Sunday, July 29, 2007

The dream of a device-independent web

In looking for something else, I found a post a few months back by Helen Keegan on the top mobile websites in the US and UK, which she cobbed from M:metrics.

She reports the top 10 sites from “metered smartphone users from a panel.” Hmmm... Not sure what biases that introduces, but at least some data is better than sheer guesswork.

But it was really interesting to compare the top sites. Google and Yahoo were the top two in the US, while in the UK, Google UK was #1, Google US was #6 and Yahoo was #10.

On the US side, the list broke down into two categories: desktop sites (Google, Yahoo, CNN, Weather, MySpace) and Microsoft sites (MSN, Microsoft, Live, I wonder if somehow they were metering Windows Mobile phones? What sites are default on a Windows Mobile phone? (Certainly Windows Mobile users do more browsing. I’m guessing that that Blackberry and Treo users are mainly e-mail users, and there are almost no Symbian users in the US). Of course, mobile data pricing has been ridiculous here so it’s almost all price-insensitve business users.

Meanwhile, in the UK side, there were a few Internet properties, including the BBC instead of CNN. But 4 of the top 7 were the major operators: Orange, Three, O2 and T-Mobile. So if it’s not a walled garden, then at least the default homepage (as on the desktop) is worth something.

What’s the point? If you’re a top site like the UK carriers, you know that you need to tailor your site for mobile users and try it out with the various form factors and browsers. Similarly, the big boys like Google, MS and Yahoo get enough traffic that it’s worth having a large mobile-specific development staff.

But what about the midtier, or the little guys? Yes, I’ve looked at my blog via my mobile phone (via Wi-Fi), but I don’t spend any time thinking about it.

As with any positive network effects market, there’s the chicken and egg problem: how do you justify the work to make a site support the quirks of the many mobile browsers without having the traffic to justify it? And what about sites that use rich web apps, like Google’s Ajax-enabled maps, or the Flash on YouTube? Very few cell phones have Flash, although FlashLite has caught on in Japan. Apple solved the problem by getting YouTube to port its content to H.264, but few device makers (or sites) are that big.

Users just want web pages to work. The ordinary desktop sites want a content creation/delivery system that works the same way on the desktop and the mobile. The mobile phone makers want access to all that content that (in most developed countries) is desktop-focused. But will it ever be realized? HTML was supposed to be device independent, but so many websites today were written by lazy programmers for a single browser.

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Saturday, July 28, 2007

Skype, the GPL scofflaw

For once, a story about Skype that has nothing to do with its business model, its impact on the telecom industry, pushback by powerful incumbents, or anything else having to with its real business.

This week, the blogs and Linux sites are abuzz because Skype supposedly lost a court case for violating the terms of the GPL (v2). The Inquirer (of Britain) started on Wednesday, then PC World on Thursday, then Linux Devices on Friday. Linux Devices notes that all claims about the case trace to an article in one German magazine, Golem, and can’t be independently verified, and it seems to be the only story with significant original reporting.


The purported case revolves not around Skype’s software, but its distribution of a Linux-based Wi-Fi phone, SMC’s WSKP100; a separate action is also said to be pending against SMC Networks, although Linux Devices could not verify that. This is a typical embedded GPL dispute, ala TiVo or anything else.

If we assume that everything reported is true, there were several interesting things about the case. First, it was about a marginal violation of how the code was distributed, and not something about the core compulsory sharing (some call “viral”) proposition of the GPL: once you put your code with my code, your code has to adhere to my rules. It doesn’t seem like Skype would ever be a good test case, since they already provide their source code under at least some conditions.

Second, that the case was brought by a German gadfly,, and not the Free Software Foundation. Finally, it adds to the many cases we have in Europe, but AFAIK we still don’t have a relevant legal precedent in the U.S., or, even more importantly, in China.

So are there no GPL zealots in the US (unlikely) or China (probably not worth dying for)? Are there no comparable violations in the US (also unlikely) or China (darn near impossible)? Or are the relevant courts not as interested as German courts in enforcing compulsory sharing?

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Friday, July 27, 2007

Will OSS spinoff beget a spinoff?

The CEO of the Mozilla open source project said Wednesday it is thinking of spinning off its Thunderbird e-mail client so (to put it more bluntly than she did) it doesn’t atrophy due to neglect. Mitchell Baker (realistically) notes that Thunderbird is not getting the attention given how browser-focused the Firefox Mozilla Foundation is.

Of course, everyone knows that Mozilla was created from Netscape when AOL decided it was tired of losing money on browsers. So this would be a spinoff of a spinoff — or perhaps more accurately, a founding of a foundling.

What I found odd (almost shocking) is that Baker (who I’ve met a few times) didn’t mention Eudora or Penelope, the planned Eudora-Thunderbird open source collaboration led by Qualcomm. Penelope has code, engineers and installed base, something Thunderbird badly needs, particularly if it’s about to become a Mozilla foundling.
Is Baker ignoring Penelope due to a bad case of NIH? Does this presage some unannounced Qualcomm-Mozilla Foundation divorce? Did she just happen to forget about the code, engineers, and fanatically loyal users (of which I’m one)? The comments on her blog suggest that the Eudora users didn’t forget, but again Penelope doesn’t rate a mention in her summary of the comments.

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Microsoft goes open source?

Microsoft says it’s going to submit its shared source licenses for approval by the Open Source Initiative. Why now? What’s changed? Microsoft’s been doing shared source for at least 5 years (I recall writing about it back in 2002.)

I don’t imagine the licenses have changed. Certainly OSI has gotten less amenable to new licenses, fighting what it claims is “license proliferation” — a concern I’ve been very skeptical of.

Instead, the implication is that something changed for Microsoft. Is Microsoft softening on its anti-OSS line? Are antitrust concerns forcing it to be less ruthless in fighting OSS? Is the option of OSS so great that it can’t antagonize corporate OSS users any more? Is Shared Source having trouble because it’s not real open source? (That hasn’t slowed down some SV companies with quasi-OSS licenses).

I wonder whether Microsoft is going to go through the motions to pretend it wants to be part of the open source club and OSI will go through the motions pretending it is seriously considering the proposal. With this scenario, some minor issue will be the stumbling block and both sides have a way out.

The only thing odder than Microsoft shipping open source (under its own vanity licenses) would be (as Matt Asay has discussed) that Microsoft buy Red Hat. Even ignoring the crippling antitrust issues, it’s just not in the cards, for two reasons.

First, this would be a desperation move for such a proprietary software company — about like Oracle buying MySQL and killing Oracle 9 instead of MySQL. Novell got that desperate, but Microsoft is still obscenely profitable and Bill Gates is still the 2nd richest man in the world. Firms make such cataclysmic shifts when they’re desperate, and Microsoft’s not there yet.

Second, if Microsoft sold a Linux distro (whether buying RH or just making their own), who would buy it? Would an open source advocate? A company looking for a product with long-term support? The idea that Linux would be a high priority for Microsoft corporate while Windows remains the bread-and-butter seems ludicrous.

