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nest smart homeNest, the smart thermostat maker Google acquired in 2014, is the world’s best-known home automation brand. The company is now selling its smart home products and services in New Zealand.

Smart home technology has been slow to take off around the world. It gets the attention from technology fetishists, but, despite years of hype and marketing, has yet to break into the mainstream. It remains a tiny niche.

Take Nest’s thermostats. They look good. They get rave reviews in technology publications. Users swear they can save hundreds on their power bills with them. Yet Google only sold 1.3 million in 2015.

To put things in perspective, Apple sold 6 million Watches in three months during the same year.

Nest performances disappointing

Some analysts report Google is disappointed with Nest’s performance to date. It looks a long way from recovering the US$3.2 billion it paid for Nest and the US$550 million it paid for Dropcam, which makes home security cameras. The two brands have since been merged.

That doesn’t mean Google’s investment will never pay off. Nest sits alongside Google’s Speaker and Chromecast.

All are part of a “connected home” strategy. The idea is that you can speak to tell Google to turn up the heat and get the devices to display your camera’s security images on your TV via Chromecast. On a good day, it all works.

Smart home still immature

Home automation is still in its infancy. About one in 20 US homes have one or more smart home components. Hardly any have a full suite.

The numbers will be far lower in New Zealand. Apart from anything else, few New Zealand homes have the kind of central heating system that can make full use of a Nest controller.

What’s more the Unisys Security Index shows we’re wary of the Internet of Things. There’s a huge potential for the Internet of Things to make smart home devices even smarter, but for now that’s not happening fast enough.

While companies are quick to embrace the IoT technology that uses sensors, communications, computing and automation to save money or speed processes, doing the same things at home feels like playing with toys.

Your idea of fun?

Make no mistake, home automation vendors are on to this, they often talk about their products being ‘fun’ or use similar language. They also like to use fear to sell. The curious press release from Google about Nest’s New Zealand launch is full of words like ‘worry’, ‘stolen’ and ‘safe’.

Not that there’s anything wrong with home security, but Google lays it on thick.

Nest gets around two of the biggest objections to home automation. First, most smart home products are too expensive to take seriously. Who in their right mind would spend more on an intelligent fridge than a new car?

There are three Nest cameras. With prices between $360 and $550 they are not cheap, you can buy cameras for a tenth of that. Likewise the $220 smoke alarm. You can buy an unconnected one in Mitre 10 for about $10. Yet, these are small investments to get started with home automation.

The second object is that home automation technology is too hard to use or install and the parts don’t tend to work well with each other. Nest gets around this.

Simple, needs to be simpler

When Google wraps the technology in with its Speaker and Chromecast things will be even simpler. Where this leaves households with Amazon or Apple technology is another question.

Perhaps a more pressing question is what are the consequences of huge technology giants like Google owning the home automation market? There will be privacy concerns and the problems associated with technology lock-in, switching from a Google home to, say, an Amazon one would be difficult.

Another issue is where is the business model here? Google didn’t spend the thick end of half a trillion dollars to flog home gadgets. It wants more back from Nest than hardware sales. How will that work for the company and, more to the point, how will that business model work for you?

They capture data and insights about us and will become irresistible to hackers.

Source: Why concerns about smart speakers are real – The Listener

Peter Griffin writes:

Let’s not kid ourselves – these smart speakers are not really about our convenience but capturing more data and insights about us as humans and consumers and channelling us to the various online services those tech companies control. That’s why Alexa made its debut and why Amazon made the Dot such a cheap device.

If this doesn’t scare you, then you haven’t been paying attention. Which is exactly what the big technology companies behind these speakers rely on.

George Orwell’s 1984 was a set book when I was at high school in the 1970s. At the time we write essays imaging a dystopian future where a totalitarian government would spy on its citizens. We may get there yet.

What Orwell and none of us worrying about privacy in the 1970s came close to grasping was that people would gladly buy the Big Brother snooping technology themselves. Nor did we imagine the main purpose of the snooping would be to find ways to fleece us.

And that’s before you think about the security implications.

Last week Amazon Web Services announced an operating profit of US$265 million for the quarter. It was the first time Amazon broke out the figures for its cloud business.

Meanwhile Apple turned in another record result with quarterly revenues of US$58 billion and earnings up 33 percent to US$13.6 billion.

