Thursday, October 28, 2010

New niche, no Nook

I've been trying to make sense of the new Nook Color announced Tuesday. The good news is, Barnes & Noble positioned the product away from the two market leaders, the Kindle and the iPad. The bad news is, the Nook Color is neither an e-reader nor a full-fledged tablet, and the existence of a market between these two segments is unknown at best.

Nobody is quite sure what to make of it — which is either a problem or an opportunity. Can it compete with the A-Team?

Kindle Wireless Reading Device, Wi-Fi, 6" Display, Graphite - Latest GenerationCompared to Amazon’s Kindle, Forrester analyst James McQuivey claimed “This move puts B&N ahead of both Amazon and Sony.” It’s got color, a touch screen, a faster screen and (presumably) genuine browsing experience. It’s also twice the weight, almost twice the price, is limited to laptop-type battery life and has a fraction of the (paid) content.

Gartner and eWeek say the Nook Color competes directly with Apple’s iPad. It has a color LCD touchscreen that’s almost the same resolution as the iPad and a CPU that’s almost as fast. It’s also half the price and 8 oz. less. However, it’s a read-only device, with almost no apps, and a (as yet unproven) web browsing capability.

Kindle DX
Nook Color
6" grayscale
9.7" grayscale
6" grayscale
7" color
9.7" color
Size (in.)
7.5 x4.8 x.33
10.4 x7.2 x0.4
7.7 x4.9 x0.5
8.1 x5.0 x0.5
9.6 x7.5 x0.5
Weight (lbs)
4 GB
4 GB
2 GB
8 GB
16 GB
532 MHz
400 MHz
≤667 MHz
800 MHz
1 GHz
Android 1.3
Android 2.1
iOS 3.2
Price (WiFi)
Price (3G)

Compared to other Android devices, it’s aggressively priced with obsolete software. It runs a modified version of the Android 2.1 found in the Nexus One and Droid X, among others. Someday it will run the Android 2.2 of its nearest Android rival, the Samsung Galaxy Tab. It is not clear if either will run the next release after 2.2 (either Android 2.3 or 3.0), which is rumored to be the OS actually recommend by Google for tablets.

Apple reported that the iPad shipped about 7.5 million units at $500+ each in its first six months. Amazon won’t be honest about its sales — other than vague claims about more than ever — but analysts are estimating 5 million to 6 million Kindles total for all of 2010.

Although Amazon is far more US-centric than Apple, that figure still seems much too low, given the Kindle is 1/3 the price of an iPad. In backing a format, publishers care more about the software than the hardware. All the evidence I’ve seen is that the books-per-reader is much higher on the Kindle than any other device, befitting Amazon’s focus, product design and online catalog.

I’m not sure why B&N is keeping its 2009 Nook on the market, since it’s now quite long in the tooth. Perhaps (as rumored) it will get an Android OS update someday. Or perhaps B&N wants it to use it to generate traffic and upsell the color product.

Even so, it seems to be gambling that the color e-book market will be valuable soon — either with magazines or “children’s books.” (A $250 e-reader for preschoolers? There’s a niche market!)

Against the iPad, it has an MP3/AAC player and (according to the glossy brochure from my local B&N) supports Pandora music streaming. But there’s no Flash yet and no word on any other video streaming — either due to codec availability, processor power or business model lockout.

With all this I can imagine a use case for which the Nook Color justifies its premium over the Kindle and is good enough to undercut the iPad. This would involve reading PDFs, some Android-based magazine apps and maybe a few ebooks, light multimedia usage via the SD card slot and — most importantly — web pages.

To me, the big unknown is the web browsing. With the iPhone, Apple stole almost a three year lead on its smartphone rivals by taking web browsing seriously. None of the other tablet makers have demonstrated that same quality of web experience.

Tuesday’s intro event left the actual browser performance in doubt. As one report put it:
The Nook Color also runs Android’s Web touch browser, but participants at the hands-on event were carefully kept away from actually touching it.
New niche or not, if it can’t browse web pages at my local library or Starbucks, there’s no Nook in my immediate future.

So it’s new, and it’s different. The B&N catalog and distribution should be enough for now to keep it differentiated from its Android rivals, if not the rest of A-team.

However, it seems a little pricey to put under the Christmas tree, and the gap between it and the iPad will only widen when the iPad 2 is (as expected) announced early next year.

The one thing nobody has mentioned is textbooks, both at the high school and college level. Color is de rigueur for the millineals (no Kindle) but price is important too (sorry iPad). If B&N has a braincell in their body, they’ll hire a direct B2B salesforce to hit the ground January 3 to peddle the Nook Color from their 600 college bookstores for on campus classroom use.

Saturday, October 23, 2010

Tweens discover planned obsolescence

I grew up during the peak era of planned obsolescence in the American auto industry — tailfins and gratuitous fender changes in lieu of any real innovations.