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Thursday, July 26, 2007

Finally a reason to visit YouTube

This morning (bear with me) I read a column in the WSJ by Bush’s former chairman of the Council of Economic Advisers, R. Glenn Hubbard, about macroeconomists have shown that corporations don’t pay taxes, workers pay taxes. Not to take away from its accuracy (of which I have no direct knowledge), but it was about as predictable as the AARP saying they want to raise taxes on productive members of society so their geezer-supporters can have a more comfortable life.

Dr. Hubbard is now dean of the Columbia Business School, where he’s worked (except for the White House gig) since 1988. Little did I know that he would give me the first reason (ever) to recommend YouTube.

OK, so I’m outside the target demographic for YouTube, but even so, I haven’t personally seen any of the attraction that made Chad Hurley and Steve Chen each their first $300 million. But then I’m one of those who immediately flips the channel whenever “America’s Funniest Stupidest Home Videos” comes on, with its staged bicycle accidents, pet accidents and other intentional misfortunes.

Now Hubbard has made a number of appearances on YouTube, doing dry (translation: boring) professorial things like giving a policy speech last week at Google with fellow card-carrying economist Hal Varian. But his best video is the one he never made, that a fellow entrepreneurship professor called to my attention this afternoon.

Instead, a bunch of his students (including a look-alike impostor) produced a music video last year, in which “Hubbard” bemoaned his failure to get the most powerful economics job on the planet, that of Fed chairman. Apparently some guy who’s neither Paul Volker nor married to Andrea Mitchell got the job last year.
Covering one of my favorite songs by Gordon Sumner, the lyrics to the parody were obviously written by someone who at least passed Macroeconomics 101:

Every breath you take
Every change of rate
Jobs you don’t create
While we still stagflate
I’ll be watching you.

Every single day
Bernanke takes my pay
When growth goes away
Inflation will stay
and I’ll be watching you.
I’d quote more, but the fun is seeing how the parody plays out. So it’s interesting to see that YouTube can offer up humor that’s not sophomoric, just like eBay eventually became more than just an e-rummage sale. That’s the power of general-purpose platforms and network effects.

Hat tip to Norris Krueger

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Wednesday, July 25, 2007

Opening up the iPhone to (useful) apps

One of the earliest gripes on the iPhone was that it would fail because it’s closed to third party ISVs who want to write native software applications. In research papers presented at conferences earlier this year, Mike Mace and I questioned this was the relevant metric: after all, CD players, DVD players and iPods have sold for years without postload software, so if the iPhone is an entertainment device, then the relevant complement would be content not software.

However, the iPhone is getting software too. Since the iPhone day, there have been a few developments (so to speak) on developing software for the iPhone:

  • Apple has posted official information on iPhone development, which in its view is mainly about using Safari on a Mac or Windows machine to prototype web apps that run on the iPhone.
  • The other approved solution is porting Dashboard widgets originally developed for OS X — most of them freeware. Since widgets are just HTML, porting should be relatively easy, and lots of beta widgets have been released. While Apple talked about this at WWDC in June, there’s nothing yet on the developer website.
  • Apple is also not providing a hardware developer note like they have been providing for other computers over the past 20+ years. Is that because the product design is secret, or because they want developers to focus on the publicly supported web-based APIs?
  • As Doug Klein let me know, the weekend after the iPhone release there was an iPhoneDevCamp in SF hosted by Adobe. Since I don’t own an iPhone — and since SF is all of 100km away — I decided not to go, but it sounds like that was a mistake.
  • A hacker at iPhone Dev Wiki has built a “Hello, World” program for the iPhone. (NB: If you failed “C” programming, this is the canonical one-line program for any development system).
There have been some interesting experiments. Does the iPhone have extra storage? iPhoneDrive allows you to use it as a heavy, overpriced USB memory stick. Not enough storage? Brian Landau of is plugging his freemium remote storage solution, now available for the iPhone.

Apple thus gets a decidedly mixed score for openness to ISVs, but the jury is still out. Will the iPhone eventually be open to native 3rd party apps? And, in the end, will platform-specific apps really matter to adoption?

The one form of app that iPhone users don’t want is malware — viruses, worms or other security exploits. This week some security experts got free press by reporting how they exploited the iPhone’s vulnerabilities. That they were seeking publicity is pretty clear, given the line at the bottom of the web page describing the exploit: “You can contact us at media [at] We can also be reached by phone at 443-270-2296.” They also set an Aug. 2 deadline for Apple to fix the problem before they will release all the details on how to duplicate the exploit.

On the one hand, the iPhone vulnerability could be an inherent problem due to the power of such a mobile device. quoted the president of encryption firm PGP as saying
“There are so many security issues with the iPhone, because it is not just a phone,” he said. “From an IT guy’s perspective it is a Linux computer with communications built in.”
On the other hand, the report notes that the iPhone runs all Java apps in the single, privileged administrator mode. As a column in Electronic Design pointed out, there's a known fix for this: have multiple protection levels (like two).

This is not rocket science: when I was writing VAX/VMS code back in 1980, us peon ISVs knew there were privileged (system-mode) apps because we couldn’t write them (or, perhaps more accurately, couldn’t install them). Apple’s had people working on security issues for decades, so one has to assume this was a get-it-out-the-door issue. As with any security issue, Apple (like other vendors) will be expected to issue a free field upgrade to solve this problem: it will be interesting to see what the OS update mechanism is for the iPhone.

Also, the iPhone isn’t going to get the free pass on security that OS 9 and X did. Nobody wrote viruses for the Mac because the small market share meant they probably wouldn’t propagate, and almost nobody would care. The iPhone will probably have enough market share among U.S. smartphones (and more than enough visibility) to attract a large supplier of crackers.

The aforementioned “information security” experts included one snarky (but telling) comment on the iPhone’s security priorities:
Q: Does this add credence to Apple's position that 3rd party applications are not allowed on the iPhone for security reasons?

A: We don't think so. Almost all of the security engineering effort on the iPhone seems to have been spent protecting the revenue model, rather than protecting the user (which is, of course, an entirely understandable position). For example, a constrained environment is used to prevent users from loading new ringtones onto the phone, but the applications are not run in a constrained environment to contain damage caused by hackers who exploit them.
If Apple is closing out rival providers of user benefit — but not malicious exploits — that would not only be real proof of a closed platform, but also a sober reality check for Apple’s supposed emphasis on the user experience.

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What is the Chinese word for “kabuki"?

Tuesday, US and Chinese authorities announced seizure of a half-billion bucks worth of counterfeit US software. This is not like bootleg tapes from the back of a pickup at a U.S. swap meet. The NYT reported:

The F.B.I. and the Chinese identified criminal organizations producing and distributing counterfeit software in both Shanghai and Shenzhen. …

Microsoft’s 75-member antipiracy team had been tracking a Chinese syndicate since May 2001, when counterfeit discs of the Windows Millennium operating system were found in Southern California. Since the investigation began, Microsoft investigators have found 55,000 discs.