Both companies did better than expected. The market thought AWS might be loss-making, perhaps break-even at best. Instead it is a US$5 billion a year business turning in a healthy margin.

Likewise Apple’s figure was well above analyst expectations.

What may have been overlooked is that Apple went past a 40 percent gross margin for the first time since 2012. That has a lot to do with the mix of products it sold including 61 million iPhones. Many of those iPhones were high-margin models with large amounts of storage.

Apple may not maintain that 40 percent gross margin, but it earns a better return from selling hardware than any rival. Pure software companies can get gross margins in the 80 to 90 percent range.

When cloud computing first appeared, analysts thought it could show similar high gross margins. It turns out selling cloud services is more like the non-Apple PC industry; a low-margin, high volume business.

That said, AWS managed a 13 percent operating margin, not high, but not shabby either. AWS occupies a special place in the cloud business. It’s the largest player and mainly sells cloud infrastructure.

The sweet spot for cloud service providers lies in the “will there be fries with that” options. IBM and Oracle want to play in the cloud market because being there gives them the option to sell high-margin software and services to customers.

This is what Amazon’s closest rival, Microsoft, does with its Azure cloud. By all accounts Microsoft’s cloud margins are not as good as AWS’s but they are improving.

Cloud storage

IBM needs to reinvent itself to deal with cloud computing. Although the job was never going to be easy, IBM has an enviable track record on major change. Now it needs an enviable IBM cloud.

It is the organisation that defined the original computer business. IBM built a monopoly and lead the mainframe era. Although it was late into the PC game, when it arrived it redefined the small computer market with the iconic IBM PC.

IBM wasted no time exiting the PC business when margins evaporated. It got into the consulting game ahead of the pack. IBM switched focus to software. It moved from hardware to services more than a decade before that idea arrived on rival HP’s radar.

Now IBM needs to show it has what it takes to compete with the likes of Amazon. So far it has struggled. Today’s IBM cloud is an also ran.

Cloud central to IBM business

Cloud computing strikes at the core of IBM’s business. It threatens the rivers of gold IBM makes selling big, expensive mainframe computers, along with the software and service revenue that comes in their wake.

Customers who buy IBM mainframes must invest millions. That means anticipating needs when the future is far from certain. An IBM cloud means they only buy the computing they need, when they need it. Which explains why the mainframe market is falling.

IBM’s response has been to offer its own cloud services. It acquired a small competitor, Softlayer, buying the capacity and skills needed to compete in the cloud.

IBM cloud a catch-up strategy

Playing catch-up this way looks like a smart strategy.

Yet there’s an awkward payload. IBM’s shareholders expect high profit margins. Cloud computing is a viable business. Done well the cloud makes a predictable income stream, but it is a low margin business.

And that’s where IBM is stumbling. It promised shareholders a high return. For the last five years it has told shareholders it would make US$20 in adjusted earnings per share by 2015.

That figure already looked doubtful. For the last ten quarters in a row, IBM’s revenue has fallen. Management pulled out the stops to meet the US$20 target. It sacked workers, borrowed money, tried creative accounting. None of these moves did anything to help IBM compete with Amazon, Google or Microsoft in cloud computing.

Overnight IBM CEO Ginni Rometty abandoned the US$20 a share target. She paid GlobalFoundries — no I’ve never heard of it either — US$1.5 billion to take the chip business off IBM’s books. Rometty also dropped a US$4.7 billion charge on the market.

IBM investors didn’t like the news. The share price fell seven percent.

Grumpy IBM investors better get used to the idea that keeping the business relevant is more important than hitting financial milestones. That short-term gain would be at a long-term cost. Perhaps even the demise of IBM — a brand that has lasted more than 100 years.

Long-term survival may hinge on building an IBM cloud empire to compete head-on with Amazon, Microsoft and others. That’s worth a try and is a better choice than a slow death.

Once IBM has established a cloud empire, it can wrap its lucrative software and services back into these offerings. That way it can recover some of the lost margins.

Bowing to investor’s short-term dictates or shoring-up unsustainable business models do not work. The smart move is to focus on creating products and services people want to buy.

wellington cloud

Cloud computing is great. Yet anything beyond Dropbox, OneDrive or iCloud can be daunting for those of us who aren’t IT professionals. While Amazon is the market leader at selling cloud services to business, you couldn’t describe setting up a server or a website on Amazon’s AWS EC2 as easy.

