<![CDATA[Perezonomics - Home]]>Thu, 23 Mar 2017 01:14:04 -0500Weebly<![CDATA[Apple's Two Opposing Strategies]]>Thu, 23 Mar 2017 03:43:54 GMThttp://perezonomics.com/home/apples-two-opposing-strategiesOld Components and High Margins vs New Technology and Low Margins
​Apple’s (AAPL) new $329 iPad continues down the same road that the iPhone SE blazed last year. They’re both parts-bin specials that assemble components from previous or newer devices to give Apple a budget-priced foothold. 
I like this new angle that Apple is pursuing. Lower priced doesn't necessarily have to mean lower margin. By using fully depreciated components, it is possible that these two devices still command Apple’s usual fat gross margins.
 
Apple is employing two different approaches to expand market share. Where the iPad and iPhone SE utilize old components and high margins, the AirPods and Apple Watch use new components and low margins. As far as I know, I was one of the first people to note that Apple was using a new tack with penetration pricing on the Apple Watch. Now they appear to be doing it again.
 
Apple is making a huge play with expanding their iPad and iPhone markets and assaulting the wireless headphones and wearables markets. I don’t understand all the criticism that Apple gets from bystanders wondering what they’re up to. A two-pronged assault like this takes a lot of work.
 
Hardware is both more difficult and more important than software. That’s something that a lot of people in tech don’t understand. You can sum up Coca Cola’s success in one word. Distribution. By putting Coke machines on every street and store front, they became the de facto choice for the majority.
 
Apple devices—whether they be iPads, iPhones, or AirPods—are like distribution points, serving the masses what they want, like Coca Cola vending machines everywhere. The iPhone is already the single most popular smartphone on the planet. The Apple Watch and AirPods could very well win two more categories.
 
But Android already controls 80% of the market you say? Doesn’t matter, because no single hardware maker has Apple’s volume. The Android market is like a bunch of nomadic tribes at war with each other, and all their customized versions of Android are dwarfed by iOS. Google doesn’t care, because for the most part they don’t make money on hardware. In fact, they make more money on iOS than they do their own Android operating system.
 
So that makes iOS another distribution point for both Apple and Google. And we are the delighted consumers. “Have a Coke and a smile.” 
]]>
<![CDATA[ Is Automation to Blame for Jobless Recoveries? ]]>Sun, 19 Mar 2017 23:19:58 GMThttp://perezonomics.com/home/-is-automation-to-blame-for-jobless-recoveriesThe Usual Luddite Fear of the Unknown?
Adi Gaskell writing for Forbes shared some interesting data that goes against the popular belief that manufacturing automation will lead to mass unemployment.
 
A big thanks to Forbes for helping to quell this harmful myth
When the numbers were crunched, the researchers found no real difference in terms of the joblessness of recovery in industries prone to automation, and those that were not, and this was consistent across nations.

To further delve into the topic, the researchers examine particular skill-sets to explore whether some were more impacted by recessions than others.  They focused specifically on middle-skilled workers, whom they classify as having a high-school qualification, or even some post-school qualification, but no degree.  The jobs filled by such people are typically easier to automate as they involve more routine tasks.


The study found that such workers had not seen a rise in joblessness of recovery in recent years, with that trend consistent across the developed world.  Or to put it another way, there is no evidence that modern technologies are hurting middle-skilled workers more than was previously the case. -- Forbes

I’m not sure if the proponents of this myth are motivated by the usual Luddite fear of the unknown or if there is some other hidden agenda at work here. 

Related: Elon Musk Is Wrong About Factory Automation
]]>
<![CDATA[The Future of Apple's 3D Touch]]>Sun, 19 Mar 2017 12:53:25 GMThttp://perezonomics.com/home/the-future-of-apples-3d-touchThe Universal Language of the Future
Engadget’s Edgar Alvarez reviewed Levis new smart jacket a few days ago and was optimistic about the future of non-traditional touch interface. This reinforces my belief that Apple (AAPL) is on the right track with its work on touch.
As the technology behind wireless communication gets ever better, touch interface is getting more and more important. Our smartphones may remain the “hub” for a few more years but in the meantime that doesn’t mean that we need to pull it out to do every single thing. Our Apple Watches, AirPods, or even clothing can be conduits which deliver signals to the phone.
 
A touch language needs to be built up which will allow us to communicate with out using buttons. It also needs to be standardized so that it means the same thing on all devices. I want more touch signals for my iPhone, Apple Watch or AirPods, not less. Apple had better not water down 3D Touch and equate it to a long-press.
 
As much as I find it humourous that Android lags behind Apple in the realm of 3D Touch, I also think it would be to Apple’s benefit if Android would finally catch up. iOS users actually benefit from the Wild West environment that is Android where everything and anything is tried. Apple can sit back and glean what it likes. But Android is handicapped by the fact that the operating system and hardware are separate entities so they have no one who has caught up to Apple yet.
 
It makes sense to offload data input to your watch, clothing, earphones, or future eyeglasses. Besides being more convenient, it also sidesteps the whole language issue. Whether you speak English, Portuguese, or Mandarin it wouldn’t matter. It only seems complicated to us now because we’re not used to it and there aren’t any standards yet.
 
The whole concept of having to see a button with a word on it is a hold-over from the PC era. 
]]>
<![CDATA[Tim Cook on the Globalization of Apple]]>Sat, 18 Mar 2017 11:33:44 GMThttp://perezonomics.com/home/tim-cook-on-the-globalization-of-appleDiscount Merchandise or American Jobs? Pick Only One
The Wall Street Journal is reporting that Tim Cook is defending the globalization of Apple.
 
I’ve written about this before and as unpopular as it may be, Tim Cook is right.

Freight Is the New Labor: Why Apple Manufactures in China
Globalization is the natural evolution for most companies when you want to compete on the world stage. Apple doesn’t have too much choice when it comes to where they manufacture their iPhones because they are getting pressure on multiple fronts. Freight costs, supply-chain lead times, and labor availability each on their own would be formidable challenges to overcome. Combined? There’s no way iPhone production would ever come to the US in large numbers.
 
Apple could do it in small numbers just as a political move to gain something else they really want. A small presence in the United States would limit their exposure to the increased freight and labor costs. But if they told Congress they’d do it in exchange for some favorable tax law changes, it would be a huge net win for Apple and politicians could claim victory.
 
The simple fact in manufacturing is that freight costs now outweigh labor costs for much of the manufacturing world. This is one of the consequences of automation. Labor is being displaced by capital depreciation, causing it to shrink as a percent of total cost. That means other variables like freight become more important.
 
iPhone production does benefit from lower labor costs in Asia, but it gets an even bigger boost from raw material freight costs due to being in the middle of their supply chain base. That’s the real reason iPhones aren’t made in Texas.
 
Even if an American company was staunchly against globalization, they would follow the same rationale when looking at which state to set up shop in. That’s why you don’t see a lot of new manufacturing in West Nebraska or the middle of Wyoming. If you’re an automaker, you either manufacture in the middle of the rust belt states of Michigan and Ohio or by the coast by seaport cities. Not because labor is cheaper. In fact it may be more scarce and expensive. But it’s quicker and cheaper to get your parts.
 
This trend is not new. We dealt with it at Gateway Computers when we finally relented and moved most of our operations to Asia. The company with the cow-spotted boxes meant to evoke visions of rolling Iowa farmland finally caved in. But the customer made that decision for us. When a made-in-America cow spotted box was placed on a shelf next to a made-in-Taiwan laptop which was $100 cheaper, consumers always picked the less expensive unit. They voted wholesale for made-in-Taiwan laptops, so that’s what we gave them.
 
I get so tired of hearing Americans saying that “big greedy corporations ship our jobs overseas.” No, the issue is that they go to Walmart and buy the cheapest possible option. Corporate America is forced to follow their lead. It would be just as accurate to say that “cheap consumers ship our jobs overseas.” One company, Gateway, even went as far as putting cow spots on their boxes so that you would know immediately it was made in the USA, but consumers still chose made-in-Taiwan. Discount merchandise or American jobs? Pick one, because you can’t have both.
 
Donald Trump needs to tread lightly in this area. Free trade is one issue that threatens to fracture his coalition. This is where conservative free-traders like myself and his new protectionist blue-collar Democrats are in stark disagreement. 

