There are many of my readers and followers who ask why I'm concetrating so heaving on the mobile computing sector as of late. This post is for those who may not see what I envision. Since the start of BoomBustBlog, I have predicted a number of big, world changing trends. They were very big deals on a global scale ex. the collapse of Lehman and Bear Stearns, the housing and commercial property collapse in the US, the banking collapse, the European soveriegn debt debacle, etc. (see Who is Reggie Middleton? for more on my calls and predictions). 

I can, without a shadow of a doubt, declare that the technology paradigm shift whose precipice we now teeter, is by far and large the most significant event of the last 8 years. Now, considering the events of the last 8 years, that's saying an awful lot. So what makes this event so much more important than the event of the last 13 years?

It's the advent of truly usable Contextual Computing!

glass-screencast-myglass-2013-09-06-01

Contextual computing is the use of computers that are both aware of the environment around them and capable of using that awareness to adjust to the tasks that are presented to them. For example: a context aware mobile phone may know that it is currently in the meeting room, and that the user has sat down. The phone may conclude that the user is currently in a meeting and reject any unimportant calls.

Context awareness is used to design innovative user interfaces, and is often used as a part of ubiquitous and wearable computing.

Contextual computing is, without a doubt, the future of mobile computing. Smartwatches, a subset of the wearable computing genre - the applied version of contextual computing - have been around for a while.

smartwatches

Despite the fact that every major mobile device manufacturer and their mother has recently and literally fallen over themselves to scramble to launch a smartwatch device, I'm not very bullish on thier prospects as a game changing paradigm shift in the way things are done. Why, you may ask? Well, for one, with the technology currently available, smartwatches don't truly represent much in terms of new capabilities. At best, they are a convenience, an adjunct to the ubiquitous smartphone - and not much more.

Google's Glass product, as the likely first to market with a truly transformational capability, is at the forefront of the opportunity in wearable computing and contextual computing. It’s promise is so vast, so wide, that it is literally too big to fully grasp at this time. Potential industry participants, stakeholders and investors should not confuse this statement with that of not being able to conceptualize or realize the potential value in a business opportunity though. This is the reason why Google has decided to launch a massive public “exploration” program, not only to beta test the product but more importantly to “crowdstorm” the possibilities of such technology.  I am one of those explorers and I have found several, novel, unique and potentially very lucrative avenues through which to apply Glass.

The problem with contextual computing, for early  stage investors who are not intimately familiar with the tech, and Glass in particular, is that it represents such a dramatic paradigm shift in the way things are currently done, it opens up a literally new world of capabilities as well as a new world of doubts, questions and misunderstandings. This new world is both strange and immense at the same time. It must be explored before it can be adequately valued. With that being said, who dares venture to say that an entire new world does not possess enough value to be a worthwhile investment – particularly one that can be entered on the ground floor. 

 On that note, let me offer you an example of my last few hours wearing Glass and the power of contextual computing and you can let me know if you think this is the next step in mobile computing.

This is Harry's Steak House late last night. It's located on Hanover Street, not too far from the New York Stock Exchange. I felt like steak last night and was in the financial district, so I asked Glass who served steak in the area and how long they were open. This is what I saw. Pretty cool, eh?  

20130910 002216 641 x 

Another click on the Glass brought me to their menu as I stood outside the restaurant and bar...

20130910 002255 298 x

After late night steaks and all (I actually missed the kitchen), I walked my daughter's puppy in the park after dropping her off from school. There were many dogs running around off leash. I decided to look into some of the more interesting ones, to wit... 20130910 084636 065 x

 

20130910 085624 393 x Now, your average New Yorker would never know what a molloser such as a Perro de Presa Canario was, would he/she?20130910 092644 682 x

The prospects for this tech are outrageous. I have already started putting my mind into intense problem solving mode, and the medical, real estate and hospitality industries are on tap to witness some dramatic changes in the way business is done. 

Wearable Computers and Google Glass Project Video

The video is below, and is 36 minutes long. Feel free to use the table of contents just below (click on any link to access) to navigate to the portion of the video whose subject matter strikes your fancy, or if you're really into wearable computing and its investment prospects, view the entire thing.

Introduction to Reggie Middleton and the Contextual Computing Project

Old School vs New School, Wearable Computers Send The Keyboard & Laptop The Way Of The Dodo Bird 4m 42s

How Big Is The Market For Wearable Computers & How Much Money Can Be Made? 5m 26s

Why Focus on Google Glass? 7m 41s

Restaurant Glass? Contextual Computing For The Hospitality Industry 9m 35s

Watch Us Change The Way The World Computes 12m 50s

Glass In The Healthcare Industry 14m 20s

Glass In The Real Estate Industry 27m 43s

Addressing Security & Privacy Issues 31m 29s

What Does Reggie Plan To Do Next 33m 37s

Call To Action for Investors, Operators & Customers: How Can You Get Involved? How Can You

Benefit From The Next Big Thing, Today? 34m 29s

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

The biggest risks to these price points are:

  1. A market that's being levitated by central bank magicians running short on magic spells...
  2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.

