Friday, October 31, 2008

Have you heard? DTV is coming!

You may not have heard, but next February most analog NTSC television broadcasts are being discontinued and replaced by digital ones. According to the FCC countdown clock, it’s only 109 days away.

Of course, I’m being sarcastic. You’d have to be under a rock not to have heard about the switch, which where we live has made it into the newspaper and also been the subject of a test shutoff. Most of all, it has been been the subject of daily PSAs (“public service announcements”) on all the local TV channels, including PBS. My wife and I wonder who wouldn’t have heard about it. Perhaps people who don’t watch TV. (If so, why would they care?) This really gives new meaning to the word overkill.

Even the Federal Communications Commission is joining in the overkill. Apparently having a comprehensive DTV website for several years isn’t enough, since the FCC decided to engage in an unconventional form of government sponsorship. As a trade magazine reported last week:

Federal Communications Commission chairman Kevin Martin on Thursday was named Porker of the Month by Citizens Against Government Waste for using taxpayer money to sponsor a NASCAR driver from North Carolina, Martin's home state.

"For using taxpayer funds on an unnecessary project, diverting focus from more important telecommunications concerns, recklessly spending without consulting with his peers and attempting to use his influence to shore up his own political prospects, CAGW names FCC Chairman Kevin Martin its October 2008 Porker of the Month," CAGW said in a press release.

Last week, Martin announced that the FCC would pay $355,000 to sponsor stock car racer David Gilliland's No. 38 car, owned by Yates Racing, in three races to raise public awareness about the Feb. 17, 2009 switch to digital TV.

Gilliland's Ford crashed near the end of last Sunday's Sprint Cup race in Martinsville, Va.

“Even though the [FCC] has inundated networks with paid announcements for months, Martin considered it necessary to use additional taxpayer dollars to pay for the car and driver to bear slogans such as ‘Is Your TV ready for Digital?’” CAGW said. “While spreading public awareness over the transition from analog to digital broadcasting is important, the National Association of Broadcasters has stated that the public is already largely aware of the switch."
The NAB (the main lobbying group for local TV stations) budgeted $700m for its ad campaign to make consumers aware of the DTV switch, including $327m on PSAs. While the NAB had a big push to members earlier in the year — including a major emphasis at its April tradeshow — apparently since June it has not felt it necessary to update them with any new information.

Even PBS is joining in the propaganda act. The same PBS that is supposedly interested in public service, consumers, and all that is fair and good.

Wednesday night on the Boston PBS station, WGBH, I saw a locally produced special issue of “This Old House” on the subject of the DTV conversion, with their regular hosts Kevin O'Connor and Norm Abram. (This is over and above all the one-minute PSAs the two men have been doing for months). The two were joined by another PBS host, Maria Hinojosa, for a one hour “how to” show on converting to DTV.

In the episode, the two men wandered through one neighborhood, handing out Zenith® brand converter boxes† like the tooth fairy. They also gave a woman a new compact DTV to replace the analog TV in her kitchen. Try getting that deal in your neighborhood!

(† This is the box I bought myself at my local RadioShack using the $40 FCC rebate).

The show — as with their regular PSAs — shows the same pro-adoption bias as the commercial networks have shown. One host said “Digital television has several advantages over analog.” There was no suggestion that spending money to switch to DTV is a waste of money to pay an additional charge to get what you have now.

Don’t get me wrong. The FCC had to move broadcasters off their analog channels to reclaim the old channels and sell them to other companies. (The broadcasters got an unusual sweetheart deal of keeping their old channels for several years after they got their new digital channels). The change has already happened in North Carolina. However, every issue has two sides, and you will never ever hear on TV any disadvantages of the switch.

What’s the big (frankly) deal? If you turn on your TV on Feb. 17 and there’s no signal, then you’ll know that all those warnings for year were real and that you will actually have to do something. (Of course, as O’Connor and Abram helpfully explained, it doesn’t apply if you have cable or dish). So at worst, you lose a day or two of TV viewing until you fix it.

After puzzling over this blatant over-exposure, I came up with two possible explanations. One is that even a small percentage of complaints of the 113 million US TV households will generate a tech support and PR nightmare for the FCC and local stations. Apparently the decision to shut off analog early (as a test) in Wilmington, NC generated an unexpectedly high number of calls.

The other possible explanation is that the TV stations are terrified of losing their customers. Anything that forces customers to re-evaluate may have them not come back. I could see it if it were teenagers losing their signal — and perhaps switching to Hulu, GooTube or the iTunes Store. However, I suspect people who can’t figure out how to install a DTV converter box aren’t watching online videos using a Flash® enabled web browser.

Thursday, October 30, 2008

How much did Sun lose on MySQL?

Sun Microsystems announced today that in its most recent quarter, it lost $1.67b on revenues of $2.99b. That’s a -56% net margin (if there were such a concept as negative margin), but only -5.6% without special charges. Compared to analyst expectations, the revenues were $150m low, as was the net income. Its gross margin also fell dramatically.

The NYT notes a consistent pattern of bad news

With falling revenue, problematic acquisitions, product slip-ups and a stock that has lost three-quarters of its value in the past year, the investment community is getting impatient with Sun’s management, including chief executive Jonathan Schwartz.

“Sun is a problem child, and the problem child has to change,” said Brent Bracelin, a hardware analyst for Pacific Crest Securities.
The Times estimates 40% of Sun’s total revenues come from financial services and telecommunications companies, two sectors that are now cutting back. Longtime CEO Scott McNealy was forced out 30 months ago because he never adjusted to the fact that the dot-com era was a one-time lucky break. So far, Jonathan Schwartz isn’t doing any better.

In today’s announcement, there is the minor problem of that $1.44 billion charge for “goodwill impairment” on unspecified business lines. There is no excuse for Sun’s obfuscation: the size of the charge is clearly material, while being truthful would not provide advantage to any competitor. Instead, it’s just management seeking to avoid accountability for its recent mistakes.

In particular, the presumption is that most (if not all) can be attributed to overpaying for two recent acquisitions, the $4.1b purchase of StorageTek in 2005 and the $1b purchase of MySQL (for 20x revenues) earlier this year.

On InfoWorld, MBA-touting blogger Savio Rodrigues estimated $2.48 billion in goodwill booked between the two sales. By his calculations, MySQL is 29% of the total, which (if pro rata is a fair allocation) would be a $420m charge on the purchase. Rodrigues reminds us that eBay took a $1.4b writeoff for its purchase of Skype.

The MySQL purchase was intended to give Sun a lynchpin role in the open source world. But the shift to get open source religion was too late. The acquisition isn’t going well for either side: Schwartz clearly overpaid by hundreds of millions of dollars while MySQL is being strangled by the Sun bureaucracy.

Maybe it’s a lack of imagination, but I don’t see where Sun can go and how they can get there — or that they would ever do it, even if they knew where and how to go. By comparison, Motorola’s problems look easy: at least they’re in a growing market.

Motorola's bad news continues

Motorola reported nothing but bad news this morning, as its cellphone collapse continues to hurt the company’s overall bottom line.

Co-CEO Sanjay Jha announced a $400m quarterly loss for the entire company, due to a 32% year-on-year drop in handset sales. This morning’s most complete account came from the FT:

The US group’s problems were highlighted by continued declines in mobile phone shipments and global market share during the latest quarter. The third largest mobile phone maker shipped 25.4m phones in the quarter, down from 37.2m phones a year earlier, and its global market share slipped to 8.3 per cent, down from more than 20 per cent just two years ago.
In addition to the poor financial results, the second bombshell was Motorola’s decision to delay the handset spinoff:
“While our strategic intent to separate the company remains intact, we are no longer targeting the third quarter of 2009, primarily due to the macroeconomic environment, stresses in the financial markets and the changes underway in Mobile Devices,” [Jha said.]

