The beginning of the year is a strange time, this year it is surprising and unusual, I cannot remember such January in the electronics market in my entire long life. The total shortage, the rise in prices for components and devices, logistics has grown threefold, and prices continue to rise, although it seems that there is nowhere to go. Recently I wrote an article about the deficit in electronics manufacturing. For those in the industry, it was sad and understandable, for the rest it turned out to be some kind of higher mathematics. After all, we have money in our pockets, which means that the manufacturers will give the product that we want! The paradigm that money decides everything is firmly entrenched in the minds, it is harmful and affects, among other things, production for some companies.
Therefore, using Yandex as an example, we will discuss that money is important, but it cannot solve all production problems, especially when there is no understanding of how it works and what is happening on the market. People and companies today lack awareness of reality, how processes work and how everything happens in practice. For example, to buy TVs at old prices, you have a month, maximum one and a half. And then the race will begin, for some companies prices have already gone up, and this is just the beginning. And this is not a function of the exchange rate of the dollar and the ruble, a global trend and directly arising from the trade war.
It is curious that I constantly come across two points of view in my work when I talk about the same deficit that provokes price increases. The first point of view is pleasant, but it is in the minority – thanks, I managed to buy this and that, I saved it. The second point of view is perplexing: everything is clear, trying to increase sales, he is paid for it. Attempts to understand who pays and how, stumble upon a vicious circle of the same statement. And this is sad. But enough reflection, let’s start our release. Go!
- “Station Max” – the story of another “success” from “Yandex”
- Pre-installation of Russian software on smartphones – new introductory notes for April 1
- Who will pay for content on the Internet – war of the worlds
- LG leaves the smartphone market – the reality of the new era
“Station Max” – the story of another “success” from “Yandex”
I am amazed at Yandex and how the largest IT corporation produces hardware products. Everything that can be done wrong with regard to hardware is done in Yandex, consistently and persistently. The feeling that the company’s employees are doing it in spite of the way this market works. I recall with nostalgia Yandex.Telephone and the mind-blowing stories that Yandex will have many years to bring this device to its senses. The hardware was made, and now we can do the software, as the technical director of the company said on the air of one radio station. I remember the fervor with which they defended the company and its smartphone, explained that my negativity was unjustified and that very soon Yandex would give Google a light. At the time of the announcement of Yandex.Telephone, he told in detail and in detail how this product would fail on the market, why the company does not understand the hardware market and where it will lead.
It turned out exactly as it was described, it could not be otherwise. Such childish, ridiculous mistakes, and at several meetings with Yandex employees, he described in detail what would happen to the product, what is their problem, and how you can at least partially save the situation. They nodded, but did everything in the end exactly as it was not necessary. Do you know why? Two years later, and already outside the company, people openly talk about this – the reason was that everyone wanted unconditional success here and now, no one wanted to wait. And at the same time, there was a problem that, buying at an exorbitant price the development of a Chinese smartphone, paying for the PR of the project and placement with lured bloggers, plus a large press conference, they did not leave any money for the revision of the product, its support and promotion in retail chains! This is the ideology of “Yandex”, it is important to bring the product to the state of launch, and what will happen to it later does not play any role. You are praised and rewarded for the fact that the product has survived to the launch state, then no one is going to sell it. Do you think that something has changed at Yandex in two years? Let’s take a look at how the company created an updated version of its large column in 2020 – Yandex.Station Max.
The price of the column is 16 rubles, which is prohibitively expensive and a lot. Communicating with the Chinese who produce the device, I asked a simple question: where does such an extremely high cost come from? The answer was not surprising, but it highlighted how Yandex perceives the market and its opportunities on it: the volume of the batch is so scanty, this is the minimum possible amount. Perhaps you are now trying to come up with an explanation why Yandex ordered a minimum of such columns. Someone will think that at a price of 990 thousand rubles, the column cannot find any noticeable demand, that this is an extremely niche product. And it is true! But there is one quirk here, by ordering not 17 units, but, for example, 2 of these speakers, you can provide a shelf price of 000 rubles. When you order that you are ready to guarantee and redeem 10 thousand pieces for a couple of quarters, you can provide a shelf price of 16 thousand rubles. And if you also think that, in addition to cost and margin, there is an opportunity to play with marketing, promote a new column in retail chains, then the picture will be completely different. Iron can be sold, but for this you need to love what you do, and even without having sufficient knowledge and skills, to learn it. But Yandex was doing this project for show, it was necessary to show something at YaC 40, because there was no other commercial hardware there. And the column turned out to be an exclusively exhibition model – expensive, assembled on old hardware. And this is where the funniest thing about this project begins, highlighting well the fact that Yandex has not learned anything in hardware in a couple of years.
