is actually about an hour less on the iPhone XS than it was on the X, which I think will kind of serve to drive people to either the XS Max if they really want that battery life, or to kind of hold on a little bit and go for the XR, which does have bigger battery, greater power, longer performance.
Daniel Newman: So, this is a subtle way for Apple to get you to spend more money?
Fred McClimans: It is.
Daniel Newman: And there’s no real good intention here?
Fred McClimans: I don’t believe so.
Daniel Newman: Wow, and you heard it here first from Fred, the Apple fanboy of our show. This would be like getting, when Hannity and Colmes used to have a show, this would be like getting a vote of confidence in Donald Trump from Sean Colmes, or not Sean Colmes, Alan Colmes. Sorry. It’s my best political reference. I am the least political guy on this show, so when I try I have to try a lot harder than either of the two of you, but we aren’t gonna go down that path.
All right. So, let’s move on. Good job on the fast five, gentlemen. Let’s talk tech bites, because tech does bite. Google, Gmail, wow, what a topic. Believe it or not, this is the topic we’ve not talked about on this show yet, but it’s a topic that I think is really interesting, because every citizen now that uses the Internet is starting to see what this retargeting, what this microphone on listening can start to do in terms of creating our online experiences. It’s a little more than ironic when you’re talking about wanting to take a vacation and suddenly the next ad that pops up is a vacation ad. That’s not by chance, people. That is not serendipity. Keep your checkbooks in your pocket, because this is companies using adware, using ad-based technologies, using retargeting to get your share of wallet.
But, what a lot of people don’t realize as Gmail has become the most popular cloud-based email platform on the planet, is that Google, whether you’re using the corporate Google or you’re using a personal Google Gmail account, they have applications that give third parties access to the data in your email. They can read your email. So, whether you are writing big important contracts, or you’re sending inappropriate notes to your work colleagues or your lovers, they can read it, they know what’s going on, and you don’t necessarily realize that that’s happening. Well, Google got a lot of crap about this over the past year or two, and Google proclaimed that they stopped using the data in the email themselves. But, what Google didn’t tell you is that Google is still giving access to that third-party data to third parties, so that they can continue to spam you, or continue to listen to you, or continue to use your data for personal gains. Olivier, you look pissed. Tell me what you’re feeling right now.
Olivier Blanchard: Well, it doesn’t take much to get me angry. Yeah, no, I don’t even have anything to say about it, honestly. It’s just one more thing. You mentioned the trust factor between Google and Amazon when it comes to buying devices that are going to listen to your conversations, or at least listen for prompts and monitor kind of what you talk about and what your searches are. And, here we have Google doing exactly the type of thing that you guys were talking about earlier which is to not necessarily lie to users, but be extremely misleading and really abuse our trust and there’s this kind of huge gap between the expectation that we have when Google assures us that they have the best email security and nobody’s going to be able to hack in to your stuff and they monitor the stuff all the time. And at the same time, they’re giving access, even however limited it may be to third parties through different apps and access points.
So, I don’t really understand how number one companies can continue to operate like this without getting a lot of pushback and two, why from a legislative standpoints, our lawmakers are not more on top of this. It’s good to see that the EU as much of a pain as they can be, going after American tech companies, and excising their pound of flesh every six months, it’s good to see Europe leading on this and really starting to take privacy seriously. But I am really disappointed in Google.
Daniel Newman: So, Fred, Olivier had nothing to say about that for about two and a half minutes. How can you add to this discussion?
Fred McClimans: Yeah well, I’m going to switch hats here for a moment. When I am wearing my industry analyst hat, my consumer focused what’s good for the world kind of hat, yeah, I get more than a little miffed when somebody like google puts on this great front of being consumer first, we’re earth friendly. We’re for free speech, we’re for privacy and then they pull something like this on you. So, for a moment I am going to take that hat off and I am going to put on my equity analyst hat and say go Google. It’s important to recognize, and this is a shock to a lot of people I know, but Google has won overriding responsibility as a public company. That is to their shareholders, it is not to the individual user, it is not to the person around the corner. It is literally to generate as much profit for that business as they can. And we see this with google moving in to areas such as this where they’re willing to bend the rules to get that profit. We see it with the snapdragon … what’s the right word for this?
The potentially censored of google search that they’ve been supposedly playing around with in China. We see it with Apple ignoring the tremendous risk of going in to Apple and having their iCloud system taken over by the Chinese government only to have it taken over by the Chinese government and for Apple to say there’s nothing we could do. But again, this is what these companies live for. So, it should be no surprise to anybody that they’re monetizing every aspect they can because shareholder value at the end of the day is what drives those businesses forward. It’s not marketing good feel, that’s what sells things but the revenue, yeah, they’ve got to do this.
Daniel Newman: It’s funny you say that, I remember the very first course I took was a finance course when I took my MBA. And I remember the very first thing my MBA professor said to me, the number one responsibility of a manager is to create shareholder wealth. And that was the first lesson I learned on my first day of graduate school. I fundamentally personally disagree with that message in every single way as it comes to building businesses that have social responsibility or that are good for society or that are going to sustain human condition. But I do agree with you, and I will say when I’ve wrong over time, whether it’s been apple, whether it’s Google I am hard on a lot of companies who are doing things that are clearly and obviously short term ideas or short term gain to keep shareholders happy which is their number one job, even if I don’t like it.