“We have made progress on various elements of the separation plan and will continue to prepare for a potential transaction at the appropriate timeframe that serves the best interests of the company and its shareholders.”
Finally, Jha confirmed plans (leaked yesterday by the WSJ) to reduce cellphone handset platforms to three: Windows Mobile and Google Android for its smartphones, and its legacy P2K for the low-end . Motorola had the most confused platform strategy in the entire industry, so this should be a good thing, but there are problems with all aspects of the plan.

Motorola has not been very successful in the profitable high-end smartphone segment, with lackluster products, weak distribution and competition that is getting worse. As the WSJ reported this morning:
Motorola faces many challenges, not least of which is a lack of new product releases combined with smartphone innovations from competitors -- like Apple Inc.'s iPhone and Sprint Nextel Corp.'s Instinct -- which have led to Motorola's losing a large portion of its market share. Motorola launched its first touch-screen phone during the quarter.
(Instinct??? Who’s buying the Samsung Instinct? Has anyone heard of the BlackBerry Storm?)

One thing that was not confirmed was the widespread rumor (including yesterday’s WSJ account) that Motorola would outsource Windows Mobile device production. If Motorola isn’t providing the operating system, and Taiwanese makers have economies of scope, why not hand them over? (Perhaps that’s still the plan, just not in today’s announcement).

As for the (Linux-derived) Android, rumors of a spring release of a Motorola phone were wildly optimistic, since (as of today) nothing will ship until the 2009 Christmas season. This suggest that whatever else, Motorola has still not become nimble and aggressive. Eric Zeeman of Information Week called this truly disappointing:
Android has been available to developers for about a year now. It takes most companies 12 to 18 months to develop a phone and bring it to market. HTC managed to bang one out in 11 months. The report that Motorola would have something ready by mid-2009 seemed about on target. Why the schedule has been pushed back, Jha didn't explain.

Either way, it leaves more room for Motorola's competitors to beat it to market with devices of their own. As I reported yesterday, Kyocera, Hop-on, OpenMoko and even ASUS have Android handsets in the works. They all have plenty of opportunity to gain some ground on Motorola.
Motorola will be effectively sitting out the smartphone market for the next year, at a period of its most rapid growth and as the US market dramatically shifts to smartphones, driven by the iPhone, various BlackBerry models, and (perhaps) a few gPhones.

Motorola is giving up on Symbian, despite having produced a couple of highly regarded Symbian phones (the Z8, Z10). But the entire collaboration seemed jinxed. The new phones didn’t sell well. Last April, Motorola axed the crack design team they hired when they bought Sendo. And the phones were based on UIQ, the user interface that is being phased out after Nokia buys out Symbian. Finally, Symbian is not popular in the US, where it desperately needs to buck up its market share.

The P2K decision also seems a little puzzling, since that they have been trying to phase it out for years. It was supposed to be replaced by Linux — to be standardized through Motorola’s membership in LiMo — but now Motorola’s participation in LiMo appears to be finished.

The news shows that the handset division will continue its long slide towards oblivion for some time. Overall, it remains disappointing that the company that invented the handheld cellphone has lost its ability to execute on innovation. Anecdotal evidence suggests that the company is highly bureaucratic, political and without accountability for failure. It has generally poor track record on software, which is crucial for creating today’s complex consumer devices, particularly mobile phones.

When Jha joined Motorola in August to become head of the handset division, he brought with him a strong reputation for operations from his days as president and then COO of Qualcomm. It seems to me that his problems at Motorola are less about specific products, and more about fixing the culture and getting the company to execute again on bringing compelling products to market.

Wednesday, October 29, 2008

Beginning of the end of newsPAPERs

The venerable Christian Science Monitor has become the first major U.S. newspaper to give up the paper while (it hopes) keeping the news. Just shy of its 100th birthday, the newspaper announced Tuesday that it will discontinue the daily newspaper next April, replacing it with an improved online edition and (I suspect temporary) weekly paper edition.

A few analysts predicted that the San Francisco Chronicle would be the first to make the move, but at least it has local department store ads.

The Monitor is facing some atypical cost and demand pressures. Its strong coverage of international news means that it has a loyal but scattered following. Unlike the much larger national dailies — the WSJ, NYT and USA Today — it lacks the scale economies to support nationwide distribution of the print edition, and also to attract major advertisers. It also has long publication leadtimes which make it hard to keep its news, well, newsworthy. It’s been losing money for years, supported as a mission of the Christian Science church.

This doesn’t mean that the other papers are immune: the Monitor is the first of many. NYT publisher Arthur Sulzberger Jr. was asked last week how the NYT feels about the death of printed newspapers. As CNET reported:

"The heart of the answer must be (that) we can't care," Sulzberger responded, though he added that the radio, the television, and even the telegraph were all supposed to kill print reporting. "We do care. I care very much. But we must be where people want us for our information. It's the thought of cannibalizing yourself before somebody else cannibalizes you."
Ken Doctor on Seeking Alpha predicts the transition from paper to electronic will be mostly complete by 2015. (Not 2014? 2016? I digress). If he’s right, the Kindle (current US market leader) has a bright future in front of it.

Google's rites of passage

Last month, author Randy Stross presented a talk at San José State based on his new book, Planet Google. Randy is not only an experienced author, but also a fellow (and considerably more senior) faculty member in the Department of Organization & Management where I work.

The video and audio of his presentation has now been posted to College of Business pages within SJSU’s content area at iTunes U. Due to size limits, the talk is posted in two parts: the prepared presentation and the Q&A. The quality of the video is remarkably good (and with the rest of iTunes U, the price is right).

Randy’s talk was about Google growing up — or at least, Google learning that the world expected it to grow up rather than act like a small insignificant startup anymore. This has obvious parallels to Microsoft a decade earlier, just as Nick Carr observed in other aspects of Google’s strategy and market influence.

In fact, Randy opened his talk by saying this “is not just a business story, but a business and society story — a company that I would argue that is far more powerful than Microsoft was at its apogee in the 1990s.” He presented three ministories — rites of passage — as Google learned to go beyond search to become the diversified Internet conglomerate that it is today. In each case, Google had to deal with unexpected controversy.

The first was Google books. Google wants to organize the world’s information, and books are usually of better quality and not available in digital form. Some of this is out of copyright stuff in university libraries, in which a human being turns pages in front of a digital camera. He also commented on Google’s plans — particularly for current books — ran headlong into the expectations and IP rights of established book publishers. The result was a lawsuit (which, as it turns out, was settled earlier this week).

The second example was Google Maps. The mapping solution had too much data to run entirely as a web app, so Google needed a client-side application. It bought startup Keyhole (also in Mountain View), which had trouble monetizing the digital mapping technology it created almost 20 years ago. Maps also forced Google to confront US regulations on spy satellite data and to eventually launch its own satellites (while conforming to those regulations). Tied into Maps was the controversial decision to provide street view images, and the unexpected uproar over what many saw as an invasion of the “privacy by obscurity” that they previous enjoyed in public spaces.

The third story was about Google Apps, its SaaS challenge to Microsoft Office that includes e-mail and documents. Randy went to a 2006 pitch that Google and Microsoft made to the entire 23-campus Cal State University system, where Microsoft sought to emphasize all the risks and uncertainties of Google’s (free to universities) application package. Google had to realize that if it wanted people to upload their data to Google’s servers, it had to provide a higher level of reliability, data integrity and privacy than it had ever promised before.

Together, the three stories suggest to me a Google that has the arrogance to assume it always has the right answer. It wants the rest of the world to give it free reign (again, like the Beast of Redmond). After all, they’ve promised “to do no evil”: what other reassurance do we need?