]]>
<![CDATA[Netflix Is Going After Movies Now]]>Wed, 15 Mar 2017 02:49:01 GMThttp://perezonomics.com/home/netflix-is-going-after-movies-now
Bloomberg Tech is reporting:
Now, the world’s largest paid video service is devoting more attention to motion pictures, looking to shake up that business just as it has TV. “Bright,” with a $90 million budget, is one of about 30 original films Netflix will release this year, from micro-budget pictures made by independent producers to lavish Hollywood productions. That’s a bigger slate than most major studios. --Lucas Shaw

In two years, if their bid in movies is successful, a $60 billion price tag for Netflix is going to look cheap. 




]]>
<![CDATA[Is Apple a Monopoly?]]>Sun, 12 Mar 2017 12:48:28 GMThttp://perezonomics.com/home/-is-apple-a-monopoly
9to5Mac reported that a UBS analyst says Apple is an 'anti-fragile monopoly' because of its iPhone pricing power. That is laughable. The Macalope said it bestRejected headline: “Prominent UBS Analyst May Not Know What A Monopoly Is.
According to Steve Milunovich of UBS,, since Apple enjoys unparalleled pricing power, that must mean that Apple could be in a monopoly status that could make them resistant to failure. That’s like saying if you happen to be sitting next to Scarlett Johansson on an airplane, that you may actually be married.
 
A true monopoly arises out of one of two conditions. An extreme cost advantage which allows them to undercut everyone else or anti-competitive behavior. The problem with his theory is that Apple’s iPhone isn’t undercutting anyone. By virtue of their choice in material design, Apple ensured that the iPhone would cost more than most smartphones. In fact, it’s one of the most expensive phones on the market.
 
And Apple doesn’t get any special treatment from governments enforcing anti-competitive protection. If anything, they are constantly under attack by all governments on any number of fronts. Simultaneously.
 
It’s true that Apple does enjoy unprecedented pricing power for their products. But that’s a testament to Apple’s focus on design and quality over price. A low price doesn’t necessarily instill positive customer satisfaction. Neither do flashy features that customers will probably never use.
 
Apple isn’t perfect but they don’t need to be. They just need to be better than their competition. 
]]>
<![CDATA[Drones as Weapons of War]]>Sat, 11 Mar 2017 19:19:41 GMThttp://perezonomics.com/home/drones-as-weapons-of-war
Writing for BuzzFeed, Mike Giglio talks about how ISIS is furiously using all means at their disposal to wage fierce war. One of those resources is using drones to drop bombs on the US-led coalition.
Inside The "Mad Max-Style" Tactics ISIS Is Using In Its Last Stand In Iraq

ISIS had also made deadly adaptations to its use of drones, Iraqi officers said. In the first days of the battle for western Mosul, they were being employed with newfound intensity, swarming Iraqi positions, disrupting operations, and inflicting casualties. The drones dropped more than 70 bombs on one sector alone in a span of just two days, commanders said. Arkan himself was wounded in the foot by shrapnel from one as he called in airstrikes. “I can’t command and control with all this chaos,” he said. “Like, I can deal with the shooting. But with things dropping, it’s very difficult.” – Mike Giglio, BuzzFeed
 
This is just the latest in many reminders that technology can’t in and of itself propel mankind into a new Utopian age where we all live in peace and harmony. Neither will it take us to the depths of hell. Technology is a tool that can just as easily be used for evil or good. How long before Russia is assassinating journalists via self-driving cars?
 
Whether you're talking about drones, Twitter, guns, etc it doesn't matter. If you can’t change mankind’s heart, you can’t change the world.

]]>
<![CDATA[The iPhone 7 Plus Is a Terrible iPod Nano]]>Sat, 11 Mar 2017 14:51:29 GMThttp://perezonomics.com/home/-the-iphone-7-plus-is-a-terrible-ipod-nanoThe Consequences of Size
​The very first Apple product that I ever purchased was the 3rd generation iPod Touch introduced in the fall of 2009. I bought it specifically to store my music when I went to the gym or out for a run, but I was blown away with how much more capable it was compared to the Creative Zen mp3 players I had been using prior. Despite how great it was, I disliked having to carry a flip-phone in one pocket and an iPod in the other. One of them had to go. 
Picture
Then in the summer of 2010, Apple introduced the retina-screened iPhone 4, and I realized the answer to my problem. Combine my iPod and flip-phone into one device. There’s nothing better than finding something which makes your life simpler and solves your problem. Yes, the iPhone was bigger and heavier than my iPod, but it was still very pocketable. The extra weight was worth it if I could make an emergency phone call with it. That had to be one of my most satisfying technology purchases, totally free of buyer’s remorse.
 
The iPhone 5 came along and wasn’t as pocketable for shallow running shorts. But it was lighter, so it actually felt easier to carry. When I upgraded to the iPhone 6, nothing about it was better for my active lifestyle. It was taller, wider, and heavier.  It was too big for my shorts pockets, but I was able to manage with an armband case. But even that was borderline too big for me.
 
Which brings me to my iPhone 7 plus. Hmm, where should I start? Predictably, it doesn’t fit in my shorts pockets. It’s too heavy, pokes out the top, and will fall out. It’s too large for an armband case. The weight of it swinging on my arm puts me way out of balance. An elastic waist belt will work, but the phone is so large and heavy it’ll move a lot. Also, you have to hope it doesn’t get out of position when you go do your bench pressing so that you don’t break the screen.
 
The 7 Plus is an absolutely amazing piece of technology. But an iPod Nano it is not. I know that’s an unfair comparison, but I can’t help making it because my other iPhones were able to pull it off. Asking the 7 Plus to fill in for an iPod Nano is about as fair as asking Shaquille O’Neal to fill in for Simone Biles on the balance beam. I get that.
 
I can now see Apple’s hesitation with entering the phablet arena. The Plus is the first iPhone to backtrack in usability for many users. The iPhones prior to the Plus brought all positives with no negatives. People may cry foul about the iPhone 7 losing the headphone jack, but I think the real harbinger was in 2014 when they removed the “iPod function” from the iPhone 6 Plus. At that point, users were voting with dollars that using the iPhone 6 Plus as a portable music device wasn’t that important.
 
So what do I do? I don’t really like the idea of going out for a five-mile run without a phone. You never know when you’re going to need to make an emergency phone call.
 
My only solution now is to go back to using two devices and leave my phone home when I run. Or get a cheap tiny phone just for running. But even if I was willing to do that, the iPod Nano solution doesn’t look so great anymore. With the advent of Apple Music and wireless sync, the iPod Nano looks too inconvenient now since it’s missing both. The only way to get music on or off the Nano is by hooking up to iTunes with a cable.
 
The iPod Touch would solve the sync and Apple Music problem, but it’s too big to clip onto your clothes or hat. I was willing to put up with those drawbacks on an iPhone because it brought the added functionality of communications. But a dedicated music player should be so small that no pockets are necessary.  
 
In theory, the Apple Watch should make all my dreams come true. It’s small enough to strap to my wrist and has Bluetooth to connect to earphones. The problem is that it doesn’t have wireless sync. You can’t do any music manipulation on the watch, and wireless sync of podcasts is impossible. For now, the Apple Watch isn’t a very good iPod replacement.
 
Until the Apple Watch solves all my problems, I’ve actually gone full circle and bought a new 3rd gen iPod Touch. And let me tell you, it’s not cheap getting a new 3rd gen iPod Touch in 2017. It cost me as much as getting a current iPod Touch, but it’s a lot smaller. I like the short height of the 3rd gen vs the current Touch. I also chose the 3rd gen over the current iPod Nano because it has wireless sync. And unlike the Apple Watch, the 3rd gen can be loaded up with all the podcasts I can handle.
 
So why didn’t I buy the even smaller and lighter 4th gen iPod Touch? Performance. The 4th gen actually is a bit worse due to the processing required to push all the pixels in the retina screen. I tried using the 4th gen iPod, and it was unusable. I wouldn’t classify the 3rd gen as zippy either, but it’s significantly better than the 4th. If you’re just using it for music and podcasts, it’s workable.
 
If I could get Apple Music on the 3rd gen, my solution would be almost perfect. But alas, you can’t have everything you want. 