Related links...

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

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Should MSFT split upAfter reading an interesting article in the New Scientist, How NSA weakens encryption to access internet traffic, I was brought to mind a piece that I wrote to address the single most powerful tool in the NSA's arsenal - the blatant ignorance of the common tech enduser. I wrote intensely on this topic in What Angela Merkel Could Learn From Me and Using Glass To Spy On The Spies, to wit:

"...you can see how and why Android is safer to the populace than all of the popular competition. Windows and iOS all have the same problems, except for the facts that

    • You dont have access to the code
    • You don't have the ability to submit changes to even be considered for acceptance
    • With Android, you don't need for Google to accept your personal changes, you can simply roll your own personal version and use it for yourself which should be the preference for the paranoid types. You can't do this with any other popular OS.
    • The amound of independent eyes on Android trumps that of any other OS, by far. If something has a chance of getting caught (ex. spy code) it will likely get caught on Android code base. This has already happened, read XDA developers code posts for the HTC Evo"

On that note, quoting the piece from the New Scientist, How NSA weakens encryption to access internet traffic:

The Snowden files say the NSA spends $250 million a year on covertly influencing the product designs of technology companies, suggesting inserting such vulnerabilities is a high priority for the agency.

It could also be swiping keys directly from online service providers, says Kuhn. The TLS encryption protocol, which puts the "s" in secure https connections, relies on servers storing a secret key to decrypt incoming messages or transactions. The NSA could bribe a system administrator or otherwise infiltrate the organisation to gain access to these keys, allowing it to decrypt any intercepted traffic to the relevant server.

To avoid the NSA's gaze, Kuhn says people should turn to open-source software, where many people evaluate the underlying code and can identify any attempts to weaken it. "There is going to be a lot of pressure on IT decision-makers to justify why they gambled the security of their infrastructure on some close-sourced offering that is very likely infiltrated by NSA programmes."

There's also the news pieces stating that the NSA can access the personal information on popular handsets, including Blackberry, iOS and Android handsets. The NSA apparently had problems with the Blackberry devices, for about a year. Then again, knowing that Blackberry simply handed the keys over to the Indian government, I wouldn't have felt very secure, even for that year.

There are many reasons to avoid closed systems, with security and government systems being just two. There's also downright, market based innovation, as illustrated in this CNBC clip from Thursday...

Here's an example of the innovation that I use for privacy and control - CyanogenMod introduces system level encryption for messaging. The ability to have code scoured, cleaned, and fixed by tens of thousands of others will beat the efforts of any single company - any time of the day. If you really care about your privacy, you should think twice about iOS, Blackberry and Windows.

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I believe I was one of the first financial types to extol both the virtues and the potential of Samsung in the handset space early on. Way back in the days of (3 years ago) the Galaxy S2 I said that Samsung, with the assistance of Google's Android, will eat Apple's lunch. Those who don't regularly follow me should reference  and Deconstructing The Most Accurate Apple Analysis Ever, to wit...

Well, nothing lasts forever and I've said it before, and I'll say it again...

 

You have to keep innovating in the mobile handset space or your margins will start dropping and your product will be commoditized. This is guaranteed! Paying subscribers should feel free to email me about this if they have any questions. Institutional and professional subscribers are free to call me and chat in depth as well. 

I've written several articles on this topic, with Samsung, Apple, RIMM, NOK and HTC used as prime examples:

n early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... . I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysis

 

, it's impressive. This tech is moving lightning fast and the price points aren't budging, although the margins are collapsing in this fast moving space.

 

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value InfographicReggie Middletonss Ultimate Apple Value InfographicReggie Middletonss Ultimate Apple Value Infographic

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers... 

The following articles explain margin compression in what seems like market leaders:

  1. Looking Through Windows To See The Big Data On Fruit - Or Aug 7, 2013 - ...and this was exactly as predicted in Samsung Will Be Ready To Do ThatFruit Thing ... and Smartphone Hardware Manufacturers Are Dead 
  2. Samsung Will Be Ready To Do That Fruit Thing ... - BoomBustBlog Mar 7, 2013 - applecutsabreandriod3d Two and a half years ago I declared in my mobile computing wars series that Google would commoditize the mobi...
  3. Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Jul 25, 2012 - First things first, those who still believe Apple can walk on water are setting themselves up for a big one. I haven't received so much flak abou...
  4. Blackberries, Apples & Fruit Borne Successitis May 27, 2013 - Blackberries, Apples & Fruit Borne Successitis - The Problem With the original trajectory of the original vision, which was to make the thing an 

I queried in the very recent past, "Have We Reached "Peak Premium Smartphone"? Google is commoditizing the entire portable computer space. They can do this because they benefit regardless, as long as the masses are moved to the cloud. See
  1. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space

Proof of this is found in the very moderate, "evolutionary" progression of the Samsung Galaxy Note 3.Being a proponent of these high end Samsung products, there's not a lot that would prompt me to change from my LG Optimus G Pro to the note, and that should make Samsung very nervous. From a functional perspective, Sony, LG and HTC likely have it beat - as well as some Chinese manufacturers. That's pretty quick seeing as Samsung just made it to the top last year. Yes, like Apple, Samsung can ride its consdierablbe brand recogntition for a couple of years, but the end of the day, it will have to continue to innovate. The Galaxy Gear smartwatch is also equally unimpressive. There just doesn't seem to be enough practical innovation or usage argument to warrat a purchase from a high end user such as myself.