The Chinese syndicate thought to have been involved had 30 production lines. Based on its examination of the discs, Microsoft said a conservative estimate of the value of the software sold by the criminal group was $2 billion.
This reminded me of a (perhaps apocryphal) story I heard many years ago about a friend of a friend. My friend said his friend was the China representative of the BSA, the “anti-piracy” trade association for Microsoft and the other big software vendors. The BSA rep was supposed to be stamping out software piracy in China, but lived in Hong Kong and only went to China when the government staged seizures for publicity purposes. When he wasn’t in the presence of the police, he feared physical retaliation from the Chinese syndicates.

Of course, many people have argued for years that Microsoft is better off having its software stolen than have customer adopt (and thus develop switching costs for) competing software. I understand the arguments, and while I still am skeptical, they don’t seem as implausible as when I first heard them (from a marketing professor) more than a decade ago.

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Helping derail total world domination

I often make fun of Google’s claim of “do no evil” while on a path towards total world domination. But at least if they achieve it, no shots will be fired and no lives lost.

This month’s oddest story about Google is the (minor) role it’s playing in helping to undercut China’s real attempt at total world domination by through the big stick of its ever-increasing nuclear missile program. A blog at the Federation of American Scientists (the anti-nuke weapons group) used a Google public satellite image to confirm the existence of China’s new Jin-class ballistic missile submarine (SSBN). The US has speculated that 5 such submarines are under construction.

Of course, any armchair general who reads Tom Clancy or Dale Brown (let alone real generals) knows that you don’t have a secret military weapon out in the open during the day unless you want a satellite to take a picture. So either the People’s Liberation Army Navy wants the world to see their new toy, or someone got incredibly sloppy.

Still, IDG news service speculates that in response to this military embarrassment, the Chinese government will curtail Google’s efforts to crack the Chinese market.

I doubt this will matter one iota. On the one hand, China has already been mad at Google for other infractions. On the other hand, the 4,000-year-old “middle kingdom” is not interested in sharing total world domination with anyone, and thus will do what it can to help Sohu or Baidu colonize the world.

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Tuesday, July 24, 2007

Apple loses $7b on 2 day’s work

With its Q2 results, AT&T reported that it activated 146,000 new iPhones in Q2 (i.e. on June 29 and 30). Since some had guessed Apple sold 500,000 iPhones in the opening weekend, this is much less than analysts were expecting. This burst the bubble in Apple stock, and it fell $8.81 (6%) on Tuesday — killing $7 billion of market cap.

There are problems using these numbers — either way. Retailers don’t have their FY end on Dec. 31 but on Jan. 15 or 31 because it’s misleading (to everyone) to have a reporting period break in the middle of a busy selling season (i.e. Christmas). Also, some Macfanatics have noted that Apple/AT&T had activation problems which might have delayed users from activating phones that bought on iPhone day.

The other news that hurt stock prices is that a Canadian stock analyst said sales had fallen off since opening weekend due to lousy performance on AT&T’s EDGE network.

We’ll find out in the next few months what the actual sales were. In the meantime, speculation is rampant that a 3G phone is coming in 2007 — which is sure to Osborne the original iPhone.

What I find scarier is Apple’s patent application for a charger that is locked to a particular phone or iPod. New Scientist calls it DRM for AC adaptors. But most others see it as a way to kill third party adaptor sales.

If Apple is going to try that hard to shut down the (relatively small) third party accessory market, it seems to me that they’re reverting to the old Apple of the mid-80s which tried to prevent or discourage any third party hardware sales — printers, hard disks, monitors. Companies thrive by nurturing their business ecosystems, not by killing them. Sometimes I’ve praised Apple for being open, or defended them for legitimately being closed: this is neither, and (if implemented in a product) sure to piss off loyal customers.

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Nokia vs. Yahoo smackdown!

Yahoo bought the photo sharing service Flickr in 2005. This morning came the news that Nokia bought Twango, founded by Microsoft refugees in Redmond. Telecom blogger Om Malik calls Twang “a combo of YouTube, Flickr, Shutterfly, Photobucket and Xdrive.”

There are some odd aspects to this. #1 of course is that Nokia supports Flickr on its phones, and in fact Flickr made Nokia S60 phones the centerpiece of its ZoneTag location-aware photo sharing prototype (including a very recent update to support some S60 3rd Edition phones).

The 2nd odd thing is that Nokia is buying a content sharing service, when its biggest customers are mobile phone operators that see themselves as being in the content service business. Does this presage a broader push into consumer services — head to head with the operators as well as Internet behemoths like Google and Yahoo? I realize Nokia expects to be beholden to no one, but in Strategy 101 we teach that moving outside one’s competencies and competing with major customers are two very bad (and common) outcomes of vertical integration.

Caroline McCarthy of CNET says it best:

It's unlikely that this acquisition will affect a whole lot of people who aren't Nokia customers (and it's not yet very clear as to how Twango itself will change) but it'll be interesting to see how this affects mobile media-sharing.

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Saturday, July 21, 2007

Finding a voice people can understand

One of the most time-consuming parts of my day job is wading through piles of student essays on midterms and finals. Our students don’t write as well as we would like — most of them can’t write well when they graduated from high school, and with our larger class sizes we have even less contact with them than their high school teacher did.

I am passionate about good writing in every form, whether a 2-sentence e-mail, 1-page memo, or 20-page report. It’s not from my brief foray into journalism (which certainly helped my writing) but from 20+ years in business, initially as an underling and later as a boss.

With lots of college student as employees, I had to emphasize time and time again that they needed to be able to communicate clearly if the money their employer paid them was going to bring it any benefits. Anyone who’s opened a U.S. airline magazine knows the phrase “You get what you negotiate” (Chester Karrass) but I would say “your value is what you communicate.” (The two ideas are consistent, just not identical).

Today a friend forwarded an Oct. 2006 speech on good writing given by John Leo, former US News columnist. It’s really long, but just about everything resonated with my experience.

Leo starts with various examples of bad writing, due to bureaucratic obfuscation, social activism or just plain laziness. Here is but one excerpt:

In plain English, what does it mean when students “achieve a deficiency” or reach a “suboptimal outcome?” It means they failed. A suboptimal outcome is even worse in at a hospital. It means the patient died. The airline industry sometimes speaks of a hull loss. What they mean is that one of their planes just crashed. Here’s more twisted language. Your doorman is now known as an “access controller”, and a receptionist is a “director of first impressions.” Hospital bills can be filled with such language, How about a “thermal therapy unit” (an ice bag) or a “disposable mucus recovery unit”, also known as a box of Kleenex.

HemingwayLeo presents exemplary communications lessons from Hemingway, M.L. King, Wolfe and Lasch, but draws his greatest personal inspiration from John Madden, the everyman (American) football commentator. He refers to Vonnegut’s concept of “background music” — a personalized, human point of view — which for this blog ties back to the comment my earliest reader made about “finding your voice.”

