Thursday, February 28, 2008

More than a pin drop

Today, Sprint finally announced its $100/month “all you can eat” plan. It’s been experimenting with it in selected markets for nearly a year, and finally decided to roll it out nationwide.

And there’s the rub — two weeks ago, it would have lead the industry, but since the #1, #2 and #4 carriers unveiled unlimited plans last week, Sprint’s effort is now a “me too” response to the commoditization of cellphone service. To get any attention at all, they had to sweeten the pot with unlimited data, text, e-mail, Internet access, push-to-talk and everything else.

This is but one small example of the problems facing the gang that hasn’t been able to shot straight since it bought Nextel nearly three years ago. I’ve been a loyal Sprint customer for nearly a decade, but that loyalty is being sorely tested. Sprint is hemorrhaging customers while its competitors continue to gain.

As a WSJ blogger noted, the Nextel purchase is now officially a “deal from hell.” The two companies each had a market cap of $33b, and now that $66b is worth $25b. Today, Sprint officially wrote off $29.5b of the $35b acquisition cost— which might imply that it overpaid by 6x, but really means that the value of the combined companies — with two technologies, headquarters, cultures and subscriber bases — was less than the constituent parts.

Newly-appointed Sprint CEO (and former AT&T Wireless head) Dan Hesse is facing a multitude of problems, beyond the massive losses, customer defections, technology problems and junk bond credit ratings. It has mediocre phones and poor service, while its Nextel cash cow of loyal small business customers has been milked nearly to death.

Its 4G strategy was supposed to be WiMax partnering with Clearwire. One problem is that the economics of WiMax (as a stand-alone business) have always been dubious. Another is that Sprint doesn’t have the money, which is probably why Sprint cancelled its commitment to Clearwire in November.

Rumor has it that negotiations have reopened, with efforts to get funding from Google, and some are suggesting that Sprint spin off the WiMax efforts. But without a 4G network, Sprint would truly be en route to a controlled flight into terrain (or waiting for someone to buy them for their spectrum value).

The cultural and organizational issues can be fixed, so it’s shocking that they have dragged on so long. (Even Carly Fiorina could figure that out). In the short term, Sprint certainly can get cool phones if it wants to — maybe no iPhone, but there’s plenty of good CDMA phones available from LG or Samsung.

Is it time to bottom fish on Sprint stock? I'm not much of a stock picker — and the options market say the worse is yet to come. But some speculate that the market value of Sprint’s spectrum is greater than the entire company — assuming you can find a well-heeled enough buyer. With a market cap of $15b, Sprint MVNO customer SK Telecom could afford Sprint, but they may decide they don’t need any more exposure to commodity markets.

Strategos going away

An odd press release showed up on my “open innovation” news search today

UTEK Corporation (AMEX:UTK) (LSE-AIM:UTK), an Open Innovation services company, has agreed to acquire Strategos, Inc., a leading innovation and strategy consulting firm providing services primarily to Fortune 500 companies.

Founded in 1995, Strategos has offices in Chicago, Lisbon and London. Over the past 13 years, Strategos became a leader in providing strategic growth advisory services, helping its clients outperform their industry peers by building and deploying a sustaining capability to innovate more effectively and efficiently at scale.

Since inception, Strategos has performed services for 25 out of the 30 companies included in the DJIA (Dow Jones Industrial Average).

I’d never heard of Utek, but their website implies that they are an IP licensing middleman. CEO Clifford Gross has co-authored a book on commercializing technologies from US federal labs.

I was skeptical about the “open innovation” claim, since this is really just the “found money” approach of external innovation that became popular after Henry Chesbrough’s 2003 book was published. Normally, firms (and consultants) take an oversimplified version of open innovation: fire your R&D staff and then look for all that free innovation just waiting to be used.

However, Chesbrough is listed as a consultant to the company and confirmed his involvement, so the claim of being in open innovation is legit.

Strategos was once a breakthrough strategy consulting company, on the strength of founder Gary Hamel. With CK Prahalad, Hamel heavily influenced the approach to strategy during the 1990s with their book Competing for the Future and a series of articles. I personally enjoyed Leading the Revolution the best, but I have not had a chance to read his latest book, The Future of Management.

Strategos had a 3.5% loss last year on revenues of $10.8 million. If it earns out, Strategos shareholders will get $15 million in stock over three years (with the attendant risk of stock price fluctuations).

Still, that’s a far cry from LECG, started by Berkeley’s David Teece. Even allowing for LECG doing an IPO at the peak of the Internet froth, LECG today has a market cap of $240m — 16x that of Strategos and more than double the $110m market cap of the company acquiring Strategos.

RIP Bill Buckley

Conservative intellectual William F. Buckley Jr. died Wednesday. Based on the demographics alone of my readership (mostly Bay Area plus Europe), I don’t imagine he has a lot of fans here, but no one can deny his great influence on American political thought over the past fifty years.

The official Libertarian journal, Reason magazine, wrote

I received the news of Bill Buckley's death with a great sense of loss. No, he was not a major intellectual influence on my becoming a libertarian. I have to credit Robert Heinlein and Barry Goldwater and Ayn Rand for that. But since for most of us libertarianism as an intellectual and political movement has been an offshoot of conservatism, Buckley in truth was a great enabler.

...Buckley created space for the development of our movement. He kicked out the racists and conspiracy-mongers from conservatism and embraced Chicago and Austrian economists, introducing a new generation to Hayek, Mises, and Friedman.

The reason I bring him up here is that any role he played in legitimating such this economic thought helped bring the fall of the Berlin Wall, the end of Communist rule west of the Urals, and the permeation of free market principles throughout the world (although the pendulum right now seems to be temporarily swinging back).

Some of the extreme interpretations of the Austrian school (e.g. Ayn Rand) are dubious. However, the role of Hayek and others is undeniable in providing an economic grounding to the philosophy of individual liberty developed by Locke, Hume and others.

Unlike my students, I don’t have to explain to this audience the importance of free markets and capitalism, so let me make two quick points. First, that economic growth depends on improving efficiency — and so we want a market system that sends price signals that reward efficiency and punishes inefficiency. Second, most of the claims of market failure are more likely failures of pricing, or incentives — particularly the tendency of US publicly held firms (and shareholders) to reward executives for short-term profits rather than long-term growth.

Monday, February 25, 2008

Ending the myth of Google invincibility

Google is having a Gmail outage today. I first saw the current problems mentioned on ZDNet. There were earlier Gmail outages this month, in January, 2007, 2006 (both May and June), and 2005. As with competitor’s outages, customers complain that Google isn't acknowledging the problem, although they did acknowledge a problem earlier this month.

