Thursday, January 31, 2008

Motorola: the first shall be last

A couple of days ago I got a tip from a reader about the silly rumor being spread by a Nomura analyst that Motorola was going to dump its handset business. The rumor was tremendously successful for getting publicity for Nomura and the analyst (Richard who?) but the speculation seemed over the top. Perhaps the rumor was planted by competitors hoping to undercut Motorola.

After all, Motorola invented the handheld cellphone business 30 years ago, has been a consistent #2 or #3 for decades, and handsets account for half of its revenues. Without cellphones, they’d have no consumer brand. This sort of radical change requires an outsider, not a handpicked inside successor like CEO Greg Brown.

About the only thing I could say good about the idea is that at one point, IBM exiting the PC business would have seemed equally ludicrous a decade ago — before they bailed out in 2004. Kevin Maney also notes that Motorola [like Intel] dumped the RAM business when the Japanese competition got brutal.

So I was getting ready to write about this silly idea, and then I saw the (online) front page of Friday’s WSJ, and then CBS MarketWatch. After dropping 40% this year, Motorola stock is up 10% on the possibility of spinning off the money-losing cellphone business. Even if the speculation is getting legs, as with earlier this week the headlines are exaggerated and misleading:

Motorola
To Spin Off
Handset Unit,
As Icahn Waits

By SARA SILVER
Motorola Inc., facing pressure from activist shareholder Carl Icahn, said it may spin off or sell its flagship handset division.
OK, journalists — what’s wrong with this picture? “To spin off” != “may spin off”.

I still think the answer to Motorola would be to fix the underlying problems. Some say a major problem is being utterly clueless on software — due to management, not engineering talent. (Some of the iPhone engineers are Motorola alumni). Even if Apple (or Microsoft) has an unfair advantage in software, certainly Nokia has done a better job than Motorola of shifting from cellphones as blocks of silicon to software-controlled digital devices.

Yes, the US is a brutally competitive handset market. LG and Samsung get almost no competition in their home market, and Nokia is not seriously threatened in Europe.

Still, Motorola has great North American distribution and brand, and doesn’t have to compete with Nokia or Sony Ericsson in CDMA. They once had an industry-leading innovative culture.

On the other hand, this is the same Motorola (under Ed Zander) that killed their top software lab in Urbana-Champaign. Fortunately, Yahoo saw the value of the team and hired them away. Hopefully they survived this week’s Yahoo layoffs. Update Friday 9am: If Microsoft succeeds in buying Yahoo, I’m certain they’ll keep the Urbana-Champaign talent.

Clearly MOT will never be a cost leader. If you don’t want to pay for R&D, then you can’t be an innovator, which doesn’t leave much else.

A decade ago, a bunch of stupid Asian PC makers bought losing American PC makers to gain market access: Samsung bought AST and NEC bought Packard Bell. Both turned out badly. But these were 2nd tier players. So I don’t know what companies would have enough money (or optimism) to buy the Motorola business.

Dessert topping and floor wax

Six years ago, I gave two sections of MBA students at UCI the following take-home midterm:


Management of High Technology Companies
Digital Mobile Devices: Convergence and Dominant Design

Midterm Exam
due via e-mail 2:00 a.m. May 2, 2002

Individual businesspeople and consumers today typically own one or more digital mobile devices incorporating similar technologies. Various analysts have predicted three different scenarios:

  • convergence: two (or more) types of devices will be combined into one, such as the PDA phone;
  • complements: two (or more) types of devices will remain distinct products (PDA and cell phone), but will become more tightly integrated so that they work together as a system (e.g. PDA and cell phone connected via Bluetooth)
  • substitutes: converged (or non-converged) products will act as substitutes for existing mobile or non-mobile devices
Complements and substitutes also apply to certain categories of non-mobile digital devices, such as laptops and desktop personal computers.The overall goal of your paper will be to:
  • identify how technological progress will transform one or more existing categories of mobile devices;
  • predict the characteristics of the dominant design for this category; and
  • anticipate which firms have competitive advantage in the category

The top paper in one section was by John Sparks, who began his answer thus:
Looking to the future, it is perfectly feasible to think that several of the following pairs of devices will have merged into one:
  • Cell phone and PDA
  • PDA and ultraportable
  • Cell phone and MP3 player
  • PDA and MP3 player
  • Cell phone and Digital camera
  • Digital camera and Digital Camcorder
Each of these pairs offers functions and benefits that are complementary or technically similar.
This was the best paper in my Thursday night class, but the more important lesson was that the collective wisdom of my class was far more creative (and risk-taking) than anything I could have done on my own.

As I challenged my students, we know some combinations will not succeed — those that don’t fit together or require too many trade-offs. This upper limit is captured by the Silicon Valley phrase “dessert topping and floor wax” (which, thanks to Google, I just found out dates to a 30-year-old Saturday Night Live skit). John predicted that the laptop and cell phone would not converge — if we define a “laptop” as something having a full-sized keyboard, that prediction seems safe for another five years.

Other combinations today seem mundane, like the camera phone or the camera that takes videos. Still other combinations are being worked out: the iPhone is a great MP3 player combined with a unique take on a cell phone, while the MP3 player included in most cell phones seems about as exciting as the $30 MP3 player at the checkout rack of the office supply store.

One neither of us saw coming was the GPS navigator-cell phone, epitomized by this morning’s announcement of the Garmin nüvifone. A columnist at Phone magazine calls it the best iPhone rival yet. (It also raves about the HSDPA bandwidth, even though the 3G iPhone should ship before the “third quarter 2008” nüvifone).

Offhand, I’d say that it’s easier to add map services to a large-screen cell phone than to turn a navigator into a cell phone. The key to the mapping is not the device (which is a commodity) or the software (which Google, Yahoo and others have done well) but the databases that they all use. The data mainly comes from Navteq and TeleAtlas (Etak), but even these databases are getting commoditized.

Tuesday, January 29, 2008

What good is a mobile phone?

Mike & I are trying to finish up the iPhone paper. To make it interesting to a broader audience, we set the iPhone into a broader context.

As part of that, I wanted to make a comprehensive list of how a mobile phone creates value. For analytical purposes, I wanted to categorize it by where the value is created in the value network, not the modality for how that value is accessed (e.g. a web browser vs. a client-side app).

The 1983 AMPS carphones were sold as a direct PSTN replacement, but phone users now more than just talk. Here’s my first cut at a list of the beyond-PSTN value:

  1. other communications, like SMS, IM, e-mail, videoconferencing
  2. commercial content: news, maps, movies, music, ringtones from places like Disney, ESPN, or Fox
  3. user-generated content, both blogs and user-generated websites
  4. computing: anything you’d add to a computer or PDA
  5. e-commerce: conducting a transaction online
So what am I leaving out?

Monday, January 28, 2008

Razors and razor blades

An anonymous commenter on last week’s iPhone posting mentioned Apple’s aggressive price cuts earlier this month on AppleTV, citing an article posted tonight on Gizmodo.

If you allow for distribution margin, Apple can’t be making anything on the 40gb AppleTV sold for $229, if iSuppli’s BOM estimate of $208 is accurate.

There’s nothing wrong with a razor- and razor blade cross subsidy. After all, that’s what videogame console makers have done for years — giving away consoles to make it up with royalties on the game. Once upon a time, you could get an actual razor blade handle free, too.

The problem, of course, is that Apple’s subsidy has historically gone the other way — iPods make money and the iTunes Store does not. So a subsidized AppleTV and break-even store is going to wipe out margins.

I’m guessing that this is a fight to the death for control of the living room: Xbox 360, Sony PS3, Amazon Unbox, the various TV network sites, plus substitution effects for short clips by GooTube. So, like a good Japanese company, Apple is buying long-term market share at the expense of short-term profits.