The functionality of the Gear smartwatch, like most smartwatches that I've seen seem to be akin to a solution searching for a problem to solve. Contrast this to the truly revolutionary, game changing, paradigm shifting Google Glass and you will get the picture.

Crowdfunding and Investing In Wearable Computers and Google Glass Projects – Table of Contents (click on any link to access)

Introduction to Reggie Middleton and the Contextual Computing Project

Old School vs New School, Wearable Computers Send The Keyboard & Laptop The Way Of The Dodo Bird 4m 42s

How Big Is The Market For Wearable Computers & How Much Money Can Be Made? 5m 26s

Why Focus on Google Glass? 7m 41s

Restaurant Glass? Contextual Computing For The Hospitality Industry 9m 35s

Watch Us Change The Way The World Computes 12m 50s

Glass In The Healthcare Industry 14m 20s

Glass In The Real Estate Industry 27m 43s

Addressing Security & Privacy Issues 31m 29s

What Does Reggie Plan To Do Next 33m 37s

Call To Action for Investors, Operators & Customers: How Can You Get Involved? How Can You Benefit From The Next Big Thing, Today? 34m 29s

Long story short, the only company that is positioned to come out on top of this hardware battle is Google, at least thus far. 

Subscribers, see also... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescient!

  1. File Icon Apple 1Q2013 update - Pro & Institutional (Technology)
  2. File Icon Apple 1Q2013 update - Retail (Technology)

Related reading...

Wednesday, 17 July 2013 10:50

Options Trading - Using a Risk Reversal on Apple

 What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

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intel-haswell
The Intel Haswell processor has killed Microsoft's Windows RT before it even grew legs. The only reason to ever opt for a device that runs a slimmed down OS such as Windows RT was the moribund decision between higher performance/larger form factor or longer battery life/smaller form factor. Well, Intel's Haswell chips promise (and deliver, I'm typing on a 2 pound, .68 inch carbon fiber, touch screen notebook right now) to offer full blown i5 and i7 desktop performance in tablets and ultrabooks for 7 to 10 hours at a clip. That promise has been kept. Say goodbye to Windows RT and its ARM architecture. It may have been good to know you, but we will never really find out, will we?

Now, I know the more swift among you are problably saying, "Hey, wait a minute!!!" "If Haswell kills off the ARM powered RT devices, what about all of the other popular ARM devices?

Three years ago, I warned everybodey - Remember, the iPad and Android tablets run on on ARM. As a matter of fact, imagine having an i5 Haswell on a 6 inch smartphone that runs FULL BLOWN windows on a HD+ screen that lasts 9-15 hours on a charge.

I'm writing this on an i5 Haswell Sony Vaio that is lighter, and also as thin, as an iPad. It has my full quite of apps along with a very usable touch screen. To be frank, the iPad now seems like a collosal waster of money.
Of course, the discussion doesn't stop there. Just as Intel was forced to step up its game due to natural market pressures, other companies had to do so as well - only some companies are the aggressive and their market pressures stem from the need to usurp new markets rather than defend old cash cows. Enter, Qualcomm and their new Snapdragon 800 chipset clocked over 2.2 Ghz. This chip finally brings the abilities of desktop computing to a handheld, and does so with promises of 12-15 hour battery lives. Sound familiar? Damn skippy!
It's a fight ladies and gentleman. Which would you choose, a desktop light and long lasting enough to act like a tablet, or a tablet strong and powerful enough to act like a desktop? What do you think happens when Android 5.0 Keylime Pie is loaded on a tablet running a 3.0 Ghz Haswell i7? Yeah, I had the same reaction.

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

See also:

Microsoft Finally Bought Nokia As I Susp…

Microsoft Finally Bought Nokia As I Suspected, Now Will They Do The Right Thing?

On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit: The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but...

Google's Rumored To Bid For NFL Sunday T…

Google's Rumored To Bid For NFL Sunday Ticket Package, Extant Biz Models Beware!

All Things Digital ran a story today concerning Google bidding for the NFL Sunday Ticket package. CNBC hosts discussed the topic as well. James Cramer asserts that Google may charge for the NFL content if it is successfully acquired. My first thought when hearing this was... Not so fast. The AllthingsD article put it interestingly: Here’s a fun combination to ponder: The...