Clearly Gmail is challenged by phenomenal growth. However, unlike some other Google (or Yahoo) properties, this can’t be blamed on a poor architectural decision by a little company acquired by Google.

Also, infrastructure shouldn’t be an issue. Since 2006, Google has been spending hundreds of millions on a 70,000 square foot data center in Oregon (with 200 staffers). Apparently its data center capital expenditures hit $2.4 billion last year, and Microsoft has been racing to match.

But by its actions, Google seems to be saying that “free” means that it only promises the same reliability as my VoIP service or Skype. Caveat emptor — or, more accurately, you don’t get what you don’t pay for.

This to me suggests an opportunity for Google competitors to market superior reliability — particularly if they can surpass the recent Blackberry track record.

Saturday, February 23, 2008

Setting a consistent DRM policy

Consumers hate many aspects of Digital Rights Management (aka copy-protection). Some hate clunky interfaces, or services that require an Internet to use DRM-controlled content. Some hate the risk that the service (or service provider) will go away, rendering the content worthless. And some just hate DRM, period.

DRM is on its way out for music, and (by extension) its future for movies has been questioned. However, DRM remains (and is increasing) in the e-Book market.

I was reminded of this by spending the entire afternoon Thursday researching the past decade of the e-Book industry, as I downloaded and skimmed more than 100 articles from 1998 to the present. This is in preparation for a class visit next week by entrepreneur Doug Klein, who for my students’ benefit will be reliving his days creating the Rocket eBook and critiquing successors like the Kindle.

There were a lot of foolishly optimistic predictions about the future of the e-Book, including by Steven Levy of Newsweek and Dick Brass, a vice president of Microsoft. Despite such optimism, E-books are not outselling paper books today, nor are they likely to do so any time soon.

Then there is the October 2000 prediction of Klein’s buyer, Gemstar CEO Henry Yuen, who USA Today reported “ gleefully forecasts that by 2002 the reader units will be so inexpensive to produce that they ‘could literally be given away.’ ” By that standard, the Kindle or the Sony Reader is overpriced by $400.

One thing that was remarkably prescient was a 2000 report in the Christian Science Manager from the annual Seybold conference. The four major problems were

  1. incompatible standards
  2. not enough content
  3. poor display readability
  4. “ineffective copyright protection,” i.e. weak DRM

Is the lingering use of DRM thus predicted by these earlier concerns? Or is it DRM that’s normal for information goods — with DRM-free MP3 format a legacy of unintended substitutes (with Napster and converting personal CDs) that the media companies don’t face in the book industry.

Consistent with this, another thread that has held up over the past decade is the publisher’s greed. In some cases, the e-books of a decade ago were more expensive than the hardback. Today it’s not so clear.

Lacking a representative book title — and with Harry Potter not available in the Kindle edition — I decided to check some of the self-help books by finance guru Suze Orman. Anyone within a range of a PBS TV station has heard Orman offering personal finance advice to the educated but economically illiterate.

I checked prices on two of her books, both of which had a Kindle price of $10. For The Road to Wealth, the hardback listed for $30 and the paperback for $18 — but the Amazon discounted price was $20 and $12 respectively. For The Courage to Be Rich, the prices are $25 (net $16.50) and $15 ($10), respectively.

So with lower COGS and distribution costs, we’d expect the list price of the electronic book to be half that of the physical book. (In this case it’s 67% and 56%, respectively). More seriously, (as with the Saturn cars) for the Kindle there is no haggling and thus no price competition. This is the dirty little secret of DRM — vendors blame media moguls for requiring it, but it creates lock-in and switching costs that reduce price competition and forestall commoditization.

The other unresolved problem for information goods is the lack of a secondary market. The dead tree Suze Orman books are available from many sources for 1¢ each (plus shipping). Right now, there’s no way to sell (or buy) a used information good, and it seems as though the publishers would like to keep it that way. That increases sales, but of course means that buyers of information goods never “own” those goods.

E-books also face their own unique problem: as Doug will attest, the demand for reading books is neither large nor growing. Movies aren’t going away anytime soon, but botching the transition away from dead trees could leave book publishers in the same spot as newspaper publishers.

Friday, February 22, 2008

Continuing where Netscape failed

Today is apparently the end of the line for Netscape, with the release of the final version (ever): Netscape for Windows, Mac OS X and Linux. As previously announced, AOL is pulling the plug on Netscape support at the end of the month.

The release is mainly a security bug-fix (incorporating Mozilla fixes) on top of the existing Netscape 9 features. It also lists tools for migrating to Mozilla, and something called Flock.

Flock is a social networking browser that is particularly suited for bloggers. It builds on the Mozilla code base but as a separate browser. The software hit 1.0 in November and (now I recall) was being demonstrated during my visit last month to Macworld Expo. The first 1.1 beta was released earlier this week.

However, unlike the open source Mozilla, Flock comes from a for-profit Silicon Valley company co-founded by Bart Decrem, a Mozilla (and Eazel) veteran. Decrem has since left the company and been replaced by an experienced big company manager.

The company has won funding from angels and three VCs (Bessemer, Shasta and Catamount). The only cloud on the horizon that Mozilla has responded with its own social network extensions (subtly named The Coop).

Am I the only who sees an irony here? AOL released Netscape as open source (creating Mozilla) in hopes of helping its browser business, but the effort failed and so it got out of the browser business. Meanwhile, some entrepreneurs come up with an idea for a better browser, but rather than building it from scratch, they leverage the Mozilla code base to create a brand new business.

Thursday, February 21, 2008

Using free to overcome network effects

I heard an interesting news report on the radio yesterday, about a major breakthrough in the use of stem cells to treat stroke victims.

What I thought was interesting was that the breakthrough was not (as is customary) published in Science or JAMA. Instead, it was published by Public Library of Science, a relatively new family of journals that is directly challenging scientific publishers and their high subscription prices.

Some of the traditional journal prices are truly exorbitant — my favorite Elsevier journals annually charge libraries $2100 and $1300, respectively. On the other hand, this is a very thin market: we’re talking a few hundred libraries and a few thousand individual subscribers, not the millions who read Time or buy a Christina Aguilera CD.

So while libraries don’t to pay $1000+ to subscribe to journal, the story is a little more complex. In addition to the concerted efforts of publishers, there has already been pushback by moderates to efforts to require mandatory use of “open access” (free beer) journals.

This reminds me exactly of the open source debate. Some academics are open source advocates (tipoff — they say “FOSS” or “F/LOSS”, not “OSS”) that want the whole world to use open source. Others welcome the competition in terms of quality, efficiency or price, but leave it to the market to decide what is the best solution. A tiny number just view it as an interesting phenomenon and try not to take sides.