Nobody’s buying AppleTVs, so it’s not like the subsidy will have a material impact on the bottom line. On the other hand, the old AppleTV made a cheap OS X 10.4 server. Someday they’ll update the hacks so that they can turn the 2008 AppleTV into a cheap 10.5 box.

The new product allows movies, TV shows, YouTube, music and podcasts. I guess I’ll have to buy one to see if it supports the radio stations preloaded in iTunes — like my “hometown” favorite, KSBR. Or I could install the Streamer MP3 radio station hack.

Still, I don’t get the business model. The product still doesn’t do timeshifting, which is the number one usage of a digital settop box.

Another open source exit

Today another open source startup, Trolltech, announced its acquisition by Nokia. ts acquisition by Nokia. Interestingly, Trolltech had already IPO'd in 2006. The purchase price of €105 million is a tiny premium to the current stock price, but is relatively small amount for such an entrenched open source company. This suggests that the Qt middleware is being valued as a development tool rather than an application with significant remaining growth.

This means that all three of the companies that invented the dual license model have been acquired: Sleepycat (by Oracle), MySQL (by Sun) and now Trolltech. All three companies were profiled by Mikko Välimäki in his 2003 paper that introduced most of the world to the dual-license concept.

As with MySQL, I think this says more about the state of the software industry — unlike 30 or 20 or even 10 years ago, it’s nearly impossible to build a new stand-alone software company. Instead, companies need to be inhaled into the bowels of an established IT giant to survive. (Perhaps this suggests limits as to the open innovation paradigm?)

The timing of the acquisition has a small irony for me, as I was quoted yesterday in the San Diego Union-Tribune about how rare IPOs are in the San Diego telecom industry. (I sat down Monday and found 5-8 public companies left). The interview was done last summer, and recently I’ve come to conclude that because the ICT sector is maturing and entry barriers are rising, that very few large standalone ICT firms are being created — most will remain niche players, or need to be acquired to achieve economies of scope.

Sunday, January 27, 2008

Microsoft’s Halo effect

For the first half of its 2007-2008 FY, Microsoft’s Entertainment and Devices Division has finally gotten around to making money, posting a $524 million operating income for the first six months, vs. a $423 million loss for the year before.

Revenues climbed 25% to $4.99 billion. While the division includes PC games and Zune music players, the gain is mainly attributed to Xbox 360, specifically Halo 3. So one game (with some help) accounted for a $950 profit swing and now the division is delivering 8% of the company’s profits. The Xbox team finally has a new GM, formerly of Electronic Arts.

Is this a longterm turnaround? Or is this just the upswing of a long cycle that will go negative again? Of course, we don’t have the financial transparency to understand the cross-subsidies between Xbox games and consoles (which are expected) and between Xbox, PC games and Zune (which are being used to bury Microsoft’s losers).

Microsoft is now making money off of videogames. Supported solely by games and consoles, Nintendo has turned a profit each of the past five years, but improved its margins to 20% and expecting to net over $4 billion in the current fiscal year. They left more than $1 billion in revenue on the table due to an inability to meet Christmas demand.

With Microsoft’s long predicted game profits finally here, maybe even Sony will make it into the black sometime soon. The PS3 losses have been dragging down the corporate parent’s profits for more than a year.

Saturday, January 26, 2008

Are all VoIP carriers unreliable?

A couple of months ago, I switched my VoIP service from Packet8 to Lingo. We had network bottleneck issues with Packet8 (unable to surf the web while using VoIP) but the main issue is cost. So when it came time to switch (to use VoIP to keep my old home number in San Diego) we switched to Lingo.

At the time, Lingo had the best deal among the major VoIP carriers, providing free (no marginal cost) calls to the US, Canada and Western Europe for $22/month plus tax. Since switching over, Lingo has been providing better sound quality and fewer dropped calls than Skype. The Linksys hardware (a SPA2102-R) is would be even more useful if I knew the unlocking procedure (which is readily available for the boxes sold with Sunrocket).

Today, Lingo has exacted its revenge. Its network is down, although there’s no mention of any problem on their support website, and that website seems to be crashing under the traffic. If you call their support number (888-546-4699) and push “2” for tech support, you get this recording:

At this time we are temporarily experiencing problems with our phone system. In the meantime, you may wish to log onto LingoSupport.com and send us an e-mail with regards to your question.

Thank you for contacting Lingo technical support, and we thank you for your patience.
And then it hangs up. You get the same recording if you press “1” for new customers.

If I were more strategic (or rationally economic) in my thinking, as a Lingo subscriber I would not publicize their problems for fear of fueling another SunRocket-type implosion. On the other hand, a major cause of market failure is imperfect information, so providing better information to other consumers makes the market more efficient.

In the VoIP world, under-financed startups have trouble providing telco-level reliability. Even Skype (owned by E-bay) had its own outage in August. It didn’t own up immediately, but eventually it had to because it lasted two days. But such low reliability guarantees that people who care about reliable communications (even beyond 911 issues) will continue to pay Ma Bell (or Pa Verizon) for a landline.

I noted back in August that some say commoditization means that low-quality service has become the norm — as long as people prefer cheap, we get low quality. This is the same as the shift of manufacturing everything to China rather than pay even a 10-20% premium for production in a more developed economy. And, except for occasional lead paint on children’s toys — or the inevitable VoIP outage — people don’t seem to notice.

I certainly don’t want commoditization in airline travel or medical instruments to go this far. Much as I hate bureaucracy, regulation has its place.

Update, Saturday 5:05 pm: I called back again and found they were answering their phone. After waiting on hold for 10 minutes, I got the call center (in India?) that said the outage ended at 4:30 p.m. PST. After some additional tech support (including remote management of my MTA), my Lingo service is live again.

While half a day is not great, it was a weekend and it certainly beats the two days that Skype was offline in August.

Friday, January 25, 2008

Murdoch says TANSTAAFL

Apparently my wait for a free online Wall Street Journal is going to be a long one. Rupert Murdoch has talked to the people who actually run his new playtoy, and then convinced him not to kill their paid online subscription model. As Robert Heinlein summed it up: TANSTAAFL.

The WSJ reported on Murdoch’s comments at the Davos schmoozefest:

"We are going to greatly expand and improve the free part of The Wall Street Journal online, but there will still be a strong offering" for subscribers, Murdoch said. "The really special things will still be a subscription service, and, sorry to tell you, probably more expensive."

I find no small irony that this article (about how WSJ content will be paid) is available free.

When the NYT gave up on charging for content on September 17, many predicted the WSJ would follow suit — including some of my MBA students who looked at it. In the end, the WSJ article makes it clear exactly what I asked originally — if you have the revenues ($60 million) will you walk away from them? The NYT was far less successful (less than 20% of that) and has more free visitors.

Instead, the WSJ will play tricks to try to use Google to get visitors to the free site, and then upsell them. Sort of a freemium thing.

Thursday, January 24, 2008

Why AT&T was mad

AT&T did their earnings call today and added a little bit of information to the iPhone sales picture.

While Apple had sold 3.7 million iPhones as of Dec. 31, despite AT&T’s US exclusive it activated only 2 million iPhones. AT&T execs listed several reasons for the discrepancy: phones sold overseas by foreign carriers (IMHO small), bought in the US to take overseas (ditto), product purchased for inventory but not sold to end users (unknown).

What's left would be phones purchased in the US but not activated on AT&T either because they weren't activated or they were activated with T-Mobile, which seems like it would be at least 1/3 of the iPhones Apple sold. This would sure explain why AT&T's CEO was mad at Apple. Of course, if these phones aren’t being activated with AT&T, then Apple is losing the half of its profits associated with the revenue share.

Two other tidbits: iPhone ARPU nearly double that of others. And the run rate in December was twice that of October and November (suggesting that Randy Stephenson’s attempt to sabotage iPhone Xmas sales didn’t work). If there were no overseas partners for the iPhone, this would work out to be about 19,000 units/day before the Christmas season (consistent with late Sept. sales) and 38,000 units/day during the Christmas season.