Ironically, conversational writing is seen as a negative in academic research — too informal, atheoretic, imprecise. I’ve been told that my journal papers are “too journalistic” in their writing style: that might mean that the writing is too approachable, but that also might mean that the “what” is not wrapped in the “why” of social science theorizing. (IMHO as long as the theorizing is somewhere in the paper, the language shouldn’t matter, and obviously clearer language makes the research more useful to people in the real world).

My current endeavor is writing an academic book that is both theoretical enough for academics but also appeals to ordinary industry professionals such as communications engineers, telecom entrepreneurs, MIT engineering alumni. In a couple of months we’ll be negotiating with publishers as to how the book should be crafted to serve these conflicting goals, which could just become a matter of hiding the gobbledygook in footnotes.

The only example I’ve seen of such a book — one that is both readable and legitimate in the eyes of academics — is The Man Behind the Microchip, Leslie Berlin’s terrific biography of Robert Noyce. Noyce was the co-inventor of the integrated circuit (with Kilby) and cofounder of both Fairchild Semiconductor and Intel, who Berlin argues is most responsible for modern-day Silicon Valley. Like a good historian, Dr. Berlin got her dissertation published by Oxford University Press (my previous publisher). But she got funding from the IEEE and delivered something that can be understood by anyone interested in Silicon Valley. I’ve yet to meet her, but at some point I hope to sit down with her and ask for lessons on how she pulled it off.

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Thursday, July 19, 2007

Apple the open source promoter

This week CNET notes that Apple has acquired the assets of the company that created CUPS, and hired its author Michael R Sweet. The acquisition actually happened in February but was not announced until last week.

For those that aren’t into printing, CUPS (Common Unix Printing System) was the first decent attempt to bring PC-quality printing features and ease of use to *nix. Sure, Unix was once great if you had a PostScript printer and a Ph.D. in computer science, but it was not something you’d give your mom to print JPEGs of her grandchildren.

With CUPS, Sweet created a modular architecture that allowed users to develop printer-specific drivers that ran across a wide range of *nix implementations. As a result, Apple adopted CUPS for OS X 10.2 and that was seen as a benefit for the CUPS community.

CUPS is also part of the reason that I’m a college professor and not a software engineering manager. Printing in OS X 10.0 was terrible — much less capable than the drivers Palomar shipped for OS 9.x. But when CUPS came to OS X, driver development not only got much easier for many printers (just write a PPD) but also the features got better too. Now I’m just a Mac user, not a Mac ISV, so a better CUPS makes my life better too.

The CUPS software will continue to be available under GPL2/LGPL2 license for other *nix implementations, a strategy consistent with Apple’s overall open source strategy. This is both a great example of both Apple’s pragmatism and a good use of sponsored open source. As with KDE (the HTML rendering engine used by Apple), Apple needs CUPS to be of good quality but is willing to share this (non-differentiating) infrastructure technology with the overall *nix and open source community.

Note to non-netheads: in the 1980s, “*nix” meant Unix, Ultrix, Unx, UTX, HP-UX or any other similar Unix derivative. It also had the meaning “I mean Unix but I don’t want to write ‘Unix is a trademark of AT&T’” I suppose today it means “Linux or its obscure, rarely-used predecessors.”

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Moblins run loose

For its Mobile Internet Device initiative, Intel has decided to brand its sponsored open source project “Moblin.” [YALBNdtCS]†

Most of the code is GPLv2 or LGPLv2.1. Intel admits its complete debt to Nokia’s maemo project: “Porting applications from to mobile Internet devices and vice versa will be straightforward.”

In my own research with Siobhán O’Mahony, we have found, however, that there’s more to open source openness than just a license, i.e. control over development and governance. Intel has historically had tight control of standards consortia that it sponsored (such as USB 2), so that pattern seems likely to continue here. As with other tightly-controlled sponsored projects, this means hackers can use the code but rivals will have little or no influence over its direction, let alone ability to use it for their own strategic goals. (Yes, the case of controlling GPL licensed Linux code is a little more complex than say MySQL or Sleepycat).

Intel’s goal is to sell more chips and crush ARM. Open source is a means to that end, not a goal in itself. Commodity software is bad for a company that sells software but good for a company that sells chips.

Just an aside: does “moblin” rhyme with “goblin”? I know bugs are often “gremlins,” but are they also “goblins”? What does this say about code quality?

† This is coming up so often that from now on I’ll just use the YALBNdtCS acronym for “Yet Another Lousy Brand Name due to CyberSquatters”

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Oddest commodity startup

Business Week telecom reporter Olga Kharif writes today about a new VoIP startup called “ooma.” (Yet another example of lousy brand names due to cybersquatters).

The wrinkle (presumably patented) is that they claim free service for life once you buy the $40 box. They are creating a P2P network that uses its members’ local phones to terminate PSTN calls. So if I call my mom in San Diego and we both have ooma boxes, then our call is free (as with Skype and most stand-alone VoIP services). But if I call a strange in Seattle, some ooma-owner in Seattle sees his phone line used to dial out.

If I have to dedicate a landline to ooma, why would I want it? The landline is $20 and a regular VoIP is $20-25, so why not just go with the simpler solution that’s pay as you go — and doesn’t require betting on the survival of an unproven business model.

The company raised $27 million in stealth mode. But, like Kharif, I think the timing is awfully late for an industry segment that’s already seen its first fatality. VCs are not infallible.

Ashton and DemiThe company got funded because it has a typical cast of industry retreads veterans, in this case from Apple, Cisco, TiVo and Yahoo. The odd wrinkle is that its “creative” director is Ashton Kucher, a minor TV star best known as Bruce Willis’ stand-in with the December-May marriage that elevated Kucher to become Mr. Demi Moore #2. Wrinkle may be a misnomer since Mr. Moore is not quite 30, and there’s no evidence his wife (who will turn 45 on Veterans’ Day) is involved in the venture.

The service is called White Rabbit, supposedly after the Alice in Wonderland character — presumably not referring to the Jefferson Airplane 1966 song of the same name about recreational drug use. The innocent explanation is somewhat plausible given that Ooma’s 27-year-old founder (and certified Business Week “techno-wonderboy”) Andrew Frame was not born for at least a decade after Grace Slick sang about her favorite pills.

Update 1:30pm: While eating lunch, I read Walt Mossberg’s review of ooma in the WSJ. Obviously some of that $27 million was spent on a review guide, but the favorable review is a good sign since Walt is not easily intimidated by anyone. OTOH, Walt reviewed the technical functionality not the business proposition — he notably did not say that he’d spend his own money on the service (but then reviewers rarely spend their own money).

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Wednesday, July 18, 2007

Blogger envy

This week I’ve been mulling about my blog — it’s a hobby, a way to get out ideas, and a way to communicate with an audience of friends, business associates, students and former students. It’s not a business. I’ve held off on running ads (like some blogs do) on the assumption that the ugliness is not worth the token revenues. (The site is partly supported by the book/movie/CD links to Amazon).