After studying Google for several years, Randy believes he can trust Google when it’s openly talking about the privacy (or other) tradeoffs it faces when trying to make its billions while living up to its mantra. What gets him worried is when they don’t publicly acknowledge the ethical or moral issues that it faces. As he concluded:

But if they revert to corporatespeak with rote reassurance, this is a company that will know more about us than any entity — public or private — in the world. I don’t want rote reassurances.
Overall, it was a clear and stimulating talk that provided fresh insight into the secretive Monster of Mountain View — one that I might have hoped from someone who devoted two years of his life to providing a definitive account. I recommend the talk to those who have not bought the book or are debating whether to do so. (My copy of the book arrived from Amazon and I hope to read it in the coming week).

I encouraged our media staff to record and post the talk, and I wish we did it more often. Being here in Silicon Valley, we often have speakers like this whose talks would be of great interest to the outside world, such as the ongoing speaker series of the Silicon Valley Center for Entrepreneurship.

However, SJSU (like some other CSU campuses is adopting a very strict interpretation of Federal accessibility guidelines that requires a written transcript to be posted for any oral presentation. Such a bureaucratic imperative from the state (and ultimately the Feds, i.e. the ADA) increases the cost of posting, delays its availability (as it did here) and limits what we post to a small number of talks where we can identify funding to cover the transcription cost. In the name of being fair to a few, we severely limit the information we provide to all.

Tuesday, October 28, 2008

Google: somewhat less a copyright scofflaw

Google has a reached a settlement with book publishers and authors that objected to its unilateral decision to scan their copyrighted works and give limited amounts of content away to the world with the Google Books program. The settlement, which includes a $125 million payment, settles a three-year-old lawsuit against the four-year-old service by the Authors Guild and the Association of American Publishers.

Google has posted online the official announcement and the official spin. The publishers have their own, more detailed FAQ. As the WSJ notes, the settlement is not yet final:

If approved, the agreement would expand online access to millions of in-copyright books and other written materials from the collections of libraries participating in Google Book Search - a project intended to make millions of books searchable via the Web - while also compensating copyright owners for allowing online access to their works.

Google's $125 million payment will be partially used to establish a Book Rights Registry under which holders of U.S. copyrights can register their works and receive compensation from institutional subscriptions, book sales and ad revenues. The settlement will also be used to resolve existing claims by authors.
The actual settlement seems a masterful compromise of rights. It could even serve as a precedent for settling Viacom’s lawsuit against YouTube.

Under this proposed solution, Google (which knows how to index information and run online systems) will sell access to pages beyond the free ones and share the proceeds with the copyright owners. This could be a new, permanent business model for IP holders to obtain compensation for their copyrighted material and thus compensation (and an incentive) for their time and efforts.

While that is all good, I’m still distressed by how we got here. This goes far beyond the Guy Kawasaki mantra of “ask forgiveness, not permission.”

Instead, it’s more like “I’m doing what I damn well please: if you don’t like it, sue me!” Or more precisely “I will unilaterally determine what is a proper use of the IP of others and act accordingly, without waiting for a license or any other agreement with the IP owner. The only recourse of those who disagree is litigation.”

This of course reflects the hubris of billionaires (with their own private 757) who feel entitled to effect social change on their own time schedule. So far all we have is a vague promise of good intentions (“do no evil”). Worse, there’s something profoundly undemocratic about such arrogance: it’s not a big leap from that sort of behavior to a band of oligarchs who decide to run a country.

My favorite new song stealing site

Since 2000, a buddy and I have had a never-ready-for-prime-time garage band: two guys covering 70s music without an audience (unless you count our daughters).

Over the weekend, we were trying to learn a classic Sam Cooke/Lou Rawls tune, but neither of us had the MP3 file. (When I got home, I bought the MP3 file from Amazon).

So my buddy said, “let’s try Project Playlist.” Sure enough, it had a wide range of versions of the song available for streaming — all free. The search image would link to the various websites that had copies of the song for us to hear.

The company apparently isn’t paying royalties to the record companies. This seems to be the model for a startup based on redistributing other people’s content (like Deezer or GooTube): launch your company, distribute content, solicit revenues, and figure out how to pay for your inputs later.

It’s no wonder that the RIAA sued Project Playlist in April. The company’s defense (as quoted by CNET):

“We make it easy for our users to create a playlist that points to a series of music files hosted on third party Web sites,” Project Playlist said on its site. “We do not control those third party Web sites. We do not host music files.”
This is exactly the same loophole as SurfTheChannel attempts to use for videos.

The company has high powered lobbyists and is trying to negotiate a deal with Sony BMG, and (it hopes) eventually the other three members of the Big Four.

We also tried, a legal interpretation of the same theme. At, we didn’t find Sam Cooke, but did find an Eric Clapton cut (which was on my laptop but not my buddy’s desktop). has a sugar daddy in the form of CBS, which spent $280 million to buy the company last year to diversify its radio properties. It otherwise seems unlikely they could make money given the onerous RIAA royalty schedule for music streaming.

Neither firm seems like it has a viable longterm business model. Consumers love it, but revenues are limited, other than the capital gains from selling out to the greater fool. But this is worse than even the typical troubled Web 2.0 startup, which at least has low costs due to user-generated content.

The problem is that online music startups have no control over their most important input. All the valuable content is owned by the Big Four labels, which thus has the unilateral right to dictate prices. Hollywood is furious at losing its high vinyl/plastic margins and is hoping to extract the same margins from online sales. It is a futile hope, but it will take years (if not decades) for Hollywood to come to terms with the Brave New World and adjust its expectations accordingly.

Sunday, October 26, 2008

HTC, Acer hope for branded success

Merc reporter John Boudreau had a field trip last week to Taiwan. He brought back two interesting stories about Taiwanese ODMs (Original Design Manufacturers) hoping to become branded players in the global electronics industry.

The most interesting of the two was the Q&A with Peter Chou, CEO of HTC, maker of the T-Mobile/Google G1. Chou commented on how HTC spent three years and $10 million developing the new phone, leveraging its Android ties that (perhaps) predated Google’s 2005 acquisition of Android Inc.

Chou: Andy Rubin (Google's director of mobile platforms) and I are friends. We know each other very well. And we know each other's capabilities. We know we can deliver on what we commit to doing. We are quite experienced in the telecom industry and know the quality requirements of mobile operators. That helped a lot. And we have credibility in terms of wireless technology, innovative design and execution.

Q: What has the relationship been like? This is the first time Google's name is being stamped on a product. And you are partnering with an Internet company.

Chou: Google treated HTC well. They saw HTC's value. We have made a tremendous contribution to this. It started from vision — we both are very committed to converged mobile experiences. That made our discussions so easy.

Q: Were HTC employees camped out in Silicon Valley?

Chou: We sent a team of 30 to 50 people to Google for almost one year. They were like Google employees: They had the Google badges and ate the free food. The restaurant there is probably the best employee restaurant in the world, I must say.
Chou expects the smartphone segment to grow to at least 40% of the overall cellphone market in the next five years. Despite being one of (if not the) leading suppliers of Windows Mobile smartphones, Chou is relatively humble about his supplier power and the value of the HTC brand:
Q: Why isn't the Google phone called the HTC G1 from T-Mobile? Don't you lose some marketing punch by calling the device the T-Mobile G1?

Chou: The T-Mobile brand in the U.S. is very high. And T-Mobile is committed to promoting its brand. So it's OK.
The aspirations of leading Taiwanese PC maker Acer are far less modest: become the #1 laptop vendor in the world by 2011. Still, between their acquisition of Gateway and Packard Bell, they’ve already vaulted Lenovo (and its former IBM business) to be #3 in the world.

In addition to Acer, this second Boudreau story looks at other Taiwanese firms. The most visible is Asus, creator of the Eee PC and the whole economy netbook segment. But he also mentions D-Link (a modest success in consumer Wi-Fi equipment) and BenQ (with its disastrous 2005 purchase of Siemens’ failing handset business).