However, this doesn't allow for European partners. The FT estimates that O2 sold 190k phones in the UK (just shy of its 200k goal). If T-Mobile (DE) and Orange (FR) together sold the same amount, that would mean a US run rate of 15-16k/day in Oct-Nov and then ca. 30k/day during the Christmas season.

As noted in yesterday's table of iPhone sales, public figures suggest 17k/day since Christmas. Given all the pent up demand, I'd be shocked if they get much above 15k/day with existing channels before introducing a new product (or making a sharp price cut, which seems unlikely). That would mean FY2008 Q2 sales of about 1.5 million iPhones (vs. 2.3 million in Q1 and 1.2 million in the quarter ending Sept. 29).

Rumors have the 3G iPhone in June-July; knowing Apple, it will be in June (or earlier) to make the quarter look good. They can’t do Japan without a 3G phone (because Japan has no 2G GSM networks). They can't just introduce the 3G in Japan because that would kill sales of the 2G iPhone. My guess is that they will introduce a 3G iPhone (with more memory and a bigger screen) somewhere near the 1 year anniversary, and cut the price of the 2G phone to $300 or less.

This strongly points to an overseas introduction during the next 2.5 months to make the FY2008 Q2 figures look better. Rumors suggest China is not soon, and Japan awaits the 3G phone. What's left would be Spain, Italy or maybe Canada, although none would have an impact comparable to the US or even the UK.

Selling 16.5k phones/day would only get Apple to 6 million for the year, and they Wednesday they again promised 10 million. Suppose they get a huge uptick through a big announcement June 1: 3G, Japan, China. That would mean 2.5 million (16.5k/day) for the first five months, and 7.5 million (35k/day) for the last seven months. China is bigger than the US but the pool of $400 iPhone buyers is probably smaller. So, as I said yesterday, Steve Jobs must have some additional plan to accelerate iPhone sales in 2008.

Wednesday, January 23, 2008

Reading iPhone tea leaves

See Thursday update with AT&T results

Yesterday Apple released financial information for the 13 weeks ended Dec. 29. For the 52 week period, it sold 7.764 million Macs, 52.685 million iPods and 3.704 million iPhones. For calendar year 2007, it made $4.07 billion on sales of $26.5 billion, both record numbers.

However, the stock fell sharply based on weak guidance for the forthcoming quarter, which is a slow quarter for Apple like other electronics vendors. Also, the year-on-year iPod sales were up only 5% — suggesting everyone who wants an iPod already has one. Apple is proud of maintaining its MP3 player market share in the US, but category growth is slowing. The only bright news for the iPod is the iPod Touch, which prevented a decline in iPod sales and helped average selling price.

For our iPhone paper, I’m trying to measure iPhone sales from the limited crumbs of information that have been released. Apple was not at all transparent in their sales numbers for the iPhone — not even providing a US/international breakdown and forbidding its carrier partners from talking.

Here’s what Apple has disclosed (with the bold numbers being those that they made public).

DateNew salesInstalled base# of dayssales/day
June 29-June 30, 20070, 2007270,000270,0002135,000
July 1-Sept. 10730,0001,000,0007210,139
Sept. 11-Sept. 29389,0001,389,0001920,474
Sept. 30-Dec. 292,315,0003,704,0009125,440
Dec. 30-Jan. 15, 2008296,0004,000,0001717,412

The figures make clear that Apple got a huge boost from the September 6 price cut, and that the Christmas season also was very successful for the firm. However, it suggests that either it saw only modest sales from its European introduction (in the UK, France and Germany) in November, or that US sales have plateaued. I suspect demand in both regions will slacken as consumers wait for the 3G phone.

Bernstein Research is quoted as saying that Apple will only sell 7 million iPhones in calendar year 2008, missing its target of 10 million. But COO Tim Cook (seconded by CFO Peter Oppenheimer) was adamant about making the 10 million target, according to the analyst call transcript published by Seeking Alpha. They can’t both be right. Bernstein Toni Sacconaghi has been disparaged on the net by the Mac fans, which only proves he’s been more bearish than most last year.

But clearly, Apple will need a higher sales rate in 2008 to hit 10 million. Cook reiterated plans to enter Asia (presumably Japan and/or China) and more of Europe (Spain, Italy seem most likely) in 2008. He wouldn’t comment on a 3G phone, but IMHO even 3G and sales in Japan and more of Europe would not be enough to hit 10 million this year. If I had to bet, Steve Jobs must have another ace up his sleeve.

Sunday, January 20, 2008

Merc discovers open vaporware alliance

This weekend, our local paper noticed that Google’s announcement of a Linux mobile platform is thus far a vaporware alliance:

[T]he software promised by Google's Open Handset Alliance was supposed to give programmers everything they needed to design a sophisticated cell phone and add their own applications.

But Google has yet to deliver.

"What have they been doing for three years?" said Sean Byrnes, chief executive of Flurry, a San Francisco start-up that offers free e-mail software that makes regular mobile phones more like smart-phones.

The sidebar is even more brutal

Android by the numbers
Days since Android was announced: 75
Number of developers who have joined the Android developer forum: 7,172
Versions of Android wallpaper that Google has released: 6
Lines of source code Google has released: 0

It’s hard for big firms to let go of open source communities, as the LiMo partnership demonstrated a year ago.

Saturday, January 19, 2008

"Silicon" Valley gone after 50 years

In 1957, the Traitorous Eight left Shockley Semiconductor to form Fairchild. This is the first Silicon Valley spinoff, as well as the real start of the careers for Robert Noyce and Gordon Moore (Intel) and Gene Kleiner (Kleiner Perkins). The next year, Fairchild sold its first product, the 2N697 silicon transistor, and the rest as they say is history.

Saturday, the Merc reported that Intel is closing its last fab in Q3 2008.

The D2 line has been used to pilot production for fabs elsewhere in the US and the world. This is the last major semiconductor fab in Silicon Valley.

The end of the story has been obvious for a long time, even if the timing has not. Given housing costs, salaries, regulation, water and energy issues, manufacturing in the Bay Area has been heading for the exit for more than a decade.

The question raised by Merc readers (in the comment section) is whether Intel plans to eventually move all the R&D away as well. On the one hand, the Bay Area is the most expensive tech cluster in the country (perhaps second only to Tokyo in the world). There is a lot of unique software expertise here, but semiconductor expertise is more broadly dispersed.

Of course, Intel — like HP, IBM, Toyota, Ford, Sony and Nokia — will have R&D dispersed around the world. Some R&D is going to remain in the US, even if not in the valley. Could there be an Intel without R&D at its headquarters? I don’t know.

23 years of Macworld Expo

This week I had a chance to go to the iPod/iPhone Expo (née Macworld Expo) in San Francisco. Steve Jobs made headlines Tuesday for introducing a new portable Macintosh, but the term "Macworld Expo" seems to no longer really describe the show. With the declining role of the Mac to Apple’s bottom line has come a rise in non-Mac products; in Paris, it was always “Apple Expo”, a more generic term.

So as with last year, there was a proliferation of iPod (and now iPhone) accessories. How many different types of cases or iPod speakers do we need? The ultimate in cr***y iPod accessories was the iCanta, a $80 toilet paper holder/iPod holder to use in your bathroom.

I've been going to Macworld Expo since the first one at Brooks Hall in 1985. I worked the Silicon Beach booth a couple of years (IIRC 1985-1987) to get an exhibitor badge, and at Palomar Software exhibited at most shows (both SF and Boston) from 1987-1993. I also was a panelist for Peggy Kilburn during the conference she created until she was forced out in 1999.