Then today I read an Business Week article about schlocky little blogs that make money. ICanHasCheezburger, (boy that’s a stupid name due to cybersquatters) launched within a few days of my blog, is pulling an estimated $67K/year after only six months.

“Thou shalt not covet” is #10 on the all-time top ten list of rules to live by, and while this is one the most frequent temptations of modern life, blogger envy is pretty easy to overcome.

Instead, I find it interesting that there’s opportunity for late entry into a crowded field to make money. Kinda reminds me of when my friend Duane Maxwell started a software company ca. 1992 — several years after my tiny company been shut out of any significant distribution — I assumed that new entrants faced impossible odds. But he made a small chunk of change from the 1993 hit Morph — although probably less than he would have made if the Levco Prodigy business had been sold for cash rather than SuperMac stock which later proved to be worthless.

Of course there are entrepreneurial returns to first/early movers like Steve Wozniak who imagine a product category or industry that doesn’t exist. This is yet another reminder that a little hustle, moxy or just dumb luck makes it possible for the most optimistic, entrepreneurial businessperson to succeed even in relatively mature markets. As my mentor Charlie Jackson used to say, “I’d rather be lucky than good.”

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VoIP firm up like a rocket, down like a rocket

Startups often have rapid growth, then crash and burn. In a little niche, you can control growth to a manageable level, but in an exploding market segment you need to grow with the segment (often at unmanageable levels like 200% or 500% or even 1000% a year) or you’ll lose market share.

Apparently SunRocket has crashed and burned. (Apparently because they had a massive layoff but management is trying to keep customers from defecting so they can sell them lock, stock and barrel to anyone who will pay). The once-promising company was “the second largest pure-play VoIP company”. Another article lists them 4th overall, after Vonage, and then Verizon and AT&T, the two big telcos. Vonage and other competitors are making offers to steal the customers away.

Competing against the big boys with their distribution has got to be brutal. I suppose the first warning sign was when the last two founders — both MCI veterans — quit in February to (as they say) pursue other interests.

The VoIP companies have been unable to differentiate their services (only their branding and distribution), so this is the ultimate commodity business. Commodity businesses are about execution, operations, margins, pinching pennies. Telco types may not be great at pinching pennies, but they certainly wrote the book on operations.

The trade journal TWICE — the publication of the same people who put on the annual CES in Vegas — had a couple of interesting tidbits. SunRocket only had 2% share — one-tenth the size of Vonage. Their growth had slowed. Their new management and systems weren’t working well. And investors decided not to throw good money after bad.

Any company can run out of money. Making a business plan that assumes people will continue to give you money may be the best path to the big (10 figure) exit, but it also hands final say over your survival to outsiders.

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Tuesday, July 17, 2007

Annual Verizon divorce story

The radio this morning made passing reference to Verizon stock gaining on takeover rumors.

I looked quickly at the original report (in the FT blog on Monday) and assumed it was the same story about unwinding the unstable Verizon/Vodafone 55/45 partnership that is Verizon Wireless. The company is doing OK — narrowly 2nd in the US market — but each of the partners have wanted to take full control almost since the company was created by a merger of the CDMA properties from four former Baby Bells — AirTouch (the wireless arm of Pacific Bell and US West) and Verizon (NYNEX and Bell Atlantic, combined with GTE).

Looking at my hard disk, there have been stories about such a divorce every 6-12 months for the last four years. Several reports in early 2006 said that Verizon made an offer, but later reports said that it was rejected by Vodafone as too low.

But looking closer tonight, this week’s story was that Vodafone (market cap $177b) is thinking about a $160b offer to buy all of Vodafone. The NYT says

Chatter about whether Vodafone might bid for Verizon is a fairly regular occurrence, in part because of a put option that allows Vodafone to require Verizon to buy its share in their wireless joint venture, Verizon Wireless. Such talk frequently circulates among bankers rather than the companies themselves, however.
I can’t say I ever heard before today a proposal that VOD buy all of VZ, only speculation that it would buy the missing shares of VZW (or sell those shares to VZ).

The Vodafone PR department was pretty unequivocal
Re: Press Speculation
16 July 2007
Vodafone notes press speculation that it is considering a possible offer for Verizon Communications. Vodafone wishes to make it clear that it has no plans to make such an offer.

(If it later turns out they were lying, I’m not sure there would be real consequences.)

Larry Dignan of ZDNet offers three interesting comments based on the original FT posting:
  • The deal would only work if Vodafone sold off all of Verizon except wireless for about $90b (i.e. wireline and presumably the phone books).
  • The dollar is weak and the pound is strong and so this is good time to do it.
  • The PR denials mean that it’s a trial balloon, with Vodafone waiting to see how the markets react.
The FT article says that Vodafone’s put option expires this month, so if Arun Sarin wants to use it to extract leverage, the clock is ticking.

Sarin — former COO of AirTouch and before that CFO of Pacific Bell — has been in trouble with shareholders for a while. Most analysts think that Vodafone’s current problems are the direct result of the overly aggressive acquisition strategy by Sarin’s predecessor, Sir Christopher Gent. So even if Sarin has a way to dump half of Verizon’s assets, this acquisition still would be a huge risk for the company and Sarin’s career.

Blogging as a career enhancer

Here on my blog I quote the WSJ blog, talking about someone else’s blog:

July 17, 2007, 12:41 pm
Economics Blogger Gets Senior Fed Job
Economics blogging can be good for your career. David Altig, author of the Macroblog has just been named research director of the Federal Reserve Bank of Atlanta.

Mr. Altig is currently associate research director at the Federal Reserve Bank of Cleveland and also teaches at the University of Chicago Graduate School of Business. His blog postings reflect a mainstream Fed view on key macroeconomic questions of the day.
So let’s see: he’s associate director of research of one Fed bank and gets promoted to director at another bank. While I think bloggers tend to be somewhat more interesting people :-), something tells me blogging has little to do with it.

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Monday, July 16, 2007

Finding an audience

I’m coming up on the six month anniversary of this blog, and thus doing a cost-benefit analysis of continuing the blog.

Soon after I started the blog, my friend David Wood told me (to paraphrase) “you seem to be finding your voice.” But, as I discovered, a more important issue for bloggers is finding an audience. Blogging is somewhat like journalism, but there’s at least one major difference: no circulation figures. (There are technical solutions, but AFAIK they give page views not unique visitors).

I’m guessing regular readership is between 10 and 100. Consistent with that, I count 31 unique comment-ors on postings this year (although that assumes that the anonymous comment writers are distinct).

Many of the comments seem to be from people who don’t read the blog, but find it through some sort of search engine search or news/blog monitoring service. I got flooded with comments (relatively speaking) by the Wavoids after smirking about the ongoing misfortunes of Wave Systems. My old mentor Charlie Jackson checked in after I noted how his company FutureWave Software created Flash (née Splash).

