But I heard the jury was still out on science.
I have watched every Apple product announcement and keynote address since 2006. Most of the time I am watching simply as a technology enthusiast waiting to see what’s next; however, overtime you get used to the normal rhythm of these events. Something was different about the event announcing the Watch and new iPhones. To understand how it was different let’s look at the anatomy of a new product launches.
1. Identify a market that is currently poorly served
2. Explain why current offerings are not good enough
3. Announce the new product
4. Explain why the product needs to exist 1
5. Compare and contrast the new product with existing poor offerings
Tim Cook took a very different approach with the Watch. Throughout the announcement there would be no slide acknowledging the terrible state of the smart watch market, no matrix of the current inferior offerings, and no slide demonstrating just how terrible their competitors’ interface is.2 Apple did mention traditional watch makers. But, the tone showed much more respect for the mechanical wonders fine watches can be.
The evolution in Apple’s product launches shows they recognize that they are no longer an underdog. Apple is the big dog. Just as Coca-Cola never mentions Pepsi, Apple did not mention Samsung. Pepsi screams “we are better than Coke!” Samsung screams “we are better than Apple!” This may be an effective strategy for the number two vendor to follow but it can not be consistently deployed by the market leader.
I imagine, just as the Mac vs. PC commercials had to go away, so too will most direct mentions of their other competitors.
In the past I have been part of the crazies that line up on opening day to get the new iPhone. I did it for the iPhone 4. I did it for the iPhone 5. And, I even did it for the iPad 2. But this time it was going to be different. I decided that I would just get online and order one there hoping I would be able to get the phone delivered on day one.
There are a couple of things that I really enjoy about waiting in line for a new Apple product. There is an incredible amount of energy in the air as people anticipate their new purchase. I mean, you get to hang out with a few hundred other technology nerds. How could this ever be a bad thing? I have had great luck becoming friends, although temporary, with my neighbors in line. We have shared stories about how we use our iPhones, talk about the new features that excite us, and just shoot the breeze about other random things.
For me, buying an iPhone after waiting inline has been as important a part of the iPhone experience as using many of the iPhone’s actual features. When I decided to buy my new online I was a little sad that I would be missing this experience.
As it turns out there is a pretty good substitute for standing in a line for hours in the early morning: Twitter. The iPhone launched online at 3:00 AM Eastern time, but Twitter was flowing freely with people sharing their experiences trying to buy the iPhone. And just like in a normal line there was a lot of angst. Most launch day cell phone carriers and Apple could not handle the massive volume of people trying to buy an iPhone. And just like in a real line where you have no idea how many units the store will actually have, we waited anxiously to actually see the screen refresh allowing us to buy a phone.
So in Jimmy Fallon style, thank you Twitterverse for being just as crazy as I am when trying to order a phone at 3 in the morning.
Daring Fireball: Laugh It Up, Fuzzball
To deal with concerns that a bigger phone will make typing with one hand difficult (the current iPhone has a four-inch screen), some changes to the design of the iPhones’ user interface will allow people to type or use apps with just one hand; there will be a one-handed mode that can be switched on and off, two employees said.
I know what you’re thinking. You’re thinking, Oh, that can’t be. Samsung tried that and it was ridiculous. Haha, the New York Times got punked.
The thing is, I’m not laughing. You wanted Apple to make a 5.5-inch iPhone? This is what you get.
I think we have already been shown Apple’s one-handed mode. The below screen shots are from iOS 8. Both images show interface elements that require just one hand AND you do not need to lift your finger to get from one button to another; you simply slide your finger across the screen.
I think this feature is especially important when using larger phones with just one hand. Lifting your thumb off of the screen requires you to secure the device with your remaining four fingers; this is much harder with larger devices. But, being able to simply slide your thumb across the phone allows the user to maintain steadier control of a large device.
I seriously doubt Apple’s one-handed mode/features will just shrink the displayed area down like we saw with Samsung. I am willing to bet Apple will be moving more toward radial menus and moving the location of important buttons to the bottom half of the screen.
@kyrelahtinen I think going to shrink the screen. Seriously.