At Macworld Expo SF 1998 I sat outside the expo and did preliminary interviews for my PhD thesis. That thesis during the darkest days of the Mac, and so my study tried to predict which Mac users would stay and which would switch to Windows. I nicknamed the survey “should I stay or should I go”? So a decade ago, I would not have believed that one of the books being shown at Macworld Expo today would be “Switching to Mac for Dummies”.

Software

The show’s origins as a Mac software show was hard to find on the floor. There were a few innovative packages, like TheSkyX and Seeker, an educational astronomy packages from Software Bisque. At $150 for the combo, it’s too expensive to buy for home use, but we might buy it to donate to my daughter’s school.

Instead of new software, there were probably even more 9.0 and 10.0 releases. SPSS (the standard stats software for social scientists) was showing SPSS 16 for the Mac. At one level a rev 16 is mundane as you can get, but on the other hand, it was an incontrovertible sign that the Mac is back. In June 1996, it was the decision of SPSS to abandon the Mac that caused me to start the MacStats website to educate the Mac faithful as to other alternatives.

Although SPSS now does their own Mac development, they came back to the Mac in July 2000 after outsourcing the port to Software MacKiev. Today, the Ukraine-based firm is the world’s largest independent developer of Mac software, with 400 employees. It does both contract work and also has a line of retail products, typically ports of Broderbund PC titles like PrintShop. According to Steve in the booth, its commercial products started when WorldBook decided not to do an OS X port of its encyclopedia and MacKiev stepped up. They still do contract development (taking over much of the HP printer driver work we once did) but are a major presence on the consumer side as well.

Although I ignored the the Microsoft, Adobe, etc. booths showing the N+1 release of their decades-old software, but that was just calculation that I wouldn’t learn anything new. Of course I’ll need to get Office 2008 (under university site license) to deal with the dreaded DOCX disease. Also when it comes out, I’ll buy (if it’s reasonably priced) Photoshop Elements 6.0 since my 5-year-old copy of 2.0 doesn’t run under OS X 10.5.

Hardware

Macworld (or at least my personal purchases) has always been about esoteric hardware accessories. I finally bought a Radio Shark 2 to listen to the radio at work, as well as another USB 2.0 hub to use with my forthcoming MacBook Air.

For those interested in the MB Air, I visited the Apple both and found the CD-free strategy convincing — you can boot from a remote CD(DVD) drive over a WiFi network, although Ernie Prabhakar suggested that for emergency booting I just spend $20 and install OS X on a dedicated USB pen drive. The annoying thing is that Apple will not recommend any power supply to share between the MacBook/MacBook Pro/MacBook Air. As someone who’s accumulated about 7 bricks (and a car adaptor) for the previous model (shared between 3 laptops), I find that inflexibility to be frustrating.

Another cute piece of hardware was the iRecord ($200), a dedicated appliance that will automatically convert analog video input into a format (H.264) that plays on your iPod. It even knows the resolution of your iPod screen and thus the resolution to use for transcoding.

The hardware I’m most likely to buy is the NetGear ReadyNAS Duo, a network attached storage with multiple drive bays (due in March). It sounds ideal for Time Machine backups. The little brother of the ReadyNas NV, it sounds like it will be available for under $500. And unlike the last NAS I bought (which I returned),it presents an HFS file system and thus can backup Mac file names without modification.

I’m also interested in the Western Digital MyBook Studio hard disks, not because they do a better job of commodity hardware, but because (unlike so many other firms) they bundle some decent software. The software does an automatic continuous backup which is interesting but not unique. Instead, what was attractive is how unusually versatile in how it backs up, since it will back up some data to different places or other data (like photos) to multiple places. I’m sure my wife will use the feature that automatically uploads photos to Shutterfly.

Friday, January 18, 2008

Mac robotics

This is (I think) the last robotics posting of the season. The big news for us this week was the great cover story in the Almaden Resident on TCC, my daughter’s successful robotics team. Update Jan. 24: Although the Almaden Resident story is no longer on their website, the Almaden Times has posted its own story.

As someone who thus spent the last six months with Lego Mindstorms, my interest was perked up with a Mindstorms mention at Macworld Expo. (Twenty years ago, I used to write for MacTutor which later became MacTech magazine.) At the MacTech booth, they were showing the April 2007 issue with an article on using the Mindstorms NXT software for Mac cross-development. I’ll file it away in case TCC makes more use of Macs next season.

Also at Macworld Expo, the most unusual hardware demo was The Krawler, a robot that uses Wi-Fi for remote control (and returning a live Wi-Fi feed), and is programmable from the Mac (only) via Objective-C. The robot was originally developed for inspecting home crawl spaces, but now is being sold as a general-purpose robotics platform.

The Krawler is from Pacific Parallel Research, a startup in Cardiff — a cute coastal town between Del Mar and Carlsbad in San Diego County.

I can see how high school kids wanting to learn robotics (or a low-volume VAR) would jump on this as an easy-entry starting point to solving a particular problem. I can’t help with VARs, but offered to introduce CEO Craig Davidson to our local high school robotics team.

Thursday, January 17, 2008

Expensive commodities

Today I’ve had the privilege of spending 8 hours at Washington Dulles Airport, instead of the scheduled 2 hours. The various causes were a snowstorm, airline snafus and general bad luck. At some point I was itching for Wi-Fi service, so I checked it out. Three different carriers — all expensive and some (maybe all) lousy:

  • AT&T (WayPort). (SSID: ATTWIFI) The price seems right: $6 for a 2-hour session. However, last time I was in Dulles, I made the mistake of paying AT&T: they had a severely messed up SMTP policy that prevented even authenticated SMTP. No thanks.

  • T-Mobile: (SSID: tmobile) They list a $6/hour plan (which I used to use) but give you no way to use it, instead pushing $10/day. And, in fact, try to upsell you to a monthly plan that most people won't use.

  • Sprint (NNU): (SSID: pcswifi) I have no experience, but didn't want to pay them $10 for 30 minutes either. They claim to give you free airport and flight status info, but it doesn’t work.

I suspect this says something about the hotspot business, but I’m not sure what. Is it because there’s a small niche of price insensitive customers, and then almost nobody else who will add it if it’s cheaper? Sounds identical to AirFone®, the capacity limited, overpriced airline satellite phone that eventually went out of business.

Almost makes the iPhone mandatory data plan look cheap by comparison.

Wednesday, January 16, 2008

MySQL's exit strategy

We interrupt this Mac channel for an unrelated announcement.

This morning, Sun announced that it was buying open source software company MySQL for $1 billion: $800 million in cash and “assume $200 million in options”. Sun spent more than a third of its cash on the deal.

Even though MySQL is the open source company that owns the most visible and widely distributed commercial open source product, it’s still an eye-popping figure. (Red Hat Linux is another animal since it doesn’t really own most of its code). Not surprisingly, other OSS companies planning their own exit strategies were ecstatic. I imagine the VCs were too, as was the indefatigable CEO Marten Mickos.

MySQL is privately held and thus its revenues are not known. I would be shocked if it had net income beyond $50 million, and thus the acquisition could not be justified on a cash flow basis. Instead, it must be based on the promised “synergy”. Sun is gaining entry into the enterprise database market with a highly disruptive technology, but the pricing power for commodity OSS packages still seems to be in question.

Meanwhile, also on Wednesday, the 800 lb gorilla of databases, Oracle, announced a $8.5 billion buyout of BEA. The two parties agreed to split the difference on their valuation from October when BEA rejected a lower offer.

Consolidation and commoditization have become the norm for the software industry. I suppose it’s better to be pushing the trend rather than fleeing from it.

Still, if the adoption and growth of MySQL doesn’t allow it to IPO, what open source company can? Or, for that matter, what software company can? It’s clear that the IPOs of Red Hat and VA Linux belong to a very different era.