Have We Reached "Peak Premium Smartphone…

Have We Reached

Quartz.com has an interesting set of articles on the topic of the peaking of the smartphone market. Let's start with thier commentary on Samsung, "Yes, Samsung is acutely aware that we’ve reached “peak trophy smartphone” - as excerpted: South Korean electronics giant Samsung reported soaring profits on Friday, but despite the company’s attempts to manage expectations, the results undershot estimates and its stock dropped almost...

iPad Shipments Decline As BoomBustBlog T…

iPad Shipments Decline As BoomBustBlog Time Machine Disrupts The Apple Reality Distortion Field Once Again

Let's keep this short and simple. Up to two years ago, I claimed that Apple's tablet market share will be subsumed by that of Android's, and it's margins will follow suit. If one were to Google this topic, this would be the result: Apple's iPad Is Losing Market Share And Profit ...  Mar 16, 2012 - Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All...   Call The End Of The Fat Margin...

Read more

Was The Google Purchase of Motorola A Ha…

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

I have yet to release my review of Google's most recent quarter earnings results, but thus far I've seen nothing that would materially sway me from the conclusions drawn from the last set of forensic valuations released to subscribers (Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?). One question that I am getting is "Did...

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On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit:

The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but there OS game has been lacking for some time. The only real unaddressed issue is that Elop never addressed the real reason why he didn't adopt Android, and the MSFT alliance doesn't address it either. Reference this quote from Endgadget:

Nokia did talk with Google about adopting Android but decided that it "would have difficulty differentiating within that ecosystem" and the "commoditization risk was very high -- prices, profits, everything being pushed down, value being moved out to Google which was concerning to us." Microsoft presented the best option for Nokia to resume the fight in the high end smarpthone segment."
 
Elop goes further, recognizing what I have been saying for about a year now, and that isGoogle/Android is at the forefront of the mobile computing wars - Nokia: 'Our first priority is beating Android. Again, I query, how is Elop going to do that if he is afraid to commoditize the platform though. Android is commoditizing the whole smartphone space, not just the low end.

If anything, the pressure on the high end is heavier. Look at the Evo and Samsung Galaxy series phones and how they are so much more capable than the iPhone for the same price. Then you have the next gen of phones available next month, ex. the Atrix and LG 1080p, 3D, dual core and quad core phones. If you haven't seen this tech, I strongly suggest you read , it's impressive. This tech is moving lightning fast and the price points aren't budging, although the margins are collapsing in this fast moving space.

As you can see, it was easy to see HTC margins collapsing 3 years ago while it was actually in its heyday. HTC is not the only one either. Samsung and Apple are suffering the same fate, simply reference Have We Reached "Peak Premium Smartphone"?

How is Elop going to address this by using Windows OS? He has to do more than just charge more, he has to produce better product at competitive prices, which keep getting lower. Elop will have to license the Widows OS, which is an expense, one that he would bear to nearly the same extent if he used Android. I feel he mistakenly looks at this as Google commoditizing the Android platform, in lieu of the more reasonable perspective of Google commoditizing the entire portable computer space. They can do this because they benefit regardless, as long as the masses are moved to the cloud. See

    1. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space

Long story short, the only company that is positioned to come out on top of this hardware battle is Google, at least thus far. But that begs the question, what if one of the other big boys catches on? On Thursday, 25 October 2012 I penned Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE!, to wit:

Roughly 3 years ago in my "mobile computing wars" series, I foretold of The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! In particular, I warned of the benefits to the consumer and pitfalls to the potential losers of the battle between Apple, Microsoft and Google, reference There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All. By the way, by Q1 2010, it was already evident to BoomBustBloggers that Research In Motion was a goner - ). While the bulk of my opinion and analysis was directed between the upcoming heated battle between Apple and Google (The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught) which was accurately called, I also appeared to be the lone gunman in warning that Microsoft is not even close to being out of the race just yet - . This was early 2010. Well, nearly 3 years later, we have MSFT doing what IBM, LOTUS, HP, DELL, and a wide variety of other tech companies simply didn't have the balls to do. What is that, you ask? They risked cannibalizing their cash cow revenues and kicking their lazy, unmotivated (despite declining margins and market share, via ass whoopin's from Google and Apple) OEM's in the nuts, forcing either an exponential growth via a pheonix-like rebirth style wake-up call or a collapse from atrophy.

You see, although Microsoft doesn't get much mobile respect these days (and for good reason), their Windows mobile platform is quite capable. After securing the full purchase of Nokia's handset business and licensing of its patents, MSFT is actually well positioned to do some damage in the space if it truly has the balls to do what it takes. Before I go on, let's take a look at the weapon of choice that I would use...

Review: Stellar camera makes Nokia Lumia 1020 first Windows phone worth loving 

In less than a month, the Lumia 1020 has become this reviewer’s go-to smartphone for taking shots of everything from family to friends to practices.

It's the 41-pixel camera that makes the Lumia 1020 competitive as a point-and-shoot and phone all rolled into one.

NOKIA

It's the 41-pixel camera that makes the Lumia 1020 competitive as a point-and-shoot and phone all rolled into one.

The best camera is always the one you have with you. And these days, the camera you have with you can be one of the best cameras you've ever used, too.

