Digital Ecosystems – Battleground 2022

Cross-device is unlikely to help much.

• The industry’s move to compete with iOS by improving its cross-device user experience is an old idea that has not really helped to date and is unlikely to do in the future.
• One of the undercurrents of CES 2022 was a move from a number of players to focus on making their devices work more seamlessly together.
• This is something that Apple does extremely well and is a significant reason why iPhone users go on to purchase other Apple products.
• Samsung has been trying and failing for many years to emulate this success largely because cross-device functionality is a software problem where Samsung has very little heritage.
• However, help is at hand as Google has been working on a series of features that are aimed at bringing the Google Ecosystem into line with Apple’s.
• The promise is that its devices will be seamless to set up, pair, unlock each other and switch audio back and forth.
• This will primarily be supported between Android devices, but the aim is to extend this to Windows PCs in an attempt to emulate the excellent cross-device functionality that Apple delivers across all of its devices.
• The problem is that the Google Ecosystem is not vertically integrated, and its hardware partners are constantly making tweaks to Android in order to try and eke out some differentiation over each other.
• The net result of this is that these cross-device functionalities never quite work as they are intended, and one only has to look at the release schedule put up by Google for evidence of that.
• Support from individual car makers is given as specific releases as is support from certain PC makers and Intel.
• This implies that each hardware maker has to decide to implement these features and then make software changes in order to support them.
• They are all likely to do it slightly differently meaning that the increased functionality and seamlessness that the Android ecosystem is searching for is unlikely to materialise.
• Furthermore, Samsung still uses multiple operating systems (Tizen for TVs) meaning that the same level of seamless interoperability will be even harder to achieve.
• Hence, I don’t think that the Android ecosystem is going to make much headway on competing with Apple as it remains too fragmented to compete effectively against a fully vertically integrated system.
• The net result is that this move by the Android ecosystem is unlikely to make a dent in Apple which continues to dominate the high-end of the market.
• I think that it will not be until there is a major shift in usage habits away from smartphones towards another device category that Apple faces any real risk, but this move is quite some time away.
• I remain pretty ambivalent to Apple where the current outlook looks pretty fully priced into the shares.
• The real action this year is likely to be among those which have struggled but still have a fundamental story and a relatively cheap valuation.
• Within big tech, Alibaba fits this billing the best while Nokia also looks interesting although it is much smaller in terms of market cap.
• I continue to hold both of these stocks.