No permanent allies

One of Steve Jobs’ announcements Tuesday was for a movie rental business, in which customers can

  • download a movie
  • play it within 30 days
  • play it as often as desired (on a PC, iPod or AppleTV) during the next 24 hours

The price is $4 ($3 for backlist), plus a $1 premium for HD content.

Obviously this requires DRM (and new iTunes software), thus bucking the DRM-free trend in music. The iTunes website also seems to have dropped all mention of Apple’s experiment selling movie downloads (with only Disney cooperating fully), suggesting that Wal-Mart’s retreat was no fluke.

The coverage today of the announcement made it sound like Steve Jobs had won a great victory with Hollywood after a string of defeats. For example, the Hollywood Reporter reported

Steve Jobs' eagerly anticipated Macworld keynote lived up to the hype Tuesday as the Apple co-founder, chairman and CEO announced that movies from every major studio would now be available for rental on iTunes.

During his annual speech in San Francisco, Jobs revealed that his company had reached agreements with 20th Century Fox, Disney, Warner Bros., Paramount, Universal, Sony, MGM, Lionsgate and New Line to make movies available to rent through Apple.

But I think Forbes has it closer to the truth:

Hollywood's interest in protecting lucrative DVD sales and rentals, as well as revenues from on-demand cable movies, made some studios reluctant to embrace permanent downloads at iTunes. And with DVD sales holding up much better than sales of compact discs, they had far less incentive to play ball with Jobs than the deeply troubled music industry.

Online movie rentals — that is, downloads that become unplayable after a specified period of time — will help bridge the interests of Apple, which badly wants to offer a full menu of movie downloads, and the studios, which are interested in new revenue streams that won't cannibalize existing ones.

Forbes quotes an analyst noting that, in effect, Apple is still king of the handheld playback device — a market that so far has not been penetrated by any system. Thus iTunes revenues here are incremental to existing revenues, and do not entail sharing existing revenues (which Hollywood is loathe to do) with anyone. Similarly, TV shows still are available for sale. on the iTunes store, because these are revenues the studios weren’t getting before.

This time Hollywood and Apple have their interests aligned, but that’s no sign that Steve will have an easier task getting cooperation next time.

As Lord Palmerston (oft-quoted by other English statesmen) said: “Nations have no permanent friends or allies, they only have permanent interests.” The permanent interests of movie studios are to find new growth markets, control their IP, and fight like heck to avoid being Napster-ized.

Tuesday, January 15, 2008

Air ball

Today Steve Jobs only a few of the things predicted for Macworld Expo: a new laptop, iTunes movie rentals and a better AppleTV. They also came up with Time Capsule, a wireless backup server that should prove popular with price-insensitive buyers who don’t want to build their own out of commodity products. But the iPhone update was pretty minor, and there was no news on DRM-free iTunes music.

I’ve been waiting for the new laptop for more than a year, and aspects of the MacBook Air are compelling. 13" x 9" x 3/4" is a nice size, and 3 lbs is the lightest Apple laptop ever. The screen (1280x800) and keyboard are full-sized, it comes with a built-in camera and claims a 5 hour battery life. As expected, it uses an external CD drive to keep weight down, but apparently there is provision (“Remote Disk”) to remotely access the CD drive on some other Mac or PC.

The rumored diskless Mac was just a rumor — at $3100, nobody’s going to buy the 64gb flash RAM model, but instead the Air will be sold in an $1800 configuration with a 80gb iPod disk drive (even though 160gb drives are shipping now).

The MacBook Air shows the power of positive network effects from joining the Intel ecosystem. In PowerPC laptops, Apple was the only company interested in ultrasmall CPUs, but Intel has developed a smaller (“off the roadmap”) CPU that presumably will be offered to other vendors.

But beyond this, the tradeoffs are pretty disappointing:

  • no built in Ethernet — only available via external dongle
  • no FireWire at any price
  • only one USB port (shared by the mouse, disk drive, CD drive and Ethernet)
  • no expansion slot (ExpressCard) for cellular modems
  • no user-changeable battery (forget swapping batteries over the Pacific)
  • video cables (micro-DVI instead of mini-DVI) incompatible with any existing Mac out there
To me, the most serious omission is this is the first Apple laptop since the very beginning (1991) that does not have “target disk mode”. Originally in SCSI and later in FireWire, TDM has been a unique and invaluable tool for fixing hard disk problems on Apple laptops, and it’s hard to see how certain problems can be fixed without it.

Some are calling it another “Cube”: too defeatured in the name of style. (Since I bought a Cube, too, that would be appropriate.) If so, that would be another example of the problems not having checks and balances on Steve’s tastes

It’s a very portable laptop, and I may buy one. However, it’s not nearly as useful or innovative as (for its day) the 4 pound Duo 280. Mine's still in a desk drawer somewhere, but I’d still be using it if you could get software that ran on a 24 Mb 68040 OS 9 machine.

Monday, January 14, 2008

Rabbits I'd like to see in Steve's hat

Steve Jobs is doing is annual “rabbit from a hat” act at Macworld Expo on Tuesday. I don’t know what he’s going to say, but here’s what I’d like to hear:

  • long-rumored diskless (flash RAM) compact laptop that I have been waiting to buy for 18 months.
  • an announcement of 3rd party applications for the iPhone, addresing the two most glaring omissions: Flash, and some sort of IM client (such as the deliberately omitted adaptation of iChat)
  • more details on the iPhone SDK due in February
  • a decision finally by Universal and Warner to provide DRM-free music not only to Amazon, but also (like EMI) for the iTunes Store,
  • more transparency on the iPhone revenue numbers for Q1 of FY2008 (Oct-Dec), as well as for iTunes music and video downloads.
Some things that are possible but I don’t really care about:
  • iTunes movie rentals
  • a 3G iPhone (I won’t switch to AT&T), although a better iPod Touch would be nice
  • the laptop docking station — not because I wouldn’t use one (I once owned all three types of Duo docks) but because I’m too cheap to throw out my existing monitor.
Jobs always saves the most anticipated or most surprising announcements for last: if he doesn’t mention the iTunes Store in the first half, this suggests that he has yet to win over some of his critics in Hollywood.

Dissin’ Apple may be good for egos (and improving negotiating positions) but in the long run ignoring the world’s most popular legal music download site is bad for business. Even Edgar Bronfman (Jr.), the former Universal Music owner and now CEO of Warner Music, admitted two months ago that Jobs had been right all along on music download pricing.

Tomorrow I have to work (everybody has to sometime), but Wednesday I’ll go up to the Expo to see what’s going on.

All good monopolies come to an end

Anyone who teaches strategy ends up teaching some aspects on industrial economics, specifically Michael Porter’s Five Forces. Generally instructors need illustrative examples of the two extremes: a highly competitive, low-profit industry and an oligopoly (or monopoly) with high profits.

As I’ve said before, if you want to make money, nothing beats a good monopoly. But a good oligopoly comes close: a favorite industry for illustrating this point is the pre-Napster recording industry, ca. 1995. (Obviously a lot has changed in the last decade).

With undergraduates, I need something to illustrate the concept of formal entry barriers, such as a government-controlled monopolies. Cable TV — one franchise per city — is pretty easy for most to understand. And, in fact, it’s been a very lucrative business for the past few decades to own.

This month’s (Jan. 28) Forbes looks at the recent decline in the market power of Comcast, one of the top 4 cable operators (a national oligopoly, each with a local monopoly). It focuses on the ability of the Internet to deliver content while bypassing the last mile monopoly for TV.

An interesting commonality between record labels and cable TV operators is that they didn’t face increased competition — the entry barriers to their traditional business remain as before. Instead, the threat comes from substitutes enabled by technological change — either things that weren’t possible to do before, or things that were possible but now have become more attractive substitutes.

Are substitutes the most likely cause of ending monopoly power? Another example is the world’s richest man (no not Bill Gates) who bought CompUSA — the biggest US computer store, pinched between general electronics retailers on one side and online retailers on the other.

