Quick Thoughts: Apple and Microsoft – “Not much to See Here, Please Move Along”


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–          iOS 7 will look a lot cooler, but the functional improvements are pretty incremental. New devices will wait til fall, but nothing today suggests a game changer is coming.

–          Apple’s default apps got some love – Mail, Safari, Calendar, Weather, Camera and Photos may now be good enough to keep users happy. iTunes Radio looks to crowd out Pandora/Spotify.

–          MSFT announced a lot of cool games for Xbox One and set a November launch, but the $499 price point is steep. A cheaper, media only version next year makes a lot of sense.

–          Meanwhile, MSFT also announced a $200 slimmed down Xbox 360, available next week, that could satiate the need for a lower cost alternative while Xbox One skims market surplus.

It was supposed to be an important day in the world of consumer electronics with two major events concurrently kicking off this week: Apple’s Worldwide Developer Conference in San Francisco and the Electronic Entertainment Expo or E3 happening in LA. Apple CEO Tim Cook and Company took to the stage to fire up the faithful, but delivered a bit of a yawner. With just a handful of product refreshes and largely stylistic UI updates to both iOS and Mac OS X, this WWDC was the most underwhelming in recent memory. Microsoft meanwhile kicked off E3 showing off more about its Xbox One including games, a less than desirable price point for the new machine, and a slimmer Xbox 360.

First, it was another completely predictable keynote from Apple with Tim Cook playing emcee to a parade of Apple executives each taking a slice of the presentation. The company unveiled a handful of hardware updates with a refreshed line of MacBook Airs touting an extended battery life and an all new Mac Pro with a compact black cylinder from factor that will appease Apple fanboys in the graphic design community. The latter has impressive specs such as the ability to connect up to 3 4K displays, run 12 cores, and 7 teraflops of graphical processing power in sleek designed 9.9” tall and 6.6” diameter case. However, the Mac Pro is a niche product that makes up a small subset of slowing Mac sales. With a likely starting price point well north of $2,000 in a basic configuration sans monitor, we don’t expect it to move the needle for Apple.

With no other major product announcements until the fall as hinted to the dismay of investors during the company’s most recent earnings call in April, the spotlight was on iOS and Mac OS X. With the departure of Scott Forstall last fall and Jony Ive taking over the operating systems, OS changes have been long awaited. Gone is the skeumorphism favored by Steve Jobs and characterized by graphical representations of anodized metal, grainy wood and leather. Also gone was Apple’s naming convention using big and scary cats for Mac OS X releases. Apple has instead opted for a California theme and calling version 10.9 “Mavericks” after the famous California surf spot just west of Silicon Valley. The new OS X is characterized by incremental changes that bring some iOS apps into Mac, notably iBooks and Maps. The version also brings in a less power hungry Safari browser, password keychain app, notifications, file tagging, and multiple display capability. Apple’s SVP of Software Engineering, Craig Federighi, assured the audience no virtual cows were harmed in the making of the new calendar within Mac OS X. Aside from self deprecating humor, Yawn!

Next, the first real iOS UI update since the debut of the iPhone was presented by Jony Ive via a prerecorded montage. It is a flatter and simpler design, characterized by translucent layers along with the use of sensors and gyroscopes to provide ambient and 3D effects. The new version enhances app multitasking with smooth transitions between app previews. It also features a simpler control center akin to Windows Phone 8’s well regarded start menu and an updated notification center. Apple also added a file sharing feature called AirDrop allowing users to share photos and other files via Bluetooth or WiFi, without needing to execute the Samsung Galaxy bump. A similar file sharing feature has been available on Android for over 12 months. iOS 7 also offers an update to Siri, with a more natural voice pattern and ability to switch its gender. Apple notably is adding new sources for search to go beyond Wolfram Alpha, and also query Bing, Wikipedia, and Twitter. All in all, the iOS 7 update was necessary and well executed, but still offered little real functional innovation.

Finally, Apple has launched its long awaited streaming music service called iTunes Radio. To take on Pandora and Spotify, and Clear Channel’s iheartradio app, Apple will launch a free ad driven music streaming service that allows users to customize their music based on artist, song, and genre preferences. For $24.99 annually, Apple will stream the service ad free and match your library to music it has secured rights to in the cloud, otherwise it will store the music on its cloud service. Apple’s late announcement of a radio streaming service is not surprising given it has been trying to protect its sell through music download business in iTunes. Built into the new iOS, we expect the service to have strong usage from launch. With the so-so WWDC presentation and no new major product launches coming until fall, even bulls will have to look ahead to 4Q before expecting the cavalry to come as devoted fans wait for the new devices and more potential Apple customers opt for more state-of-the-art  Android products.

On to Microsoft’s follow-up Xbox One announcement. At E3, Mister Softy has notably put up banners with the slogan “All in one. Input One” referring to its aspiration to be the living room hub for all things entertainment around the TV. Already having debuted the console along with key content announcements on May 23, the purpose of the E3 announcement was to build excitement showing off to gamers and give some more detail into pricing and launch date.

It updated several current offerings: a physical update of XBox 360 hardware and software as well as a two free games a month promotion to sign users onto the XBox Live Gold subscription service until the XBox One launches. It also changed the terms of its subscription service discontinuing Microsoft Points and instead going with real dollars. Continued support of the existing XBox 360 console generation and backwards compatibility will be critical to gaining more casual gamers. It then spent most of the presentation offering previews of several launch games including Ryse: Son of Rome, Forza Motorsport 5, Kinect Sports Rivals, Battlefield 4, Dead Rising 3, and an all new Halo wowing gamers in the audience. So far the company has announced only one configuration at $499 going on sale in time for the holidays in November, $200 higher than the initial price point of the XBox 360 8 years ago. In an effort to appeal to serious gamers, Microsoft also is releasing the first edition of the XBox One console as a “Day One” edition with limited edition controller, Day One achievement, premium packaging and decal. Microsoft executives are touting the value of the console bundle in that it comes with the revamped Kinect.  This will likely help boost sales from die hards, but the price point may deter casual and non-gamers. Sony launched its PS3 six months after the XBox 360 at $499 and $599 price points and subsequently cut prices several times to boost sales. Though Sony launched the PS3 after XBox 360, the consoles are neck and neck with each having sold about 77.5M units globally. Starting with a high price may not necessarily be a bad idea to maintain top line device revenue and margins, but it may lead to a slower acceleration of adoption and user base. Given Sony will bow its PS4 console at the same time at a lower price point, the focus should be on growing adoption.

For our full research notes, please visit our published research site.

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