On the other hand, there’s nothing scary about getting started with Microsoft Azure. Microsoft has created a cloud computing service that makes creating a server as simple as setting up a Word document.

Moving to the cloud

Sooner or later a small business grows to the point where it needs servers. In the past that meant buying hardware. Today it means monthly payments to cloud services.

Everything physical servers do — and then some — can be moved to the cloud. Corporations run enterprise systems in the cloud. Banks run in the cloud.

For a small business, the cloud can run virtual networks, handle storage, run web apps or databases. It can also host websites.

Cloud hosted services have two advantages over running your own server:

  • First, you don’t have to guess how much computer you need before committing your money. With cloud services you can buy the bare minimum then pay extra to buy more capacity.
  • Second, cloud hosted services are managed for you. You won’t have to hire, train people or learn to deal with the hardware yourself.

Cloud advantage

Another advantage of cloud computing is you’re not left with a white elephant on your hands if your needs change. Better still, if you need something new, say you decide to host a new website, adding that to your existing account is next to no trouble. Or at least that’s how it should work.

One thing that bothers me is running a small business web site. There are cheap virtual servers, but my experience has not been good. In particular, cheap hosts can’t handle large traffic spikes.

I doubt I’ll go down that path again. WordPress.com hosts my site despite the drawbacks and restrictions because it’s reliable and scales well when the crowds turn up on my doorstep.

Spiky traffic

My latest project — don’t worry you’ll hear about it soon enough — needs a website that may see traffic spikes. So I decided this would be a good moment to test small business hosting from the two biggest names in cloud computing: Amazon and Microsoft.

To test I set up two small websites. One on Amazon EC2 and another on Microsoft Azure. Both test sites are on free services for now. I used Amazon’s free tier and a 30-day trial account on Microsoft Azure. If I had to pay for either service, the bill would come to less than NZ$20 a month, that’s not much, only fractionally more than I’d pay an NZ web host.

It took less than five minutes to get a WordPress site running on Microsoft Azure. The hardest part was filling in credit card details and waiting for the two factor authentication to call back on my phone.

Simple Microsoft Azure, EC2 not so easy

The Azure process is dead simple, it requires little computer knowledge. Anyone able to work a Windows computer could set things up using a familiar Microsoft-style wizard which steps you through the process. The only hiccup I met was not being able to log-on to an Azure server late on a Saturday evening. I tried again the next morning and whipped through the process.

Azure has an app gallery with ready to use applications. It took a just couple of clicks to find and install WordPress. Once that was done, I need to update WordPress to the latest version — it had only appeared in the last couple of days. And from that point on, I was up and running.

Amazon EC2 is harder to use. There are no wizards and Amazon offers little help. In the end I found a tutorial on using EC2 to set up a blog using Ghost and stepped through the process. It took almost 30 minutes — at least five times as long as the time needed to set up an Azure site. That set the tone for the entire Amazon experience.

Be warned, while Amazon’s headline prices are a little lower than Azure, there’s a danger you’ll get nickel and dimed to the point where you could easily end up spending more money. There’s barely any free customer support, but Amazon will sell you a support plan and so on.

Little hand-holding from Amazon

Everything about dealing with Amazon is harder than Azure — at least from an everyday user point of view. Although I found there was nothing too daunting, that’s more because I’ve spent years writing about technology and know where to go for help. I’m certain EC2 would be a breeze for computing professionals and geeks, it’s not somewhere I’d send the average small business owner without lots of handholding.

Direct performance comparisons between the two services are hard. My Amazon account has been running seven months and according to Pingdom, has never gone offline. My Azure account is just days old, so I can’t compare. On the other hand Azure seems more responsive than EC2, but that could just be the user interface or the transit to a nearer server than the USA where my EC2 account is located and not something in the underlying system.

Microsoft has most things right with Azure. It’s no accident Microsoft’s new CEO Satya Nadella comes from the cloud division.

Azure does for cloud computing what Microsoft Office does for desktop productivity. It offers all levels of users an easy way into a set of technologies that can be as deep and complex as you wish. There’s a lot in both Azure and Office for professionals, but the rest of us can use them too.