A minimum batch of 2000 is nothing for a market of nearly 150 million people. And even at this cost of the column. It is interesting that the smaller the batch, the higher the costs of logistics, marketing and promotion, that is, the effort spent does not return, and the project itself becomes negative. It is impossible to justify even the cost of developing the station itself on such a volume. But this is only part of the big picture, now the most delicious.
Yandex uses semi-finished products, kits for creating their own columns, and there is nothing wrong with that, all developers around the world do this. They impose their software on the finished hardware, modify the hardware to suit their needs, slightly change the product design.
Yandex did not do one small thing – they did not secure the purchase of components for the production of a new column. Having placed the minimum order, the company thought that they would receive a sufficient number of speakers for the high December season, because two thousand stations at such a cost is a lot!
Here it is important to make a lyrical digression and explain the attitude towards Yandex within China, among the owners of factories. Before the enchanting appearance of Yandex.Telephone and a little earlier in China, they perceived our company as a big player who seriously expects to produce iron. The company’s employees talked about purchases of tens and hundreds of thousands of units of iron, which created a certain level of expectations. But then Yandex consistently rejected their words and ordered minimal batches. In words, Yandex was like Baidu, in fact – like an insignificant customer, whose desires can be safely ignored. No priority, no special relationships, the scale of operations allows us to say that Yandex for Chinese factories is a small incomprehensible client who, moreover, from scratch shows incomprehensible ambitions and puffs out his cheeks.
In China, there is a shortage of processors and components, prices for everything are growing, and the struggle for components is such that large companies choose all available volumes, and this applies literally to everything. At the beginning of the fourth quarter, it was clear that it was necessary to place an order for more production of columns or wait for new components indefinitely. The Chinese factory was not at all cunning when it stated that there might simply be no components, it was also argued that the cost of logistics is growing before our eyes and it is more profitable to produce and export goods now, then it will simply become noticeably more expensive. But in the absence of an understanding of the market, a desire to spend money on goods that will go to the warehouse (we cannot sell and we don’t want to learn), all this was explained by the greed of the Chinese, who wanted to take in additional volume. And the eternal was also affirmed: we have money, therefore, when the goods are needed, how cute will produce and deliver as they ask.
What actually happened? The cost of a container averaged just under $ 4, now it has grown at least three times, and the container still needs to be found! Deficiency. Logistics has gone gold, which is changing the economy for many companies. But the most problematic thing is that the components have grown in value, and they are simply not there. They are chosen by large customers, but Yandex does not have such an opportunity, they are at the level of statistical error for the factory. And the latter is ready to sell insignificant parties of columns to Yandex, but at a different cost. And here again comes a funny denouement: we will not buy, they are trying to deceive us, make money, we will wait a little, and they themselves will come running and offer. They did not come running, did not offer, but did a simple thing – they also raised the cost, since there were no more components. At the same time, the logistics have grown.
A death spiral began for Station Max, since the cost of the product became such that at the current retail price and taking into account all costs, this project is purely negative for Yandex, and the company loses money on it. On the other hand, the money within Yandex is not huge, the company can easily write off and forget it.
Do you know what happens next? And then history repeats itself, but on a new round. The company still realizes that there will be no other prices, it is necessary to purchase a certain number of “Max Stations”, since it is strange, having started selling the product on December 1, not to have it on the shelves. New colors, twice the volume of delivery! And the cost of the horse, as they could not agree on time. But at the same time, a small touch is forgotten, in “Yandex” partly the success of the first batch was ensured by themselves, since it was a New Year’s gift for partners and part of the batch was sold just like that. The hardware business looks to Yandex as something very awkward, funny, but it is a shame exactly one thing that this is how the image of a large Russian IT business in China is formed – petty, who does not know how to count money and understand where the truth is, and where attempts to deceive with partner’s side. It has already become a habit in communicating with the Chinese to say: “Why are you trying to cheat me, like Yandex, I understand everything.”