The open access journals don’t charge their readers, but they also save a lot of money by not having dead trees, subscription lists, marketing, or website authentication. They also get more readers by being searchable and linkable from the open Internet, and encourage the reuse and redistribution of their content. However, I have some questions about how widespread they will become, at least in the near term.

First, these “free” PLoS journals are not exactly free, because they charge authors a publication fee of $1K-$3K per article. This works on a $100K-$1 million biomedical research project, but not on a social science or humanities paper that might have a research budget of $100.

Second, for medical research in the US, there’s one agency (NIH) that’s mainly paying for the research to be produced and to be consumed, so it is willing to increase producer prices if it dramatically cuts user prices. The funding of social science and humanities research is much more fragmented, and thus the funders are more likely to pursue their parochial interests rather than seek a systems approach.

However, Wednesday’s PLOS story does suggest they’ve overcome a third problem: the chicken and egg problem of reputational network effects facing scientific journal publishers. The problem is that important research isn’t published in 2nd tier journals because, well, they’re 2nd tier. And without important work, these journals remain 2nd tier.

The stem cell article was published in PLoS One, which already has more than 1000 articles under its belt. So it appears that the PLOS crew has gone a long way to gain legitimacy among authors and readers.

iPhone Flashpoint

Although I no longer read the daily WSJ, Larry Gagnon of ZDNet pointed me to an interesting article today on the WSJ website (by former CNET reporter Ben Charny) about Flash on the iPhone.

Adobe has successfully created a new platform with Flash, Adobe wants the iPhone to ship Flash. Mobile platforms are a strategically important source of growth for Adobe. As of last October, it had 300 million installs on 430 phone models and 140 device models, and mobile/device revenues (for both Flash and Acrobat) were $52.5 million, up 40%.

So far Apple isn’t cooperating, and went so far as to use a work-around to get YouTube on the iPhone without providing Flash. Today Adobe needs Apple’s cooperation because Apple tightly controls third party apps on the iPhone; even on the ISV-friendly OS X, Apple retains some control such as for apps that require low-level interfaces.

Once the new SDK ships (this month?), the iPhone will become a feasible target for a wider range of third-party apps. At that point, Apple’s attitudes could range from

  1. bundle it and pay a royalty
  2. bundle it if it can get out of a royalty (not very likely)
  3. treat Flash as a strategically important application and help Adobe develop a Flash port for the iPhone — which it then can distribute as it sees fit
  4. treat Adobe like any other ISV (which is to say, not go out of its way to support a very popular application)
  5. do what it can to discourage/prevent Flash for the iPhone, such as by changing APIs or allowing it on its redistribution site.

The WSJ makes it seem like Apple is at #4 or #5.

Neither side is talking, but the key issues would appear to be:

  • Processor usage. Flash is a resource pig, although Flash Lite supposedly runs on a 150 MHz ARM chip. The iPhone has a 620 MHz ARM chip, but that chip is severely taxed right now.
  • Royalties. Adobe gets 20¢ per phone for preloaded software, but nothing if the software is downloaded by the user (e.g. for Symbian or Windows Mobile).
  • Platform control. Flash is a classic closed standard — even more closed than Windows — in that Adobe controls the APIs and no third party implementations are available. By comparison, Apple supports Adobe’s PDF standard on OS X but has its own implementation of a PDF reader that lags Adobe’s by several generations but for most purposes is good enough.
IMHO this last point is the most important one. Flash is a prerequisite to using an increasing number of websites, as I found trying to go without for several years. (Still, it was only GrandCentral that caused me to finally install it). Apple is gambling that Adobe needs the iPhone more than the iPhone needs Flash.

John Gruber has a long post about why he believes Apple will not help bring Flash to the iPhone. It appears that we don’t agree on much, but we agree here:
Apple doesn’t control the HTML/CSS/JavaScript web standards, but neither does anyone else. And Apple does control and own WebKit, which is by anyone’s measure the best mobile implementation of these standards today.

Flash, on the other hand, is (from Apple’s perspective) the wrong sort of proprietary — owned and controlled by another company.

Gruber notes (correctly) that Flash may have won on the desktop, but the mobile web is still wide open.

The iPhone has an opportunity to influence those mobile standards far out of proportion to its market share (of about 6% of new smartphone sales). As Google told the Financial Times last week, Google “had seen 50 times more searches on Apple‘s iPhone than any other mobile handset”.

My bet is that for 2008, Apple will continue to promulgate WebKit and work with Google (Ajax etc.) to make websites work well with the iPhone using open standards. I also expect Adobe to ship its own Flash player (with or without Apple’s help) in Q2 or Q3 of this year.

The real issue is whether mobile-oriented websites will develop assuming a Flash player, and then require iPhone users to download a copy of Flash Lite — or whether they will follow the Google-iPhone web application model.

Wednesday, February 20, 2008

Valley layoffs in the new and old economy

Yahoo axed 1,100 workers last week. One middle manager, Ryan Kuder, achieved his 15 second of fame by blogging his last day (Feb. 12) on Twitter. Apparently he got visibility and some job leads out of the public expression of his career trauma.

Ironically, I read about it this morning in the San Jose Mercury News in a feature article by Jessica Guynn. Ironic, in that the San Jose story (incorrectly datelined "San Francisco") appeared first in the LA Times Tuesday (since that’s where Guynn works).

Ironic, because Tuesday the Merc announced that it’s initiating another round of buyouts and/or layoffs at the paper — in addition to even more drastic cuts at its sister papers in the East Bay. One report linked this to the current slowdown in home sales.

Unlike previous slowdowns that were part of the well-understood cyclical nature of newspaper advertising (such as the one that caused me to quit newspaper reporting in 1983), there will be no recovery when this is over. The industry has failed to solve the problems facing it. In the case of the Merc, the editor who started their rethinking project has gotten the boot — apparently because her plan was too radical. The alternative to a radical decision is apparently no decision at all, i.e. Controlled Flight Into Terrain.

Dean Takahashi’s decision to jump this month from the Merc before he was pushed is looking unusually prescient. It may be a lateral move financially, but at least he’s joining an organization (VentureBeat) that’s embracing new media rather than ignoring it or fighting it.

Tuesday, February 19, 2008

Toshiba surrenders

As speculated for nearly a year, and specifically rumored for the past week, Toshiba officially threw in the towel this morning, pulling the plug on HD DVD. The proximate cause was Warner’s decision in early January to abandon HD DVD to exclusively support Blu-ray.