Saturday, October 25, 2008

Detroit's self-inflicted wounds

Since arriving at SJSU, I’ve loved using the auto industry to teach strategy to my undergraduates. It’s much more accessible than airlines for most of them, since they all own or use a car and they understand the attributes that car buyers consider. It also demonstrates issues of entry (and exit) barriers, foreign competition and operational efficiency.

But this year, talking about cars has gotten downright depressing. Slowdowns in consumer spending will crush new auto sales for several years — sales that were already reeling from (now moderated) high oil prices and years of incentives to keep up demand after 9/11. Thousands of US dealerships will fail this year, and indications are that the consumer confidence (and thus auto industry) problems are going to be worldwide.

It’s even worse for the American auto industry. GM’s moronic attempt to buy Chrysler seems to be dying because no one is foolish enough to finance the venture. The decision by Cerebrus to unload the weakest of the weak Detroit Three makes sense, but only the proposed Nissan-Renault alliance (or perhaps another foreign buyer) has any prospect of improving Chrysler’s performance.

My dad started with a Model A back in the 1930s, and like my dad I’ve tried to remain loyal to Ford Motor Company, through good times and bad. Like my dad, my first car was a Ford, in this case a Pinto Runabout (aka the 4-wheel Motolov cocktail). Other than two MGBs, every car I’ve owned over the past 30+ years has been a Ford. When I go shopping for a new car in a few years (<$20k >30mpg), right now it doesn’t look like a Ford will be in the consideration set.

The American car companies have been badly run for decades, emphasizing marketing over products. Yes, it’s difficult for anyone to compete with Toyota, but the relative success of three Japanese companies, two Korean companies, three German companies and even Renault demonstrates that Detroit’s problems are entirely self-inflicted.

Paul Ingrassia, former Detroit bureau chief of the Wall Street Journal, has an authoritative discussion of these self-inflicted problems this morning, entitled “How Detroit Drove Into a Ditch.” (For some reason the article is not locked behind the WSJ paywall). This article should be mandatory reading for every manager of a rustbelt company. One excerpt:

In all this lies a tale of hubris, missed opportunities, disastrous decisions and flawed leadership of almost biblical proportions. In fact, for the last 30 years Detroit has gone astray, repented, gone astray and repented again in a cycle not unlike the Israelites in the Book of Exodus.
Since he no longer has to get cooperation from Big Three news sources, unlike current auto reporters he has no pressure to sugar coat it. He likens them to Enron before the fall, and his forecast is stark:
The Detroit Three (no longer the Big Three) are adamantly denying bankruptcy rumors, but there's no denying that their very survival hangs in the balance. … It's highly unlikely that all three companies will survive.
Not surprisingly, Ingrassia links the problems to the poisonous labor-management relations that have assured inefficiency and inflexibility for decades, ones not faced by the transplant auto makers:
Japan's car companies, and more recently the Germans and Koreans, gained a competitive advantage largely by forging an alliance with American workers. Detroit, meanwhile, has remained mired in mutual mistrust with the United Auto Workers union. While the suspicion has abated somewhat in recent years, it never has disappeared -- which is why Detroit's factories remain vastly more cumbersome to manage than the factories of foreign car companies in the U.S.
Ingrassia notes that in the 1980s (when GM CEO Roger Smith was inadvertently helping a polemicist writer break into “documentaries”) both Ford and Chrysler found a way to improve their performance, at least temporarily. Ford created the best-selling Taurus while Chrysler invented the minivan.

Today, GM may be too big to save and Chrysler was sick before Daimler swallowed it and then spit it out. However, I want to believe that Ford can be saved. Fortune says this week that Ford’s balance sheet puts it in the strongest position of the three. (Of course, this is the same Fortune that ran an optimistic feature story in January about GM’s incipient “turnaround.”) But the story makes it sound like Ford is hoping to ride out the current storm rather than fix the systemic problems that it (and its competitors) face. It also has the problem of short-term focused family heirs.

For all three, the core problem is the union and labor relations. (Yes, they have to design cars that people want to buy, but that’s an inherently more tractable problem.) There are two alternatives for fixing labor relations: break the union — become a nonunionized shop like the transplants — or win them over. I don’t see how either is going to happen. Ingrassia notes that 70 years ago the UAW pushed GM and Ford to the brink and the car companies blinked. After that, the Big Three assumed they could pass on ever higher labor costs indefinitely, and accepted a lack of labor flexibility that would prove crippling.

Cooperation also appears to be a discredited strategy. Saturn (and to a lesser degree NUMMI) was supposed to be an experiment showing that an American firm could work cooperatively with the UAW to make a “new kind of car” (and car company), but that experiment fizzled out after less than a decade. In the end — as with most Detroit fixes for the past 20 years — it was more marketing hype than substance.

To solve both the labor and broader operational problems, I might have suggested bringing labor onto the board — the classic German approach. But that was tried at United and labor quickly grew disillusioned. With high labor costs, senior wage system and few career alternatives, the airline industry is the only other US industry as messed up as autos — as with Detroit, the airlines (except for nonunion carriers like Southwest) keep kicking the can down the road rather than solving core problems.

In short, it’s hard to see how Ford (or any of the others) can get from here to there. A Lee Iacocoa might be able to do it, but the next most capable car guy of his generation — Bob Lutz — has been ineffective at GM (while Jerry York gave up). While it’s clearly possible to run an efficient automaker that creates cars people want and has workers who want to work there, none of those companies are American.

Friday, October 24, 2008

gPhone tire kicking

I finally saw my first HTC G1 today. I stopped by the T-Mobile strip mall store and spent 10 minutes with one (although it had the anti-theft hook attached).

The phone design was small and slick. Unlike many phones, the SD card was readily available and removable. As with other HTC phones, the PC and power cable is a standard USB mini 4-pin connector. There was a dedicated button for bringing up a Google search window.

However, with its sideways keyboard and half-VGA screen, it seemed more like an upgrade to T-Mobile Sidekick than an iPhone killer. I did a little bit of web browsing, including to my SDTelecom blog. The screen was sharp and almost wide enough for the text — certainly wider than my Nokia E65 (my only other web browsing phone). The crucial test would be website compatibility — presumably similar to the iPhone WebKit browser but I didn’t have a large sample.

The Android Market was a major disappointment due to minimal selection. Perhaps it’s the lack of incentives: free applications, versus the paid apps available at third party gPhone stores such as Handango (let alone the stores of Apple or various carriers).

Overall, the form factor was interesting, but I couldn’t really see anything distinctive about the software. The iPhone has a wow! while the BlackBerry and Symbian S60 are mature, complete platforms. Right now, the G1 has a long way to go.

Wednesday, October 22, 2008

Trademarks vs. search

American Airlines is blazing new grounds in the intersection of comparative advertising and search engine keywords.

AP reports:

American Airlines is suing Yahoo Inc. for trademark infringement, a case similar to one that the nation's largest airline settled this summer against Google Inc.

The airline complains that when computer users enter American's trademark terms such as AAdvantage, the name of its frequent-flier program, in a search they can be directed to competitors who pay Yahoo for the traffic.

American, a unit of Fort Worth-based AMR Corp., reached a confidential settlement of a similar lawsuit against Google this summer, also in federal court in Fort Worth.

Each side agreed to pay its own legal fees, and American got nothing from Google. But Google searches for "American Airlines" or "AAdvantage" no longer produce paid ads along the right side of the portal screen.

Google had prevailed in previous lawsuits filed by other companies over their paid search advertising practices using trademark terms.
It sounds like a) American has a good precedent to win against Yahoo b) Google’s plan is to deal with this ad hoc rather than change its policies.