Normally in teaching business we teach that profits are good and competition is bad. (Sorta the opposite of economics, where competition and consumer welfare are good). But in this case, substitutes can provide market entry for those blocked by the old entry barriers — openness that is bad for one part of the value chain is good for another part. It hasn’t changed the lot of independent record labels (yet), but clearly video producers have a way to bring content to market that they never had in the days of the big three TV networks and the subsequent cable oligopoly. (Not counting new business models like JibJab, which wouldn’t exist without the Internet).

Sunday, January 13, 2008

Even prouder papa

Saturday was the end of the FLL robotics season for the Technology Cougar Chicks of Simonds Elementary School, as we spent all day at the Northern California Championship of the First Lego League.

TCC was one of 14 teams to advance from an earlier preliminary tournament. The 64 teams represented the best of 282 teams in Northern California from San Jose to Chico. The teams were judged on four criteria: robot performance, robot design, teamwork and presentation of an energy conservation research project.

Winning the robot performance was never in the cards, with four teams achieving perfect scores of 400. However, TCC raised robot score from 310 to 355 in five weeks. Our girls were disappointed not to get the 380 points we saw in practice Friday night, but finished 13th overall. This appeared to be the highest point total of any girl’s team and one of the top (if not) the top score for an elementary school team.

However, we were all stunned when the girls were recognized as best “Rookie Team” out of 16 participating in the championship. This was the only trophy they had a chance to win, and reflected not only their robot performance, but their poise, understanding and hard work in 30 meetings since July 8. Quite an achievement for six fourth- and fifth-grade girls who a year ago didn’t know that Lego makes robots.

Members of the 2007-2008 Technology Cougar Chicks. Left to right with their trophy: Connie, Sonya, Nicole, Katy, Anjali. Not shown: Sahana.

Being interviewed by a reporter from the Almaden Resident, I had to articulate the benefits of FLL. At a young age, kids learn computer science and mechanical engineering. More importantly, they learn about teamwork, stick-to-itedness and the crucial engineering principle that “stuff happens.”

In turn, I learned a lot about kids, K-12 education, and even technology policy from the exercise. There’s no government money in this activity, except for a few schools that get the equipment donated from their principal or PTA. As with Little League, the teams are run by parents, and the tournaments wouldn’t happen without referees, judges and other volunteers. (Google and the SIA were sponsors of the championship). Our team was greatly helped by volunteers from Leland High School’s robotics club: Natalie, Beeta and Jenny.

Yes, it would be nice if this opportunity were more widely available, but it’s certainly an important start. FLL (for 9-14 year olds) is completing its 10th year, and is a low-cost offshoot of the high school age FIRST Robotics Challenge. FIRST in turn was founded in 1989 by Dean Kamen, a serial entrepreneur and inventor of the Segway. These, in turn, are derivatives of MIT’s famous (and influential) design course 2.70 (now 2.007) that began nearly 40 years ago.

Finally, I learned something about myself. Nine months ago, I asked parents if they wanted to launch a robotics program at Simonds. The result was 21 kids on four teams, including six girls ages 9-11 (and three coaches) on TCC.

So far I’ve helped start one company, two trade associations, a computer club, a school science fair and a local Internet initiative. Social entrepreneurship can be as exhilarating as the for-profit equivalent, as is the satisfaction of building something from nothing. I can see why those who no longer have to worry about paying the bills find it very rewarding.

Friday, January 11, 2008

Ringing out the season

An off-topic post only of interest to my California readers.

This was the first week back for most people who got two weeks off at Christmas. It’s been a busy week juggling stuff at work, my daughter’s school, and of course my research. It’s thus taken some time to wrap up one loose end from the Christmas season.

Almost exactly a month ago, I read an article in the Merc entitled “What's on Tap: Big, bold beers just in time for the holidays.”

They listed three special Christmas brews sold by major specialty brewers — two of them ales. Being an ale drinker and more than a bit of a beer snob, I felt compelled to investigate.

Below are the comments by the Merc’s reviewer William Brand and my own response.

Anchor Christmas Ale

This year's version is a dark brown ale, 5 percent alcohol by volume ale, spiced perhaps with nutmeg, allspice, cloves and seeds of paradise or ginger. It has a solid malty taste, backed by a gentle spicy tang that lasts into a drying finish.
I got a second opinion from a close friend. Not a bad ale, but nothing special — certainly nothing that says “this is a special ale you only get once a year.”

Sierra Nevada Celebration Ale

[Since it was created in 1981, the] only change, says head brewer Steve Dresler, was the addition of new hop varieties: floral, citrusy Centennials and piney Chinooks. Another change has been the use of "crystal" malt from an English company, which gives this beer its beautiful copper color and lip-smacking malty taste. Celebration is 6.8 percent alcohol and about 68 International Bitterness Units. (A comparison: Bud is 13 IBU.)
A step above the Anchor Steam. A very rich and full ale with a unique flavor. My brother-in-law agreed.

Gordon Biersch Winter Bock

For head brewer Dan Gordon … this beer brings back memories of when he was a 20-year-old exchange student in northern Germany. Everyone looked forward to the arrival of the first double bocks, the strong, dark, sweet beers from Bavaria, [Dean] Biersch says. …

Now, late each fall, [Gordon] makes a double bock.

"To me, it's the colder weather beer," he said over the roar of the bottling line the other day. WinterBock is 7.5 percent alcohol and made with a blend of malted barleys and spicy Hallertau hops. It has a caramel nose; full, malty taste; and drying finish.
After going for a sail on an America’s Cup yacht in San Diego (a birthday present), I fished one out of the charter’s cooler. Wow. I normally don’t drink beer but this was the most memorable drink I had all month. A few (but not all) beer hobbyists agree: I don’t see how someone could say it’s “boring”.

My vote is clear: if you want bold, go with the Double Bock. The Celebration is a full, rich ale, and certainly something worth having, but the Double Bock is an experience not to be missed. I bought several sixpacks, including one to give away.

Earlier this week I went to my local SaveMart (which claims to be a Lucky grocery). The Anchor Steam product was nowhere to be found — perhaps others agreed with me. But the other two were there, and either is worth buying.

Thursday, January 10, 2008

Bye bye Frontline

Yesterday I noticed an interesting tidbit regarding the US 700 MHz spectrum auctions that begins on Jan. 24. This is the largest auction of land mobile spectrum in more than a decade, and the one where Google has pressed (with some success) to get open access provisions instituted.

Deposits (of $130-280 million) were due last week. Frontline Wireless, which last month said it was going to bid, did not place a deposit. In fact, IDG reports, it’s gone out of business:

Frontline spokeswoman Mary Greczyn said Wednesday the company would have no further comment beyond saying Frontline is "closed for business at this time."
Frontline was always a political animal, with Reed Hunt (Clinton’s activist FCC chairman) as frontman and backing from James Barksdale (FedEx, McCaw, Netscape) and John Doerr (Kleiner Perkins partner), the former head of NTIA and ex-director Louis Freeh.

So was it because they couldn’t raise money — a sure sign (if you have KPCB partner on your board) that the business model made no sense. Or was this always just a stalking horse pushing open access — a credible threat — to force the big telcos to worry about open access?

Frontline’s plan was always to bid on the spectrum which had a mandate to help build public safety communications — a sure way to reduce the price of the spectrum, both because of the costs associated with meeting that commitment, and also by eliminating bidders who wanted unrestricted spectrum. Of course, this would be a cross-subsidy from the Feds (getting less money for spectrum) to misc state and local public safety agencies (who get a big investment in their communications by the bidder).

Now that Frontline is gone, there’s a worry that no one will bid on the spectrum. Or a firm could buy the spectrum cheap, and then walk away if it doesn’t like the terms.