]]>
<![CDATA[Artificial Intelligence versus God]]>Thu, 09 Mar 2017 03:48:35 GMThttp://perezonomics.com/home/artificial-intelligence-versus-godTechnology as Destroyer of Mankind?
​The more I see and hear artificial intelligence discussed in a future context, the more I hear echoes of the biblical story of the great flood. Some use this account to dismiss the God of the Bible, Elohim, because it seems so extreme. Many are quick to throw accusations at Elohim such as how could a good god allow pain and suffering in the world or how could a good god allow mass genocide by wiping out mankind with a flood. This flood accusation I find particularly interesting, because the more we start to discuss the future power of artificial intelligence (AI), the more relevant it becomes.
​That’s because the greatest minds in the world all seem to think that it’s possible, or even likely, that any artificial intelligence which could transcend mankind would want to destroy us. There’s a fear that future entities endowed with unimaginable knowledge and intelligence but lacking emotion would come to the logical conclusion that mankind doesn’t deserve to exist.
 
And why is that? Why is it such a fear with scientists that advanced artificial intelligence would turn against us? Well, deep down we all know why. People are flawed and we all make mistakes. We start wars, we kill unpopular groups, we destroy things. Most people lie and can’t even obey simple laws like the speed limit. Even as humankind makes the greatest technological advances, all of these can be twisted to use to spread more death and destruction.
 
On the one hand, man wants to say that it’s illogical that any real God ever wiped out humanity due to his shortcomings. Yet, on the other hand, the same group says that man is so flawed that it is very possible any future intelligence that transcends us would want to destroy us.
 
Many would stand in judgement of God for reaching the conclusion that mankind needed to be wiped out. And yet one of their greatest fears for the future is that the creation of their own hands would decide that we are too flawed to be redeemed.
]]>
<![CDATA[ The Abrupt Departure of Tesla’s CFO ]]>Mon, 06 Mar 2017 01:42:40 GMThttp://perezonomics.com/home/-the-abrupt-departure-of-teslas-cfoCFO Departures Are…Odd
It’s interesting that Tesla’s CFO had an abrupt departure from the company just before the quarterly earnings were announced.
 
More than any other function within a company, the Accounting and Finance group has accountability to the board of directors. The CFO is hired by the CEO and reports to him, but he works for the board of directors as well. As such, the accountants have a fiduciary responsibility to adhere to generally accepted accounting principles whether the CEO agrees with them or not. 
​First and foremost, the CFO owes the board of directors financial statements that accurately reflect the company’s performance. He risks not only his job but potentially his freedom should he get caught misleading the board or investors on the true profitability, or lack thereof.
 
CFOs don’t generally get a lot of spotlight. It’s not like they are inventing new technologies or bringing a grand strategic vision. They ensure that the financial statements are accurate.
 
So, when a CFO abruptly leaves, alarm bells can go off. Outside of a simple personality conflict, any disagreement usually arises out of how to report earnings, cash flow, or the health of the balance sheet. And there’s a lot of opportunity for disagreement. The way that a company handles inventory, warranty claims, and capital expenditures can make a massive difference in how earnings look.
 
Company leadership and the accounting department can often disagree on how to handle some of these items. Typically, the accounting group will win these fights because no one wants to take the chance of getting frog-marched out the lobby by the feds. But if you get a real stubborn CEO who likes to live dangerously and has something to hide… If a CFO disagrees with his CEO and the CEO is unwilling to budge, there is really only one recourse. You leave. 

Tesla CFO Resigns; Analysts Worry Company Soon out of Cash
]]>
<![CDATA[ iPad Pro: Book Reading Should Progress beyond the Current Paradigm ]]>Sun, 05 Mar 2017 20:27:00 GMThttp://perezonomics.com/home/-ipad-pro-book-reading-should-progress-beyond-the-current-paradigmThat Which Was Not Possible, Now Is
​One of the reasons I love my 9.7" iPad Pro is because it can do things better than either my iPhone 7 Plus or my MacBook Pro. One of those “things” debuted with the original iPad but can be further improved. That would be reading books. 
​I know that reading books on a Kindle is a little more comfortable and easier to do outside on the patio. But I tend to like having one main device that does practically everything, so I use my iPad to read books. I find even the 7 Plus screen too small to want to read for a long time. As for reading on a laptop, do I even need to answer that question?
 
But there is one thing about reading books on an iPad that I’m surprised isn’t possible yet, and I don’t understand why. Why can’t I be in two sections of a book simultaneously?
 
You know how when you’re reading a book, you wish you could flip back to an earlier section because you may not remember exactly who a certain character is? If you do, you might lose your current place. Some apps will keep record of your furthest reading place but not all of them do. Besides, sometimes it is nice to see two separate parts of the book before you simultaneously. Like in church when your pastor has his main passage for the day but is bouncing around the Bible asking you to turn to other passages. It would be nice to keep the main passage on the left and use the right to look up others.
 
I’m afraid our apps have been limited because we don’t use physical books that way. It’s great to mimic real world functionality in the digital world, however where possible, developers should use the advantages of digital to go beyond the normal paradigm.
 
Of all Apple’s devices, the iPad strikes the best balance of mobility and power for me. A big, beautiful iPad screen has enough real estate to allow us to split the screen view and see different sections of a book simultaneously. Chalk this up as another item that should be possible on an iPad, but currently isn’t.
 
Unlike some of the other iPad restrictions though, I don’t think this is a shortcoming of iOS itself. I suppose the blame lies with app developers. The main ones being Apple and Amazon.
 
The only thing standing in the way of book reading becoming more powerful on the iPad is a shortage of imagination and resources. 
]]>
<![CDATA[Why Does the iPhone Need ANY Ports?]]>Sat, 04 Mar 2017 12:30:19 GMThttp://perezonomics.com/home/why-does-the-iphone-need-any-ports
​So the Wall Street Journal is reporting that the next flagship iPhone may move to a USB Type C connector versus today’s proprietary Lightning. The question isn’t whether or not Apple would move the iPhone to USB-C, the question is why does the iPhone need any ports in the first place?
​My Apple Watch doesn’t have any ports and I can listen to music from it and charge it just fine. I’ve never missed having a port or wished it had one. I don’t understand why the iPhone needs a port. Other than charging my iPhone, I never use it. And it’s a nuisance that collects pocket lint or in the old days would allow water damage.
 
From a cost accountant’s perspective, ports are one step above evil. They require additional manufacturing processes, they extend the time to complete a single unit, they always involve additional components, and they are above-average offenders for warranty repairs. So from a gross margin perspective, it would make sense to ban all ports from the iPhone.
 
I always assumed that the Apple Watch was a forward device that showcased technology that would come to the iPhone eventually. AMOLED screens, wireless charging, and ceramic cases. I’d love to have all of this on an iPhone.
 
Considering this, when I heard the rumor that the iPhone was moving to USB-C, I was really surprised. I figured the iPhone would stay on Lightning until it went completely portless. If the iPhone did remove all ports in the near future, why bother with going to USB-C in the interim? It doesn’t make sense to force your customers to go through another charging accessory change if you’re just going to drop the USB-C in a year or two.
 
Either this report about USB-C is completely wrong or Apple will never take the iPhone portless. But if they never go portless, why not? For what reason do they feel compelled to keep the port there?
 
I doubt it’s the handful of people who use accessories. Wired headphones are a dying a market, and there can’t be more than a handful of people who use microphones. There must be something else.
 
Could there be a future product that Apple hasn’t unveiled yet which would need an iPhone port? Something that requires absolutely no latency and the fastest possible data speeds? Or could Apple be planning to open up the port to be used in new ways that we can’t today. Like USB-stick style data transfers between devices?
]]>
<![CDATA[This Jeff Sessions Thing Is Trumped Up]]>Fri, 03 Mar 2017 03:56:07 GMThttp://perezonomics.com/home/this-jeff-sessions-thing-is-trumped-upThe Liberal Media Is a Disgrace
When the Russians hacked the DNC I said that it didn’t matter where the info came from because it didn’t change the nature of how the DNC conspired against Bernie Sanders. And when the leaks showed that Mike Flynn lied about speaking with his Russian counterpart I had the same attitude. Leaks or not, Trump had to let him go.
But this current thing with Jeff Sessions is so flimsy that its embarrassing. There’s nothing here and yet the network news is breathless about Jeff Sessions recusing himself from the investigation. As if that means something.

There shouldn't even be an investigation, but if there is one, he can't be in charge of his own. Of course he’s going to recuse himself. That’s no admission of guilt. He has nothing to be guilty of. And for the record, neither did Mike Flynn. His only crime was lying to his boss. That’s why he was fired.
 