A 2005 law review article notes that Google defeated previous efforts by insurance company Geico to block such comparative or competitive ads, and the policy doesn’t seem to have changed overall. According to the Google AdWords site, they don’t bother to monitor in the US/Canada/UK/Ireland for firms buying ad words on their competitors. These are specifically excluded from Google’s AdWords trademark violation complaint process.

As one disgruntled business owner asked Google (no response), “Am I right in saying that you are happy to sell my brand name for money?” I guess that unless your lawyers scare Google — or you live in a country where the government frowns on this — Google is glad to sell such ads.

Jobs has sold his 10 million iPhones

Yesterday’s earnings call reported that Apple sold 6.89 million iPhones in its FY2008 4th quarter ending Sept. 27. According to the Merc,, the iPhone was the US leader for smartphone sales during that period, surpassing the BlackBerry.

This figure is slightly below the estimates of the biggest iPhone boosters, and totals only 9.3 million phones for the year. However, MacWorld reports that Apple has confirmed that it passed the 10 million mark in the past few weeks after the end of the quarter. This means that with the Christmas season their 2008 sales should easily surpass 12 million units.

Before the iPhone was released, many (notably including Steve Ballmer) predicted they would not hit 10 million. As I suspected, Jobs was sandbagging by making a prediction he knew he could make.

This is still a very small part of the picture. There’s been almost no discussion of international sales since the iPhone 3G was introduced. Given past iPod sales, I suspect that the iPhone 3G is not going to make a dramatic change in the US vs. overseas sales, and that the iPhone fad is still very much an American phenomenon.

Tuesday, October 21, 2008

What were those Yahoos thinking?

Yahoo is cutting employees again. It’s hard to see how another 10% is going to cut “fat” without also cutting meat (i.e. the company’s ability to perform against its more affluent rivals).

I liked the AP report (published, natch, on the Yahoo website) on today‘s dead cat bounce in the stock price:

Yahoo's determination to rein in its expenses seemed to please investors, who have been disillusioned with the company's direction for years.

Yahoo shares gained nearly 7.6 percent in extended trading after ending the regular session at $12.07, down 79 cents.

The depressed stock price is particularly galling to Yahoo stockholders, given that Yahoo had a chance to sell to Microsoft for $33 per share in May.

But Microsoft withdrew its offer after Yahoo Chief Executive Jerry Yang balked at the price, arguing his turnaround plan would yield even bigger returns.

Yang's rebuff is now looking like a horrible mistake as online advertisers curtail their spending in anticipation of the worst recession in a quarter century.
As was clear at the time, Yang didn’t say “no” because he had a better turnaround plan or could create better value for shareholders. Instead, he didn’t want to be acquired — or at least he didn’t want to be acquired by Microsoft, the only bidder. This time, Carl Icahn rolled over rather than fighting to fix the problem.

So my riff on lack of accountability certainly would certainly extend to self-serving, value-destroying CEOs of publicly traded companies. Yang is neither the first nor the last.

Monday, October 20, 2008

Time to take the medicine

Overall, I’ve found the investment and economic analysis of the financial crisis more intelligent than anything in the regular newspapers or among politicians.

One key point — made over and over again — is that the checks and balances are way out of whack. This was evident again this morning, in a Forbes discussion roundtable, featuring Barry Ritholtz of FusionIQ:

Ritholtz: I've written a book called Bailout Nation. Half of it is the study of unintentional consequences. Look at LTCM [Long-Term Capital Management] rescue. The power of the Fed bringing all these bankers into the room and knocking heads together--that's long been considered the good bailout.

But look at consequences, you had a hedge fund under-capitalized, over-leveraged and trading hard-to-sell paper. It went under. Does that sound familiar? If we had taken the hit and let everybody take their portion of the hit then maybe things would have played differently later on. The thing that cracks me up is how completely and totally parallel this is. LTCM take II.
The consequences of taking risks should be that sometimes you lose. Using government money to save risk-takers is a twofold mistakes. If losers get made good on their risks — think Fannie, Freddie and the politicians and banks that enabled them — then next time the speculators will be even more risky.

And then there’s the problem of OPM (Other People’s Money). If politicians freely hand out tax dollars to “save” the economy or “protect the little guy” — paid for by inflating the currency — then there’s no natural limit as to when they will stop, so the problem gets even worse.

To me, this suggests a major shift in our antitrust policies. Many of the bailouts (e.g., of the GSEs and risk-seeking investment banks) have been justified on the basis of “too big to fail.” That suggests that the government should not approve any acquisition that increases the size of a firm that is “too big to fail,” and when (not if) they do fail, the carcass of the rotten company should be dismembered and sold in parts.

The Forbes editors provided the subhead “A Recession Might Not Be So Bad,” which is not exactly what the analysts said, but certainly consistent with general macroeconomic principles. It’s impossible to stop the business cycle and pure conceit (whether by bankers, economists or politicians) to think that you can. The goal should be to use the recession to fix problems, shed inefficiencies, get the US economy ready for its next growth spurt.

Sunday, October 19, 2008

Perplexed by ports

My post earlier in the week about Apple and Firewire was inaccurate: Apple is cutting back on Firewire but it is still available for most field graphics work. I noticed this when visiting the Apple Store Friday (to get a repair for a MacBook Air hardware design problem).

To recap, Apple now has five different MacBooks with five different port configurations. Once upon a time, they had a coherent port strategy but now everything is different.

Video Out
in, out
in, out
Mini DisplayPort
MacBook Air†
Mini DisplayPort
MacBook Pro
800ExpressCard 34
in, out
Mini DisplayPort
MacBook Pro§
400, 800ExpressCard34
in, out

† New model due in November, replacing current model
§ Rumored to be replaced in the next 90 days

On Tuesday, Apple introduced two new laptops: the 13" MacBook and the 15" MacBook Pro. Both have the same black keyboard and aluminum case design (although thicker) than the MacBook Air, and both new latpops (along with a promised update to the MacBook Air) will use the new Mini DisplayPort connector. Two old laptops were kept at the bottom and the top of the line: the old 13" white plastic MacBook is now the entry-level model, while the 17" MacBook Pro is unchanged for now but (store employees say) will soon get updated to look like its 15" cousin.

As I noted earlier, Apple deleted Firewire from its 13" laptop. What I missed was that even though the 15" MacBook Pro looks exactly like a stretched 13" MacBook, it still has a Firewire 800 connector on the side.

So of the new models, 2/3 (15", 17") will have Firewire and 1/3 (13") will not. FireWire is a “Pro” feature but not a “MacBook” feature: you can pay $2000 for Firewire — or get it in last year’s model for $1000.

Deleting Firewire from the 15" is my error. Serves me right from trying to make sense of what was going on from news reports, rather than going to look and the products myself. It also says something about the need for boots on the street rather than merely bloggers surfing the web.

Thursday, October 16, 2008

The death of accountability

I’ve started several postings on the financial meltdown in the past month, but each time concluded that pulling together all the threads would require more time than 3 or 4 IT-related postings — and also be of less interest to readers.

In short form, the problem was that too many people had too much of a stake in easy money. Commercial banks were told to lend to un-creditworthy borrowers under the Community Redevelopment Act, Fannie and Freddie bought these subprime loans to expand their mandates (and thus their size and bonuses), while Wall Street securitized mortgages claiming that risk was avoided by putting lots of junk notes into one basket. To top it off, the Fed (pressured by the Bush Administration) sought to abolish the business cycle by pumping easy money into the economy to avoid the natural recession due after the NASDAQ crash and 9/11.

Some of the damage is temporary. For a few years, 401Ks will be down and unemployment will be up, but eventually the recession will end. People who never owned a house before will go back to renting.

The politicians will also use this as an excuse to increase regulation and meddle with the economy even more. This is far from encouraging, but that topic is worthy of an entire post (perhaps) someday.