The HD DVD lifetime sales figures were reported by Engadget from the Toshiba press conference:

600,000 players in the US and 300,000 Xbox 360 HD DVD drives. 100,000 units were sold in Europe. And about 10,000 players and 20,000 recorders in Japan. So about 1,030,000 units worldwide.

Toshiba’s president was also asked by lawsuits from angry orphans, but Toshiba’s president (correctly) noted “there will be always be a risk in buying.”

In addition to kits coverage, Engadget also kindly offers a Top 10 list of things to do with your defunct player.

Sony — which lost the original Betamax battle — is officially the winner with Blu-ray. It appears its gamble of bundling Blu-ray with PS3 has paid off — at least for Blu-ray, if not for PS3. (BTW, the WSJ reports the 6.3 million Blu-ray players sold worldwide includes PS3 devices, but Wikipedia reports 10.5 million PS3 sold and that all have Blu-ray)

Today people are assuming that the format war was causing consumer confusion and hesitation, and thus sales will take off now that it’s over. But I can think of two other explanations for the slow uptake of Blu-ray. One is that it (the player and/or discs) is too expensive: the HD DVD price war last Christmas made prices more acceptable and spurred demand, but now that Sony has won, will it be so aggressive on pricing?

The other possibility is that the need for HD discs isn’t all that strong yet. We all have lots and lots of DVDs on our shelves, and buying a new player does nothing for those. Also, HD penetration is still (I suspect) less than 50% of households, so lots of people will see little or no benefit from an HD player.

Sony will need to aggressively price cut next Christmas to get players into people’s hands. Will that work, or will it need a final push from the March 2009 changeover to digital TVs?

Or will there still be skinflints like me that object to Hollywood charging $40 for the HD version of a $15 DVD? (It’s not like they have to pay their actors or writers by the pixel).

Saturday, February 16, 2008

Virtual trademarks

On the Madisonian, Greg Lastowka writes about having trademarks in virtual worlds, summarizing his recent analysis in a law journal.

This is one of those problems I didn’t know existed. But since people take very seriously earning virtual cash (and virtual fame) in virtual worlds, obviously attempts at trademark infringement will eventually happen.

Coca-Cola (or Disney or Apple) certainly care about their trademarks in a virtual world — such as in overseas countries where they have no presence but someday hope to. So if they aren’t yet worried about virtual trademarks, they soon will be.

Friday, February 15, 2008

Reading Symbian tea leaves

Again for the iPhone paper, I’m trying to better understand the details of 2007 smartphone sales beyond what Canalys provided. This afternoon I tried to figure out Windows Mobile and gave up, because of contradictions between Microsoft’s data and Canalys’ data.

So this evening, I looked at Symbian sales, which Canalys said accounted for 67% of global smartphone sales in 2006 and 67% in 2007. I have friends at Symbian but had no help from them on this endeavor.

Symbian has three user interfaces: S60 (owned by Nokia), UIQ (owned by Sony Ericsson and Motorola) and MOAP (owned by NTT DoCoMo and used only in Japan). All of the UIs are licensed to other vendors, but everyone knows that S60 phones from Nokia are the bulk of Symbian’s revenues.

Canalys provided two hard numbers: Symbian OS is 77M of the 112M smartphones (excludes wireless handhelds) shipped in 2007, and Nokia accounts for 60.5M devices (which is S60 smartphones plus a few Maemo tablets). Beyond that I had to dig.

Symbian issues press releases and quarterly fast facts now and again, so it was pretty easy to estimate the MOAP sales as 14.2M for 2007. There’s no hard numbers for S60, so I used the Nokia sales as a proxy (understating the S60 total), and then assumed the rest was UIQ (perhaps overstating). These are my estimates:

PlatformQ4 SalesShare2007 SalesShare

Then I went to the Symbian website and counted the number of current, forthcoming and discontinued phone models by vendor and UI. The Japanese “FOMA” models require a little digging since they are branded by DoCoMo; however, everyone knows who the vendor is because the first letter of the model number gives it away, like “F” for Fujistu.

This is my tally of the models listed by Symbian:

UIVendor Coming Current Discontinued Total
S60Nokia 5 36 11 52
Samsung 1 6
LG 1 1
1 1 2

1 1
19 8 27
18 1 19
Sony Ericsson
UIQSony Ericsson
8 2 10
3 2 5

1 1

Grand Total
2 77 16 95

In the past year, the main change in vendor participation seems to be the new Motorola UIQ phones after they bought Sendo. It‘s hard to tell how they are doing — or how the Samsung S60 phones are doing.

However, it appears that Sony Ericsson sold about 41 million Walkman phones in 2007 while UIQ phones were at most about 2.3 million. That implies that SE is less committed to Symbian as a multimedia platform than Nokia is — or perhaps SE is mainly targeting low-end MP3 players while Nokia is emphasizing multimedia more.

Thursday, February 14, 2008

The triumph of WebKit

I’m sorry to be here in San José instead of Barcelona, because this sounds like a particularly momentous 3GSM conference this year. There’s such a huge amount of news that even from 7,000 miles away it’s impossible to keep up, although the FT coverage (and that of CNET and Engadget Mobile) helps.

Although there’s been a lot of coverage about Google’s gPhone prototypes at MWC, I found an article about Google’s business model to be more interesting.

Google on Wednesday said it had seen 50 times more searches on Apple‘s iPhone than any other mobile handset, adding weight to the group’s confidence at being able to generate significant revenues from the mobile internet.

“We thought it was a mistake and made our engineers check the logs again,” Vic Gundotra, head of Google’s mobile operations told the Financial Times at the Mobile World Congress in Barcelona.

If the trend continues and other handset manufacturers follow Apple’s lead in making web access easy, the number of mobile searches will overtake fixed internet searches “within the next several years”, Mr Gundotra said.

Of course, more searches equals more page views of Google-served ads. Does it mean more click throughs? We assume that, but of course there’s not enough of a track record to tell.

This is a clear validation of Google’s efforts to work with Apple to make the iPhone the premier mobile Internet device. Apple deserves a lot of credit for showing others what to do, and will receive abundant flattery through imitation over the next few years.

What I think it makes clear, however, is the triumph of WebKit — a fast, lean, standards-based open source browser that is rapidly gaining share. It’s Apple’s desktop browser, its iPhone browser, Nokia’s S60 browser, Google’s Android browser, and — as a presentation last month at Mobile Monday made clear, coming soon to Windows Mobile.

The next opportunity is obviously to bring WebKit to the 10% of the smartphone world that uses Blackberries. Strangely, an open source effort to port WebKit to Symbian UIQ seems to be stalled — you would think the Sony Ericsson (or UIQ) bureaucracy could spare an engineer for six months to help along the conversion.