It’s amazing to me that liberals wonder why conservatives think that they’re a bunch of gullible rubes who swallow everything that the liberal media feeds them. The current flap over Jeff Sessions meeting with the Russian Ambassador is the perfect example.
 
A free press is essential to a free society. A biased press is the enemy of the people. A free press holds power accountable to the people. A biased press disseminates propaganda on behalf of a particular party to fool the people. Let me give you the facts and you decide into which category the various networks fall into.
 
The Facts
As a member of the Senate Armed Forces Committee Jeff Sessions had to meet with foreign ambassadors on a regular basis. Everybody knows that. Al Franken knew that and Jeff Sessions knew that Al knew that. There are constant discussions over potential treaties, agreements, military exercises etc. It’s part of the job and anyone who says otherwise is lying. Here’s looking at you Claire McCaskill. Making this whole fiasco even more ridiculous, Jeff met with the Russian ambassador briefly in a public venue with other ambassadors in the room at the time.

The only mistake that Jeff Sessions made is that he wasn’t more specific when Al Franken questioned him. Al wanted to know if he’d been approached by Russian operatives or intermediaries regarding opposition intelligence regarding Hillary Clinton. Jeff was instantly repulsed by such an insinuation and instantly shot back that he’d never met “with any Russians”. If he’d said “with any Russian operatives” this whole thing would have never erupted.
 
But Jeff didn’t make that clarification because he didn’t have too. Both he and Al Franken knew what he meant. Al himself was using the word Russians as a catch-all word for black ops type of stuff. It’s only partisan hacks later who saw an opportunity to put the Trump administration in a bad light who pounced on it. But even they know that nothing will come of it in the end. They know that they won’t be able to get Jeff Sessions to resign because he’s done nothing wrong. Their goal is simply to put Trump back on his heels and win the headline war for a few days..

It’s the Ambassador
The ambassador is the official diplomatic channel between two nations. When you are trying to avoid any appearance of impropriety, you speak with the ambassador. That’s what ambassadors do all day long. Call and meet with government officials at all levels to answer questions and ensure that there are no misunderstandings. We want our people to maintain close ties to the Russian ambassador.
 
What the Democrats were trying to find was any evidence of the Trump people calling or meeting with “intermediaries” or special operatives working secretly. In the absence of that, they redefined their target to include the official Russian ambassador. They did that because they knew the public can’t distinguish between the two and it might look like a cover up. That’s a travesty. That’s like the police questioning someone about their ties to the Italian mafia and then busting you for eating at an Italian restaurant. 

Someone should remind the press that the Russian Ambassador was officially invited to the U.S. by our government to answer questions by sitting senators and congressman. If it's suddenly a scandal to speak with him, send him back. I can only imagine how stupid the Democrats must look to the rest of the world.
​ 
Election Hack?
And why does the press keep referring to the DNC hack as “election hack”. Is it because they are deliberately trying to fool the American people into thinking that the Russians were able to “hack” into voting machines? Talk about bias. It looks to me like the networks are trying to prevent the public from remembering it was the DNC which was hacked and what was found therein.
 
Free Press or Enemy of the People?
It shouldn’t take independent bloggers to put things into perspective. That’s the job of the free press. It’s up to the press, not Donald Trump, whether they are an enemy of the people. If they decide to skew the facts and suppress the truth, that’s on them. When I was a kid my mother used to tell me that she’d treat me like an adult when I started to act like one. Donald Trump needs to tell the press that he’ll treat them with the respect due to an unbiased free press when they start to act like one. 
]]>
<![CDATA[ Remember Last Year’s Collective Freak Out over Apple’s Stock Price? ]]>Thu, 02 Mar 2017 03:02:01 GMThttp://perezonomics.com/home/-remember-last-years-collective-freak-out-over-apples-stock-price
​I didn’t understand the doom-and-gloom last January. As growth funds started selling their positions in Apple (AAPL) when it became evident that the iPhone had suffered its first ever decline, writers were freaking out as if Apple stock was on a long ride to zero. They totally ignored the fact that Apple had a steady business, high margins, and a good management team. Their pessimism didn’t make any sense. 
That pessimism is what prompted me to write about the transition that was going on with who owned Apple stock. In short, value-fund managers were replacing the growth investors. Warren Buffet is exactly who I had in mind when I wrote that piece. He’s the prototypical value guy who looks for steady demand and a wise management team. I was not too surprised this week to see that Berkshire-Hathaway more than doubled its shares of Apple to $17 billion.
 
It was logical and to be expected that there would be a temporary pullback as the stock transitioned to a new crowd. When you do your Christmas shopping, you don’t buy as easily early in the season because you know that there will probably be lower prices closer to Christmas. It was the same principle with the value fund managers, who didn’t want to jump on Apple stock until it was cheaper.
 
I predicted that once Apple stopped dropping and the value funds started jumping in that you’d see a slow but steady climb. That’s exactly what happened. I even predicted that Apple would bottom out at $90. That part was luck.

Related
------------
​Does the Price of AAPL Matter to Apple?
 
AAPL’s Time in Purgatory

]]>
<![CDATA[ Should Apple Go After Fake News? ]]>Sun, 26 Feb 2017 13:35:21 GMThttp://perezonomics.com/home/-should-apple-go-after-fake-newsStifling Lies vs Debate
Should Apple (AAPL) get more involved in vetting the real from the fake in their news? That’s a tough question. Defining fake news is kind of like trying to describe exactly what is pornography. Easier said than done.
This week the New York Times was caught red-handed with making up false stories about the Trump administrations connections to Russia. It was so blatantly false that the FBI approached the White House Chief of Staff, Reince Priebus, to let him know that the New York Times story was all BS. The FBI didn’t want to go on the record because they didn’t want to set a precedent of being the national fact checkers obliged to comment on every story.
 
Not only that, press coverage ever since has erroneously reported that it was the Trump administration which approached the FBI to spike the story. The press is ignoring the facts because it doesn’t suit their false narrative. It puts the New York Times in a bad light when their reporting is so egregiously in error that the FBI felt compelled to reach out to the White House.
 
In theory, it should be easy. If it’s false, strike it down. I still remember in the 2000 presidential election when news broke out the week before the election that George W. Bush had skipped out on his National Guard Duty. Dan Rather ran with the story and suffered the consequences when it was revealed to be false. Or more recently, stories circulated that said Hillary Clinton was running a child prostitution ring out of a pizza shop and that Glenn Beck was being paid by Hillary Clinton to suppress the Trump vote. Obviously all false.
 
The problem with dealing with fake news is that people will try use it as a weapon to shut down viewpoints that they don’t agree with. Just look at these self-appointed “Fake News” checkers which World Net Daily put together. They did an amazing job of indicting each organization with specific examples of how they've tried to mislead the public:

  1. Pigscast
  2. Media Bias Fact Check
  3. Fake News Checker
  4. Melissa Zimdar’s hit list of fake news
  5. International Fact-Checking Network
  6. Washington Post Fact Checker
  7. Snopes
  8. PolitiFact
  9. FactCheck.org
 
It’s a list of partisan political hacks who label some good news organizations as fake news outlets. They’re wanting to stifle debate, not lies. One of them even had the nerve to label an honest outlet like WND as “fake news”. Any organization that lists them as “garbage news” is obviously afraid of free debate and not an honest organization. I highly recommend WND as a good news outlet that will call out falsehoods on the right or the left.
 
I think that dealing with fake news is kind of like prosecuting a criminal. It needs to be beyond a reasonable doubt. Society has agreed that it is for the greater good that we potentially let a guilty man go free as opposed to jailing an innocent one. The same standard should be applied to news.
 
Due to the sheer volume of news, tech companies can’t be in the business of vetting every single story. Even if they wanted too, they just don’t have the time. They need to step back and give a thumbs-up or -down to the organization. But since giving a news organization a thumbs-down is essentially like executing a criminal, there needs to be an equivalent level of due process, some kind of trial where a case is brought forth by the prosecution and the defendant is allowed to speak to the evidence and make a defense.
 
This would weed out the worst offending fake news organizations like the factories in Macedonia. Just getting this done would be a huge win and should be noncontroversial.
 
The false news stories coming out of the New York Times is another problem. Unless the Times starts cranking out blatant lies one after another, I doubt anyone would ever ban them. And no one should stand in judgement over each and every story.
 