What I find really depressing, however, is the utter lack of accountability from people who were directly responsible for the problem. Not the Wall Street types (who lost their jobs), but the perpetual political caste who will lie and distort to protect their incumbency despite their direct culpability.

For almost a decade, a few politicians were arguing that Fannie and Freddie were using their implicit (soon explicit) government guarantees at risk to put trillions of taxpayer dollars at risk. People like Rep. Paul Ryan sponsored bills and held hearings in 2002, 2002, 2003 and 2005 to rein in the GSEs, but Fannie and Freddie’s protectors (their campaign coffers flush with contributions) fought off proper oversight at every turn.

Rep. Barney Frank is well known for constantly saying (as recently as July) that criticism of Fan and Fred was overblown and there was no real problem. But what is truly disturbing is today’s efforts by Sen. Chris Dodd to hold hearings on the Fan/Fred collapse that avoids any discussion on Congressional culpability. As the WSJ put it:

At today's hearing, his mission is to weave a tale that somehow manages to avoid mentioning his own role in this debacle. That won't be easy, but Mr. Dodd has shrewdly selected a series of witnesses who, like him, contributed to the mess, and have every incentive to point fingers elsewhere.
Nazi propagandist developed the concept of The Big Lie, which argues
The English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous.
So if the politicians who are responsible for this mess not only get re-elected in perpetuity, but also manage to convince the public that others were responsible, then the political caste will have sunk to new lows in accountability. Apparently the press (for whatever reason) is not calling Dodd on his hypocrisy the way they have for various major and minor political sex scandals.

At its core, a free society depends on accountability — moral, legal, economic, political — to function. A breakdown in accountability is a step away from the rule of law towards Russian-style anarchy or oligarchy. I’d hate to think the late 20th century marked the high water mark for freedom and transparency in American society.

Yet another mobile browser

On the Mobile Monday mailing list and various website, Skyfire this week advertised to grow their marketing staff.

Skyfire is the Mountain View startup that’s garnered $18m in VC to put yet another browser on cell phones — competing with WebKit (on iPhone, S60 and Windows Mobile) and of course the venerable Opera. Until the job ad, I’d never heard of the mobile browser software company, which is supporting WIndows Mobile and someday Symbian S60.

Skyfire is based on Mozilla’s Gecko rendering engine. Its claim to fame is that it (unlike say the iPhone) delivers the full desktop browser experience — complete with Flash, QuickTime, Silverlight, AJAX and other goodies not available on the iPhone and other mobile phones — either because they conflict with platform strategies or because of a lack of horsepower in the mobile device. Providing these also gives full access to YouTube, Hulu and other media sites.

Skyfire not only has lots of features, but is also very fast. Of course, there’s a trick — they render the pages on Skyfire’s server and then push bits down to the device. The server-side tricks mean that you need to subscribe to a (presumably paid) service to get the benefits, providing a revenue stream in an era of commoditizing web browsers. Its pending patent could even protect this unique business model.

The problem is, server-side rendering seems to address a temporary (and closing) window of opportunity. As Clay Christensen observed, technology improves faster than customer needs, so low-end solutions display high-end soltuions.

If the Pentium II/Pentium 4 transition is any indication, today’s 300 MHz smartphone will sport a 2 GHz processor in 3-4 years. By then, some will also be multicore, well suited for rendering web content on one processor and doing the remaining computations on another.

Wednesday, October 15, 2008

Good Paul, Bad Paul

Some of my friends say I was a bit harsh on this year’s winner of the Sveriges Riksbank Prize.

Another free market economist was a bit more positive about the work of Paul Krugman — at least his recent academic stuff. David Henderson (of Hoover and the Naval Postgraduate School) wrote in the Wall Street Journal:

In his popular writing, Paul Krugman is at his best when defending free trade. My favorite is example is his "Ricardo's Difficult Idea," published in the mid-1990s, in which he shares a frustration many of us economists have felt — that the vast majority of noneconomist intellectuals don't understand David Ricardo's famous insight about free trade almost 200 years ago.

Ricardo grasped that people will specialize in producing the goods and services in which they have a comparative advantage. The result is that we never need to worry about low-wage countries competing us out of jobs; the most they can do is change those goods and services in which we have a comparative advantage. For example, though you can rake leaves faster than the teenager next door, it still makes sense to hire him because you have a comparative advantage in writing software programs. Mr. Krugman points out that most noneconomist intellectuals are unwilling to take even 10 minutes to understand this. But that doesn't stop them from writing about trade as if they're informed.
In teaching international business, I’ve found that if students understand Ricardo, then they understand the positive-sum benefits of free trade that promoted the unprecedented rapid worldwide economic growth of the postwar era.

On the other hand, if people don’t get Ricardo, then they’re likely to view trade as a zero-sum contest and seek to block free trade agreements — as been increasingly common in Washington over the past couple of years (cf. the defunct US-Columbia Free Trade Agreement). As Henderson notes, there is no requirement for economic literacy to write about trade (or make trade policy).

While Henderson praises Good Paul, he seems to have a similar view of Bad Paul:
Another strong point Mr. Krugman made in his Ricardo article (and elsewhere): If labor's share of national income is relatively constant (as it has been for about the last 80 years), then increases in productivity must cause real wages to increase. (Wages, as he noted, also include benefits.)

That kind of common-sense clarity seems noticeably absent in his New York Times columns, in which he often attacks the motives of people who disagree with him and even calls them "liars." This deserving Nobel recipient could set a better example when it comes to academic -- indeed basic human -- courtesy.

Tuesday, October 14, 2008

Orphan MacBook Air owners

Tuesday, Apple updated the MacBook Air, adding a larger hard drive (or 128gb solid state drive) to the pricey laptop first introduced nine months ago. The computer still has an inadequate 2Gb of RAM and no expansion option.

Interestingly, they have eliminated the special Micro-DVI dongle introduced with the original MacBook Air, and replaced it with the new Mini DisplayPort connector, which will be common across all MacBook products in the latest iteration. There is a logic and sanity to sharing a single connector, and switching from the DVI-based predecessors to the new DisplayPort standard (already used by Dell), that is an updated royalty-free replacement for HDMI, at least on the computer side.

However, I am hard pressed to remember a time that Apple invented a new connector for a single computer and then abandoned it with the next version of that computer. The quirky Macintosh IIfx comes to mind. I am hard pressed to see why they couldn’t have chosen the Mini DisplayPort nine months ago, rather than foisting (and then abandoning) the $30 mini DVI dongles that I now own four of. (Two VGA, two DVI).

PS: Gizmodo speculated that today’s rollout was also part of Steve Job’s plan to prepare for his retirement.

Dousing FireWire

Note updated, corrected post on Apple's latest Firewire strategy.

One of Apple’s few really important inventions during the 1990s was FireWire. It was a high speed, hot-pluggable external bus that supported digital cameras, hard disks, and even peer to peer networking.

FireWire was particularly well suited for downloading gigabytes of digital video from a camcorder to a laptop, even though that required a different connector at the camera side. Longtime Mac users also know that Target Disk Mode (allowing access to a laptop HDD as though it were an external HDD) was one of its best system management features.

However, to make money Apple extracted a $1 per port while Intel was practically giving away USB. In 1999, Apple and its IEEE 1394 partners created a patent pool and cut their licensing fees dramatically to $.25 per device. But it seems like it was too little, too late, as USB 2.0 was just around the corner.

Due to clever marketing by Intel, a few people actually think USB 2.0 is faster than FIreWire 400, even though benchmarks show that it’s not true (due to bus contention, etc.) Apple and its allies released the faster FireWire 800, but (unlike USB 2.0) the connectors are incompatible and by the time it came out, almost nobody cared.