WebKit’s success means that mobile websites will eventually be targeted for WebKit browsers — unless somehow Mozilla can up with clean fast code soon. Since WebKit is open source, Apple may be able to put a unique UI on its iPhone but not a unique web rendering engine.

All browser implementations of HTML etc. standards have their quirks. Today many sites don’t work with Safari’s. However, if you have market share then website operators will have to write their code to be compatible with those quirks.

More importantly for Google, if everyone is running Ajax-compatible WebKit browsers, it can develop cross-platform web apps for the vast majority of the smartphone world while others are still figuring out how to port their native apps.

Wednesday, February 13, 2008

Yahoo is toast

In the airport newsracks, Sunday’s Merc blared the headline

to reject

I was on my way out of town and didn’t get a chance to comment on the unfolding story of Yahoo rejecting Microsoft’s unsolicited $44b takeover offer. The rumor of Sunday morning became official Monday morning (and I still couldn't follow up).

The Yahoo board isn’t ruling out a deal, they just want more money. However, the stock has been bouncing between $29 and $30 since the deal was announced, suggesting that shareholders seem to think that the $31 offer is likely to go through.

What is Microsoft buying? Some technology and some operational systems, but mainly customers and engineers. (Some argue its executives are top notch, but to be it’s not $44b worth). Yahoo is strong in some point products (mail, IM, Flickr), and some aggregation customers at its portal, but otherwise its products have parity or disadvantages relative to the big G.

After glancing at this morning’s paper and then talking with Dean Takahashi of the Merc (who’s going to a new job), it’s pretty clear: now that it’s in play, Yahoo loses no matter what:
  • If Yahoo is taken over by Microsoft, key engineers are likely to bolt, exacerbating its current recruiting disadvantage vs. Google. Even customers are threatening to bolt, although it could be just posturing.
  • If the takeover and uncertainty drag out for month, headhunters are circling like sharks to pick off the best engineers. Customers will wonder if their favorite Yahoo solution will get orphaned in an acquisition.
  • If the deal fails, Yahoo will lose engineers who realize its core problems remain unsolved and customers who now are reminded that Yahoo is in trouble. It may continue to layoff key personnel or lose its key executives.
  • If Yahoo turns down the richest potential buyer (I’m nearly 100% sure that Google can’t legally make an offer), the next bailout will be at a lower price. There aren’t many companies who can (or even would) pay $33b (half cash) for Yahoo, so the shareholders will be pushing hard for immediately improvements.
Today’s news is Yahoo’s (thus far futile) search for a “White Knight” friendly buyer. Right now they are trying to convince News Corp. (Fox) to take a minority stake in Yahoo. The deal might include combining MySpace with the Yahoo portal. Since News Corp. doesn’t have a lot of cash, it would have to be some sort of equity deal. Rupert Murdoch is pretty savvy, so while Yahoo is relatively cheap, he would want some indication that the stock will go up.

The other idea is that Yahoo might buy AOL when AOL is spun off by Time Warner. This is a truly terrible idea. It combines two declining properties, adds all the uncertainty and disruption of combining two firms without much upside, and likely reduces Yahoo $2b cash horde. The only people who benefit are the Yahoo managers and directors who get to keep their jobs.

I predict at the end of 2008, Yahoo will no longer be an independent company. (I suppose being 20-30% owned by News Corp. would be a semi-independent company). If it drags out past the end of 2008, then I predict a weakened Yahoo will be acquired in 2009 for less than $44b.

Tuesday, February 12, 2008

End to the Wi-Fi mirage

Earthlink is now trying to sell or close its municipal Wi-Fi operations — perhaps because it lost $80 million on municipal Wi-Fi last year (versus $20 million in 2006). Apparently some of the failed services are getting turned off. Earthlink also pulled back from the ill-fated Helio MVNO venture with SK Telecom.

This is probably the beginning of the end of attempts to build self-supporting municipal Wi-Fi systems (as opposed to those subsidized like parks and libraries as a “public good”).

The cause is not that different than Ricochet’s failure in the 1990s. Yes, Ricochet had slow nonstandard modems while Wi-Fi is ubiquitous and cheap. However, the economics of building infrastructure coverage are the same, and today the desirability and adoption of substitutes (other access methods) are probably worse.

Most seriously of all, it seems like the era of paid Wi-Fi is heading towards extinction — because free Wi-Fi at restaurants and coffee shops is becoming more the norm. I had lunch in Mountain View on Sunday and it seemed every bar on Murphy Street had free Wi-Fi. Starbucks announced Monday that it’s offering (limited) free Wi-Fito match all the other free sites — further fueling the commoditization of Wi-Fi hotspots. About the only place that people will pay for Wi-Fi is in an airport, because you can’t easily go down the street to find a better alternatives.

Without crunching the numbers, my intuition is that WiMax is going to face the same problem. Yes, the radios have longer range, but you still have to build more cells (and negotiate access and install backhaul) for lots of cells. If WiMax fails, then Sprint's 4G strategy will fail with it.

Monday, February 11, 2008

Black day for Crackberry addicts

Research in Motion was in the news today — for a service outage for most or all Blackberry users in North America. They made the national TV news, the New York Times, the Wall Street Journal and several hundred newspapers and online websites. Somehow, RIM didn’t think that its biggest news of 2008 was worth mentioning on its home page, news pages or its support page. RIM was also late to explain its outage last April.

Various accounts place the outage at three-five hours. It seems to have affected all its major North American customers: AT&T, Verizon and Sprint in the US with Rogers and Bell Canada in Canada.

So this is our second major Blackberry outage in the past year, which has already seen outages for Skype and VOIP services. Unlike Skype P2P (which is free) and VOIP (which is a commodity), this is a premium business service — presumably something where people are expecting enterprise-quality reliability.

Perhaps network reliability is more than just the old 99.999% level promised by the old Ma Bell. It seems like the complexity of modern, software-controlled digital systems is inherently more risky than POTS. The Skype outage was due to servers crashing due to Microsoft pushing a Windows fix, while some of the startup VOIP services seem to vulnerable to single point of failure.

I wonder what the reliability is for Microsoft’s enterprise mail services? It seems like RIM will be vulnerable in the near term.

Sony Ericsson toys with the dark side

In conjunction with 3GSM (aka GSM World Congress aka Mobile World Congress), Microsoft announced Sunday that it has finally won Sony Ericsson over to its camp. Of course, Sony Ericsson still retains a significant financial stake in Symbian OS as the owner of UIQ Technology.

This got me to wondering about all the side bets being made by the major cell phone vendors. Below are the platform choices by the top 2007 mobile phone vendors; X is a major bet and † is something that (for now) looks like a side or limited bet.