That's the key selling point for the Nokia Lumia 1020, the first Windows phone that's actually worth loving. It runs on the same Windows Mobile OS that Microsoft has been pushing for the last few years — the sometimes clever, sometimes annoying software that is still searching for its place in an Apple-vs.-Android world.

But never mind that.

It's the hardware that makes the Lumia 1020 competitive. To be more specific, it's the camera, all 41 megapixels of it. It's a potent point-and-shoot and a decent phone all rolled into one, and in this era of Twitpic, that's something that draws attention.

Read more: http://www.nydailynews.com/life-style/review-nokia-lumia-1020-stellar-camera-article-1.1444253#ixzz2dx1jI7ux

So, what happens if you take that hardware, it's competent but not necessarily Android-dominating OS, and embue it with the two things that 90% of smart phone consumers use and want, but don't have available on their smartphones? What is that, you ask? Well, I'm talking about fully capable Microsoft Office and X-Box gaming! Integrate full, usable, uncrippled Office suite and the full port of XBox gaming and media on this Nokia handset with just a tad larger screen with no premium in pricing and you start attracting power users such as myself to the table. When people like me sit down and eat, we often bring our family, friends, readers, followers and clients. That's how Android did it!

The caveat is... In order for Microsoft to accomplish this they will have to eat margin compression in the short to medium term - and big time. Of course, anyone paying attention knows MSFT will eat this dish best served cold anyway, it's just a matter of who serves it to them. Either they do it themselves and leave room for expanded revenues to compensate, or they let Google's Android force feed them at the compression table. The decision is theirs, I suggest they choose wisely...

Subscribers, see also... 

 

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google buying NFL Sunday Ticket

All Things Digital ran a story today concerning Google bidding for the NFL Sunday Ticket package. CNBC hosts discussed the topic as well. James Cramer asserts that Google may charge for the NFL content if it is successfully acquired. My first thought when hearing this was... Not so fast. The AllthingsD article put it interestingly:

Here’s a fun combination to ponder: The world’s most powerful media company and America’s most popular sport. That could happen if Google buys the rights to the NFL’s Sunday Ticket package, the all-you-can-eat subscription-TV service currently owned by DirecTV.

If YouTube offers games for free and creates a premium advertising channel they can scrape the frothy ad cream off of the top. Remember the power of the NFL brand. This years Superbowl ads went for $3.8 million for 30 second spots. Granted, the NFL ticket is not the superbowl, but there's a hell of a lot more inventory to go around as well.

Google also has much more in terms of resources to bring to this pacakge. Imagine Google Glass on an NFL quarterback as he snaps the ball off to another player - giving Google unique, potentially exclusive content from an NFL player's first person perspective during a game.

By offering said content for free and monetizing it through Ads, Google has effectively cost-shifted the product in a fashion that would be a true threat to the status quo. With almost a billion Android handset activations, that's more than enough of an argument to get the establishment quaking.

Subscribers, see also... 

 

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Quartz.com has an interesting set of articles on the topic of the peaking of the smartphone market. Let's start with thier commentary on Samsung, "Yes, Samsung is acutely aware that we’ve reached “peak trophy smartphone” - as excerpted:

South Korean electronics giant Samsung reported soaring profits on Friday, but despite the company’s attempts to manage expectations, the results undershot estimates and its stock dropped almost 1%. That’s on top of a 13% slump in June that wiped $26 billion off Samsung’s value—a bigger loss than Sony’s entire market capitalization.

This may seem odd, given that its flagship smartphone, the Galaxy S4, has flown off the shelf, supported by a super-sized marketing campaign. The problem is that amid steep competition, there aren’t many customers left who can afford flashy trophy phones and don’t already have one.

As a result, Samsung’s management is beginning to pivot away from its current reliance on the Galaxy series—it announced a $1 billion increase in investmentexpected to go to other businesses on Friday—even if it is still keen to tap into some developing markets still hungry for shiny high-end telephonic gadgets. It already leads the world in televisions, chips and displays, and recently launched a high-end OLED television. Its memory chip business announced a 71% increase in operating profit from last year, and it has a powerful reputation in many emerging markets.

Of course, BoomBustBloggers were on this at least a year and a half ahead of time, referencing Samsung Will Be Ready To Do That Fruit Thing ... and Computer Hardware Vendors Are Dead, Part Deux! As excerpted:

I warned in plenty of time to both avoid loss and profit on the short side for each company:
rotten blackberriesrotten blackberries

Research in Motion in early 2010: 

Rotten plus GreenAppleRotten plus GreenApple

Apple from 2010 till the ultimate short call in October just past: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

andriod-vs-appleandriod-vs-apple

I also laid clear the path to Google's prominence as far back as 2010, when there was not a peep from the sell side, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm .

Now, Samsung seems to be the most innovative of the handset vendors to date, but if I'm right, they will end up having to innovate in a commodity space just like the traditional PC manufacturers (Dell, HP, etc.) have to do now. Why?  Because of point number Three...

The new PC is not even a PC anymore, its a multi-tiered, multi-function, distributed cluster of interactive, location aware, multimedia applications sharing your social activities and data through a network of servers - in short, it's the cloud!