On the other hand, Yandex puffs its cheeks and asserts that Station Max is popular, everyone has sold out and there will be a new batch in February. And this is a success! From what it is formed, described above. To start selling a new batch in February, Yandex has to deliver the speakers right now, but they are not produced. Then there will be Chinese New Year, when life stops. And there will be only one way out – to use the delivery by plane, and not by sea (then the columns will become brilliant at cost price). Or wait for March when they can sail in and hit the store shelves. If this happens in March, it turns out that the new product from Yandex was not sold for three months, was absent on store shelves! And all this time, Yandex was buying contextual advertising, promoting its missing product. Someone just forgot to turn off ads, because no one expected such an unconditional success for this scanty batch.
You know, it is impossible to take seriously all these “Yandex” delights in the field of hardware. The company from time to time demonstrates a complete lack of understanding of the market, some attempts to present itself in a different light than it really is. But over the years it was possible to change everything and do it differently, there is no higher mathematics, everything is banal and simple. There are people in the market who understand how everything works, there are quite a few of them, and it will not be difficult to hire them. Inside Yandex there is money that can be spent to build a noticeable direction of iron and secure its future. But instead we see throwing dust in our eyes and such funny stories. It’s somehow a shame that this is the largest IT company in Russia, more like an inept startup from somewhere in a small European country. Somehow it is even insulting for this, because smart guys could do it normally. But ambition does not allow you to go down to earth, roll up your sleeves and work.
Pre-installation of Russian software on smartphones – new introductory notes for April 1
Around the pre-installation of software on smartphones, such a circus began that every week I watch what is happening with bated breath. Let me remind you that the government has identified a list of 16 programs that manufacturers must install on their smartphones, including Apple, from April 1, 2021. The law clearly states that manufacturers cannot take any money for pre-installation, just as software suppliers cannot demand any money, and users should get all software for free.
The law was lobbied by the Yandex company, and it also receives all the benefits from its implementation. Let me remind you that in recent years Yandex has spent hundreds of millions of rubles on preinstalling its own software on smartphones, in 2020 alone it took about $ 12 million.
Yandex’s calculation was very simple: do not pay manufacturers to install software, because you can save money on it. Also, after the adoption of the law, Yandex refused to share income with manufacturers. Let me remind you that inside free applications from Yandex ads are displayed, the revenue from which the company shared with partners. Starting from 2021, Yandex will not share anything, the savings are double – we do not pay for the pre-installation, and we do not share the income. According to the most conservative estimates, this will bring Yandex about 800 million rubles in 2021 alone. Learn to create efficiency out of nowhere.
But money does not arise out of nothing, if Yandex drags the blanket over itself, then someone loses this money, in our case it is the manufacturers of smartphones. The preset market has always existed for Android smartphones, today it simply stops working as it did before. The largest players in this market in Russia are Yandex, Mail.ru, but from now on they do not need presets, since the state has allowed them on all smartphones without exception. And companies are not ready to spend money on anything, everything is fine with them.
What will smartphone manufacturers do, how do they compensate for the drop in revenues? The answer is obvious – the rise in the price of smartphones. There will not be some stunning change in value, because from the device it will be 100-200 rubles at most, with an average price of a smartphone of 18 thousand rubles for the current year it seems that this is nothing. But within the entire market, the amount is noticeable, even at the lower limit, it turns out that we will pay about 3 billion rubles of additional money (at the rate of 100 rubles per device, 30 million smartphones per year). All manufacturers, with whom I discussed this issue, privately said that prices would be raised and no one would catch them by the hand, the amount was too small. And at the same time, they argued that, of course, they would deny everything publicly and would never say that prices would go up because of the new Russian law, why make enemies among the officials? But I don’t like this story, the situation on the market is not easy, and because of the actions of the same “Yandex” it became even worse, a small penny was removed, which gave manufacturers additional efficiency.
The law offers several options for preinstalling software, it can be a dialog box when you first start a smartphone, shortcuts to applications, or physical installation into the device’s memory. For manufacturers, the first option looks the simplest and most inexpensive, it requires minimal software modifications. But the law says that Russian software must have the same rights as pre-installed by the manufacturer. For example, if there is a Chrome browser in the memory of an Android smartphone, then Yandex.Browser should be next to it. And it must be physically loaded into the device’s memory. In those informal conversations with software vendors chosen by the government, they all threaten to go to court if they don’t get a physical installation, like software from Google. And this is where the hell begins, since budget smartphones do not physically have enough memory to accommodate 16 applications! There is not enough space there, and there are many such models, but no technical regulations exist.