Sony Ericsson


The 110 current Symbian cellphones far exceeds that of the 39 Windows Mobile phones. Linux can be used for smartphones and feature phones, but at least among smartphones the market share is (roughly)
  • 62% Symbian S60 (inferring from Nokia smartphone sales)
  • 15% Symbian UIQ and MOAP
  • 13% Windows
  • 11% RIM
  • 4% Linux (estimated from 2006, 2007 Canalys data)
  • 3% iPhone
  • 2% other including Palm, proprietary OS
In contrasting the willingness of European vendors to partner with the Evil Empire, it would seem that Sony Ericsson wants to sell smartphones in North America and Nokia doesn’t.

Of the side bets, rumors have it that Motorola will make more Symbian UIQ phones using its acquisition of Sendo. And of course all the efforts to use Linux as a mobile phone platform are still early, and all of the vendors could have major Linux commitments if the OVA or LiMo catches on.

Wednesday, February 6, 2008

Apple: We're #3!

On Tuesday, Canalys released its estimate that 115 million “smart devices” were shipped in 2007, where such devices are defined as “smart phones and wireless handhelds”; as best I can tell the numbers are 112 million vs. 3 million. (It’s hard to tell how many of the latter are Palm PDAs, Windows PDAs or an iPod Touch).

Canalys is coy about full year results, but the stats for Q4 allow comparison of the overall handset market (released last month by IDC) and the “smart device” market. Making some reasonable assumptions (in italics)

VendorAll handsetsSmart Devices

Sony Ericcsson30.8M9.2%



Of the “other” smartphones, about half are Windows mobile. Apple is tied for third with Motorola on smartphones, but of course Motorola sells 20x as many featurephones.

Other smartphone stats from Canalys:

  • Worldwide, the Q4 operating system share is 65% Symbian, 12% Windows, 11% RIM, 6.5% iPhone and about 5% Linux. Of the Symbian, 82% is Nokia; presumably most of the rest of Sony Ericsson.
  • In the US, Q4 device market share was RIM (Blackberry) 41%, iPhone 28%, Windows 21%, Palm 9% (Note the overlap of Palm Windows devices).

Also on Tuesday Apple, introduced new iPhone and iPhone Lite models:

iPod Touch$299$399$499
† plus a two-year contract unless you figure out how to unlock the iPhone

Apple is certainly holding off on cutting prices on either model, which presumably awaits the 3G iPhone in June or July.

Tuesday, February 5, 2008

eBay for Billionaires

This month the FCC is winding down its auction of 700 MHz mobile radio spectrum. The auction that began on Jan. 24 was labeled by one industry columnist as “eBay for Billionaires”. As the IEEE Spectrum reported:

Observers have called 700 megahertz the last great band of spectrum to come up for auction in this age of ubiquitous wireless devices. By virtue of having a lower frequency than today's third-generation services—which all operate at 1700 MHz and above—its signals can travel farther and better push their way through apartment and office walls.
The auction of 62 MHz of spectrum is one of the largest since the FCC first began auctions in 1994. The FCC’s first major auctions allocated 90 MHz of mobile phone spectrum in auctions, first with the A-B block in 1994-1995 (raising $7 billion) and the C block 1995-1996 (nominally raising $10 billion). These auctions of 1.9 GHz spectrum increased the number of cellphone providers in each market from two to six or seven, fueling the competition, price cutting and demand stimulation that pushed US cellphone penetration from 24 million at the end of 1994 to more than 250 million today.

As with the original AMPS A- and B-block allocations (50 MHz total) of the 1970s and early 1980s, this spectrum is coming from UHF TV channels. The original 850 MHz AMPS spectrum (from UHF channels 70-83) was tied up by broadcaster lobbying and litigation for almost twenty years. This is one reason why AT&T invented the cell phone but was not the first in the world to deploy commercial service, as I described in my 2000 paper on the history of first generation cellphone systems in the US, Europe and Japan. (BTW, does anyone else remember the original TVs with UHF channel 83?)

This time around, the allocation of channels 52-69 is less contentious because these are NTSC channels being surrendered in exchange for HDTV spectrum already in use. Selling the spectrum (and thus being able to spend the money) is a major reason why Congress mandated that NTSC broadcasts be turned off 380 days from now.

Even as someone who’s written about mobile phones for more than a decade, the 700 MHz spectrum allocation is dizzyingly complex, with all the clever rules and allocations. I’ve found three good sources:

  • I got my first introduction by talking for 15 minutes with a FCC rep at the CTIA show last October, who also pointed me to the FCC website for “Auction 73” provides a plethora of information.
  • Even before that, industry veteran Om Malik did an exemplary job of boiling down the auctions in layman’s terms on his Gigaom blog.
  • The industry trade journal, RCR News, has the best ongoing coverage with a special web page tracking all the auction news.

Of the four major carriers, AT&T and Verizon are bidding and Sprint and T-Mobile are not. The identities of the bidders is not available, only their bidding amounts. AT&T is also buying up spectrum previously acquired by Aloha Spectrum Holdings, a transaction approved Tuesday by the FCC.

Overall, the auctions have been successful — raising approaching almost $19 billion, versus a predicted $10 billion. However, most of the attention has been not on the total amount but the two odd conditions imposed upon the auctions for the “C” and “D” blocks. Normally economists would expect conditions to reduce the prices, although economist Peter Cramton argued (on my blog) that open access would increase prices by challenging the mobile phone oligopoly.

The first special auction is the C block, a nationwide license with 22 MHz of bandwidth that would normally be the most desirable of the auction. However, it has the subset of “open access” conditions proposed by Google and loathed by AT&T and Verizon. If the bids had not met the $4.4 billion reserve price, the spectrum would be reauctioned without the conditions, but magically an unnamed bidder (everyone assumes it’s Google) bid the spectrum to $4.7 billion last Thursday — guaranteeing that the spectrum will be sold with open access conditions. Of course, this doesn’t tell us who will end up with the spectrum, only that it will have open access conditions.

However, the 10 MHz D block has proven more problematic. It came with an obligation to build a nationwide public safety radio nationwide — depressing the sale price it hopes of funding those radios with an off-budget expenditure. As predicted, the auction has failed with the death of Frontline Wireless, the politically connected startup that died two weeks just before Auction 73 started. The only bid of $472 million is far below the $1.3 billion reserve price.

If Congress really cares about safety radio, it will auction the spectrum without restrictions, take out the $1.3 billion that the feds hoped to clear, and send the rest of the proceeds to the local governments to build their own systems.