For right now, GOOGLE IS THE CLOUD! See my video descriptions of Google's business models above.

 Quartz then went on to write "Tim Cook is right. Smartphones haven’t peaked", as excerpted:

Tim Cook on peak smartphone: "I don't believe that."

There’s been plenty of concern lately that the market Apple arguably created—high-end smartphones—is approaching the saturation point. Quartz has written a ton on the dynamic, whether it be the ongoing importance of lower-priced feature phones for social media or the recently leaked photos of what’s rumored to be a new “cheap” iPhone.

Goldman Sachs’ chief Apple watcher Bill Shope raised the issue with the man himself, Apple CEO Tim Cook, in the company’s after-earnings conference call yesterday. Here’s the exchange. (Highlights ours.)

Shope: Despite the fairly substantial iPhone upside this quarter, there’s been increasing concerns that the high end of the smartphone market is reaching saturation point and that growth may be harder to come by for really for all vendors. What’s your perspective on that and the current industry dynamics? And Tim, do you think there are new innovations and services in the pipeline that can reinvigorate the premium segment of the market, after what’s obviously been a bit of a tough 2013 for that segment for the industry?

Cook: From a growth point of view for Apple, our key catalyst will always will be new products and new services. And these are both in existing categories that we’re in and in new categories. In addition to this, we have opportunities in distribution from carrier relationships to expanding our retail stores, expanding our online store and continuing to expand the indirect channel. And we also have a market expansion opportunity.

Peter (Oppenheimer, Apple’s CFO) mentioned enterprise in his comments and the share positions that we have there, over 60% in both iPad and iPhone and I think we’re at the very front-end of that, and so I think we have lots of growth opportunities. And I don’t subscribe to the common view that the higher-end, if you will, the smartphone market has hit its peak. I don’t believe that, but we’ll see and we’ll report our results as we go along.

For the record, some argue that there could still plenty of iPhone growth to be had in the US. Wonky analyst Horace Dediu notes that the latest ComScore survey data shows some 98 million Americans older than 13 (that’s nearly a third of the country) don’t use smartphones as their primary phone. And he argues in this recent post that even with 60% smartphone penetration in the US, “the rate of adoption of smartphones is not slowing in any perceptible way.”

Obviously, I beg to differ. First of all, the rate of adoption and overall growth rate is slowing. This is natural and to be expected, though - particularly since the market is still experiencing healthy growth. It is by far not the biggest issue at hand, and I feel the article is missing the bigger picture. Even if the high end smartphone market is still matching its historical growth projectory (which it is not), the margins on said growth are shrinking, and shrinking rapidly. Apple's financial dominance, it's share price and much of its cache are predicated on being able to sell pretty widgets at 50%-70% margins. Google's extreme success with Android, it's negative margin business modeland the natural law of economics and business market maturation guarantee those margins are a thing of the past as I've promised in years past - Right On Time, My Prediction Of Apple Margin Compression.

Steve Cook preaches innovation, but Apple is being out-innovated at a ridiculously rapid clip. Not only are the Andriod phones and tablets producing hardware/software configurations that are making the iPhone (and to a lesser extent, the iPad) look historical and dated, but Google is at the forefront of the next generation form factor for the new "smartphone". 

In addition, Apple is losing market share in a market whose growth is slowing. I warned about this two years ago. There is a positive correlation between margins and market share, and chances are when you start losing much of the latter, the other will follow suit.

As excerpted from "Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!" 

... the financial metrics, over time and in handset companies, heavily favor market share over initial profit margin. As a matter of fact, I demonstrated that as market share decreases margins drop commensurately, or in other words "Quantity is quality in a fast moving, technologically dynamic market!"

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... . I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysis

The has been the case with IBM, Nokia, Dell, HTC, Apple, Blackberry, etc. Mr. Cook, take the advice of Mr. Jobs if you don't wish to follow Mr. Middleton. I actually do believe that Cook understands these dynamics and is just putting on a dog and pony show for the media but his corporate actions don't bear this out. I strongly suggest they start spending that $174B cash horde on something other than massaging hedge funds.

So, does Mr. Cook's lack of adherence to Steve Jobs wisdom portend a potentially uber-successful company misunderstood by the markets (meaning time to buy stock) or is this the beginning of the end of an iconic corporate era?

 See also I See A Game Changer Through Google Glass. You see, the smart phone market is naturally morphing into the contextual computing market, but some of the big boys simply don't know it yet. We might as well stop calling them phones.

I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

Subscribers, see also... 

 
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My cocaine dealer versus medical device manufacturer product margin article from earlier this week bruised a lot of sensitive skin.

Good!

I aim to wake people up and cause contusions in the politically correct veneer-like epidermis that serves to protect the gross distortion that is the 3rd party payer system healthcare economic bubble.

operating room

I made a 9 minute video that debunks the major rebuttals to the premise made in my article.