But I suppose that’s the price of freedom. Better to let the occasional guilty man go free than to falsely convict anyone. 
]]>
<![CDATA[The Case for Apple Buying Netflix]]>Sat, 25 Feb 2017 17:21:43 GMThttp://perezonomics.com/home/-the-case-for-apple-buying-netflixTime for Apple to Try Something New
Above Avalon's Neil Cybart had written a piece this week discussing his rationale for why he didn’t think that Netflix made sense for Apple (AAPL). If you look at Netflix (NFLX) as simply augmenting Apple’s service side of the business, then I would agree with Neil. However, if you model a scenario where Netflix is able to boost Apple’s smartphone market share, a Netflix purchase makes perfect sense.
Netflix and Spotify Are Apples and Oranges
First, comparing Spotify to Netflix is like equating ComCast to Disney. There’s a big difference between those who create original content and those who are simply a dumb pipe. Comparing Netflix to Spotify is a bad comparison, but Neil bases his entire thesis on it. I agree with Neil that purchasing Spotify simply to take the lead in music streaming would have been a mistake. But unlike Spotify, Netflix isn’t just about distribution.
 
Netflix has crossed over into the magical realm of being able to reliably crank out appealing original content. Don’t underestimate how hard that is to do. Some studios can do one or two projects at a time, but to create a system and infrastructure that rivals a network which is producing lots of original content concurrently is amazing. It’s the difference between someone who can cook a good meal in their own kitchen versus someone who can run a five-star restaurant.
 
Apple Doesn’t Need to Buy Streaming Revenue
I agree with Neil on this point. Paying $60 billion to acquire a revenue stream that brings in $185 million in net income per year makes absolutely no financial sense. This is also why there are very few good candidates to buy Netflix. If you buy Netflix, you need to bank on the fact that its original content will help you sell something else entirely apart from streaming videos. Something with very high margins. This is why Netflix is such a good fit for Apple. When you have a device with only 20% global market share that is raking in nearly 40% gross margins, it doesn’t take a huge increase in sales to justify what most people think is out of reach.
 
Apple doesn’t need to buy a paltry service revenue stream, but they do need help cracking their global smartphone market share ceiling past 20%. This is where the real money is. The great smartphone land grab is over. Almost everyone has made their choice on a smartphone ecosystem, so now both Android and iOS are going to shift their sights, trying to entice people to switch. And unlike Android, iOS has proven to be very, very sticky. Anything that convinces people to drop Android for iOS is worth its weight in gold.
 
Apple Was “Purchasing” Jimmy Iovine, Not Beats
Neil makes the case that instead of buying a dumb music streamer that Apple went after Beats to acquire Jimmy Iovine’s vision and connections with the music industry. In essence, they valued in-house talent over simple distribution. But there would be a similar parallel with purchasing Netflix.
 
Apple already has a vision for video. They don’t need someone else’s fresh ideas. What they are missing is the content. It’s already rumored that Apple has a vision of offering a low-cost alternative to the cable companies. Why? Two reasons. First, because their customers hate dealing with the cable companies. And second, Apple makes money by removing friction from their customers getting their content. So what is Apple to do if the various networks refuse to play ball with them on any kind of video distribution? The only alternative is to do what Netflix did and produce your own.
 
Jimmy Iovine’s music connections are valuable in an environment where the content creators are willing to allow Apple to be their distributor. But the video realm is different, and if the content creators are resistant to letting Apple be the distributor, there needs to be different plan of attack.  Acquiring Reed Hastings, CEO of Netflix, through an acquisition would be the logical adjustment. But Apple would still be pursuing the same goal as they did with Jimmy Iovine. That would be getting its hand on original content that people are willing to pay for by the millions.
 
Apple doesn’t need a relatively small $185 million in annual streaming profits. What they do need is someone who can oversee the system of content acquisition and creation. Reed Hastings and his management team have set the gold standard for the video business and have challenged the networks like no one else in the world has been able to do. Further, with their exclusive access to a growing mountain of data on viewer habits, they are getting even better. Netflix has an enormous data analytics advantage over Apple which allows them to single out potential hits from a sea of potential content with uncanny success.
 
$60 billion is a huge premium to pay for video content when there are cheaper options. But that’s the price you pay for a management team with a proven track record of success that can go on to be a self-sustaining division. Smaller studios are cheaper because they’ve had less success and are much more risky. They haven’t mastered the art of scale, and they may not even be around for the long haul.
 
Sure you can buy or work with a bunch of small studios, but who is going to manage all that? That would be like building a house and still being your own general contractor. Apple would need to spend a great deal of time and effort working with their band of small studios.
 
Apple’s current executive management team is all tapped out. They can barely manage their current product portfolio. What they need to do is buy a management team that can take on this mission with a reasonable expectation of success. This is why small studios would be a much harder route to take. Plus, that is going to take a lot more time. Purchasing Netflix gets you a two-year head start. One well-oiled machine like Netflix is going to be much more efficient than assembling and cultivating a disparate band of studios.
 
Apple needs a five-star restaurant, not a bunch of high-maintenance gourmet cooks.
 
 
Apple Music Is 20% Netflix’s Size with No Video
Neil is missing the point that purchasing Netflix wouldn’t be about growing service revenue. It’s about boosting hardware sales. Apple Music could have twice the subscribers of Netflix, and it wouldn’t change the rationale for purchasing Netflix.
 
That’s because Apple Music doesn’t offer much that you can’t get anywhere else. Apple Music doesn’t move the needle when it comes to getting people to switch smartphone platforms. It simply removes the friction for their current customers in accessing the music that they love. That is still a worthy purpose, but Apple Music was more a defensive play in replacing declining music download revenue. It was never meant to be an offensive move against the competition.
 
Neil equates Netflix to Spotify as being just a dumb pipe for other people’s content. He doesn’t see how it fits with Apple’s vision. But Apple’s vision is about their devices becoming invisible to the user. People buy Apple devices to speak with their mother, create things, or watch movies. People don’t buy a new iPad because the camera has 12 megapixels or the RAM is up to 2GB. They are buying a little piece of mind on a hectic business trip when they can relax on a long plane flight with their favorite TV series. This is why Apple wants to get a low-cost TV package off the ground. It would make the user experience simpler and easier.
 
 
The Sixty-Billion-Dollar Question
To me the question isn’t whether Netflix makes sense for Apple. The real question is whether Netflix is worth $60 billion. Netflix brings a host of benefits, but do they outweigh the cost?
 
I deal with corporate vice presidents all the time who are asking me to consider a huge investment in order to attack some new product niche. Before I do a lot of analysis, I find it’s often helpful to provide them with a quick break-even point that illustrates the volume required to make their idea work. A lot of the time this will kill any further discussions when he or she realizes that the cost outweighs the benefit.
 
If I was a finance guy at Apple advising on the Netflix purchase, I’d tell them what I always say. I can’t make that decision for you, but I can tell you what the breakeven point is. It’s up to you marketing and sales guys to decide if that’s a reasonable goal to surpass.
 
The Breakeven Point
Even if Apple were to pay cash for Netflix, which they easily could, they aren’t going to report it on their income statement all at once. It would be amortized over many years. Just like when you are mulling over whether you can afford a house. You don’t divide the full cost of the house by twelve to come up with your monthly payment. Sometimes large capital purchases aren’t so daunting when you look at the annual numbers on paper.
 
My rationale involves making Netflix exclusive to iOS. So when I did my cost model, I assumed that Netflix revenue will implode and that they will lose 50% of their subscribers. But the financial case behind increasing hardware sales is so strong that Netflix revenue could plummet to zero and it wouldn’t change the numbers too much. I also assumed that they wouldn’t get any cost synergies from an Apple purchase and left their COGS and SG&A at full amounts.
 
The bottom line is that Apple would need a 13.4% increase in iPhone unit sales to break even. At any less, it doesn’t make financial sense. This would be equivalent to about a 2.7-point increase in global market share.
 
In Summary
I think exclusive content could propel Apple from 20% global market share to 30% or more. This is a big vision with big rewards and not for the faint of heart. But if Apple were to get to 30%, that would amount to an additional $15 billion per year in net profits. That’s a 33% increase over where they are today. It’s hard to imagine any other way that Apple could do that.
 
Neil is correct that going after small studios as opposed to the big flashy acquisition is more Apple's style. But in this case, that would be a mistake. It's time for Apple to get out of their comfort zone and try something new. Big rewards come with big risk. Small risk yields small rewards. Apple could go the small studio route and be very successful. But they’ll be just another video provider in a sea of offerings, and people won’t change smartphone platforms to get it.
 