Today, FireWire is is officially appears nearing its end of life: Apple released its new laptops without FireWire, except in the largest model. in its entry level model. When combined with the lack of FireWire in the MacBook Air, this marks the end of FireWire as a tool allowing Mac users to edit digital video or restore their laptop drives (let alone have a speedy external hard drive). Apple has apparently concluded this is a niche market to be ceded to Sony and others.

FireWire coulda been a contender. It’s not clear if it had been created during the Jobs (or Jobs II) era if it would have been better managed — forestalling the threat from USB 2.0 — or Apple would have killed it even quicker based on a more extortionate licensing scheme.

Tech execs come to SJSU

The Charles W. Davidson College of Engineering here at SJSU is hosting its seventh annual Silicon Valley Leaders Symposium. The free lectures are every Thursday from 12-1pm.

As in previous years, our colleagues/rivals in engineering have put together an impressive list of speakers. Among the highlights:

  • Oct. 16: Dr. Prith Banerjee, Director, HP Labs
  • Oct. 23: Mr. Brian Halla, Chairman/CEO, National Semiconductor
  • Nov. 6: Dr. Greg Papadopoulos, Chief Technology Officer, Sun Microsystems
  • Nov. 13: Dr. Craig Barrett, Chairman of the Board, Intel
The sessions are held in ENGR 189, which is located in ground floor of the engineering building just north of the student center (or one block south of 8th & San Fernando).

Monday, October 13, 2008

Former economist wins Nobel

A former economist-turned-newspaper columnist today was awarded the “Nobel” prize in economics. (The prize was endowed by the Bank of Sweden in 1968, nearly 70 years after the death of the dynamite inventor). Paul Krugman was named the 2008 laureate for his work in international trade and economic geography.

You can’t win the Nobel prize after you die, but apparently you can win it after you retire. Krugman was once a serious economist, but since 1999 he has been venting his spleen three times a week on the pages of the New York Times. The need to empty his spleen could be traced to 1993, when Krugman was passed over by President Clinton to become his chief economic advisor — in favor of Laura Tyson, later dean at Berkeley’s Haas and London Business School.

In retaliation, Krugman penned Pop Internationalism, which was notable mainly for how much Krugman repudiated his earlier body of work and those who built upon it, in the name of settling scores with Clinton, Tyson and others, as well as emptying said bodily organ. Few if any scholars (other than his fellow political activists) have taken him seriously ever since.

The naming of Nobel Laureates is a very political process informed by Scandinavian sensibilities — particularly in Economics, Literature and “Peace.” Krugman today is best known for his nonstop attacks on every aspect of the Bush administration over the past eight years, which has certainly won him admirers (if not academic citations) in Europe and elsewhere.

Perhaps once Bush (and Bush-bashing) are gone, Oliver Williamson will finally get his due. The biggest criticism of Williamson is that his creation of transaction cost economics is highly derivative of Ronald Coase, 1991 Nobel Laureate. While Williamson has been waiting for years, the assumption was that there were many worthy nominees waiting to be recognized — like Nash, Merton & Scholes, or Stiglitz.

But the award to Krugman shows that the Nobel committee has gotten through its backlog and now the bar is actually pretty low. Williamson transformed academic thinking about the boundaries of the firm, and his work has permeated almost every level of microeconomics as well as organization theory and strategy. Krugman’s repudiation of his former thinking on strategic trade theory certainly hasn’t increased its influence, and it had a narrower scope to begin with. In the Google Scholar race, Williamson (1987) beats Krugman (1991) by a 3-to-1 margin.

Be careful what you wish for

Not quite three years ago, Howard Stern escaped the ongoing censure of the FCC by jumping from broadcast radio to Sirius. He signed a lucrative deal while gaining “artistic freedom” (or whatever they call it) by switching to an opt-in medium.

As the LA Times notes this morning, he also lost most of his audience and — without the FCC generating ongoing publicity for him — some of his raison d’etre.

"It's like Howard went from playing Madison Avenue to playing an upscale off-Broadway concert hall for a lot of money," said Tom Taylor, executive news editor at, which tracks the radio industry. "He made a Faustian bargain. He got everything he wanted in terms of money and not being bothered by the FCC, but he lost the bulk of his audience."
For a while, it also looked as though he jumped aboard a sinking ship. The Sirius-XM merger seems to have temporarily forestalled speculation about the end of satellite radio, but the merged company’s future is by no means assured.

The media have become seriously fragmented, and Stern’s Sirius turn is consistent with 500 channel cable systems and millions of bloggers on the Internet. However, if gathering listeners together with specialized tastes is consistent with recent trends, he seems to be swimming upstream against commoditization, particularly the Google-inspired tendency towards “free.”

Wrestling on pay-per-view can certainly be lucrative, even if it lacks the cultural impact of an NFL Sunday (go Chargers!), the World Series or the World Cup. Stern needs to decide whether he wants to make piles of money to support his new bride, or whether he needs a large audience to support his ego. As the Times put it, Stern is a “a 54-year-old man who once likened his youthful craving for media attention to a heroin addiction,” so the slide to irrelevance must not be gong down well.

Vote early, vote often

As I noted last month, Rick Astley has become a minor celebrity as the motif for a genre of Internet humor known as the “rickroll.”

As a prank, Rick was nominated as “Best Act Ever” for the MTV Europe awards. Various Internet fans of Rick are working hard to stuff the ballot box. At the blog website, there is a RickVoter script that anyone can use, created publicized by an anonymous hacker known as Vote4Rick.

The LA Times covers the hack while Wired has now scored an interview with Mr./Ms. Vote4Rick. Apparent Mr./Ms. Vote is annoyed at some of the hokey nominees which are not up to the standard of a great European act (like U2, the Beatles or the Rolling Stones).

Also, as he notes, online voting is inherently hokey: Is this a goof on online voting contests? Are they easily hackable, and therefore, like MTV, irrelevant?

Vote4Rick: Online voting is a bit of a joke, if people running them don't take any steps to prevent this kind of tomfoolery. MTV recently posted a poll asking if Rick Astley deserves his nomination, and got nearly 20 million positive responses to 5,000 negative responses. The actual poll results were posted, but MTV moved the page. I actually have some numbers on the rate Rick was gathering votes. On October 3, the poll's results were 8,329,625 votes for yes, and 2,472 votes for no. Hours later that day, the results were 11,726,515 votes for yes, and 2,477 votes for no. In the same time it took Rick to secure over three million positive results, he had just five negative votes.
Once upon a time, the motto in Chicago elections (e.g. 1960) was “Vote early, vote often.” But that only referred to a few dozen overvotes per individual, not several hundred or thousand.

Sunday, October 12, 2008

Web 2.0: most likely to crater

A regular topic on this blog is the problem of Web 2.0 business models, and in particular that these emperors have no clothes.

To this same end, on Friday CNET published a list of 11 Web 2.0 companies most likely to run out of money and die:

  • Twitter
  • Meebo
  • TripIt
  • Zillow
  • Pandora
  • Skype
  • Ask
  • DailyMotion
  • Netvibes
  • MySpace
Some of these make sense, as with Pandora, which has one of the top iPhone apps but has publicly said that (due to onerous record label royalties) that its end is near.

Some of the others I don’t get. Why list MySpace (with a rich sugar daddy) but not Facebook (with neither a sugar daddy nor a business model)? Skype and Ask may have troubles, but they each have a sugar daddy.

As with any other prediction, it will be a year or two before we see how prescient columnist Rafe Needleman was.

Saturday, October 11, 2008

Where has the Moto gone?

Last weekend, I remarked on the disproportionate representation of LG and Samsung as suppliers to Verizon, the largest US CDMA carrier. Earlier I’d assumed that LG and Samsung were taking Verizon by storm because the Europeans don’t make CDMA phones (or good ones).