To your credit Fred, and I don’t give you credit often, you said something there that I think our listeners do need to remember, and we even need to remember from time to time is that some decisions company make is because of the way Wall Street works. And when you’re working on a quarter to quarter basis, and I say this all the time, you aren’t often working with a long term in mind. And I think some companies will be punished in a big way because they can’t find the balance between short term shareholder wealth and long-term customer value, but those managers right now want to have a job next quarter. So, if they think too far ahead too soon they won’t have a job in two or three quarters to even worry about. They’re great ideas for two or three years down the line.
And speaking of two or three years down the line, it is time for our crystal ball. And I want to end this show where we started this show. I want to go down the path and I want to ask you guys one very simple question. Can anyone … is there any combination of companies or a company out there today that stands a chance to compete with Amazon as it pertains to successfully winning the home in winning the right to people’s personal data? Olivier I’ll let you go first.
Olivier Blanchard: I think if Google … I am sorry, Google and Microsoft and Walmart got together they might have a shot. So yes, there are different combinations of fantasy business teams that could defeat Amazon. But any company by itself no.
Daniel Newman: That’s it, that was actually almost having nothing to say by the way. So next time you say nothing to say, that’s how long it should take you to say it. Fred?
Fred McClimans: You know, I am going to agree with Olivier here and say that right now in the home space, there is no one company that is even close to what Amazon is offering. There are combinations, there are different areas. Look at the grocery space, that’s Wal Mart. Even in overall retail, Wal Mart again. But Wal Mart has not figured out how to crack the home market. And for them it’s actually an interesting challenge because they sell a lot of the low-end stuff that Amazon pushes. But I think because of that brand perception it’s going to be very difficult for them to make the push here.
Daniel Newman: Yeah so, I sort of tend to agree with the both of you. However, I will say despite my disdain for Apple, I still think they are the one that could if they wanted to. And let me give you my logic here. Apple has the cash, the margins and the capability to do anything they want to do right now. I don’t know if it’s a lack of leadership envision, or they are actually smarter than me, which I would have a really hard time acknowledging but it is possible that all the brain trust in the board room at Apple could actually outwit this guy sitting in his home office recording this podcast right now. But they’re a war chest of cash.
One of the things that Amazon has done, is they’ve really bought the home. They’ve bought the customer because they don’t make much money. I don’t know if people remember this, but from a profit standpoint, Amazon is sort of an embarrassment to Wall street they grow through their revenue and they create operating capital and cash and that keeps the equities analysts happy and it keeps the stock price going up but in terms of the amount of capital and cash they create through profit, it’s actually very small for the size of that company.
Apple is the polar opposite of that. Apple creates massive amounts of cash with everything that they do. So, if they wanted to subsidize in some way, the way they’re approaching this health market. See right now they’re selling the premium product to health. Could they come out with a Fitbit like device and sell it for 99 bucks, I think so. I just think Bentley’s afraid to start selling Hugos and Apple has to kind of say, where can we go in to the market? Remember they tried that iPhone SE and it was a real piece of crap and people just didn’t react to it because people want the premium product.
Long term, if Apple assesses it the risk of not being in the home is big enough, they might be able to use their cash to subsidize putting a more premium product that can compete. Because I do think if there was an echo like product that sold at an echo like price from Apple, they would make a stronger mark in the market. However, trying to sell it for two, three, four, five times and having no discernible value and in fact having an inferior processor and an inferior AI to what Amazon is doing gives no one a reason to buy it except for Apple fanboys who just want to talk about how expensive their airports were to set up an inferior wireless system throughout their house. So, I will let my diatribe end there. But I gave Apple a little bit of kudos, any last comments on their Fred or Olivier before we shut down this show?
Fred McClimans: Dan, I think the only way Apple can do that, because their margins are incredibly important to them, the only way they can do that is if they sufficiently build up their services revenue which is a much higher margin, and growth area for them then their phone revenue. And we know the phone revenue over time is going to decline because there’s only so many phones you can sell. So, if they could get the service revenue and service margins up, yeah, I could see they could potentially substitute something in there, but I just don’t think it’s in the Apple mindset to chase that low-end mark.
Olivier Blanchard: The problem with the Apple play is that say that they come out with a smart home ecosystem, they still … all they have to sell on the back end of that is media. They don’t have a retail play. So, they would have to be retail agnostic which means that they would still be a vehicle for retail sales for Amazon’s and the Google’s of the world. So, they essentially would just be a portal who poured more money in to their competitors and until Apple finds a way of partnering with a huge retailer, they’re only going to be on the device and very limited services business. They’re not going to really be able to play the same game as Amazon.
Daniel Newman: Yeah and I think you guys are both right, I see it as a less than five percent chance I am certainly not prognosticating that Apple will take this route. Although I am pretty sure that they could open up one war chest and pretty much buy Wal Mart and turn it in to their ping pong room or whatever it was that Mark Zuckerberg said in that movie. They are big, they are bad, they have the money to do what they want. Now it’s just a matter of choosing what they want to do. Right now, Amazon has it, they have very little competition and I don’t see that changing any time soon.
Speaking of not changing any time soon, FTP will be back with another episode next week same time, same place check the show notes for the links to the articles and the things that we talked about this week otherwise for Dan Newman, myself, or Olivier Blanchard or Fred McClimans we are out of here today but thanks for tuning in to Future in Tech Podcast, we’ll see you later.
Outro: There will be plenty of more tech topics and tech conversations right here on the future of tech podcast, FTP. Hit that subscribe button, join us become part of our community, we would love to hear from you. Check us out, futurumresearch.com for the Futurum Tech Podcasts, Daniel Newman, Fred McClimans, Olivier Blanchard, we will see you later.
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