So, could Apple reap more than a 13.4 increase in iPhone sales if they bought Netflix and made it exclusive to Apple devices? Obviously, I think that Apple could easily do that and more. There are few things more powerful than exclusive content when it comes to enticing people to switch platforms. Just ask Howard Stern.

Related:
Apple's Media Aspirations
Content Is King
Media Content vs Machine Learning – What Would Sell More iPhones?
]]>
<![CDATA[iPhones vs Electric Cars]]>Fri, 24 Feb 2017 04:11:23 GMThttp://perezonomics.com/home/iphones-vs-electric-carsOne of These Is Already Changing the World
Writing for the Wall Street Journal, Christopher Mims backs up my contention that it is companies like Apple (AAPL) or Google which are the more important force behind changing the world compared to companies that move pounds like Tesla or Amazon:
 
Almost every day when they get home from school, Gracie, age 16, and Sarah, age 14, open the app Houseparty, where they can video chat with to up to seven of their friends at once. The sisters, who live in Danville, Calif., use it to socialize and collaborate on homework, for 15 minutes to an hour. When they first open it they may be chatting with just one friend, but everyone they’re connected to on Houseparty gets a push alert that they’re “in the house,” and, soon enough, the room fills up.
 
It may not necessarily be a change for the better, but it is true social upheaval. No car necessary.
 
Physically moving objects is still all about eliminating friction. The potential for changing where we go or what kind of products we use is limited.  
 
Moving data is changing the way people live. Our habits are changing, our friends are changing, and the kind of products we use is changing. The Android app Houseparty is just one small example of many.
]]>
<![CDATA[ Elon Musk Is Wrong About Factory Automation ]]>Tue, 21 Feb 2017 03:02:02 GMThttp://perezonomics.com/home/-elon-musk-is-wrong-about-factory-automationNo Universal Living Wage Required
​I heard Elon Musk theorizing about how in the future so much of manufacturing will be automated that governments will need to consider moving society onto some kind of guaranteed universal income. The problem with Elon’s statement is that he’s forgetting about the law of unintended consequences. And there will be some very real consequences to automating manufacturing. 
Factory automation requires a lot of volume in order to make any sense from a financial standpoint. The money that you have to sink into machinery, controls, and programming doesn’t pay off unless you can spread it over lots of units. Otherwise, it’s more expensive than just paying someone to do it by hand.
 
So the consequence of this overhead allocation on a large-scale means that corporations will by necessity be forced to reduce the variation of the products that they offer. Nobody in the tech world seems aware of this inconvenient little fact. As the cost structures of large corporations shifts to higher and higher fixed costs vs variable this means that their product lines will be further and further consolidated.
 
So where does the law of unintended consequences come into the picture? As large corporations consolidate their product offerings they will be forced to abandon anything that isn’t high enough volume. This frees up small companies or even sole proprietorship entrepreneurs to fill the void. Product categories that were once unattainable to them will be opened up and there will be less or no competition from the big guys.
 
Whether you’re talking about food, clothing, or even electronics it doesn’t matter. Every industry that gets automated will have larger niches that will need to be filled. Since by definition it won’t make sense to automate them that means these business will have to hire people to do the work. And the work will probably be more artistic and fulfilling to boot.
 
This may not happen over night and there may be a painful interim period. But eventually savvy entrepreneuers will see the new opportunities before them. Never under-estimate the power of the profit motive.  
 
Yes, big corporations will be able to offer high volume products cheaper than ever. But the variety of what they’ll offer will be narrower. Offsetting this trend would be a boom in small business growth. That means jobs would simply shift, not be eliminated forever.
 
Perezonomics.com
]]>
<![CDATA[Apple Is Putting the Hurt on Short Sellers]]>Sun, 19 Feb 2017 14:35:03 GMThttp://perezonomics.com/home/apple-is-putting-the-hurt-on-short-sellersAPPL at All Time Highs
​Michelle Jones writing for Valuewalk is reporting that Apple’s (AAPL)sudden stock movement is putting the hurt on short sellers who had bet against Apple prior to the latest quarterly earning release. I even read about one investor last week who had put every dime he owned betting that Apple stock was going down. That was a bad bet.
​Although, with Apple hitting new all time highs you would expect the short interest to start to grow. Interestingly, it sounds like relatively few investors want to take that bet.
 
With all the pain, it’s no surprise that few are just betting outright that Apple stock will fall. S3 said most current short interest in Apple stock is market-related portfolio heads or hedges for derivative securities. The firm added that core short interest in the name ranges from $4.5 billion to $7 billion, so in order to say there’s “an appreciable” number of short-sellers betting on a share price decline, interest would have to trend past $7 billion.--ValueWalk

A lot of people don’t exactly understand how you make money on shorting stock so here’s a simplified description:
 
Say you had a rich uncle who just bought a new 2017 Corvette Stingray and he paid $80K for it. You ask him if you could borrow it for a year and he says yes. As soon as you get it you sell it for $80K. One year later, knowing that you need to return your uncle’s car you go out to buy another one. Only now with a year of depreciation you are able to purchase the exact same model used for $60K.
 
You return the car to your uncle and get to keep the extra $20K you made on the deal. Cars always depreciate so there was little doubt that the value of a Corvette would go down with time.
 
But stocks aren’t like that. They could go up just as easily. If you borrowed that car from your uncle and it cost you $100K to buy another one a year later then you just lost twenty thousand dollars. 
]]>
<![CDATA[Who Is Buying MacBook Pros?]]>Sat, 18 Feb 2017 14:21:08 GMThttp://perezonomics.com/home/who-is-buying-macbook-prosApple Doubles Down on iPad as a Laptop Replacement
Apple (AAPL) just came out with an iPad Pro ad campaign that doubles down on their view that for a large segment of the market, the iPad Pro can replace the laptop. The campaign seems aimed specifically at Windows PC users, which makes a lot of sense. Windows switchers have been coming to Apple via the MacBook Pro and ending up with an iPad in the end. Why not short circuit that route and just send them directly to the iPad? This would yield a lot more switchers going for the iPad Pro, which starts at $599. Judging from the ad campaign, Apple obviously sees the iPad as more than a leisure-time device for reading magazines.
But this isn’t just about Windows PCs. The iPad install base is growing by tens of millions of units every quarter, and a lot of these buyers have decided that they don’t really need a MacBook Pro anymore. And yet, MacBook Pro sales remain fairly stable. So who is still buying these computers?
 
I boil it down to the following formula.
 
Windows to Mac Switchers = MacBook to iPad Switchers
 
In other words, the MacBook Pro segment has a core of longtime users that is augmented by new converts from the Windows world. However, on the negative side, they are also losing a combination of their core market and many of the new users to the iPad. At the present, the new users are offsetting the lost ones.
 
 I suspect that the following is happening:
 
Windows PC owners buy iPhones or have them issued at work. They fall in love with Apple quality, craftsmanship, or iOS and decide they’d like to go “all Apple” and get a MacBook Pro.
 
Later, still being gung-ho on Apple, they buy an iPad. Not having a background with macOS, they find the MacBook Pro clunky and unfamiliar but the iPad friendly and inviting. The MacBook Pro ends up untouched and collecting dust the majority of the time, and the iPad owner wonders why he ever needs to buy another MacBook Pro.
 
This is exactly what happened to me and others I know. The problem for MacBook Pros in this scenario is that eventually the iPhone will stop growing. Without the iPhone to pull in new Windows converts, the MacBook Pro will then begin its downward descent. That’s because MacBook to iPad switchers will continue on indefinitely, even after the Windows converts start to dwindle. The MacBook Pro market is like a leaky bucket with a big hole in the bottom. As soon as the water stops pouring in, it’s going to start to run dry.
 
I’m not anti-MacBook Pro. I think it’s the best option for people who need a serious work machine. I’m just anticipating the reality that as the MacBook Pro market shrinks, the prices for new ones will necessarily go up. I’ve seen this same scenario played out multiple times in other industries, and I can predict what will happen.
 
The MacBook Pro has a core market that would never consider going to iPads given today’s prices. But as MacBook Pro prices go up, even this core group is going to question why they need to spend so much. Especially if the iPad grows more capable and gets a price cut. This is what I wrote about when I said that the tablet and laptop price structures are going to flip. As prices for MacBook Pros go up, this will further depress sales. And thus starts the vicious downward spiral.
 