Threats to sue manufacturers sound good, but then there’s Apple. Let me remind you that the dialog box appeared as a compromise specifically for Apple, because the company does not have the practice of presets as such, it does not want to go for it. On Apple smartphones, there will be a dialog box on first launch, but there will be no physical applications in the devices memory. And this approach is very different from Android smartphones. And if the dialog box is saved for Apple with standard applications installed, for example Safari, then the suppliers of Android smartphones will have an additional reason in favor of doing exactly the same. There is no single approach at the moment, all participants in the process are pulling the blanket over themselves.
Interestingly, officials firmly believe that from April 1, 2021, all devices sold in Russia will have pre-installed software. This is definitely not going to happen. Manufacturers are required to install software on devices that were manufactured from January 1, 2021, but old shipments are not subject to this law. Many Chinese companies have already changed the production date, and the goods that enter Russia today were all produced in December 2020, this situation will continue at least until summer. It is clear that this is a trick and it will not last forever; nevertheless, a similar approach takes place. This is hardly possible for large manufacturers, they will install software.
Russian law destroys Apple’s agreements with Google on pre-installed search, the company will automatically lose money to Google, and the cost of business will increase for it (and again they will add a little to the cost of devices, although it seems that there is simply nowhere to add). In the end, I can note that Russian corporations are becoming the beneficiaries of this holiday of life, with the help of such an indirect tax to increase the cost of a smartphone, they will receive additional income. We are the losers, as well as manufacturers, for the latter the market is becoming more difficult, competition is already at an extremely high level.
The law is also anti-market in the aspect of the fact that for small companies that previously had the opportunity to get on smartphones by paying for pre-installation, from now on this path is closed. The manufacturer does not have an infinite number of places for pre-installation, and installing 16 programs makes additional software placement difficult, which means that any extra software will cost much more than today. If today it is possible to get up on a smartphone at a price of 50-70 rubles per installation, then after the start of the law in practice, this price will become at least 150 rubles and higher. And this will effectively close access to smartphones for small companies, cement the dominance of such players as Yandex, Mail.ru and others.
Yandex uses the administrative resources one hundred percent, since this is a winning strategy for the company. Let us recall how the FAS was used to achieve penetration of Yandex search into the Chrome browser and on Android. Look at the “Radar” from “Yandex”, it clearly demonstrates the result of this action. And it is clear that Yandex will come up with all the new initiatives in order to get an advantage on other people’s platforms for free. But there is no need to be deceived, in the end we will pay for their well-being out of our own pockets.
Who will pay for content on the Internet – war of the worlds
Many people sincerely believe that everything on the Internet is free. If you want to read news or articles, go to Google and you can find collections on any topics that interest you. Alternatively, you can read all the same on social networks, for example, Facebook. But it is often forgotten that specific editorial offices and / or people are behind the creation of content, and even more so high-quality content. The fruits of their labors are used free of charge, they get absolutely nothing when their articles or news are read in external sources. The story is as old as the world, when the press insisted that Google and other beneficiaries pay some money for the use of someone else’s content. Google resisted this with all its might, rightly believing that it would reduce the company’s revenues. But the global crisis pushed these processes and brought the situation to a new level, for example, a company in France agreed with a number of leading publications that it would pay for their content. The formula for paying for content is not yet clear, but the size of the publication, daily traffic and a number of other parameters will be taken into account. For example, the definition of “contribution to the political and public agenda” is not very clear. But the fundamental point is that Google will pay for content, we can safely consider this the first sign. At the end of last year, Google threatened the European press by simply ignoring their content and deleting it from its search. The reality is much simpler, the threats were empty, and Google won’t do that. I have no doubt that Google and other companies will drag out the process, go very slowly along this path, because the discussion of this has been going on for at least a decade. But there is no doubt that the changes are for the better. Content creators will now receive additional money, and this is a big deal, here one can only be glad for them.
In Australia, they are trying to solve this problem at the expense of the government and very unusual know-how, where companies are offered to pay for links to news resources and content. The Australian Senate proposes to oblige large companies, for example, Google and Facebook, to pay for the very fact of using links to news resources. Such payments will be mandatory, unconditional. If such a law is adopted in Australia, then it will be gladly picked up all over the world, because this is the easiest way to take money from successful IT giants and pass it on to those who do not know how to make money. And this will not create high-quality journalism at all, but all kinds of SMM garbage dumps that will flood the Internet with their garbage content for the sake of profit from each link.
Google’s answer is simple – the company is ready to turn off search in Australia, since it sees no other way out (minus 19 million people that use it). Facebook said it would delete all news posts for Australian users (17 million users). The Australian Prime Minister considered this as blackmail and said: “We do not respond to threats.”