— John Gruber (@gruber) September 8, 2014
NYTimes: A House Built to Baffle
This was Labor Day weekend in the Hamptons. Lines poured out the door of the town’s coffee shop. Traffic was snarled for miles. The scene achieved Times Square-level chaos, only with trees and fresh-baked pies. And yet inside the Masi residence, it was silent.
The couple had even thrown open the sliding-glass wall that runs the length of the room, transforming the yard into a grassy extension of the living space. The only sound was birds chirping.
Although the style of this house won’t please everyone, I think anyone who loves sound engineering could appreciate it. 1
Yourhoustonnews.com: Texas among those playing factory poker with dealer Tesla Motors
Tesla signaled this would be no ordinary competition last fall, when it gathered economic development officials from seven Western states and unveiled its vision for a “gigafactory.” (“Giga” refers to the large amount of power that batteries produced at the plant will store.)
This spring, CEO Elon Musk announced Tesla would take the extremely unusual step of spending millions to prepare sites in two states — or perhaps even three — before the finalist was chosen. Then, over the summer, Musk said the winning state would pitch in about 10 percent of the cost, effectively signaling a minimum bid of $500 million.
“We don’t usually see companies setting a floor at which states will be considered,” said Leigh McIlvaine of the research group Good Jobs First, which tracks large subsidy packages by states.
It is very interesting that Tesla has so much control over these negotiations. I am reminded somewhat of the prisoner’s dilemma. Each state is at an informational disadvantage; they know nothing about the bids by the other states. I imagine Tesla has set up the negotiations this way because they believe they will get a better deal for keeping the bidders in the dark just as the police get a more favorable outcome in the prisoner’s dilemma.
The competition for the gigafactory began at an October meeting at Tesla’s auto assembly plant in the San Francisco Bay Area city of Fremont — a rare approach to opening a site selection process. Tesla executives laid out what a winning bid must have: “Green” energy such as solar or wind at a low cost, an affordable and well-trained labor force, good transportation links to Tesla’s Fremont assembly plant. And a robust package of incentives.
Tesla is putting its (or the government’s) money where its mouth is. Tesla claims their goal is to end our dependence on fossil fuels. It is only natural that Tesla should be expected to follow its own pledge. Requiring clean energy as part of the bid is also a way to encourage states to improve their infrastructure that might otherwise have never been improved.
It would appear near field communications (NFC) are coming to the iPhone. NFC has been around for a while in other devices but has never really taken off in the mainstream. But now that it might be included in the most popular smartphone, we might ask how does NFC work and what does it do?
Techradar: What is NFC and why is it in your phone?
At its core, all NFC is doing is identifying us, and our bank account, to a computer. The technology is simple. It’s a short-range, low power wireless link evolved from radio-frequency identification (RFID) tech that can transfer small amounts of data between two devices held a few centimeters from each other.
The main reason NFC gets included in phones is to replace your wallet and its various cards. Instead of pulling out a credit card or store member card, you pull out your phone. NFC has never been something that interests me for two main reasons. I quit carrying a Costanza Wallet a long time ago. My current wallet is closer to a large money clip than a traditional wallet. So, being able to pay from my phone will not help me there.
I also do not see any difference between quickly pulling a credit card out of my pocket versus pulling my phone out of my pocket to pay at check out time. Sometimes it is easier to pull out my wallet than it is to pull out my phone. How much of a difference does it really make to wave a phone within centimeters of the register versus just swiping the card?
This is where the iWatch becomes very interesting. Check out what John Gruber had to say.
Daring Fireball: Paczkowksi: ‘Apple Plans to Announce Wearable in September
Follow-up joke: It would be cool, and would make a lot of sense, if the new wearable thing had the same magic payment apparatus.
If this is true then it changes my view a little bit. A watch is always out on your wrist; this location can actually improve the payment experience. You can expect whatever system Apple employs to be compatible with new chip and PIN credit card systems which obviates the need to sign.
There are a few implementation problems that I am interested to see addressed before I could switch all of my payments over to my phone. These include:
No matter how they have done it, September 9th is going to be a fun day.