Everyone who thinks that the MacBook Pro will be a thing for a long time makes two big assumptions: one, that current pricing won’t change, and two, that iPads will forever be stunted on the software side. Both are bad assumptions.
 
Further, anyone who thinks that the MacBook Pro will be around for the long haul because Tim Cook or Phil Schiller said so is making a critical error. That decision is not up to Tim or Phil. That decision will be made by Apple’s customers. If people start buying Surface Pros, iPads or even plus-sized iPhones in lieu of laptops, then by necessity, Apple’s executive management will be forced to adapt to the new reality. Customers will vote with their dollars, and Tim Cook et al will be forced to follow. That’s why we have iPhone screens larger than 3.5". The success of larger Android phones ensured that outcome.
 
I don’t doubt that Apple’s management team is committed to the MacBook Pro. But I also don’t doubt that they have contingency plans if the MacBook Pro starts to go into a slow downward descent. They’d be negligent if they didn’t plan for that scenario, because it’s a very real possibility. Or maybe keeping the MacBook Pro is the contingency plan should their thoughts on the iPad prove to be wrong. Either way, they don’t want to burn any bridges with the core MacBook Pro users.
 
I see the Macbook Pro as being saved by the iPhone in the short term. But this situation won’t last forever. The question is how long water keeps pouring into the bucket. If Apple has roughly 20% of global market share, I wouldn’t say that the situation for the iPhone is dire. But going forward, growth will be more difficult since Apple is fast approaching the point where any new iPhone owner will have to be an Android convert.
 
In summary, nobody knows what is going to happen, because that decision is in the hands of future buyers.
]]>
<![CDATA[ Will Tech “Superstar” Companies Give Rise to Monopolies? ]]>Thu, 16 Feb 2017 02:58:56 GMThttp://perezonomics.com/home/-will-tech-superstar-companies-give-rise-to-monopolies
Noah Smith at Bloomberg is writing about how monopolies may be worse than we thought, and Apple (AAPL) is used as an object lesson.
 
recent paper by David Autor, David Dorn, Lawrence Katz, Christina Patterson and John van Reenen speculates that tech might have enabled the rise of a few “superstar” companies in each industry. The fact that leaders in more concentrated industries also tend to have higher productivity supports this hypothesis. Technology might have simply changed the nature of markets so that the winners take most of the profits.
This could happen because network effects have increased. For example, iPhones are popular in part because of Apple’s large app store, and the app store is large because developers want to write apps for popular phones. Or in finance, having a larger network of counterparties could be more important to banks in the internet age.
I have a hard time getting worked up about monopolies. Reason being, the more profit that is involved, the more incentive a large company from another industry has to invade your territory. If a monopoly takes advantage of their position and starts price gouging their customers to achieve huge profit margins, this does not go unnoticed in the business world.
 
The false assumption around monopolies is that if one company dominates an industry, another large company from another industry won’t invade their market. This is false because companies are always looking for complementary business in other industries that they can expand into. If your company has a position titled “VP of Business Development”, that’s what they do all day long.
 
I know, because a fair amount of my career is taken up with analyzing how much I think it will cost my company to produce product X if we were to launch an assault into a new market. We look at markets that dovetail well with what we already do, meaning that it helps us leverage our purchasing power in various commodities or use existing manufacturing assets. And most importantly, it must offer healthy profit margins.
 
A monopoly that is brought about through what the Bloomberg article describes as “companies who achieve superstar status through innovation” is a temporary position. And worse, companies with monopoly status tend not to stress too much about achieving maximum efficiency. This makes them even more vulnerable to getting undercut eventually by someone else. High profit margins in an environment with little competition is like a bloody fish in shark-infested waters. The predators will come.
]]>
<![CDATA[Are iPhone Mounts Immoral?]]>Sun, 12 Feb 2017 13:43:11 GMThttp://perezonomics.com/home/are-iphone-mounts-immoralAuto Makers Seem to Think So
​I find it increasingly perplexing that ten years after the birth of the modern smartphone movement, with Apple’s (AAPL) launch of the iPhone, automakers continue to refuse to accommodate the masses with mounts built into the dash. Sure, they’ll provide you with all manner of ways to charge your iPhone, lay it flat in an out of way cubby hole, or even connect to it so you can access media. But will they allow you to mount it so you can see the screen? No. 
​Cup holders though? They’re everywhere. I’ve got cup holders in my door, center console, on the dash, hidden in the seat etc. I bring this up to make the point that a mount for my iPhone isn’t hindered for lack of space. I’ve purchased two new vehicles in the last six months, one from Honda and the other from BMW, and each time I’ve had to embark on an agonizing search for an acceptable way to charge and mount our iPhones. It seems like something like this should be handled by the automaker, not the consumer.
 
Which brings me to the million dollar question. Should you be allowed to see your iPhone screen while you drive? The automakers say “no”. Although, I have a healthy skepticism of the motive for their concern for our safety. Considering that they view Apple and Google as potential threats to their cozy environment I find their safety concerns a little too convenient.
 
I used to work for the VP of Logistics at the Batesville Casket Company (HI) and did analysis for them on their 120 truck fleet. I still remember our discussions back in the 2010 timeframe when our truck drivers were all starting to acquire their first smartphones. We were trying to decide whether or not to ban all smartphone usage from the fleet. It was a short discussion which ended with a complete ban.
 
But what stuck out to me from that discussion was that the Director of Transportation came to the discussion with studies that showed that these kind of smartphone bans always resulted in HIGHER accident rates. He was genuinely in turmoil whether to ban them or not because his top concern was safety. But the study results defy what you’d normally think.
 
So how could this be? What the studies showed was that prior to the smart phone bans, drivers used their devices up high where they could still see the road in the background. It’s the same principle behind a “heads-up display”. The idea is that you don’t move your eyes away from the road so that you can still see traffic conditions. Truck drivers using their smartphones in the cab would extend their arms up above the dash line so as to still see oncoming traffic or road conditions.
 
The study also showed that after smartphone bans, drivers would still use their smartphones but they tried to conceal it. They’d leave their smartphones down on their center consoles or hold it down by their legs so as not to be detected. As a consequence, they were less aware of traffic conditions and accident rates went up.
 
I agree that smart phone usage has made public roads more dangerous and the last thing I want is people reading their Facebook feeds while they drive by my kids who are playing outside. But auto makers need to face the reality that a lot of people use their iPhones for navigation. They also need to screen their messages and calls so as to ignore all calls that aren’t important.
 
I think it’s unreasonable to assume that no one needs to mount their iPhone on their dash somewhere. An integrated solution from the auto maker would be so much nicer than the sea of ugly black plastic contraptions that look so out of place in our beautifully designed auto interiors.
 
And you know what? I think our roads may actually be safer. 
]]>
<![CDATA[Apple's New Matrix]]>Sat, 11 Feb 2017 12:49:38 GMThttp://perezonomics.com/home/apples-new-matrixAn Apple Display Could Change Everything
​I have first-hand experience with how horrific the display business is. If all you have to offer is a dumb display, then good luck with that. But even I will acknowledge that there are strategic situations where it makes sense to be in the business of displays. The iMac is a good example. At the time, there was no good way to get a 4K monitor paired with a desktop computer unless you did what Apple did and bypass cables. 
​But times have changed, and 4k monitors are readily available now. If you want a high resolution display, you don’t need to buy an iMac anymore. I’m all for Apple offering an Apple Display if there is a pressing need for one but the iMac doesn’t fit that bill.
 
So, what else can you do with displays besides just increase the resolution? At some point, your colors will be accurate enough and the pixels will be plentiful enough. If you want to offer a display that would push the industry forward and give you a competitive advantage that you can monetize, what do you do?
 
Better designed monitors would be nice but I’m not sure how many people are willing to pay a $200-$400 premium for a nicer look. If you can get the same monitor specs and display quality from someone other than Apple for significantly less money there will always be a downward pressure on sales. But Apple is in the unique position of being able to go beyond simply resolution and color reproduction as a value proposition if they so choose.
 
I’m hoping for smart displays. Apple has already given us a hint of this with their W1 chip–enabled headphones. If you haven’t tried these yet, they’re awesome. Imagine playing a YouTube video on your iPhone through your headphones. Then you see your iPad sitting on your desk, and you decide to finish the video on your bigger screen instead. You just start the video on your iPad and open the control center to select the headphones you’re wearing. No need to unpair or re-pair in your iPhone and iPad Bluetooth menus.
 