To me, this is yet another example of why the US fails when it attempts to emulate the statist industrial policy of other countries. Our policies should encourage (and protect) competition, to reward efficiency and allocate resources based on market demand. If the government wants to do something, it should pay for it as a line item rather than mandating that private firms do it for them.

Wednesday, January 9, 2008

The iPhone one year later

It’s been exactly a year since Steve Jobs unveiled at Macworld Expo Apple’s most important product of 2007, the iPhone (aka the Jesus Phone). I’m working to finish our journal paper assessing the iPhone and its impact, and thus have been collecting data to support our arguments. The most important data will probably come next week when Jobs talks about Q4 sales — hopefully including meaningful overseas data.

One thing I came across is a year old assessment of the iPhone by Padmasree Warrior, who until a month ago was CTO of Motorola. The gist of this was that “we’ve been doing this for a long time and they’ve made a lot of mistakes.”

A year later, the iPhone has been a strong success (at least in the US), not only in terms of units and business model, but also in changing how consumers and the industry think about mobile devices. Largely on the strength of the iPhone, Apple shares were up 133.5% in 2007, more than Google, HP, Intel or Oracle.

Meanwhile, Warrior and her mentor (then-CEO Ed Zander) have been forced out due to Motorola’s mediocre results at introducing compelling new products since the RAZR. I’m told Motorola has trouble producing good software, which could be said for almost all of the world’s mobile phone makers — but not Apple. Motorola shares are roughly 25% below where they were when Warrior offered her critique.

People draw a bad hand or make mistakes, so it’s not as though I wish Warrior ill. However, the original column makes no sense to me whatsoever: I cannot understand why anyone would predict failure for a direct competitor in print — as in sports or politics, it’s a no win proposition. If you’re right, then you can beat them in the market and no one will remember what you said. If you’re wrong, then not only do you look petty, but clueless as well.

Senior Member

In picking up my mail yesterday for the first time after Christmas vacation, I found a letter from IEEE President Leah Jamieson:

It is a pleasure to advise you that have you have been elevated to the grade of Senior Member in the IEEE. Only 7.78% of our approximately 374,800 members hold this grade which, as you know, requires experience reflecting professional maturity and significant professional achievements.
While this is something I’ve wanted to do for almost five years, the main hang-up was getting the recommendation letters from three people at Senior or Fellow rank. Such inertia seems like a reasonable hurdle to force applicants to clear, and last fall I was finally fortunate to identify three sponsors whose reputations carried the day.

Thanks to longtime Computer Society board member (and someday CompSoc president) Jim Isaak for agreeing to be my first sponsor 30 months ago. We met after he’d submitted his analysis of 20 years of IEEE POSIX standardization first to a conference track and then to a special issue that I was co-editing on IT standards. For obvious reasons I didn’t ask until after the paper had been accepted, not that it was ever an issue: both Henk de Vries and I strongly always wanted to accept the paper if we could, because it provided a unique perspective on the Unix wars and also on IEEE standardization more generally.

Thanks also to my friend Ken Krechmer for providing a second recommendation. We first met at the 2001 SIIT conference which (less than a month after 9-11) was the smallest of the five SIIT conferences thus far. Since then, Ken has provided ongoing feedback on getting my stories straight when studying communications standards, as well as shouldering (in retirement) the thankless job of SIIT program chair.

Most of all, thanks to IEEE Fellow Dave Forney of MIT, who after a year still really only knows me from reading draft manuscripts from my (ongoing) book project From MIT to Qualcomm. Since then, Dave has opened a lot of doors for me, including introducing me to other leaders in Information Theory and sponsoring my guest talk last year at the ’Tute. Given Dave is a member of the National Academy of Sciences and the National Academy of Engineering — as well as a Marconi Fellow and the 1995 winner of the Shannon Award — I suspect his backing made the application impossible to refuse.

Thanks Jim, Ken and Dave. Let’s see if I can contribute something myself to the IEEE (other than write book reviews).

Jobs solves one EU problem

As I’ve noted, French EU industrial policy is about picking on winners and cutting them down to size, so Apple’s iTunes Store was naturally in their sights.

Last year, Apple’s most visible EU regulatory problem was the switching costs created by its end-to-end control of the FairPlay DRM, and regulators’ attempts to force it to waive the competitive advantage to help latecomers. But the shift by Apple (and others) to DRM-free seems to be solving that problem.

Today Apple settled an older problem, about different prices within the EU between the Eurozone and not. Specifically, the gap is £0.79 UK and €0.99 in most of Europe, which at current exchange rates (€100 = £74.9) penalizes Britons by about £0.05. The AP claims it’s £0.09 but reporters are rarely good at math — this is probably an obsolete exchange rate.

Here’s what Apple said:

LONDON—January 9, 2008—Apple® today announced that within six months it will lower the prices it charges for music on its UK iTunes® Store to match the already standardized pricing on iTunes across Europe in Austria, Belgium, Denmark, Germany, Finland, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Sweden, Switzerland and Spain. Apple currently must pay some record labels more to distribute their music in the UK than it pays them to distribute the same music elsewhere in Europe. Apple will reconsider its continuing relationship in the UK with any record label that does not lower its wholesale prices in the UK to the pan-European level within six months.

“This is an important step towards a pan-European marketplace for music,” said Steve Jobs, Apple’s CEO. “We hope every major record label will take a pan-European view of pricing.”
The complaints of course came from British consumers who felt cheated. If the pound fell and Britons got better prices, would they complain too? Information goods lend themselves more to cross-border arbitrage of exchange rates than do cars or houses.

In addition to reducing intra-European transaction costs, a major goal of the Euro was to encourage crossborder price competition. I don’t quite get why Britons (who chose to keep another currency) are entitled to price parity with the Eurozone.

However, the fragmented nature of IP rights across Europe — with different copyrights, licensors, terms, etc. aligned to national boundaries — still remains. My news archives show concerns about this being the subject of a WSJ story back on Nov. 10, 2003. And the EC today acknowledged there are problems that remain beyond its ability to pressure Apple:
The Commission’s antitrust proceedings further allowed the Commission to clarify that there is no agreement between Apple and the major record companies regarding how the iTunes store is organised in Europe. Rather, the structure of the iTunes store is chosen by Apple to take into account the country-specific aspects of copyright laws.

The Commission is very much in favour of solutions which would allow consumers to buy off the iTunes' online store without restrictions, but it is aware that some record companies, publishers and collecting societies still apply licensing practices which can make it difficult for iTunes to operate stores accessible for a European consumer anywhere in the EU.
Frankly, (nominally) cheating British consumers 4p a song is small potatoes in both the context of the industry and EU industrial policy. The bigger unanswered issue is what will the recording industry’s business model be a decade from now? Particularly since the legal download business is anemic in Europe compared to the US.

Nokia’s Palo Alto-based CTO

When I wrote about the director of the Nokia Research Center in Palo Alto, I had no idea that he’d become the highest ranking US executive of the Finnish tech giant. But he became Nokia’s corporate CTO on Jan. 1. Obviously this is intended as a major culture shift for Nokia.

Monday at Mobile Monday I ran into Doug MacMillan of Nokia who told the crowd he’s hiring. Sure enough, across the Mobile Monday mailing list tonight came two job ads from MacMillan, now “Director, Technology Insight & Promotion” in the “Office of the CTO.” The first job was for making the CTO’s slides look whiffy (“Technical Visualist, Technology Insight & Promotion”). The more interesting one was for the “Manager, Technology Evangelism, Technology Insight & Promotion” whose job will include:

  • Building Nokia "Internet company" perception & image in the Valley
  • Development of external presence of CTO content & activities Web content authoring (research.nokia.com, opensource.com, nokia/research, nokia/openess, nokia/innovation)
  • Internal and external evangelism of new interaction modes/web 3.0
  • Market OCTO activities (Alpha-lab, Market trails, etc.) to Nokia
This sounds a lot like the BT’s Silicon Valley lab, which I taught last fall to my MBAs as part of a case on BT’s adoption of open innovation. Motorola is here too, while Qualcomm (like Microsoft before it) is building a new campus to colocate all its local acquisitions. Perhaps the Merc was right after all.

