Tuesday, January 26, 2010

Will Joel help sell tablets?

Since the past month (if not three years) for Apple watchers has been uninformed speculation about the iSlate/iTablet/jumbo iPhone, I figure on the eve of the (speculated) announcement I should add my own 2¢.

A little over a year ago, sociologist Joel Podolny quit as dean of Yale’s business school to become “Vice President and Dean of Apple University,” as he self-reports on his LinkedIn and Facebook profiles.

At the time, I offered my own speculation on the sketchy information about Joel and his new role, but effectively he’s been in stealth mode ever since. I have a hunch that his role may become more clear after the iTablet is announced.

Apple’s plans seem to be leaking out because of all the content relationships that it is negotiating. Speculation is that it’s a device with a 10" screen that (for reasons that were obvious a year ago) will run the iPhone OS.

Since this is only the first device of many, the more interesting thing is the content/ecosystem strategy. Apple is building a supply of content to compete with Amazon’s Kindle, the Barnes & Noble Nook, and everything else out there.

That’s where I think Joel Podolny comes in. An obvious use for an e-reader is for college textbooks: a $200-400 toy (uh, e-book platform) is not implausible for a college student, and e-books would help textbook publishers kill the scourge of used textbooks (while reducing distribution and inventory costs). Amazon has conducted demonstration projects with e-textbooks to disappointing results.

In fact, CNET reports that McGraw-Hill’s CEO Terry McGraw decided he wants to be on Steve Jobs’ dirt list by pre-announcing the tablets Tuesday on CNBC:

Yes, they'll make their announcement tomorrow on this one. We have worked with Apple for quite a while, and the tablet is going to be based on the iPhone operating system, and so it will be transferable.

So what you are going to be able to do now is, we have a consortium of e-books. And we have 95 percent of all our materials that are in e-book format on that one. So now, with the tablet, you're going to open up the higher-education market, the professional market.
I assume Apple has solved the format problem: Windoze notwithstanding, universities are not going to mandate the use of a proprietary format (like the Kindle AZW) which implies that the textbooks will be distributed in something like ePub or PDF. (As with the iTunes Store and music files, Apple may end up using a proprietary DRM system if not good alternative exists.) This is something that has been holding back e-book sales for a year.

Which brings me back to Joel. Apple has the iTunes Store for entertainment, and iTunes U for video (or audio) course lectures donated by universities. Once it has textbooks, what’s missing?

One possibility is to negotiating the content relationships with textbook suppliers — but that doesn’t sound like a “dean” to me.

The other possibility is a new modality of delivering instruction: not just hypertext books and linear lectures, but a more interactive and engaging experience. (Jobs’ nemesis John Sculley was demonstrating this with the Knowledge Navigator vaporware video more than 20 years ago).

This would mean that the tablet would be more than an e-book reader, just as the iPod was more than a music player and the iPhone was more than a phone. Apple is a systems company that new platforms to enable creation of new markets.

This self-image is illustrated by the tagline at the bottom of every Apple press release:
Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone.
I'm betting that tagline will be different next week, and not just because Apple has a 10" iPod Touch.

Saturday, January 23, 2010

Nokia vs. Google platform integration

After spending $8 billion to buy Navteq and its mapping database, Nokia has now decided to give away the mobile navigation service with its various phones. Darla Mack describes the new service from the standpoint of Nokia handset users.

Of course, maps — fixed line, mobile, location aware (whether GPS or fixed line IP address), 3D, turn-by-turn navigation and every other incarnation — are a major strategic area for the Monster of Mountain View. As a friend noted last week, the location aware mapping services are probably the only category leading aspect of Google’s Android platform right now.

And, in fact, Forbes remarks on the forthcoming battle between Nokia and Google. However, Forbes spends most of its time on the impact on TomTom and Garmin, which are already being substituted away by the Apple and Google mobile phones. (Nokia is stronger than either the iPhone or Android in Europe, where Forbes reports that TomTom has 44% market share.)

Even if the mobile phone substitutes aren’t quite there yet, this is another milestone in the mobile-phone-as-the-Swiss-Army-knife-convergence-device view of the 21st century electronics industry. This highlights the direct and indirect competition between the various service and software platforms: Nokia is a hardware company that offers services, Google is a services company that now sells hardware, and both are providing handset software.

So it seems like another milestone away from open innovation, towards vertical integration (or related diversification), in which every platform owner feels it has to own every piece of the puzzle. That doesn’t count the network operators, who also want to rent their own mapping services. (The Verizon service comes in for caustic criticism by one of the Forbes readers.)