However, in the succeeding week, I made some more visits (to do repairs at the Apple Store) and the pattern was nearly the same at the Cingular AT&T store. I decided to count available handsets at the Verizon kiosk in the mall and the AT&T stand-alone store in the strip mall across the street. I tried to exclude duplicates (like the four Samsung Blackjack II phones at the AT&T website).

After looking at these retailers representing 54% of the US market, what was striking was the lack of handsets by Motorola. According to the Q2 figures, Motorola still leads the US market, while LG has slipped past Samsung into second. But you wouldn’t know it from looking at the phones in the mall.

(Q2 2008)

# of handsets

RIM BlackBerry

Sony Ericsson

Apple iPhone


Clearly LG, Samsung and RIM are benefitting from product proliferation, while Apple is getting more share out of their one model than Palm. LG has clearly leveraged that product proliferation (and other point of purchase push) into US market share gains.

Razr is not a business telephone but a consumer phone, and supposedly the best-selling phone in America. So if they're not being sold in the malls or strip malls, where are people buying them? Costco? Office Depot? Of course, Motorola has a monopoly on the iDEN phones sold for the Nextel half of the Sprint Nextel network, but this is clearly a declining and troubled business.

So should Sanjay Jha get Motorola to create more new models (ala LG) or should he creating more compelling point products (ala Apple)? It seems unlikely they squeeze a higher sales rate out of the Razr, and so the issue is the popularity of #2 or #3 Motorola models (or perhaps adding a #4 or #5 model). The Razr is a cool slim flip phone, but do people want different form factors, operating systems, feature lists?

One major growth area is increasingly important and increasingly competitive smartphone segment, where RIM and Apple dominate North America and Motorola is a distant fifth. The Motorola smartphones don’t seem to be attracting buzz, visibility or tire-kickers, whether the Symbian-based Moto Z10 or Windows-based Moto Q (or its Q11 successor). Is this the hardware design? Is it that Symbian isn’t designed for the US market? Is it that Motorola is splitting the Windows Mobile market with Palm (#3 in US smartphone sales with its 750w and 800w) and Samsung (#4 via the BlackJack II)?

Rather than make better Symbian or WM phones, it appears that Motorola has placed its huge smartphone bet on Android. But the gPhone is far from a certain success, either as a platform or as a series of handsets. As long as Motorola has Symbian and WM development teams, it seems as though they should continue to develop successor projects until the verdict on Android comes in.

Friday, October 10, 2008

Facebook don't need no stinkin' business model

Interviewed by Germany’s leading newspaper, Facebook CEO and founder Mark Zuckerberg explains why his current lack of a business model is no big deal:

…what every great internet company has done is to figure out a way to make money that has to match to what they are doing on the site. I don't think social networks can be monetized in the same way that search did. But on both sites people find information valuable. I'm pretty sure that we will find an analogous business model. But we are experimenting already. One group is very focused on targeting; another part is focused on social recommendation from your friends. In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.
I loved the comments, including this one (even though it’s an obvious shill for selling a $400 report);
In the oblivious parallel universe, growth has nothing to do with revenues, and so it is for Mark Zuckerberg, CEO of Facebook,
Facebook is the quintessential Web 2.0 startup, and thus epitomizes the indifference of Web 2.0 startups to making money.

Hat tip: Good Morning Silicon Valley, Oct. 9, 2008

Has Apple surpassed 10m iPhones?

Seeking Alpha authors Andy Zaky and Turley Muller estimate that 9 months into 2008, Apple has already surpassed Steve Jobs’ widely quoted (and oft-ridiculed) projection of selling 10 million iPhones this year. In particular, they calculate that Apple sold 7-7.5 million units in Q3, the final quarter of the Apple fiscal year, building on the strong sales spurt with July’s release of the iPhone 3G.

They use a clever strategy of tracking serial numbers (IMEI) as a way to estimate how many phones have been built, and use convergent numbers from web browser stats.

Apple’s FYQ4 earnings release is due a week from Tuesday. If Zaky and Muller is right, Jobs will proudly proclaim that Apple has blown past the 10 million figure in hopes of supporting the stock.

So far the stock is in freefall, off even more than Google due to worries about consumer spending. Next week’s rumored announcement of a sub-$1K laptop won’t turn that around, but perhaps unexpectedly strong iPhone earnings could provide support for the stock.

More importantly, if Apple is lucky the announcement will correspond to a shift in the overall macroeconomy. In a rare example of local TV actually interviewing someone who knows something about the economy, our local NBC station tonight ran an interview with a really smart Chicago school economist who also happens to be a former Congressman and business school dean. Tom Campbell says the economy will keep falling until the Feds start spending the bailout money, hopefully in a few weeks.

Thursday, October 9, 2008

Local Android skepticism

In a part of the world where everyone is either praising or fearing every move of Eric Schmidt and the Monster of Mountain View, Merc columnist Chris O’Brien this morning had a very skeptical column about Google’s new cellphone operating system, entitled “Why we'll all soon forget about Google's Android.”

Citing a Chinese VC’s indifference to the T-Mobile G1 announcement, O’Brien concludes:

[His] response provides a little perspective on the immense hype Android has generated in Silicon Valley. Around the globe, Android is barely a blip on the radar. And that's unlikely to change.

Instead, expect Android to remain the latest in a long list of Google curiosities introduced amid great fanfare, only to quietly fade into the background.

But there are several challenges I don't see Android overcoming.

First, it starts off way down the list of operating systems for smart phones. At the top of the heap are BlackBerry, Windows Mobile, the iPhone, and Symbian. This last one is produced by a consortium of the largest cell phone manufacturers in the world, including Ericsson and Nokia.

And it was recently announced that Symbian will become open-source. Throw in the fact that a group called the LiMo Foundation is developing a Linux-based operating system for mobile phones, and Android becomes just one of three open-source options.

Yes, you say, but this is Google. To which I say: Yes, but this is Google.

The company has been churning out countless initiatives in every direction, but they seem to have no coordination. A year ago, it launched the Open Social initiative to counter Facebook. Heard anything about that lately?
Another factor cited by O’Brien is Google’s lack of focus. Quoting CNET, O’Brien notes that in the near future Android will not use Chrome (proving my earlier speculation false). Instead, Google funded two separate WebKit-based open source browser efforts, one for the mobile phone Linux stack and one for personal computers. I read this as Google allowing decentralized innovation without concern for synergy or even code reuse.

O’Brien is now our most provocative local tech columnist, and he raises some excellent points. Still, there’s no way to prove (or disprove) his thesis today. We don’t know if this is the next Maps or News or Gmail — building on its search dominance — or whether this is the latest unsuccessful, loosely related diversification effort ala Google Answers or Froogle or Lively.

Of course, as Nick Carr observed, Google still gets ad revenues off of failure. All those gPhone users will be using and Google Talk and Google Maps rather than their Yahoo or MSN equivalents.

O’Brien is bearish on Android, and some of his larger indictments imply he’s bearish on Google too. I’m not sure the markets yet agree. I don’t normally speculate on stock values, but in this case, Google’s stock is certainly the #1 indicator of industry and financial market sentiment about its prospects for growth and perhaps Total World Domination.

Google’s shares are off 52.5% this year, versus 55.2% for Apple (perceived as a luxury brand) and only 38% for the NASADAQ as a whole. Google (according to Yahoo Finance) still has a trailing 12 month P/E of 21.6 vs. 17.4 for Apple. IBM (with a great quarterly earnings and forecast) has a P/E of 11.0 and is only off 17.7% this year, while P&G sports a P/E of 16.7.

Google is no longer priced as invincible, but do the fundamentals justify its growth P/E? Or is the price price sustained by an unwillingness of Google zillionaires and stock speculators to lock in this year’s 50+% paper loss and sell at prices not seen in three years? I think the real test will be on Dec. 31 — if the stock is below 300 (or even 350), money managers may cleanse the shares from their public portfolios to avoid embarrassment.