ESPN Los Angeles: Josh Shaw: ‘Would do it again’
Just hours after being voted a team captain on Saturday, Shaw was attending a family function when he saw his 7-year-old nephew, who does not know how to swim, struggling in a nearby pool. Instinctively, Shaw jumped from a second-floor balcony onto concrete below and crawled into the pool where he was able to help his nephew to safety, according to a release from the school.
UPDATE: ESPN Los Angeles: USC’s Josh Shaw admits to lying
USC senior cornerback Josh Shaw has admitted to lying about how he suffered his ankle injuries last weekend and has been suspended indefinitely, the school said in a statement Wednesday.
Recently a former IDC researcher made headlines for revealing “how the sausage gets made.” This particular revelation comes in response to a recent inaccurate report by the IDC and Gartner that said Mac sales were falling when Apple’s official numbers actually had Mac sales increasing by double digits.
So, the mantra became, preserve the growth rates; to hell with the actual numbers. Even the growth rates are fiction.
I am picking on the most controversial statement first. It would appear that the numbers have absolutely no credibility at all. The numbers are just some made up malarky. This statement has caused people to go into a mild uproar and raises a two questions:
- What systematic biases do analysts have?
- Can we learn anything useful from analysts?
Psychological research has shown that fields that have arbitrary or delayed performance feedback are more likely to exhibit overconfidence bias. Those most affected are clinical psychologists, doctors and nurses, engineers, entrepreneurs, lawyers, and investment bankers.1 Financial analysts, like investment bankers, are charged with evaluating companies or industries and making predictions about those companies or industries. Contributing to analysts’ overconfidence is the fact that predicting the future is hard.2 Past predictions are frequently not checked to see if they actually came to pass. Predictions that end up being incorrect are easily attributable to unknown forces. It is tempting for an analyst to think, “my predictions were not wrong because I made an error. My predictions were wrong because unknowable forces acted on my prediction.” This type of thought process can absolve (at least in their mind) the analyst of any blame.
Analysts are consistently overoptimistic about the market and firm prospects. To put this in perspective, by mid-2000 buy recommendations were approximately 75 percent of all recommendations whereas sell recommendations were just 2 percent of all recommendations.3 Most academics, and I would imagine most practitioners, do not care about the level of the rating, focusing instead on changes in rating. Analyst overoptimism seems to be included in market expectations as stock downgrades accompany the largest market movements.
Analysts are also shown to be prone to a well known psychological bias know as the representativeness heuristic. The representativeness heuristic leads people to make decisions based on stereotypes or applying a small subset of data to the broader whole. Analysts treat stocks that are perceived as growth stocks the same. They likewise would continue to treat a winning stock as a winner even after evidence suggests the situation has changed. Attempts to address these biases through regulation has only has limited impact.4
So can we gain anything useful from these analysts? The short answer is yes but it comes with a caveat. I alluded to it above; you have to know how to put their buy/sell recommendations, earnings forecasts, products sales forecasts, and any other forecast in context. Understand what the limitations that analysts have. For example, Regulation Fair Disclosure, which went into effect in 2000, prevents analysts from being fed information from company insiders. Consider this point in context of the numbers the IDC publishes. IDC cannot legally get information directly from publicly traded companies about their sales numbers. How does IDC, or any other similar firm, draw their conclusions?5
In most quarters, the team starts with OEM guidance and, depending on the country, does some by-country cross-checking. However, for the US team, we just did some systematic adjustments to the vendor guidance and called it a day. For example, we knew that lots of Macs were transshipped from Miami to Latin America. So, we took some percentage of Macs (Apple, of course, never helped; in fact, even objected, saying it wasn’t so) and reallocated them from the US to a smattering of Latin countries, effectively modeling the market but with no low-level data.
This process should not surprise anyone. They can’t get information directly from firms, so they use a convoluted process to guess. An alternative strategy would be to send someone to sit in a store an count sales. But that has been scorned too. So even though “in the end, the process was political” it didn’t mean that there weren’t parts of the numbers people could trust.