To me, Apple’s purported partnership to promote Bing on its iPhone makes more sense than integration. My hunch is that Google and Nokia will still try to control every piece of the stack, even as Microsoft retreats away from mobile platforms into applications.

Thursday, January 21, 2010

Summarizing the iPhone transformation

Three years ago this month, Apple announced the iPhone. This was only a few weeks after I’d had lunch with Michael Mace, who I’d met in 2002 when I was trying (unsuccessfully) to get internal permission to study the Palm/Palm Source spinoff.

The day before the iPhone announcement, I suggested to Mike that we send a paper on an unspecific topic to an industry-academic conference called LA Global Mobility Roundtable (LA GMR). The next week, I emailed Mike to say “I think it would be fun to write something about the iPhone for the LA conference.”

And so began two papers on the iPhone that we wrote and got accepted at LA GMR and at DRUID 2007 conferences, and that were also presented at UCI and Boston University.

Since all of these presentations were before the first iPhone shipped, the audiences correctly noted the speculative nature of the papers. Particularly in Europe, people were skeptical that the iPhone would be a success — or could ever challenge Nokia’s insurmountable lead in smartphones.

By waiting until February 2008 to submit our paper to Telecommunications Policy, we could talk about some early success measures, such as the 4 million iPhones sold in the first 6½ months on the market.

We did two more submissions, and updated the data with each iteration, until we got word on Monday that the paper was accepted. The final corrections to the page proofs went in Thursday. (The final uncorrected draft is on my website, and I’ll link to the official copy when Elsevier posts it.)

The orientation of the paper evolved significantly over this period, thanks to prodding by the reviewers and some additional clarity on our part. (A dry run at Michigan State last spring also helped).

Still, I think we captured overall some of the transformations of the US (and lesser degree, global) cellphone industry due to the iPhone:

  • AT&T went to Apple because it wanted more people to use its data network. It generate data revenues, it set a precedent by requiring a data plan with every phone. Thanks to the iPhone, AT&T now seems to have more than enough data users, and data is becoming increasingly common across the entire industry.
  • Competitors copied Apple’s hardware, but none had (or yet have) copied its systems competencies. (Google has come the furthest and may still get there, while RIM is serving an entirely different market).
  • By linking to the existing WWW, Apple was able to solve the chicken&egg problem of attracting complements before demonstrating an installed base.
  • Before the success of the iPhone App Store, the iPhone succeeded because it provided the best approximation of the World Wide Web.
We could support the latter point with this great quote from Steve Jobs a month before the first iPhone shift:
[Cingular has] spent and are spending a fortune to build these 3G networks, and so far there ain't a lot to do with them. People haven't voted with their pocketbooks to sign up for video on their phones. These phones aren't capable of taking advantage of it. You’ve used the internet on your phone, it's terrible! You get the baby internet, or the mobile internet -- people want the REAL internet on their phone. We are going to deliver that. We're going to take advantage of some of these investments in bandwidth.
Like any journal or journalistic article, our paper is a simplification of reality, and some may quibble over some of the details — but I think we accurately capture for posterity why the iPhone was a hit. (Or, as a historian told me when I was getting started, “first, get the stories right.”)

I’m really proud of this article, which is probably why I spent more time (more than a day) on the proofs than any previous article — not counting the time Mike spent on it as well.

A decade from now, I think it will rank up there with my 2003 most-cited journal article in Research Policy on open source strategies, as well as my first journal article from the San Diego Telecom project, published a year ago in the Journal of Management Studies.

Updated February 13: Telecommunications Policy emailed me today to say the final (prepress) final page proofs are online at the Elsevier website: the article DOI is 10.1016/j.telpol.2009.12.002.

Tuesday, January 19, 2010

Freemium solves an annoying little problem

Last August, I discovered a new TV series on ABC called Defying Gravity. It had its faults: some called it “Gray’s Anatomy in outer space” although that ship sailed two decades earlier with LA Sex Law, which introduced the genre of the oversexed workplace to the American TV viewer psyche. Still, Defying Gravity was one of the first new sci-fi shows on broadcast TV this century. (I’ve been ignoring the V remake since the first one wasn’t all that good and the accounts make this one sound worse.)

Parenthetical comments aside, I was enjoying Defying Gravity until ABC pulled it after airing 8 episodes in August and September. The CTV-produced show (filmed in Vancouver) finished its 13 episode run in Canada (eh) although CTV stopped its Facebook page after 8 episodes.