Maybe someday SBC will discover the valley. I’m not holding my breath. At least Arun Sarin (who went with the part of Pac Bell not bought by SBC) remembers what the valley looks like.

Howard Stringer channels ol' blue eyes

Yes, the rumors were correct: Sony BMG is going DRM free. Sorta.

Sony CEO Howard Stringer has decided to address two crucial industry trends - objections by consumers to DRM and fragmented competition to iTunes — by creating its own distribution system (for a fraction of its catalog) that sells phone cards for songs — through stores, not online. And only in North America, not Europe or Japan. Not surprisingly, the reaction ranges from incredulity to outright ridicule.

Some might say this is just the ongoing arrogance of a proprietary company past its prime. (OK, who would say that?) Memory Stick sorta worked, and Blu-Ray might too (at enormous costs). But the Sony’s solo DRM strategy failed and the MP3 players are heading that way — in the US, they can’t even match the Zune sales.

It seems to me that Stringer is channeling the late great Columbia (now Sony) recording artist, Frank Sinatra:†

Yes, there were times, I'm sure you knew
When I bit off more than I could chew.
But through it all, when there was doubt,
I ate it up and spit it out.
I faced it all and I stood tall;
And did it my way.
Sinatra lasted almost 30 years after “My Way”. Stringer may keep his health for another 30 years, but at this rate he’ll be lucky to have his job three years from now.

† Yes I looked it up, and by 1969 Sinatra had jumped from Columbia and created his own label. The only other Columbia artist who came to mind was Bob Zimmerman, and none of his lyrics seemed to fit.

Monday, January 7, 2008

All quiet on the Android front

For the mobile phone industry, Europe has 3GSM (next month) and CeBIT (in March). The US has the two CTIA shows (in the spring and fall), but also CES (going on this week) has been a venue for wireless products for many years.

Information Week reports that so far the mobile announcements at CES have been inconsequential — some product updates by Motorola and Nokia, and a few new products by Sony Ericsson. Presumably the big announcements will come at 3GSM (now the “Mobile World Congress”).

According to Info Week blogger Eric Zeman, everyone wants Android — the claim is that it will be in prototype form on real hardware later this year — but so far nothing is being shown. Of course, software takes time, so AFAIK the delay in demos is more a function of Google’s pre-announcement than of things being behind schedule.

PC World reported that an obscure Chinese ODM (Wistron) showed off an OGA-based phone Sunday night. Since nothing is shipping yet, and since Wistron doesn’t ship its own products, this can only regarded as a prototype for now. “The GW4 will come out during the second quarter of this year” sounds like a pretty optimistic schedule to me, but we’ll see.

We're #4!

The free CES blog on the WSJ site is providing tidbits from the show. In a story on the new head of Sony Ericsson, I spotted two real oddities. First:

Sony Ericsson’s new president says he aims to turn the company into one of the world’s top three mobile phone makers within the next couple of years. Hideki Komiyama, who took over the top job at the joint venture between Sony and Ericsson in November, said in an interview that he sees an opportunity for the company to grow its business as new functions are added to mobile phones.

The longtime Sony executive said he hopes to aggressively target consumers, which is his expertise.

This wouldn’t be about becoming one of the top three, but regaining it. (Perhaps something not known to the Sony side). Ericsson (by itself) was #3 in the global handset business (after Nokia and Motorola) from 1994-2000 with 10-11% market share. However, in 2001, it was passed by both Samsung and Siemens, and — even with the boost from the Sony Ericsson joint venture formed in 2001 — has never again caught Samsung.

Sony Ericsson stayed in 5th place behind Siemens until the Germany company gave up and dumped its money-losing handset division to BenQ. In 2006, Sony Ericsson had recovered slightly to to 5th place been a consistent 4th place since 2002. In 2006, its share was exactly where it was in 2002 (7.3%), but with Siemens gone that was good enough for 4th place. The bad news is that LG (5.8%) continues to rapidly gain share.

The other odd thing was the snippy comment about SE (and the reporter) being clueless on CDMA:
In the U.S., where Sony Ericsson is traditionally weak because some U.S. operators have adopted a different technology standard than the rest of the world, the company will have a bigger presence starting next fall, he said, adding that operators have been very interested in its products.
Sony was actually a late entrant into the cell phone market, not being one of NTT’s traditional suppliers. In hopes of gaining access to the US market (long before D-AMPS carriers switched to GSM), in February 1994 Sony created a 49/51 joint venture (with Qualcomm) in San Diego to manufacture CDMA handsets. In 1999, Sony withdrew and Qualcomm sold what was left to Kyocera.

CDMA is about half the US market, historically all of the Korean market, plus the 2nd largest Japanese carrier (now called KDDI). Both Samsung and LG leveraged their strengths in their home CDMA market (Korea) to become world players. Meanwhile, the Japanese vendors were hobbled by the fact that (until W-CDMA) none of their home market technologies were used much of anywhere else.

SE’s hope to establish significant US share via GSM/W-CDMA phones seems foolishly optimistic. Right now, the US GSM market is about 70% AT&T, 20% T-Mobile, and the rest tiny carriers. AT&T knows that it’s the only path for Nokia and Sony Ericsson to gain meaningful share, and plays that to the hilt. It also sells a lot of Blackberries and iPhones on the high end, and has a long list of 2nd tier vendors who will give it great prices at the low end.

Citizen Gates

On Sunday, Bill Gates delivered his final keynote at Consumer Electronics Show. He used to keynote COMDEX until it went belly up (in 2004) after 25 years. However, about a decade ago Gates made a second pilgrimage to Vegas to keynote CES, as Microsoft sought to cross over into more consumer technologies.

Most of Gates’ talk was on familiar themes of Microsoft technology everywhere. The major announcements by Chairman Bill and his staff were around content: NBC parnering with MSN to deliver on-demand Beijing Olympics coverage, as well as Disney and MGM movies available on Xbox Live. (Microsoft separately announced BT would deliver TV services via Xbox 360). They also explained a little more about the voice recognition partnership with Ford that’s been heavily advertised recently.

Even though Bill Gates is becoming non-executive chairman on July 1, it sounds like the company still has the same goal of total world domination — just without either of the founders. Steve Ballmer certainly seems capable of continuing this quixotic quest for another decade or so.

However, the most interesting thing about the keynote was the seven-minute video which purported to be an NBC news story on Bill’s last day at Microsoft. Narrated by NBC Nightly News anchor Brian Williams, it featured Gates being turned down in his post-retirement job search by U2’s Bono, Steven Spielberg, Hillary Clinton, Barrack Obama and some guy named Jon Stewart. It was moderately funny in an inside-the-industry way, but could have done without the laugh track (apparently the live CES reaction).

The farewell video is not available separately, but starts about 10 minutes into the overall Gates keynote which is posted to Microsoft’s website. Of course, it’s only available in one format (WMV), so us Mac types have to install the Flip4Mac QuickTime plugin to get it to work.

After July 1, Bill is going to spend full-time burnishing his image as a philanthropist. It certainly seems feasible — Andrew Carnegie did a world of good (not so sure about Rockefeller). Or is he just going to build a big house — like the nice one we visited last week built by Citizen Kane Hearst?

Still, it’s interesting that his two rivals and contemporaries, Steve Jobs and Eric Schmidt, are not retiring. Is it because it will take less time to burnish their respective images? Is it because they want to amass another $50 billion (each) to catch up with Chairman Bill? Or is it because they’re having more fun?