Monday, February 4, 2008

Yahoo would rather switch than fight

Yahoo announced this morning it’s giving up on its music rental service and sending customers to RealNetworks Rhapsody service. The deal was apparently in the works prior to Microsoft’s unsolicited takeover offer. My reaction is much the same as everyone else’s — why bother? No one uses rental services anyway; iTunes-style downloads were the dominant paradigm, but now the market is shifting to DRM-free downloads.

But it played rather nicely with another article this morning on the front page of the Merc (and also Slashdot). If Yahoo’s getting its butt kicked on search, why not just throw in the towel and outsource search — by using the industry leader (Google) as its backend? This has a certain logic to it. In the 1990s, Yahoo outsourced search to AltaVista, the then-industry leader. And buying search from Google — even if it’s the industry leader — is not subject to Hart-Scott-Rodino antitrust review.

Of course, this does raise the question: what is Yahoo’s core competency? Is it just that a lot of consumers are habituated into using it as a portal and haven’t gotten around to changing? I used to like their maps, and still use the original (“dial-up”) service when I’m in a hurry or (often) want to find the restaurant closest to a giving street corner. But they keeping trying to force me to use their Ajax maps, which are an inferior me-too to Google’s.

I personally think that Yahoo has done some really innovative stuff in mobile, such as the work of Flickr, ZoneTag and Fire Eagle. But it will never have the resources of Google or Microsoft (or Nokia) to throw at mobile research. Unless it locks in some customers early, it will be left behind as it is in search. Yahoo seems to be flaming out as it hits its teen years, which as a Sunday story in the Merc noted, has been common for Valley pioneers. (Think Apple without the Jobs II era).

This morning’s Merc article also summarized some of the antitrust criticisms made in a Sunday blog posting by Google’s top lawyer. Microsoft-Yahoo may trail in search, but they would lead in webmail and instant messaging. That certainly should raise the antitrust issues. However, webmail is a relatively small portion of the mail market (and, I’d argue, of declining importance). As for IM, not only do Microsoft-Yahoo have a two-year-old interoperability agreement, but AOL still remains the industry leader. (Steve Ballmer was not very impressed by the argument but then Ballmer is more inclined to bluster than most).

Finally, a ZDNet columnist complains (using “Orwelian” scare terms) that Microsoft buying Yahoo would bring all its services under Microsoft’s single sign-on policy. Yep. That’s been the point of all the Yahoo and Google and Microsoft acquisitions — economies of scope through ease of use. Perhaps with such a combination, people would start using Microsoft services and provide a competitor to Google. Or maybe given a stark choice between a Microsoft- and Google-dominated world, more people will switch to Google.

BTW, Microsoft has given so much cash back to shareholders since 2004 that they’ll have to borrow $20-30 billion to fund the $45 billion deal. Obviously they weren’t considering any deals of this magnitude back in 2004.

Microsoft's long courtship with the Valley

I got home Sunday and got caught up with the Merc. The first story that grabbed my eye was Dean Takahashi’s sidebar Saturday on the MS-Yahoo merger:

Microsoft may finally become a Silicon Valley company.

It has always been the beast from Redmond. An outsider. The inspiration for many a Silicon Valley start-up in the negative sense - everybody here wants to get rid of the company or go around it.

Microsoft's bid for Yahoo fits into a strategy that has been a long time in the making. It for years has been trying to be a player in Silicon Valley.

Once upon a time, Microsoft was at war with the valley. Companies like Netscape were key players in the antitrust case against it. To patch things up, Microsoft executives Bill Gates and Steve Ballmer made regular diplomatic missions to the valley, where the company has a 32-acre campus in Mountain View. "Let us be your friend," was their message.
Takahashi notes that the campus dates to Microsoft’s [1997] acquisition of WebTV.

Microsoft has been making nice with SV for years, dating back to at least 2000. Of course, the 1990s were mainly about Silicon Valley firms ganging up on Microsoft — or at least perpetual enemies like Scott McNealy’s Sun Microsystems. (Microsoft has since buried many of these hatchets). And beyond the few enemies many ISVs who needed to work with Microsoft to support the world’s most popular software platform — even though it had a habit of competing with its ISVs if the segmnent was large enough.

One thing that people forget is that Microsoft came to the Valley 20 years ago, with the July 1987 acquisition of Forethought. The Sunnyvale company invented something called “desktop presentations” with a new software package for the Mac. I remember visiting the Forethought (then “Microsoft Graphics Business Unit”) engineers in 1988, so that we could make our HP PaintJet printer driver compatible with their software.

People have forgotten Forethought, but most of my readers are now using version 11 or 12 of the software it created. I expect to upgrade to Version 12 next month, as part of our 23-campus university site license.

Sunday, February 3, 2008

Big game, big ads

I missed most of the SuperBowl, although I did catch most of the 4th quarter and New York’s down-to-the-wire victory over the previously undefeated Patriots. (To the degree that I cared, I was rooting for someone to dethrone the Pats, particularly since they eliminated my Chargers two weeks ago).

However, the reason I normally watch the SuperBowl is the ads: certainly I remember the ads long after the game. For example, the 2000 EDS “herding cats” ad marked the end of the dot-com era but still ranks among the top 10 of all time. B-school profs have been using them to teach marketing for years. This year, the ads have the side benefit that they help us forget the torrent of insipid political ads that have been running on TV for the past month, particularly for the Indian gambling initiatives.

However, technology has changed the one-time nature of the ads. For the last few years I’ve caught the ads and read the articles on the WSJ paid site. But this year with Fox (and last year with CBS) the broadcast network has run them again online. (Presumably the business model is offering extra exposure to the advertisers). The NFL — one of the most vigilant about protecting its IP — is also running the ads on its site.

Of course in this era of Web 2.0, YouTube and even MySpace are getting into the act with their own replays. MySpace has it nicely organized by quarter. Of course, I learned about the MySpace page from the Fox broadcast (presumably since they’re a Fox subsidiary).

Normally, the memorable ads are either gimmicky or genuine. I disliked the and E-Trade ads, while many others left me indifferent. (Of course, I’m an annoyed E-Trade ex-customer so I may be biased). The Verizon ad for the LG Voyager managed to make a hot product cold. (the once-cheap domain registrar) has milked its sex-sells approach of the past four years (starting with the 2005 “wardrobe malfunction”) to become a lame parody of itself.

On the plus side, the Taco Bell was mildly amusing, with a combination of mild warmth and edginess (rathe than the usual over-the-top campiness of the beer ads). The American Idol house ad was a clever tie-in linking the game, the NFL brand and the network’s biggest hit.