Since tonight was the first night this week I had no lame “24” episode to watch, and since Comcast yanked my SyFy (and Stargate episodes) as it deliberately sabotages basic cable, tonight I went looking for Defying Gravity. Thanks to Google, I found it.

The Canadian over-the-air broadcasts are available commercial free on Ninjavideo.net, apparently redistributing content from Megavideo.com. (They appear to be related sites). Megavideo is using a freemium model and both are trying to upsell me from the free to paid version, but I’ll take the free viewing of 72 minutes/day. And if they get insistent, I'll try one of the Russian sites that claim to have it.

Both sites seem less than totally reputable, and I mean beyond distributing someone else’s pirate video without permission. (The latter category also includes Eric Schmidt and GooTube as well as VC-funded last.fm.)

I don’t play pirated MP3 files and normally I don’t watch pirated video. But after waiting 4 months for ABC to make good on its promise that the show would be back (although it’s now deleted from its show website), I’m hoping most would forgive me for concluding that ABC’s “someday” really means they are using the recursive mañana principle.

So at least I’ll be able to watch the Antares astronauts of 2052 visit a planet and wrestle with their personal demons. The rest of the backstory (and their Grand Tour of the planets) is apparently only known in an alternate universe where sci-fi shows get good ratings.

Monday, January 18, 2010

Matt and I agree on the Big G

After I posted last week about Google’s half-full glass openness, my friend Matt Asay tweeted a plug for my column by quoting the punchline:

"Google is a self-interested, profit-maximizing, semi-proprietary co that embraces openness when it suits its purposes" http://bit.ly/5GLF0l
Thanks to Matt and his 4,841 followers, that may be one of the most quoted things I ever say in my life.

But Matt was too modest to mention his own very similar thoughts on the subject last month on his Open Road blog. I missed the Dec 22 posting because of the hectic pace at the end of the semester and a few days before Xmas.

The title alone told me that we are on the same page: “Google--not necessarily 'more open than thou'.” He was keying off a self-interested (and self-serving) post by Google SVP Jonathan Rosenberg that defends its right to unilaterally choose what parts of its solutions are open and closed. To which Matt deliciously responded:
Am I the only one that just had Napoleon of "Animal Farm" flash through their minds while reading that statement? Some animals are more equal than others, and some companies know better than others when to keep code closed.
He also quotes a Gartner analyst as saying
The art of business in the 21st century is figuring out how to open up your suppliers' and competitors' business while keeping yours tightly sealed. And in that endeavor Google has proven highly successful.
A few excerpts can’t do the article justice, so I recommend the entire post to anyone interested in open (or semi-open) IT strategies.

Sunday, January 17, 2010

Commodity voice, commoditizing data

Monday is when the new mobile phone pricing by Verizon Wireless and AT&T take effect. As has been remarked, the net effect is cut to prices on unlimited voice plans to $70/month while forcing more customers to buy data plans.

While Americans (unlike say Japanese) have been used to “all you can eat” wireline service for generations, it is instructive as to how long it has taken for the commoditization of voice to finally impact the major players.

Voice: From Premium to Commodity

When I started researching the cellphone industry in 1996, there were no national carriers and two operators in each city. The CDMA carriers were still fragmented into regional carriers: AirTouch (an independent company), GTE Mobilnet, Bell Atlantic Nynex Mobile — and what became Cingular was equally fragmented between AT&T (the former McCaw Cellular), Bell South and Southwestern Bell. Sprint was just starting its efforts to build a national network, and VoiceStream was 4 years away from becoming the US subsidiary of T-Mobile.

I was shocked when in 1997 a wireless entrepreneur told me how cheap minutes were the wave of the future, thanks to new cellular licenses and the increased spectral efficiency of CDMA carriers.

His plan was to buy minutes in bulk from a hungry new entrant — originally NextWave but then later Sprint — and resell them in bulk to companies. Instead of the standard $1/minute fee, corporations would buy bundles of minutes at the dirt cheap price of 20¢/minute if would only subscribe to 1,000 phones.

Founded by Qualcomm alumni, NextWave lurched slowly and painfully towards its 1998 bankruptcy when it couldn’t raise money to launch a network and the FCC sought to bypass bankruptcy law and seize unpaid spectrum.

In 1998, Qualcomm spun off its cellular licenses into Leap Wireless, which by 2001 had 1 million customers for its all-you-can-eat plan under the Cricket Wireless brand. Beginning in 2002, its eventual frenemy Metro PCS copied its business model, raised more money, and made several unsuccessful offers to buy its rival. By gradually building out individual markets, the two carriers have won 11 million flat rate subscribers (about 4% of the US market).

