What is a “Great Product”?

Rod Hall, JPMorgan, after cutting Apple Watch estimates in half: “We think it’s a great product; it’s just that the traction for these watches, people still haven’t figured out what they want to use them for.

Takeaway: Great products need not a purpose or reason for its target demographic to use.

Market Forces Also Apply to Unicorns (it just takes time)

While the unicorn club of startups were doing amazingly, insanely well, they commanded an endless stream of press coverage. Stories of overnight riches appeal to the populace. Jealously often begets just as much attention to overnight implosions and associated schadenfreude, so I expect many stories of the fall of these unicorns, too. A particularly interesting article popped up at Techmeme today, one that I thought balanced the typical pomp and glamour of unicorn stories with rational arguments.

TL;DR? Yes, all will eventually be subject to, whether in private or public, market forces, supply and demand, and capitalistic gauges of success (value). It’s really beginning to show up now.

Perhaps it was just a phase. Over the past 3-4 years, you weren’t trying if your startup wasn’t pitched as the disrupter of a trillion dollar industry and your goal wasn’t to become a complete monopoly. You didn’t “win”, unless you’d ground your competitors under the heel of your boot, on the way to at least 1 BILLION users.

There are still a couple of those, whose visions of such grand proportions are not yet over (perhaps Uber and Airbnb?). For most, though, they’re simply also-rans that haven’t undergone the level of scrutiny publicly traded companies do. And with mutual funds openly adjusting their book values down, even the private markets look less like the way to avoid the spotlight. (Okay, some are still fighting this – “Some venture capitalists anticipate further markdowns by mutual funds. That could make some startups more reluctant to seek mutual-fund money, since public disclosure of their valuations is watched so closely.“)

The revaluations are good and fair. This is the system returning to a period of normalcy, before the cycle repeats itself. It’s starting to sound a bit like the early part of 2007, when the MBS and CDO bagholders were only beginning to mark down the absolutely toxic investments on their books, all the while offloading them as fast as they could and getting on the opposite side of the trade. I just watched The Big Short.

The Last March of the PC

With the holiday shopping season upon us, in earnest, my attention is drawn to the hordes of <$400 laptops on the market. A couple years ago, within Windows, we were cringing at the onslaught of Chromebooks, to which we had no better answer than the continued race of the behemoth desktop-replacement laptops to match at least on price. Think driving the price of a last generation Toshiba C55 down to $249.

Two years on, the Windows value-entry ecosystem is in a much more competitive place. In large part, this has been triggered by licensing changes, designed to stem share loss at the low-end, not dissimilar in concept to the Windows “Starter Edition” driving Linux-based netbooks from the market. Well, the differences are myriad; Windows with Bing is not a limited OS, like Starter was, and performance, even at the low end of the laptop market, is finally sufficient, for typical consumer use.

But, I wonder what this is accomplishing. We’re all just fighting for an ever shrinking pie that is the PC market – and I draw the circle around what constitutes the “PC” market liberally, including OS X and Chrome OS. PC penetration in most regions of the world has peaked. And because even the lowest options on the PC totem pole are increasingly “good enough” for typical use, the upgrade cycle has lengthened. There are literally over half a billion PCs, in use, over 4 years old. It’s not clear there are any further “killer apps” in the PC sphere that will drive a significant portion to upgrade. Likely not, with the technology ecosystem’s focus elsewhere.

So, yes, Windows will continue to drive new features into the PC, to limit the decline of the market. Windows Hello is magical (similarly, ask iPhone users if they’re willing to forego their fingerprint readers), but it’s still making its way to mass market. Look at the shelves this holiday, and you’ll find Windows Hello is still few and far between, mostly on >$700 devices. It will come down, but it’s not a Hail Mary that rejuvenates the entire market. That said, Hello and other features are part of a holding pattern, while “the next thing” is cultivated (cloud? services? “IoT”?).

In the meantime, enjoy what is likely to be a last generational hurrah for PC innovation. We will drive it, because we need it to support the privilege of being able to invest elsewhere. Budget PCs will get much better and a more definitive premium tranche, carved out by Apple, and increasingly joined by Surface, will be sustained.

The Polar Opposite Amazons

I really don’t understand these types of articles and the inevitable, vehement counter-points – you might have read or heard about them, if you’re in the tech sphere, over the past two days.

Inside Amazon: Wrestling Big Ideas in a Bruising Workplace

And the counter-points:

An Amazonian’s response to “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace”

As with any organizational experience, there will be those who have it good and those who can’t wait to get out. Both sides hyperbolize the reality, particularly gathering and extrapolating the few data points they have into something much grander. I live in the Seattle region, and yes, I know many folks who currently or have previously worked for Amazon. And you know what, I hear both types of stories and everything in between! Imagine that!

The NYT found some disgruntled ex-employees, having gone through hell, while Mr. Ciubotariu is clearly a well-respected, high-performer, working in a team filled with rainbows and unicorns. I believe both of the experiences. For most, reality is likely somewhere in between.

More later.

NASDAQ 5000, Again

It’s a big day – NASDAQ closed above 5000 for the first time, since March 2000. Fourteen years ago, when the likes of inktomi and Lycos were at this peaks (~$25B and $12.5B, respectively), was when things started to come crumbling down.

NASDAQ 5000

The debate of whether this is the beginning of another steep downfall is upon us. Arguments are vigorous on both sides. On average, though, valuation multiples are much saner than 14 years ago, and corporate dividend yields are much higher than last time around. Meanwhile, long bonds are yielding approximately 1/3 what they did back then.

Yes, there are definitely a category of stocks exhibiting irrational exuberance. I even own some (TSLA?). But there are also plenty of more humble stocks, like Taiwan Semi (TSM), at 14.6 TTM PE, <1 PEG, and pays the same yield as a 10yr Treasury.

Don’t get me wrong, I’m going to take some profits, here, but I’m not planning to liquidate, either. It’s probably worth taking a hard look at some stocks that are riding a momentum wave, which will be some of the first to experience pain, when the overall market takes a breather.

Disclosure: I am long TSLA, but am considering reducing my position within the next quarter.