  • In the first minute or so, I attempt to illustrate that I have a fairly firm grasp on this market share/profit margin/tech trend thing. Either that of I've been very lucking with Blackberry/Apple/Google/Facebook/Groupon etc.
  • After 1:20 in the video I outline how much more of a markup the medical product in question exceeds that of illegal cocaine!
  • I then have an illuminating discussion with a prominent intensive care surgeon who demonstrates this 4,300+% marked up product as I use glass to do a intubation (put a camera and oxygen tube down a patients windpipe).
  • We then go on to discuss how Glass can assist an experienced practictioner such as himself to walk a less experienced practitioner (remember, don't go to the hospital in June, right after graduation) through a difficult surgery/procedure using Glass - from his or her home.
  • Next up we demo two products that are less than 1/10th the cost of the Glidescope, and work just as well.

For those of you who argue that you can't achieve mass volumes with Glidescope production hence my margin article logic is faulty, I suggest you read the article again. The prices that I used were for single purchases or lots of ten or so. That's right. I can build a single Glidescope with those part prices. The prices go down as volume increases. 

For those of you who attempt to justify a 4,300+% markup on the FDA approval process, I query how someone can make $24, $80 and $800 products that essentially do the same thing. They're in this video and their demonstrated to work just as the Glidescope has. 

Just as with Apple, a market leader emerges and its marketing actually convinces consumers to make to ludicrous justifications for ludicrous product markups (hint: the iPhone is one of the few products that actually best the mark up on cocaine in high volume, it's not just the Glidescope).

 
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The NY Times reports Sony and Viacom Reach Tentative Deal to Stream Cable Channels:

In a deal that may signal the start of a new era of competition for entrenched cable and satellite providers, Viacom has tentatively agreed to let its popular cable channels — like Nickelodeon and MTV — be carried by an Internet TV service that Sony is creating.

The agreement is believed to be the first of its kind between a major programmer and any of the technology giants that are trying to disrupt traditional modes of TV delivery. If other programmers follow suit, Sony’s as-yet-unnamed service would let paying subscribers receive live cable channels the same way they use on-demand libraries like Netflix or Hulu. Intel and Google are working on similar services, but try to make it more user-friendly, perhaps the way Netflix does with personalization features and a fancy interface.

Most households today have only a few choices for television service: whatever cable company serves their local area, be it Comcast, Time Warner Cable or others, and two satellite providers, DirecTV and Dish Network. In some parts of the country, television through Verizon or AT&T is also available. Analysts say cable delivered through the Internet could give households many more choices — if the new services give customers more for their money and if cable incumbents don’t smother the services.

What the article fails to explain is that the often combatant traditional transmission/pipe providers and the content companies have very little choice but to expore new business models. These companies are essentially dinosaurs attempting to live in the age of modern man, they simply haven't admitted it yet. Let me drive the point home with a few simple statements and a pretty graphic.

These are televisions.

tv

According to Wikipedia, An Emmy Award, or simply Emmy, recognizes excellence in the television industry, and corresponds to the Academy Award (for film), the Tony Award (for theatre), and the Grammy Award (for music).

Netflix won 14 Emmy nominations this year!

Here's the catch, Netflix is a website. It's not a television station, company, producer, studio, network, or anything of the sort. It's video streaming website that sells rentals at a flat rate. Reference Netflix Makes History With 14 Emmy Nominations and realize the level of the threat this poses to both the big studios such as Viacom and the overpriced (in comparision to Internet delivery methods) pipes such as Time Warner, Cox or Cablevision. Wall Street may have poo-pooed  the wins, but it's a real and significant threat to the status quo. They had better get their act together, and soon, or more nimble, entrepenuerial and creative companies such as Netflix will make their entire friction-filled business models obsolete.

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hgcocaine 

 In NYC, a kilgoram of cocaine goes for about $23,000, or $20,000 if you get a good price. This is about twice what it costs 25 years ago. As you can see, inflation hits the drug trade as well. Only serious drug dealers buy kilogram, for that's the amount you need to buy to gain real margins and economies of scale when moving product retail. This can add up to decent money! A gram of cocaine, which is what the retail user who regularly consumes buys, is about $60 in NYC (remember, prices vary by location and availability, just like any other commodity). Sixty dollars times 1,000 units (a kilo is 1,000 grams) is $60,000, or a 200% markup - or 66% profit margin. The ability to mark your product up 200% is common to very, very few industries. This is one of the major reasons why people sell drugs, the profits are.... damn near illegal.

 image-2

 Whether you are into drugs are not, let's face it... Drug dealers are in a high margin business which very, very few can match. The evidence supporting this premise is prevalant.

imageSeized-cocaine-009

Of course, there are higher margin businesses and not all of them are as fraught with the frictions and risks of the cocaine trade. Here's some metrics from one of them...

Cost to produce  $193 
Retail price on the street $649
Product markup 336%
Gross margins 70.2%

So, what is this product?

MartinHajek iPhone 5 fakes 1 

Of course, those who follow me know that Apple's outsized margins will not last, and as a matter of fact have been trending down for well over a year - reference Right On Time, My Prediction Of Apple Margin Compression... 