For a while, the Big Six (later Big Four) carriers were able to increase revenues by increasing market penetration, as the number of US cellular subscribers tripled over the past decade. However, growth has slowed recently with penetration up only about 15% in the past three years. Thus, with their networks built out, in Feb. 2008 the Big Four all decided to offer their own flat rate plans at $100/month.

Coercing Premium Data Adoption

The next great hope for ARPU growth was and is data. Whether lousy devices, content or pricing, the adoption was very slow — until the iPhone was released in mid-2007. (I was reminded of this when reviewing the page proofs of my iPhone paper.)

The iPhone and its imitators have been fueling data adoption for the past three years. An estimated 25 million iPhone users added to ATT’s network in 2009 — about half of AT&T’s net new subscribers — have given AT&T both additional revenues and pushed its network to the breaking point.

Still, since the iPhone introduction AT&T, Verizon and others seem to be adding handsets by requiring $30+ monthly data plans with fancy handsets rather than waiting for people to request them. But expecting $100 for voice and data out of every man woman and child is not a mass market strategy — it’s a niche, cream-skimming strategy.

However, to make data a mass-market item will require that operators solve the problem that they don’t have enough spectrum to deliver the “all you can eat” they’ve been selling. Finite bundles of data megabytes are going to last longer than bundles of voice minutes.

Over the next two or three years, the Big Two will use data as premium-priced ARPU booster, while Sprint and T-Mobile will be torn between maintaining margins and undercutting their rivals to gain share. T-Mobile is lagging on network development, while Sprint hopes that its early risky bet on WiMax will give it data capacity before its rivals deploy LTE networks.

I think the idea of linking smartphones to data will go first, perhaps as soon as next year (at least by Sprint or T-Mobile). The Google Nexus One is the first step in this direction, but the flood of Android devices (plus Palm’s death throes with WebOS) will mean that if Apple and Motorola are not interested in commoditizing devices, other firms will. More in my next post.

Friday, January 15, 2010

Len Lauer’s brave bet on open innovation

Well, everyone was telling the truth when Len Lauer stepped down as COO of Qualcomm last month to become CEO of a “non-competing” company.

He’s surfaced as the CEO of Memjet, an inkjet printer company also based in San Diego. Don Clark of the Wall Street Journal has the story.

Like Qualcomm, Memjet likes to patent things, in this case behind its lead technologist Kia Silverbrook, formerly CTO of Canon.

Something about this just doesn’t make sense. While I’m a big advocate of open innovation, Memjet is trying to crack a very vertically integrated industry.

I actually worked in inkjet printers for more than a decade — sitting there in my Oceanside software company, supervising (and sometimes actually writing) software for a wide range of color printers, including (for a time) most of HP’s inkjets.

The problem I see with Len’s career move is the part about Memjet licensing its inkjet heads to others to make the actual printers. HP, Canon and Epson have a cozy patent cartel, cross licensing and making their own printers and disposable cartridges. I don’t see any of them licensing technology, no matter how cool it is. (Attempting to invent patents — or suing for a cross-license ala Broadcom — around seems much more likely).

So maybe some of the 3rd tier players — Brother, Samsung — might be interested. Maybe even the 2nd tier players such as Lexmark and Xerox. But how are you going to get market share with these players — no matter how cool your technology — given their distribution and brand recognition are so far behind the Big Three?

Even if you did, get some of them, would the royalties ($1 per printer? $5 for a printer and a lifetime of cartridges?) be enough to pay back “hundreds and hundreds of millions” of VC investment?

Yes, I certainly see the analogy to Qualcomm’s QCT chip business, but Qualcomm got into the chip business when no one knew how to make CDMA chips and few merchant chip vendors existed for handsets (Motorola, Nokia, Ericsson, Matsushita made their own.)

Maybe I’m missing something, but to me printers are a 20-year-old mature industry, without a lot of opportunity for entry.

So my hat’s off to Len, a braver man than I. We’ll see in a few years whether he’s a smart man too.

Thursday, January 14, 2010

Bye bye Sprint. Sigh.