My favorite ad features NFL players Ephraim Salaam and Chester Pitts, talking about Pitt’s improbable path to college and pro football. The spot is heart-warming, an improbable happy ending — and is (mostly) true. It also involves SDSU, the alma mater of my mother-in-law (and my father’s first two years of college). What more could you want?

The ad was selected from 240 submitted by NFL players. It does exaggerate a musical instrument over a handheld calculator, but it’s still touching.

Oddly enough, due to the NFL legal beagles (or is it viewer indifference?) this heart-warming story is not posted to any site other than the NFL’s. The other odd thing is that the Fox ads are posted via MSN but playback is in Flash, not Windows Media.

Saturday, February 2, 2008

High-growth business models

At an academic reception this week, I met Josh Long, a former entrepreneur now part-time business plan instructor. Like all sorts of people, Josh has a blog.

One posting caught my eye, one he posted last week on “Entrepreneurial Business Models.” To quote:

Since I started teaching a class to Entrepreneurship students at Fresno State on Business Plan Writing I’ve found that there are only 3 business models from a strategic perspective worth pursuing. There are 2 other business models that aren’t worth pursuing at all, but is where most business owners fall into because it is so easy to. The business models are Category Creators, Niche Perfectors and Category Killers. I learned about these categories in the book ‘Blueprint To A Billion’ by David Thomson that goes over businesses that have gone public since 1983 (386) that have achieved $1 Billion in annual sales. He found that all of these ‘Blueprint Companies’ fit into one of these three business models.
I think our instincts are the same: Category Creators are sexy but attract too many failed efforts, while Niche Perfectors offer opportunities almost everywhere to exploit.

Unlike many entrepreneurship instructors, I think there are many sound reasons for starting a business that doesn’t become the next billion-dollar enterprise. (A 90% chance at a $5 million/year company makes more sense than a 0.1% chance at a $1 billion/year company). Still, the “Me Too” companies that Thomson disparages often offer the worst of all possible worlds: no upside, and not a sure survivor either.

Microsoft, Yahoo and Total World Domination

I was heading out the door this (Friday) morning when I saw the announcement of Microsoft’s $44.6 billion offer for Yahoo. I wasn’t able to blog it, although in between (during) meetings I was able to surf some of the news.

The two obvious points were first, this has been rumored since May 2007 so it’s no surprise. Second, the only reason is because neither has been able to compete with Google on its own, and Microsoft is not yet willing to cede Total World Domination to the GOOG. The Microsoft quote (reported by MarketWatch) was none too subtle.

'Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice.'

BTW, the MarketWatch package (13 stories by Friday afternoon PST) was the best I saw. The WSJ was nearly as good, but a little too dry while MarketWatch was more sharp (but then they have John Dvorak). Plus MarketWatch is free, and you know how I like free.

I think the deal is likely to happen, but the market isn’t quite convinced. The stock closed at $19.18 Thursday and $28.38 Friday, an 8.5% discount to the $31 offering price. The math suggests there is only a 78% chance the deal will happen, but it could also be that people don’t like the half-stock side of the deal (being bearish on MSFT stock).

Or perhaps the shareholders who bore persistent losses just gave up and dumped their shares on the good news. The stock closed at $33.63 on Oct. 26 (and briefly broke $34 the next trading day), so Microsoft’s premium this week is a big discount from three months ago. Certainly I agree with the consensus view (e.g. in the NYT) that no one will pay more.

Rushing out the door this morning, I made a brief note on four points to investigate:

  1. David Filo and Jerry Yang get $4 billion (9%) to start their next company or become philathropists. (Filo and Yang used to own 8% each but I guess they either sold or got diluted). Obviously they wouldn’t stay, but they (especially interim CEO Yang) get the monkey off their back to turn the company around — trying to win with what seems to be an unwinnable hand.
  2. The culture should be a snap. In fact, the suggestion of a parallel to AOL Time Warner is asinine. I study tech culture for a living, and these are two strong engineering cultures. There isn’t even the east coast/west coast thing because (besides the obvious Seattle-Sunnyvale geography) Microsoft has very astutely created a mothership campus (a few miles from Yahoo) for consolidating all their SV acquisitions — starting with buying Forethought (creator of PowerPoint) back in July 1987. Yes they could botch it, yes they need a Yahoo division president who spans both camps, but it’s as close a culture fit as Yahoo is going to get. (The rumored News Corp. - Yahoo merger would have been another AOL Time Warner — and look how well Terry Semel worked out).
  3. MSFT needs to keep the Yahoo brand and identity. It has better share and (I’d bet) far better associations in most of the world than Microsoft’s. Yes it means forcing the MSFT online division to submerge their egos and join Yahoo, but anything less would destroy the value of the acquisition. Plus some people just hate Microsoft, which brings me to …
  4. Antitrust shouldn’t be an issue — except for Europe. Yes Microsoft can’t bundle Yahoo search on the desktop and expect the US DOJ to approve, but other than tying to the Windows monopoly it will sail through the US as it provides real competition to Google’s majority share. Europe is another story. The FT and Reuters referred to “bad blood” between Microsoft and EU competition authorities. Like the WSJ, I think the real problem is that Microsoft is public enemy #1 for Eurocrats who use the excuse of competition policy to hobble successful US firms.
Longtime industry pundit John Dvorak thinks the deal won’t happen, due to the culture clash and EU antitrust issues. Dvorak is really knowledgeable, but he’s the definition of an iconoclast — and has been a curmudgeon for 15 years. I’ll chalk it up to contrariness rather than some unique insight.

Friday, February 1, 2008

Amazon, Audible and Apple

Amazon is buying Audible, maker of audio books, for $300 million. Chump change for an e-commerce transaction, but of course I’d love to have founders shares on such a deal.

I happened to see the story by Brad Stone in the dead tree edition of the NYT, and he raised some interesting points.

Stone noted that Audible was a dot-com (1999 IPO) that went dot-bomb with everyone else. Reading between the lines, the investments by Random House, Bertelsmann and Amazon in 2000 kept the company alive until its market ripened at it was swooped up by Amazon.

IMHO, like so many other companies spawned by the technology push optimism of the 1990s, this was a company years before its time (like eBooks). Its business model didn’t make sense until people had iPods (instead of laptops) to listen to their Alive to be bought by Amazon.

The other point that Stone (and I’m sure others) makes is that Audible has succeeded through distribution by the iTunes store to all those iPods. No word as to how Apple will feel about the deal, but I’m guessing Amazon is hoping Apple will say “bye” and it can try to switch all those Audible customers over to the Amazon MP3 store. The other possible outcome of a Audible-Apple divorce is that Apple makes some other company the next Audible.