Reggie Middletonss Ultimate Apple Value Infographic

So, why is it that a $496 billion business such as Apple succumbs to margin compression over a relavitely short period of time, but cocaine dealers don't (cocaine prices nearly doubled over the last 25 years while portable tech fell by as much as half)? Well, the answer is that natural market forces have full access to Apple's business model. The cocaine industry is protected, in part, by government intervention. By outlawing cocaine, there's a guaranteed demand and a guaranteed limitation of supply. So, which business is more profitable? Why, it's health care silly?

I know you're saying... Healthcare???!!! WTF?!

You're damn skippy. Take a look at these margins. This is a Glidescope. It's used to view down a patient's trachea. It consists of a wired camera enlcosed in a curved plalstic probe and a low resolution screen. It doesn't have any other sensors that I can discern, no discreet processor, random access memory, CPU, memory or anything else that I can find that materially adds to the production price, save an onboard tutorial. What it does seem to feature is a well throught out design to the physical probe, which apparently has an anti-fogging feature and is low temperature to prevent burning of the surrounding tissue (very few modern mini and micro cameras/LEDs produce that level of heat nowadays anyway).

Now let's attempt to back into the cost of production. The screen would likely be one of the most expensive components. A cursory (as in not exhaustive) search yields a 7 inch screen available for between $1-$10! One could assuming we had to have it custom manufactured to include the hard buttons at the bottom, which would mean a minimum of about a 5,000 lot order, so let's add an extremely conservative 50% premium which puts us at about $10 to $15.

The camera would be the next expensive item to source. Although this is not the appropriate form factor for this application, the resolution should be about right. I'm confident that I could source the appropriate price for the same price as an iPhone 4 front camera, which is about $6 - or less. Including a low heat LED light, would add about $.11 - $2 on top of the price, as well as anti-fogging mechanism (another $2 or so) so let's put the whole price at the $9 peg. FYI, an 8 mp camera [4x the resolution] can be had for $19.  The wire connecting the camera within plastic probe would have a negligible production cost, of let's say.... $1

There's a rechargeable battery and a plastic housing. These costs are quite variable, so let's go in the middle of the road and choose a 2000 mah battery ($8 or so, about two to three hours of use - Glidescope currently only good for 90 minutes per charge) and injected molded housing ($10).

 The only components left would be the tripod stand and the probe. The probe would cost about $2, and stand would cost about $17.20 (yes, it is expensive).

Adding this up at the midpoints, we get:

Camera & assembly  $9 
Screen  $12 
Connecting wire  $1 
 Probe $2 (x24, # of probes in a package)
Battery $8
Housing $10
Stand $17.20
Total Part

$105.20

Assembly/packaging

$8

Total

$113.20

 So, in a nutshell, I could put this device together for under $120. I'm fairly confident in these numbers, but let's assume that I'm off - significantly off - in my cost estimates. To err on the side of caution, let's put a 100% premium in EVERYTHING! That's right, assume everything was twice as expensive as I thought it was. That still puts the cost to manufacture at under $226.40. Using this new, inflated number, what do you think the markup on this device is? The key to cloning this product is to avoid patent infringement on the blade (probe), which has a specific curve. A curve that can be replicated sans a few degrees or better yet have user adjustable angles. This should avoid the patent and leave room for increased performance.

I will give you time to ponder this, considering how much drug dealers can get away with marking up their product, and how much Apple succeeded in marking up theirs, even through auntie economics is bringing the fruit company back in line with reality...

image006

 The Glidescope is available from Verathon for only a 4,361% markup. Yeah, you heard that right! The product retails for $9,825 and it has plenty of buyers. It's actually considered cutting edge tech. The profit margin on this product is literally 98%. That's almost PURE cash! I verily query thee, why in the world would anyone sell drugs when they can sell medical equipment to hospitals? This insane, damn near criminal level of profit puts Tony Montana to shame!

hgcocaine

So, how is such a level of profit achievable in a capitalistic society where the forces of free market economics come into play? Who the hell knows? Free market economics likely do not have a heavy hand in this company's profit margins. Near guaranteed  (if not indirect) revenues from insurance companies... A moral hazard economy from end users that do not bother to shop for price since they are totally insulated from pricing due to insurance company payments... A government that uses the health care industry as a job creation maintenance engine that ulitimately erodes economic activity instead of increasing it by making job redundancy and inefficiency more of a goal than an impediment.

I can go on for quite some time. Even more interesting is the fact that I believe I can break this cycle of inefficiencies. I'm actively experimenting with Glass as an interface to existing equipment that will both significantly extend the usefulness of said equipment while simultaneously cut the costs of siad equipment by negating the need to purchase/upgrade said equipment.

The possibilities are near endless. You should have seen my face as I walked through one of the biggest hospitals in NYC and was made abreast of the cost of some of the equipment widely used, ex. the Glidescope.

CAM00258CAM01753

Stay tuned for a list of companies soon to be disintermediaried, as well as what I will be doing with Glass, specifically. Any healthcare professionals who feel they have value to add are welcome to reach out to me, reggie at boombustblog dot com.

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