My blog posting Monday about switching to Verizon after 12+ years with Sprint — as posted on Seeking Alpha — brought an email Tuesday from someone at Sprint financial PR which said in part:

I saw the post in which you were trying to come up with a workable data plan but felt you didn't need data for all four folks on your account. I reached out to our executive team to see what we can come up with and they would like to talk with you personally to see what we can do that you would find helpful and satisfactory.
Here is an excerpt of my reply:
Your offer briefly put me in a quandary. In response to a previous frustration with Sprint


a Sprint manager reached out to me. We discussed it, and I realized that I was not comfortable getting special treatment as a member of the press -- which he understood. I went through normal channels, which meant that (like other customers) I got no satisfaction.
I said I’d be glad to talk to someone at Sprint, as long as it was about terms that were available to any other customer. (As a former full-time newspaper reporter and MacWEEK columnist, I’ll take free admission to trade shows but not any special consideration unrelated to what I need to do my research or write my blog.)

When I wrote the post, I was certainly hoping there would be a way to work things out. In addition to sentimental ties to Sprint, my tween might someday get that green Palm Centro she’s been admiring for several years.

Today I got a call from Dre, a Sprint representative, about possibly getting a new Android smartphone such as the Samsung Moment. to replace my Treo 700p. For more than a year, the hitch on changing to Android (or Pre or anything else) was Sprint’s requirement to change my $70/month “Fair&Flex Family” plan to a $130/month for the “Everything Data Family” or $190 “Simply Everything Family” plan. (The data-for-anything-but-Palm-OS requirement seems to be the industry norm.)

When I select the Moment on the Sprint website, this is it tells me:
You may need to change your plan

For this phone to work, you'll need to be on one of the following plans:
  • Simply EverythingSM
  • Simply EverythingSM Family
  • Everything Data
  • Everything Data Family
  • Business Essentials with Messaging and Data
  • Everything Plus™ Data
  • Everything Plus™ Data Family
See Plan Details
Dre noted that a family data plan is not required for some Windows Mobile and BlackBerry smartphones, but is required for any BlackBerry that has Wi-Fi (one of my requirements). In fact, I’d be quite happy to have a Wi-Fi phone without a dataplan, but of course Sprint (like other carriers) doesn’t want to do that.

In the end, we concluded what I found out last summer: upgrading my phone will require an extra two-year $1400 financial commitment that my family is not willing to make. So, no looking back, it’s on to Verizon.

The conversation wasn’t a total waste. As a representative of Sprint’s Executive of Regulatory Services, Dre was better informed that the shopping mall sales rep. And unlike the other telephone support reps, he was not under the same pressure to clear a case and move on to the next call, allowing us to have a real conversation.

He also made it clear he had my whole customer file in front of him, including the frustrating incident involving replacing a dead Samsung i500 that prompted my earlier blog posting. Clearly, they have good IT systems allowing tracking the complete history of a customer relationship.

But in the end, Sprint has decided to bundle Internet access — a “want” but not a “must” — with text messaging, GPS, TV and other services that I definitely don’t need. For some people, this is a better deal, but not for us. Its bundling also means that my wife’s voice-only phone has to buy these services as well, even though our combined text message total is about 10 messages a year.

This means I’m leaving Sprint about where I’ve been the past two years: their people are polite and well trained, but (perhaps due to their losses) their inflexibility means they can’t or won’t meet my needs. (They’ve also bet big on a 4G technology that is otherwise unused by US cellular carriers).

No hard feelings. I wish CEO Dan Hesse and his team well.

† Asking for the data plan on an Android Moment produces a web page entitled “Some important things to know about Palm webOS phones.” Presumably it’s just web programmer error.

Sunday, January 10, 2010

When should I switch to Verizon?

For more than a year, I’ve been mulling over which mobile platform (and carrier) to choose, given that my original choice has reached the end of the line — and so I’m gonna have to pay switching costs anyway.

I’ve been with Sprint for more than a decade. Since 2001, I’ve had a series of Palm OS smartphones since buying a Kyocera QCP-6035. My next phone is not going to be a Palm, given that the company has doubled down on the Pre, which was too little and too late.

It’s also not likely to be Sprint. Sprint is like other carriers in requiring a monthly data plan subscription with smartphones; however, it’s unlike the others in requiring a data plan for all phones on the family plan, and only one person (me) in our household needs a data plan.

I’ve been tempted by the iPhone and in fact would have bought an iPod Touch last summer if they’d updated the product instead of peddling a warmed over 2008 model. My one problem with the iPhone has always been AT&T.

While contemplating this, I saw the recent issue of Consumer Reports which notes that AT&T has the worst service of the big four mobile operators, while Verizon Wireless has the best. This is particularly true in the three major California markets — San Francisco, LA and San Diego — where I make 99+% of my calls and probably 100% of my data usage. (Of course, this only reinforces the recent advertising war between the two carriers.)