I love Apple’s new bluetooth. It’s way beyond what Android is capable of, and Apple needs to double down on this convenience beyond just audio. I had no idea I wanted this until Apple gave it to me. Now I want it everywhere.
 
There was a pressing need for Apple to offer 4K iMacs. No one else could do it for them. It would be a similar situation with smart displays. Only a company that owns both the hardware and software sides could create a device like this.
 
And what would the purpose of said device be? Freedom and configurability. It would usher in a new future where iPhones or iPads could become true desktop machines. It could also be the companion display to an updated Mac Pro. You could sell the same display to any and all of your customers as opposed to just a tiny sliver like the iMac does.
 
But even more importantly, a device like this would shake the whole foundation of Apple’s four-sector product matrix. You would still have the two categories of Consumer and Professional, but the concept of Portable vs Desktop would become quite blurred.
 
The product matrix of four squares essentially would be reduced to Apple’s two main value propositions.
 
  1. Communications and internet connectivity
  2. Getting work done


The consumer computer market has been driven in large part by internet connectivity. During the nineties, people were spending $2000 on big honkin’ IBM PCs so that they could basically e-mail each other and surf the web. They rarely actually did “work” on those expensive machines. I see the core competency in what Steve Jobs labeled as “Consumer” to be in a grand sense communications.
 
Professionals have always been the opposite. They’ve always been more concerned with the machine’s ability to create versus wasting time in non-productive endeavors. Whether on movies, music, or photography, it doesn’t matter. The machine exists to help the user leverage his time in the most efficient way possible.
 
So I see these two ends of the spectrum separated by various levels of screen sizes and processor power. One end has the bare essentials to meet a consumer’s basic need for connectivity: a cellular-connected Apple Watch that could stand on its own. At the opposite end of the spectrum would be a desktop-bound Mac Pro.
 
I only want to pay for one cellular plan. Therefore, it makes sense to attach cell service to the most portable device and choose my screen size based on my activities. If I want a small 4" screen to wear in my gym shorts, I can do that. Or if I want a big 10" foldable screen to take on a long bus trip, so be it. This part I’ve gone over many times. But these are portable screens.
 
What if you want a desktop screen with your portable device? I’d love to see a big retina Apple display that could bounce between devices as easily as my W1 chip–enabled Powerbeats3 headphones can. Imagine being able to hook up your iPhone, iPad, or Mac Pro to a big, beautiful display. Apple could even add touchscreen functionality to it. This would be great for people who’ve always wanted a 32" iPad in front of them at a desk like Microsoft’s Surface Studio.
 
This brings me to why I see the iMac as a losing proposition. From a financial analyst’s point of view, this is a terrible product. Displays are disproportionately expensive. If there is anything wrong with any part of an iMac and the customer returns the product, Apple takes a loss on the whole thing. Bad memory chip? The whole iMac is returned. Funky silver paint splotches on the case? The whole iMac is returned. And so on. Same problem on the consumer’s end. Did you buy a 2014 iMac and wish you could have the new display with the wider color gamut of the  Retina display released in 2015? Sorry. You’d need to buy a whole new iMac. You can’t just upgrade the display. Detaching the display from the brains allows Apple to reduce their warranty costs and increase their volume.
 
Apple needs to work their magic with video the way they’ve already done with audio. And Apple should include the MacBook Pro. With all the talk about whether the MacBook Pro lives on, why not let the people vote with their dollars? If people start to gravitate towards iPads that can be used with 27” monitors and trackpads, then Apple can kill the MacBook Pro. But if people continue to buy MacBook Pros even in the face of cheaper iPads with big monitors, then let the MacBook Pro live on. There’s even a third possible scenario that most people haven’t thought about. If people could pair their iPhones with full-sized desktop monitors, could iPad sales shrink even further? Could the iPhone kill both the iPad and MacBook Pro?
 
Steve Jobs famously divided Apple’s product portfolio into the quad. I see the quad now as more of a spectrum between two value propositions. That’s because soon you will no longer be able to label devices as simply “portable” or “desktop”. If you extend your iPad’s display to a 32" monitor, it’s more of a desktop. 
​And on the flip side, what if you hooked up some augmented reality glasses to your Mac Pro? You could walk around the house or the yard and do stuff which makes your Mac Pro behave almost like a portable.  
 
The most interesting part of this whole scenario is the interplay between the Apple Watch and the iPhone. If the Apple Watch became the central focus for cellular, that means it becomes almost like a mini-iPhone. And if the iPhone were to become the brains with the workhouse processor and paired with an Apple Display, it essentially takes on the role of the MacBook Pro.
 
What would bring us this Neverland would be a smart display. 
]]>
<![CDATA[Fifteen Years of Success]]>Wed, 08 Feb 2017 03:11:57 GMThttp://perezonomics.com/home/fifteen-years-of-success
​When an organization has a string of amazing success over a long period of time, the chatter usually shifts away from the individual players and onto the management. Who setup the system that drives the success and how does it work? 
Apple (AAPL) launched the original iPod on October 23rd, 2001. 103 days after the iPod was launched the Patriots won their first Super Bowl. Both organizations have had an amazing string of success over the next fifteen years. In 2017 the Patriots won their fifth Super Bowl in what is described as the greatest football game of all time played by the greatest quarterback. And Apple just reported the most profitable quarter of all time driven by the most transformative device of all time, the iPhone.
 
When it comes to either of these two organizations who gets the credit? How much is due to the system or how much is due to special individuals?
 
 
2001 – Present Timelines
]]>
<![CDATA[My iPad Wish List]]>Tue, 07 Feb 2017 03:52:56 GMThttp://perezonomics.com/home/my-ipad-wish-list
​Unlike macOS, iOS is already well entrenched in the enterprise world. The iPhone is the defacto mobile standard in business. So it makes sense that when Apple contemplates a full-scale assault on enterprise that they start with their Trojan horse. Windows will probably continue to own the enterprise space for the foreseeable future, but if Apple could get to 20% penetration, this would be many times larger than their current entire Mac business. 
If I was going to war-game what the iPad would need to begin such an assault, this is where I’d start:
 
External Monitor Support – As much as I like my iPad, there are some days when I wish I could get my spreadsheets onto a 27" screen. Spreadsheets are probably the one thing that makes me long for an external monitor, but spreadsheets are also used by over 90% of corporate worker bees. Everyone docks their laptops and uses external monitors, so this needs to be a high priority for Apple.
 
Trackpad Support – I’ve written recently about how iPads need cursor manipulation that can happen when the iPad is used mainly as a display on a desk. The Apple TV remote already has a system that seems like it would work on the iPad.
 
3D Touch – There are aspects of 3D Touch that are superior to using a mouse. When I’m using my iPad in the car or on the couch without access to a monitor or trackpad, it would be nice to be able to use the iPad itself as a giant trackpad to peek and pop in spreadsheets.
 
Virtual Function Keys – Virtual keyboards need function keys. Most corporate ERP (enterprise resource planning) systems use function keys extensively, and not having them in the virtual glass keyboard negates the benefit of having an iPad out in the warehouse or in the conference room.
 
None of these items seem like they’d be that difficult to bring to the iPad but they would go a long way to making the iPad useable in an office setting.
 
If I could have all of the following on any one device, it would be a dream come true:
  1. Drink a cup of coffee in the morning and read the news on it like a magazine
  2. Take it to work where I could AirPlay the screen onto a 27" monitor
  3. Pick up my device and use it like a notebook during meetings with a pencil
  4. After work, sit on the couch and do research on it where I could save screen prints or articles
  5. Travel with it on vacation or trips where I might also use it to capture photos and video so as not to worry about transferring media
  6. Carry all this on a device that weighs one pound or less
 
This doesn’t exist anywhere in the world today. My biggest problem with laptops is that they have a big freakin’ keyboard permanently attached. And my biggest problem with the iPad is that it doesn’t connect to monitors or have a trackpad. But even so, the iPad is currently the closest thing to what I want. And it wouldn’t take too much to get it the rest of the way.
 
Yesterday when I was listing what I thought were Apple’s most important products, some readers may have noted that I left the iMac off of that list. That’s related to my desire for external monitor support on the iPad. But I’ll go into that more later this week.
]]>