Last week, I got probably the longest comment yet, from economist Peter Cramton, on my post about FCC chairman Kevin Martin’s suggestion that “net neutrality” should be imposed on at least one of the bidders for wireless data spectrum. Cramton quoted his own game theoretic work that argued that, absent the credible threat of entry, the oligopoly of major carriers will depress prices — and thus open access would actually increase the number of bidders and thus prices. As his posting notes, his filing was sponsored by Reed Hundt’s company (Frontline Wireless); thus academics would treat it with kid gloves as compared to his three or four papers in economics journals.

Cramton is the single most knowledgeable economist in the U.S. (if not the world) on the economics of spectrum auctions. He has been doing research on spectrum auctions for more than a decade, starting with the PCS auctions (designed by the late John McMillan) in 1994-1995. For almost as long, he’s been arguing that auctions are the most efficient way to allocate scarce resources like spectrum.

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Friday, July 13, 2007

Samba 3.2 will be GPLv3

Fearless and flunkiesI hadn’t noticed, but the GPLv3 claims to be final. They even had a news conference to announce that it was shipping, complete with a video feed of Fearless Leader.

Today’s news is saying that Samba — the open source answer to Microsoft’s SMB — will adopt the GPLv3 with Samba 3.2.

This is not really news. Samba already said that seven months ago. And the person making the announcement, Jeremy Allison, quit Novell over its patent deal with Microsoft and thus I suspect has pushed for GPLv3 for its patent retaliation clauses. And Allison was there blessing the GPLv3 when it was announced:

Jeremy Allison, speaking on behalf of the Samba team, states that they see the new license as “a great improvement on the older GPL,” and that it is “a necessary update to deal with the new threats to free software that have emerged since version 2 of the GPL.”
Hmmm, I wonder what threats he has in mind?

Although there’s less here than meets the eye, it’s still a badly-needed win for the new and “improved” GPL. Let’s see how many join the FSF’s jiihad against “Tivoization.” The specific gripes about failure of compulsory sharing with the Tivo seem to be mostly Linux-related, where there’s really only one ballot that matters.

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Wednesday, July 11, 2007

A little competition goes a long way

Today the Wall Street Journal had a flurry of pieces about the potential for “wireless net neutrality” for at least some of the next round of the FCC's spectrum auction. The planned auction will parcel out the UHF channels 52-59, analog channels being surrendered by broadcasters (nominally in February 2009) with the conversion to HDTV.

Of course, “net neutrality” is anathema to the Journal. (For those who slept through religion class, anathema is a Greek word adopted by the early Christian church to cut off heresies such as Arianism).

This all was stirred up by an interview with FCC chairman Kevin Martin that ran in Tuesday’s USA Today, in which he said:

“Whoever wins this spectrum has to provide … truly open broadband network — one that will open the door to a lot of innovative services for consumers,” Martin said in an interview Monday.

What this would mean in practice: “You can use any wireless device and download any mobile broadband application, with no restrictions,” Martin explained. The only exceptions would be software that is illegal or could harm a network.
In response, the Journal had not one! not two! but three! articles on the subject — a news piece on page A2, an op-ed column and an official editorial. The editorial blamed the plan on former Clinton FCC micromanager (now lobbyist and regulatory arbitrageur) Reed Hundt.

In Tuesday’s article, Martin had use locked iPhone was held up as a representative example. The every same day, Hundt’s company, Frontline Wireless, took a full page ad in the Capitol Hill newspaper which seems to imply that a lack of net neutrality (locking the iPhone to AT&T) is depriving voters in 13 states of their Darwin-given right to use an iPhone.
The op-ed column, by respected Brookings economist Robert Crandall, was a little more measured and rational in its criticism of the Martin plan. However, his defense of vertical integration (and thus attacking measures helping VoIP providers) seems early 1960s, i.e., pre-MCI, pre-Carterfone, pre-Execunet.

Martin’s plan is consistent with the use of regulation to promote competition. This apparent paradox captured by the book published on 1990s financial and telecom liberalization by my friend and mentor, Steve Vogel; he called the book Freer Markets, More Rules.

Net neutrality — like earlier decisions such as Carterfone and Execunet — means that restrictions are levied on one part of the value chain (PSTN, wireless access) in hopes of increasing competition on another level (handsets, value-added services). In this case, the goal is to prevent use of vertical integration as a barrier to entry and comeptition. In free markets, such regulation is only justified by a presumed market failure, such as the “last mile” monopoly of wireline telecom, or the oligopoly (three national carriers with 77% market share).

It remains a question of fact (not of economic theory) whether the potential benefits of one outweighs the potential risk of the other. However, there are plenty of complaints by startup entrepreneurs that it’s impossible to offer new applications (particularly on Verizon) without getting the carriers’ cooperation; this certainly seems to be stifling the rate of innovation, even if Crandall were right that a lack of regulation would lead to the optimal economic efficiency.

Meanwhile, the WSJ news article, like the hundreds of other articles this week (as in Information Week), note that Internet services like Google and Skype would benefit from FCC rules guaranteeing access to wireless data networks. Of course, Skype stirred up the whole idea of wireless net neutrality with its FCC filing in February.

The carriers’ lobby group, CTIA, claimed the plan was tailored to benefit Google and called it “Silicon-Valley Welfare”: CTIA president Steve Largent clamed:
Crafting special rules for a company with a market cap of $170 billion to address problems that don’t exist in our competitive market makes absolutely no sense whatsoever.
Of course, the claim of "Silicon Valley welfare” is drek. Of course, imposing restrictions on some spectrum would reduce the value of that spectrum to operators that don’t want “net neutrality” — such as those using “walled gardens” — potentially reducing the number of bidders and certainly the amount paid for the spectrum. If the FCC goes ahead, it means that it believes the benefits of competition at one level outweigh the reduced auction price (and potentially reduced investment) by the carriers. Given last year’s legislators are more politically like Hundt than ex-Rep. Largent, Martin is likely to get enthusiastic support from a less-than-free-market Congress.

Beyond that, the CTIA’s Chicken Little claims are completely implausible. Hundt makes it clear that he thinks only one of the six bands should be auctioned with the open access mandate. That means three national carriers (five if you buy the CTIA math) plus five new spectrum owners would be without net neutrality, but an 11th owner would be so restricted.

Such apocalyptic rhetoric seems like a really stupid strategy by the carriers and CTIA, on two fronts. First, if net neutrality is limited to just this one new band, that would likely reduce the pressure for the existing carriers to open up their networks. Carriers would be free to offer better (albeit non-neutral) solutions and customers would decide whether (or if) neutrality was something that they valued. Hey, Steve, what’s more free market than that?