Sprint is only slightly better than AT&T in nationwide satisfaction, but at least (as I’ve found) it roams to Verizon. T-Mobile is second only to Verizon, but roams to the problematic AT&T network; it also has a spotty 3G network and its devices are incompatible with AT&T’s 3G services in the 850 MHz band.

So barring a workaround to Sprint pricing, my next phone will be on the Verizon network. Of the major smartphones platforms, BlackBerry is too business oriented, Windows has no attraction whatsoever, and Symbian is absent from CDMA. Although BlackBerry is #1 in US market share, two other platforms have bigger app stores.

In other words, as for so many others, it’s down to iPhone vs. Android.

On Verizon, I could wait for the mythical Verizon iPhone (rumored for June), or the Nexus One (promised for “Spring”), or buy a Motorola Droid now.

This has me leaning towards Android. My former student Rahul points out that Android isn’t particularly good for Exchange or games, neither matter to me. (My daughter might disagree on one of these.) On the other hand, the fact that OS X 10.5 won’t sync with Google’s addressbook would be a problem — since I refuse to use 10.6 — but fortunately there’s an app (workaround) for that (which I’ve already tried out.)

With a dataplan, I want a real keyboard, so on paper the Droid looked interesting. Sunday I went to Costco to try the Droid again. However, as even Motorola‘s CEO admits, it has a terrible keyboard.

Also at Costco, the T-Mobile Motorola Cliq certainly has a better keyboard than the Droid. On Sprint, the Samsung Moment has the best keyboard of these three phones. Or I could wait for the promised Droid upgrade — at which point the CDMA iPhone may already be shipping.

So that’s my dilemma. I’d be curious to hear from owners of smartphones with a slide-out keyboard (except for those drinking Luke Wilson’s Kool-Aid.)

What’s really odd for me is that on Mac vs. Windows, I’ve been 110% Apple for 26 years, despite paying a premium price and having a limited selection of products. On iPhone vs. Android, the limited selection of Apple products is worse (effectively one model), and so it looks like I’ll choose the non-Apple solution, even though it’s clearly inferior on ease of use. Perhaps it‘s because a PC is a general-purpose device while a phone (for now) is just a phone (Sorry, David.)

On the other hand, it could go the other way. My MacBook Air is not going to make it to 4 years (our college-mandated replacement cycle.) When it it dies, if Apple continues to ignore the netbook, I may end up buying a Windoze machine that’s uglier, equally speedy but one-third the price. If nothing else, I could install Safari, Firefox, iTunes and (sigh) Eudora, and have all the same apps that I’m using today.

Saturday, January 9, 2010

Google's half-full glass of openness

A number of experts have been remarking that the NexusOne brings Google into more direct competition with Apple and the iPhone, ending a once cozy and complementary relationship between the two firms.

Google’s mobile strategy continues to get closer to Apple’s. Both are peddling mobile platforms, seeking users, operators and third party software providers. While Google’s OS is open source — and available via multiple handset manufacturers — it still is a hybrid open/proprietary strategy that competes with Apple’s own hybrid strategy.

Some analysts understand this better than others. Dan Moren of Macworld portrayed it thusly:

By putting its name on the Nexus One, Google has given the Nexus One a sort of primacy on the Android front, unifying the disparate elements of the Android movement: now it’s Google going head to head with Apple, not a strange amalgam of Google, Motorola, and Verizon. It’s as if Google has promoted itself to head of the Rebel Alliance opposing Apple’s Galactic Empire.
Ooo, there's a value laden metaphor if there ever was one! (NB: In Star Wars III, Lucas is much more sympathetic to the Empire’s control problems than he was in 1977 with Star Wars IV.)

A much more accurate characterization came from John Gapper of the FT
Yet Apple is not as closed as Google portrays it, and nor is Google as open. Instead, like the proverbial half-empty glass, Google is best regarded as half-open and Apple as half-closed. That is significant because it shows how such companies need to compete in a networked industry.

Google is fighting for its own interests as hard as Apple does. That is, at one level, obvious since they are both public companies that try to maximise revenues. Yet its insistence on not doing “evil” and its dismissive view of Apple and Microsoft obscures this.
Gapper’s point is that even if Google’s OS is open, it plans to make money off these phones through its control of search. Gapper had earlier observed that mobile phone value capture had shifted from European telecom manufacturers towards US Internet companies (e.g. Google), as well as Apple.

I agree with Gapper’s overall point this week that mixed proprietary/open strategies are both normal and reasonable. I also share his aversion to exaggerated claims of openness.