I used to tell customers which parts of the data they could trust, essentially the major vendors by form factor and region. The rest was garbage.
The industry itself was aware of these issues, but agreed to maintain the fiction because it was convenient. Most vendors kept their own numbers, but referred to IDC for public purposes.
How does this IDC analyst’s experience mesh with what we have shown in broad based studies?
First of all let’s compare analyst performance against company managers. This is really the reason any analysts exist. They exist to tell us something beyond the calculating disclosures of a firm. Putting analysts against managers sets up a clear asymmetric information problem. Managers/insiders should know the most about the firm and its prospects. Analysts are at an informational disadvantage when compared to managers.
Research has shown that analyst forecasts are more accurate than manager forecasts when macroeconomic factors move with the fortunes of the firm. Managers are more accurate when a firm is experiencing “unusual” circumstances or situations that make the management’s internal knowledge of the operations of the firm more important. Overall, analysts are more accurate than managers about 50% of the time. So, perhaps analysts are not at an informational disadvantage relative to managers. They obviously have different information sets, but both appear to be useful in forecasting the firm’s prospects.6
We can cross check these academic results against what the researcher revealed above. The researcher essentially was claiming that IDC uses broad economic conditions to adjust their numbers. This is exactly the type of process that leads analysts to the get numbers right. This is the lens through which we should view analyst forecasts.
Analyst recommendations also are particularly informative when they are against the common trend. Analysts tend to herd in their recommendations.7 Breaking from the crowd to issue a contrary recommendation carries with it a lot of reputational or career risk for the analyst involved. This is why all star analysts are more likely to be contrarian than other analysts. And, yes, analysts get rated by their peers and classified as all stars.8
I am not defending IDC or any other group of analysts or forecasters. They paint themselves into corners with marketing materials and other statements that claim their numbers are more accurate than they really are. When analysts are inaccurate they should own it.
The point of this post is to suggest that analysts are not being paid to do nothing or simply make up numbers. Sure you can have instances, maybe I should say many instances, where analysts (expand that list to say researchers, managers, journalists, etc) have a hypothesis beforehand and set out to find facts in support of that hypothesis.
Analysts can add value. You just have to know what kind of filters you have to use on any information they generate.
NOTE: Stay tuned for Part II where I discuss financial analysts and why they don’t seem to understand Apple.
Barber, B. M., & Odean, T. (2001). Boys will be Boys: Gender, Overconfidence, and Common Stock Investment. Journal of Banking and Finance, 116(1), 261–292. doi:10.1162/003355301556400↩
Understatement of the year?↩
Barbera, B. M., Lehavyb, R., McNicholsc, M., & Trueman, B. (2006). Buys, holds, and sells: The distribution of investment banks“ stock ratings and the implications for the profitability of analysts” recommendations. Journal of Accounting and Economics, 41(1-2), 87–117. doi:10.1016/j.jacceco.2005.10.001↩
Mokoteli, T. M., & Taffler, R. J. (2009). Behavioural bias and conflicts of interest in analyst stock recommendations. Journal of Business Finance and Accounting, 36(3), 384–418. doi:10.1111/j.1468-5957.2009.02125.x↩
If a company did directly disclose their sales figures to IDC they would have to simultaneously release those numbers to the public. That doesn’t sound like a great way to maintain any kind of competitive advantage.↩
Hutton, A. P., Lee, L. F., & Shu, S. Z. (2012). Do Managers Always Know Better? The Relative Accuracy of Management and Analyst Forecasts. Journal of Accounting Research, 50(5), 1217–1244. doi:10.1111/j.1475-679X.2012.00461.x↩
Herding is a particularly bad problem in a field like finance where everything is compared against some, possibly arbitrary, benchmark. In many areas of finance absolute performance does not matter; only relative performance matters. This, of course, is a topic for another post.↩
Bradley, D., Liu, X., & Pantzalis, C. (2014). Bucking the Trend: The Informativeness of Analyst Contrarian Recommendations. Financial Management, 43(2), 391–414. doi:10.1111/fima.12037↩