Second, the US carriers — unlike those in Europe — have been shooting themselves in the foot by blocking Wi-Fi enabled handsets, as when Cingular requested Nokia drop Wi-Fi from the E61 so they could sell it as the E62. Wi-Fi calling is inevitable, but for a long while it will be difficult to use, so the carriers should let it happen and spend some time figuring out (as the European carriers seem to think) there’s a way to make money off of it. Last week, David Pogue reviewed a cool home Wi-Fi hotspot for your cell phone which (not surprisingly) is being offered by the #4 US carrier, Germany’s T-Mobile; they even get an extra $10/month for all the resulting “free” calling.

If the wireless carriers really can’t cope with this limited competition, then their anguished wails mark the death cries of soon-to-be-extinct dinosaurs. If it’s not that serious, they’ve shot their credibility by crying “wolf” one time too many, undercutting their influence on other issues of importance.

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Monday, July 9, 2007


While much of OS X is unchanged since 2002 or 2003, one of the main areas of improvement for Apple has been iChat: first an IM client, then a VoIP system, then video, now (with iChat AV 3) support for 10-way H.264 videoconference calls.

What I found striking about the iPhone was that by excluding iChat from the iPhone, Apple was not only limiting Mac/iPhone interoperability, but forfeiting the right to use the iPhone to build positive network effects for the OS X platform. This is what the iPhone should be about — use network effects to both launch the new platform and also make the other platforms (Mac, iPod) more valuable. All without (as with the 1985 LaserWriter) making the product less attractive for the vast majority of Windoze users out there.

Now endgadget thinks it’s found evidence that AT&T may soon allow iChat, as part of a survey of iPhone users about poor EDGE performance. The original report by iPhone owner Ben Goetting certainly sounds like he is keen to get is AI back.

Like engadget, I’m not sure what the survey mention means, but if I were the iPhone platform manager for Apple it would be one of my top priorities to win AT&T’s cooperation. I suspect AT&T would be concerned about selling a phone that can IM and videoconference with Apple computers but not with other AT&T phones.

I do have one guess: perhaps the performance of iChat AV would be so abysmal with EDGE that Apple is waiting for better bandwidth to be able to fully interoperate with Macs.

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Competition vs. network effects

On Saturday, I got an invitation to join Doostang. My initial impression was that it was something like LinkedIn, to which I already belong.

After reading a little further — including a semi-official self-promotion — I concluded that Doostang is something like LinkedIn, except later and smaller. (They would say “more exclusive”). A little googl’ing showed that blogger Matt Huggins did a great job (last week, as it turned out) comparing LinkedIn, Orkut, Doostang and other similar business/career networking sites.

I like competition in dot-com commodities. I have logons for Travelocity, Orbitz and even Expedia; if I don’t like the Amazon price, I check B&N. It goes without saying that I check multiple news sites.

But, as I concluded in my dissertation, Herb Simon is right when he says humans make decisions based on bounded rationality. (This is a bit of an obvious conclusion since he won the Nobel Prize for this finding). In particular, I found that computer users satisfice rather than optimize on their computer choices: if a software package is good enough, they don’t bother to look for the best possible one. And if they have enough software, they don’t look for more software just because it’s there. (Games or movies with novelty-seeking would have a different dynamic).

So why would I want Doostang if I already have LinkedIn? I already turn down Plaxo requests for contact maintenance because I use LinkedIn for that purpose instead. Although he doesn’t list his sources, Huggins estimates LinkedIn at 11 million members and Doostang at 125,000; since the value of being a member of a network grows with the size of the network, LinkedIn is potentially 90x more valuable.

Various sites say Doostang has been around since 2005, but this week is my first invitation. So right now it doesn’t look all that valuable. And for me LinkedIn is more a way to stay in touch with friends than pursue career opportunities, since job mobility in academia is roughly one new job every 10-40 years.

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Friday, July 6, 2007

Too bad, so sad

The SF Chronicle reports that apparently there are no financial returns to speculating in iPhones:

David Flashner thought he had it wired: Buy two iPhones last Friday when they first went on sale, keep one and sell the other at a profit so big it would pay for most of the first one.

Flashner wasted no time. He began advertising the extra phone while still in line at an Apple Store in Burlingame. During his 21-hour wait, he posted half a dozen ads to Craigslist -- with prices ranging from $800 to $1,200 -- and waited for the calls to come in.

But no calls came because people expect that stores will soon have phones in stock. He continued to advertise the extra phone through the weekend, and ended up with just one call, which went nowhere. On Wednesday, he returned the phone.
Oddly, this story about iPhone speculation in the Bay Area actually originated with the NY Times.

I personally find speculators annoying: they artificially push up the price of concert tickets, houses and lots of other stuff, and tend to make financial markets excessively volatile.

So I am really happy when (now and again) speculators lose a lot of money — at an emotional level, a policy level, and a pedagogical level (teaching my students). Periodic losses (e.g. in California real estate) are necessary to remind people that risky bets can be losing bets — that's why they call it speculation.

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Chairman Bill not quite so rich

Several news outlets (258 according to are reporting speculation that Bill Gates is no longer the richest man in the world. All the stories claiming Carlos Slim Helú now holds that honor quote one particular financial journalist in Mexico, Eduardo Garcia. As the AP (via the IHT) reported:

[Carlos Slim Helú]Slim controls Mexico’s largest fixed-line telephone company, Teléfonos de México, or Telmex, and owns other businesses in sectors from construction and music to restaurants and cigarettes. Garcia says Slim's current wealth represents nearly 8 percent of Mexico's total Gross Domestic Product.

In April, Forbes magazine reported that Slim had overtaken U.S. investor Warren Buffett to become the world's second-richest person, with holdings of US$53 billion (€39.6 billion).

But according to Garcia, Slim took over the No. 1 spot as early as late March, with a fortune surpassing Gates' by about US$1 billion (€740 million).

Garcia attributed Slim's latest rise to a 26.5 percent second-quarter bump in share prices for América Móvil SA, the largest wireless service provider in Latin America, which Slim controls. Garcia's estimate of Gates’ latest worth is based on a 5.7 percent rise in Microsoft shares during the same period.
Even Forbes — official scorekeeper for the world’s billionaires who ranked CSH #3 last fallseems to give the report credence.

Now any personal wealth over $50 billion seems like a lot of money to me (but then I’ll never make it to $5 million, so what do I know?) Other than the symbolic value of being #1, Gates is still pretty rich.

I think the report also reminds us of the value of telephone quasi-monopolies — Telmex has a 90% share, while his faster-growing mobile business (América Móvil) has a 73% domestic market share and also is a contender in other Latin American markets. SBC AT&T only covers half the USA, but 10% of it would be worth $25 billion.

Slim has made some smart bets — buying Apple near the bottom in 1997 and getting a 6x return in a year. But then he was stupid (or, more likely, egotistical enough) to think he could turn around CompUSA. However, Warren Buffet bet on USAir and Bill Gates keeps losing billions on the Xbox, so nobody’s perfect.

Photo: Forbes magazine, October 2006.