However, in thinking about some of my earliest research on openness — ironically a 2003 paper about Apple’s early open source strategy — I think Gapper has only half the story.

Gapper focuses on how (to use my 2003 term) Google is “opening parts”. Its mobile phone OS is open source, but other parts of the value proposition (e.g. search, maps, mail, etc.) are proprietary. Google shares its code, but not is advertising revenues.

However, to use the 2003 terminology, I think it’s clear that Android is also “partly open.” Truly open sponsored open source communities do more than just provide source code, but also share in the governance and technical direction. Someday Android may be open, but it’s not there yet.

While Gapper talks about the openness glass being half full, I think an equally important point is that for many companies it changes over time, and differs between markets and products.

The two most proprietary companies in the PC industry, Apple and Microsoft, had various degrees of openness over time and across product lines. Among mainframe companies, IBM was once the captain of proprietary IT strategies, but in the past 20 years has moved to embrace open source and make lots of money off of services. Sun claimed to be open — and in relative terms it was — but still did everything it could to create switching costs and proprietary rents. (NB: Google CEO Eric Schmidt spent 14 years at Sun as a manager and eventually CTO.)

So I think that the only realistic way to view Google is as a self-interested, profit-maximizing, semi-proprietary company that embraces openness when it suits its purposes. Consumers should (and do) welcome that many of its ad-supported services are free, but continue to remember that Google wants to keep its repeat customers every bit as much as Apple, IBM and Microsoft do.

Thursday, January 7, 2010

CalPERS is strangely silent

Lord knows, CalPERS (my pension fund) has had its share of problems over the past two years, losing more principal than ever before. (Like most asset-speculating pension funds, if it doesn’t make enough money in the market, either employees or employers will have to raise contributions to pay for promised pensions).

Still, it is strangely silent on the Obama administration’s controversial plan (embodied in the Senate bill) to surtax 40% of employer-provided healthcare over a certain amount ($1,900/month for a family of four).

While framed as a charge on “Cadillac” plans for executives, in reality most of the revenue will come from large employee groups that have been able to negotiate generous (tax-free) benefits — i.e., unions. On Monday, the AFL-CIO finally noticed and opposed this provision.

But why CalPERS hasn’t said anything is beyond me. It is the largest pension fund in the country. Two years ago, it was the third-largest health insurance buyer in the country, but vaulted into second place last fall (after the Feds) due to the GM bankruptcy and downsizing.

So if anyone had an interest in the taxation of employee benefits — and the economies of scale to analyze such proposals — it would be CalPERS. Its web page even offers a collection of web pages related to national Health Care Reform.

But nothing appears about how the two-month-old taxation proposals would impact CalPERS members. How many state employees or retirees have plans that exceed the taxable threshold? Wouldn’t the CalPERS members want to know before their representatives vote on the final measure?

According to CalPERS statistics, in 2009 it paid $5.7b in healthcare premiums for 1.3m current or former public employees (both state and local). For state employees, it pays about 85% of the total cost (although only 80% for current employees).

Are many or most CalPERS employees under the “Cadillac” threshold? From the aggregate stats I’ve seen, it’s impossible to say. However, as an organization CalPERS strongly favors health care reform, and majority of its trustees are appointed or elected by union members or Democrat elected officials.

So is CalPERS hiding bad news to support a political agenda? Or is it too inept to figure out this is an important and relevant issue? Either way, it’s failing its fiduciary duty to beneficiaries and employers, who somehow between them would have to pay the incremental cost of any surtax.

Wednesday, January 6, 2010

Google wins, Motorola loses

The papers, the news, blogosphere etc. are all abuzz about the new Google Nexus One.

The “phone” is actually two different phones: an unlocked GSM phone for T-Mobile and an unlocked CDMA phone for Verizon due by June. Since the GSM phone will also work on overseas networks (but not AT&T’s 3G network), it’s not clear whether this phone is the one planned for Vodafone, or it will be yet a third phone.

The new phone doesn’t appear to be much different than any HTC Android phone, except that it has Android 2.1 and a 1 GHz processor from Qualcomm. (The first Android phone was also Qualcomm Inside).

The reviews have ranged from fawning to skeptical, but overall the phone appears to be an incremental improvement over existing phones. The business model — $530 unlocked or $180 with a T-Mobile subsidized contract — appears to be somewhat different, but unlocked phones have been available for years from Amazon or even my local Fry’s. (The former is how I bought my Nokia E65).