The stupidity of officials in this case is self-evident, they want to change the Internet, make it completely different. In the 90s, I remember strange letters that periodically poured into my mailbox, people from Western countries wrote and asked permission to put a link to this or that article of mine. Think about what it looked like, people sincerely believed that you need to ask permission to post a link! Do not take the article to yourself, do not post it somewhere else, but simply put a link. And they want to create such a world for us in Australia, which looks terribly wretched and wrong. The timing for such actions is very unfortunate, as the attack on technology by politicians is going on all over the world, and the existing rules of the game are being reviewed literally everywhere. And this means that we will still lose the familiar world, but we need to avoid such idiocy as proposed in Australia. Against this background, European politicians look like the height of adequacy, and their proposals to IT giants do not cause rejection, everything is learned in comparison.
LG leaves the smartphone market – the reality of the new era
Try to remember the last time you saw an LG smartphone from someone nearby. I think that the account will last for years, since the company left the Russian market a long time ago, and it is, for a minute, the largest in Europe. LG’s mobile division was kept just in case, so as not to lose R&D skills and in the hope that fortune would change. Last year, the CEO of the company announced that he plans to return profits to the mobile division in 2021, but he found it difficult to say how this can be done. To understand his pain, you need to mention that the company has been losing money for 23 quarters in a row on the mobile division, during which time it lost $ 4.5 billion. And even for LG, this is a very significant amount.
The global crisis forces companies to scrupulously count their money, get rid of all assets that are losing money, and LG is no exception. What one could afford a few years ago is unthinkable today. We have published an article by Vladimir Nimin, where he talks about what will happen to LG, and doubts that the company will close this direction, give up production, but keep R&D.
I like that there are many opinions on our site, this makes it possible to discuss the same events from different points of view. But my vision of this situation is exactly the opposite, LG is leaving the smartphone market, stops tormenting its division.
In 2020, the smartphone factory was moved to Vietnam from Korea, with Vingroup as a partner. The relationship between the companies has been built for a long time, in particular, part of the Vingroup line was developed by LG, and already produced by this company in Vietnam. The Vietnamese company has confirmed to the press that it is in talks to buy LG’s mobile division. In my opinion, this is not only and not so much about the purchase of production, since it already exists, but about the acquisition of patents, as well as the right to use the LG brand in smartphones in all world markets (as is the case in Vietnam). Of the key markets for LG smartphones, I would like to note America, where the company occupies about 13%, which can be called a good result (Apple – 40%, Samsung – 30% in 2020).
The key question is whether the new owner will retain the right to trade LG smartphones in the company’s native South Korean market, where positions are historically more or less significant. I bet that this may not happen, as we will see a rejection of high-end models, an orientation towards budget smartphones and a little towards the middle segment. Exactly the same story happened with the Motorola brand, other manufacturers that were losing their roots (for example, the same Nokia). It is impossible to assume that a miracle will happen in this case.
For those who define the existence of a brand by the presence of devices with a nameplate, nothing will change, the LG brand will be presented on the market. But gradually the development will be taken over by the new owners, they will begin to go to the middle segment. And here we can say that this will be another C-brand, and today is not the best time for them. Vingroup currently does not have any external market where the company would be successful and could make a profit to build future sales. Interestingly, LG is getting rid of the troubled asset and, most likely, will get absolutely nothing, get rid of permanent losses. But for Vingroup, this is the hope of getting markets where you can sell devices and gain a foothold in them. The only catch is that smartphones in the USA need to be sold at such prices that this automatically means a minus. Or they will refuse you, since it is simply unprofitable for operators to buy smartphones more expensive. And it turns out that Vingroup won’t win much either. Other buyers and contenders for LG today simply do not exist, or they are well disguised. In fact, the LG brand is not represented anywhere in the world in smartphones, it is only the US market. So it turns out that the two loneliness have found each other, but for LG this is just an attempt to save face, get rid of the problematic asset. The company has been pulling this asset for a long time, I think the time has come to bury it, since there is no point in it for the future of LG. The smartphone market is consolidating during the crisis, and this is normal.
PS There are fogs in Moscow, the temperature hangs around freezing. I try to take photos for reviews of new smartphones, but I get a bleak picture of gray haze. And I want bright colors and colors that fill the entire space. One joy that museums and exhibition complexes have opened. I wish you not to get sick, have time to read books, go to museums and keep your head busy with interesting tasks. Have a good working week!
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