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Way to make money off of “freemium”

In my e-mailbox Tuesday night was an e-mail from GrandCentral Communications founders Craig Walker and Vincent Paquet, announcing they had sold their 1½ year-old startup to Google. As Doug told me Friday (during our iPhone outing), the acquisition has been long-rumored.

GrandCentral got the cool name from its VC, Halsey Minor, who had it left over from an earlier venture. You may not know Minor but you probably know his most famous startup, CNet, which once brought him a paper net worth approaching $1 billion. Minor put an estimated $4m into the startup, while the cofounders had money from their turnaround and sale of Dialpad to Yahoo. Although Minor, Walker, Paquet & Co. did not specify their haul from this week’s deal, some speculate they grossed $50 million.

I know Vince casually as our kids go to the same elementary school and we’re working together (indirectly) as Lego Robotics coaches. This is one of the cool sort of social overlaps that I thought would happen when I moved to Silicon Valley, but (frankly) is more the norm for those living in the Peninsula (esp. Palo Alto) than us peons living in (relatively) affordable housing in the South Bay (i.e. South San José).

As with a lot of Web 2.0 companies, I grok the value creation part of GrandCentral’s business model but not the value capture. Still in beta, GrandCentral gives me an incoming phone number (free) that forwards to my other phone numbers (free) and the ability to ring different numbers for calls for different callers (free), as well as voicemail (free) that sends me e-mail when I have a new message (free). This will come in handy, as I want to forward some calls to my cell phone but not others, as well as be able to find out about voicemail when I’m away from the office.

Did I mention the service is free? The value to me as a customer is pretty easy to get. So where’s the value capture? A couple of weeks ago, Vince said that once the free service was done, they had plans to dangle lots of cool features available only in the premium service. He called this the “freemium” business model, a term I’d never heard before. Google’ing around, I was surprised that “freemium” already has a Wikipedia entry (but not surprised to see the quality of the entry). My old friend Tom Evslin apparently used it more than a year ago, at which point it had already caromed around the blogosphere.

To me, Skype is the quintessential freemium service. I’ve used the software (free) to make PC-to-PC calls (free) and even WiFi handset-to-PC calls (free). And last December, when my flight from Eindhoven to London got fogged out, I spent €5.00 to be able to SkypeOut to fix my travel arrangements (and I think I’ve recharged it once). So for several years of free calls I’ve paid for a little bit of local PSTN termination at rates generally cheaper than any non-VoIP alternative.

We’ll never know about how GrandCentral’s freemium business model would have worked. Instead, the GrandCentral revenues, cost and acquisition price will non-material figures (i.e. trade secrets) lost in the wads of cash being gathered and handed out through Google’s ever-expanding tenacles.

GrandCentral (like blogspot) makes Google’s properties more sticky — exactly as with Yahoo and Microsoft’s acquisitions (e.g. eBay buying Skype). It seems that the aggregation value (economies of scope) to Google are more compelling for its mobile phone portal than its PC-based portal. Others speculate that Google will use the GrandCentral infrastructure to more directly challenge Skype.

But I worry about how GrandCentral contains even more private information about social networks that Google can mine: if I say “x family calls always get forwarded to my cell” but “y friends get voicemail if I’m not at my desk,” that is not just linkages between individuals but also very useful tie strength. What will Google do with this information? The GrandCentral and Google privacy policy today seem rather benign — they only want to target ads. I can deal with the prospect of getting more Hawai‘i ads if my wife (or friends) click on Hawai‘i ads. Some of the other prospects I find more unsettling.

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Tuesday, July 3, 2007

Limits to diversification

When we teach related (or unrelated) diversification, we emphasize the case where the competencies from the existing business don’t transfer to the new industry (or perhaps the rare case where participating in two industries has disadvantages).

However, there are cases where diversification runs aground by being too successful — at least in the IT industry with its increasing returns to scale. I recall in the 1990s, Microsoft spent a lot of money trying to sell settop boxes based on Windows CE, while the cable TV oligopoly was quite clear that they were not going to make IBM’s mistake and transfer their distribution channels and market power over to Microsoft.

At lunch today, I read in yesterday’s Wall Street Journal that Universal Music is threatening to not renew its annual contract with the iTunes store. In fact, today’s Information Week reports that Universal will not renew its contract at all, but instead offer its content at will, free to change the terms or pull out at any time.

Universal is taking a big risk: the NY Times article suggests that the iTunes store accounts for about 10% of the revenues of Universal Music (70% x 15%), or about €500 million of its €5 billion annual music sales.

Of course, there are a lot of disagreements between the record labels and Apple, the largest being that they want to charge consumers more per song and Steve Jobs thinks that’s a bad idea (except for its iTunes Plus premium service). But the WSJ (and other) articles make the explicit link to the label oligopoly being averse to surrendering any more of their supplier power than they already have:

Music companies generally consider the mobile market the next frontier for their business, and are loath to let Apple dominate it that market the way it has digital downloads.
In the short term, having Universal withdraw from iTunes would be bad for consumers (lack of one stop shopping), but it could be good in the long run if it increases competition. It wouldn’t matter much to me, since I have 10 purchased iTunes songs and 3,600 songs that I personally converted from CDs.

Still, having followed the music industry’s information age strategies for the past five years, I suspect that Universal is doing the wrong things for the wrong reasons. The record labels seem to be better at asserting their naked market power to protect an old order that will soon be gone, rather than aggressively creating a new future more to its liking. At least EMI is trying new strategies — there are risks to their strategies, but there is more risk in doing nothing.

[Louis XVI meets his end]Since Universal is owned by Paris-based Vivendi, perhaps its executives are spending too much time trying to emulate Louis XIV. Not a rewarding path to follow, unless you are eager to enjoy pie in the sky when you die or the attention of 72 willing virgins.

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Another reason to hate EDGE

Monday there were widespread reports that AT&T’s EDGE network crashed. AT&T claims it’s not because of the iPhone (and the estimated 500,000 new data users that suddenly showed up on the network in a 24 hour period). Perhaps it’s because of the “Fine Edge” network improvement.

AT&T snared the iPhone in hopes of improving its reputation and winning high-margin customers. So far it doesn’t appear to be holding up its end of the bargain. One estimate said only 1/3 of prospective iPhone users were already on AT&T, which means the other 2/3 must be really p-o’d.

iPhone users also had trouble activating their phones, but since AT&T and Apple aren’t being candid about their customer support nightmare, getting an accurate overall picture has been difficult. One report I heard (e.g. this WSJ story) is that AT&T had particular problems (could just be routine LNP delays) moving people from other service providers — again aggravating exactly the sort of new customers AT&T most wanted.

I would sure love to see a survey of iPhone user satisfaction with their device, Apple’s service and AT&T’s service. Also with a breakdown of their former carrier and phone maker.

Overall, this suggests that Apple is paying a price for its immaturity in the mobile phone industry. Running a mobile phone network is a complex operation where some firms are better than others. As Apple has found out, network services can’t be bought and sold the same way as plastic cases or power supplies.

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