So why is Google doing this? The new OS and faster processors will be used by other vendors later this year. The unlocked model is certainly one that can be used by others. Does Google so want to get its brand out there that it has to have its own branded phone? (Having the Google logo on the back of most Android phones isn’t enough?)

One possibility is that this was an engineering (or ISV-oriented) prototype, developed for internal use, that someone decided to commercialize. Although I don’t know if it ever shipped, several years ago I heard that Nokia was working on an unlocked, reflashable handset for exactly this reason.

What is certainly happening is that Google is competing with its OS customers. I am not the only one who thinks this is a bad idea. (Android is nominally open source, but in terms of actual openness it is really provided a Google-led industrial consortium).

Who are its customers? Phandroid — a once-authoritative Android phone site — lists 15 other Android models currently available, although some of those are variants in different national markets. Three are from Samsung, two are from Motorola, one from Huawei and the remaining nine from HTC. Two are CDMA — the Motorola Droid and the HTC Hero), one is dual mode (Samsung Moment), and the remainder GSM.

Huawei has no choice, and HTC seems happy to let others rebrand its products, but what about Motorola and Samsung? (The Open Handset Alliance also includes LG and Sony Ericsson, leaving Nokia as the only top 5 handset maker not participating).

Is this a careful calculation that the major handset makers have no choice but participate? With Windows Mobile continuing its long slide, Motorola seems to have all its smartphone eggs in the Android basket. Samsung sells lots of Windows Mobile phones (BlackJack, BlackJack II, Jack) and has dabbled in Symbian and LiMo as well, but seems perfectly happy to sell its proprietary OS.

So the Chinese and Taiwanese makers will just grin and bear it, the Koreans will go on being platform agnostic (if not platform indifferent), and this gives Nokia even more reason not to join the OHA. (Not that was ever likely).

Which leaves Motorola as the one in the pickle. What should Sanjay Jha do about Android? His company already had limited brand visibility on Verizon, which is using “Droid” as its own subbrand for all Android phones from its various suppliers. Now it’s having to compete with its OS supplier.

The Japanese have an expression: “sho ga nai.” Roughly translated, it means: “ain’t nothing you can do about it.” While at Qualcomm, I’m sure Jha spent enough time selling Qualcomm chips in Japan to learn this expression, but that doesn’t make his problem any more tractable.

Monday, January 4, 2010

Razors that outlive the razor blades (and its maker)

Everyone always talks about how important it is to create a “razor and razor blade” business model. Although business jargon is often sloppily applied, this would normally translate into “get people to use your durable base unit and then sell them lots and lots of consumables.”

Best case, you can keep a struggling Fortune 100 company alive for a decade or more. Don’t believe me? Look up the role that inkjet and laser printer cartridges played for HP during the period roughly 1995-2005 as its enterprise and personal computing businesses were plunged into commodity price wars.

Normally the razor-and-razor-blade model assumes some form of incompatibility and switching costs. After all, the worst possible scenario would be to subsidize adoption of your hardware and then have it used to pad the consumables profits of another company.

Today we found an interesting antique “razor” that outlived the razor blade maker. When we sought to get passport photos, our local Mailboxes Etc. (now a “UPS Store”) used an OER PC-10 passport camera. It appears that OER took an off-the-shelf Polaroid back and added its own optics so that a single snap would print two near-identical photos.

(Note to the Millennials: Polaroid was a film-based photography company that provided instant photography before digital cameras were invented.)

By creating instant film, getting a passel of patents — and driving the evil Big Yellow out of the market with a $0.9 billion judgementEdward Land’s once-famous company had the instant film market to itself. Unfortunately, the film business ain’t what it used to be, and unlike their Japanese rival (Fuji), both Polaroid and Kodak went into a long decline as megapixels replaced chemical reactions.

As a result of that decline, from 2006-2008 Polaroid decided to stop making cameras and then their film. No matter how long lived the cameras were, Polaroid wasn’t going to be around to profit from selling more razor blades, leaving a bunch of angry orphans. (Of course, the current Polaroid is a zombie company that was liquidated and the remainder purchased out of bankruptcy by a private equity firm).

Fortunately for our local MBE, Fuji is selling film packs that work with the 80- and 100-series Polaroid film. So, as my dad showed me 40+ years ago, you take the picture, count to 60, pull out the picture, count to 120 and then pull the transfer sheet off.

Thanks to this trailing edge technology, the State Department has two passport-size color photos of my daughter, and Fuji made a couple of bucks off the transaction. (Due to user error, it took 3 tries to get the picture right). Alas, if we’d taken the pictures at Costco, we could have had digital photos for one-third the price.