My industry career was spent during a period of continual real obsolescence brought on by Moore’s law. At my first job after college, I was desperately scrambling to share time on a VAX-11/780, a 1 megabyte time-shared system, but when I started my own company seven years later, the two founders each brought a own desktop Mac II with 8Mb of RAM.

Now I deal with a different type of obsolescence — the “they don’t make ’em like they used to” that my dad used to grumble about. Toyota sold the illusion of high quality and low costs — until it all came crashing down — but most companies (like the HP of the Fiorina-Hurd era) made no pretense about preserving quality to compete in a commodity era. Try buying quality tools or building materials at Home Depot, let alone Walmart.

Today my daughter got a rude lesson in the good ol’ fashioned Mad Men era type of obsolescence. Appropriately, it came courtesy of Mattel, which had its most rapid growth in the 60s after one of the founders invented Barbie.

Appropriately, the lesson came at the hands of Barbie’s successor, the high-margin American Girl product line. The $100 dolls, with period-era backstories and costumes — were created in 1986 by Pleasant Rowland as the anti-Barbie. However, Rowland sold the company to Mattel in 1998 for an estimated $700 million and as with any corporate acquisition, things were never ever the same.

Reading her treasured American Girl catalog, my daughter complained this morning:

First they discontinued Samantha and her friend Natalie. Then they discontinued Kirsten. Now they're discontinuing Felicity and her friend Elizabeth; felicity was one of the most popular dolls
American Girl Kirsten Doll & Paperback BookI knew that Kirsten was her doll — representing a 19th century Swedish immigrant like her great-great-grandmother — but I needed additional help interpreting the cultural significance of this latest development.

It turns out that Samantha and Kirsten were two of the three original American Girl dolls in 1986, and Felicity was the 4th doll introduced in 1991. Attempts to phase Felicity out in 2002 met with strong customer resistance and some her period accessories were unretired.

While Mattel doesn’t disclose sales, most experts (girls 8-12, former doll owners and their moms) believe that Felicity was the most popular. Her Revolutionary War childhood had a universal appeal for girls studying American history in school, and she was the second doll to have her own movie.

Sure enough, Mattel last month proudly issued a press release last month announcing they are killing off Felicity:
American Girl officially announced plans today to say farewell to Felicity Merriman, one of the company's treasured historical characters introduced in 1991. Felicity's complete product collection, including her best friend Elizabeth Cole(TM), will soon be removed from American Girl's catalogue, Web site, and retail stores and placed in the American Girl Archives(TM). Because stories are at the heart of the company's mission to celebrate girls, the Felicity books will still be sold on, at American Girl's retail stores, and at bookstores nationwide.

Felicity's departure makes it possible for the company to introduce new characters and product offerings. Even though Felicity will be moved to the American Girl Archives, she retains her place within American Girl's family of historical characters--nine-year-old heroines who give girls today a glimpse of what life was like growing up during important times in America's past.
Pre-announcing the departure gives Mattel a chance to say “buy one before they’re gone,” and sure enough that’s what the website proclaims. My wife & I wondered if they’re playing a game like Disney’s discontinuing and re-releasing its classic animated movies, but since the R&D cost for a doll is much less than a movie, I think Mattel will just continue to release new dolls as part of its planned obsolescence strategy. (Rather than the historical period dolls, they have been emphasizing Girl of the Year annual obsolescence since 2005, which irritated both females in my house to no end.)

While Mattel has consumer marketing talent and data that puts my punditry to shame, I think their strategy has major risks. American Girl succeeded by being something different, something wholesome — and with the connection across generations, in some ways something timeless. Being so crassly commercial could very well break that connection and loyalty, or at least offer an entrée to a more authentic and sincere challenger (who will of course eventually sell out to retire wealthy). In this era of the blogosphere, it opens itself to comments like these:
Felicity, the revolutionary war doll, was the fourth American Girl doll, added in 1991. She was a shining beacon of Americana a favorite of girls who thought reenacting was cool. More importantly, she had some of the best clothing.

Felicity's removal is American Girl's third attempt to destroy the childhood memories of teens and twenty something in the last three years.

In 2008 they discontinued Samantha Parkington, the brunette from the Victorian period, effectively giving all of us with brown eyes and brown hair an inferiority complex.The next year they removed Kirsten Larson, removing some of the sting. (But seriously, Sam could kick Kirsten's ass any day, all day).

RIP Felicity. I hope glorious tea parties and multiple dress sets await you and Samantha-- and Kirsten, I guess, with her stupid pastry braids--in discontinued toy heaven.
I’m guessing that the data miners at Mattel have done the math and decided that since girls (or their moms) only buy new dolls during a four-to-six year window, they can afford to alienate an entire generation of previous customers while freshening up the product for the next generation. While they’re at it, they are attempting to destroy the hand-me-down market from big sisters, cousins and now moms.

In our household, I think the effort will backfire. I suspect that 25 years from now, my daughter will be quoting the grandfather she never met when she hands Kirsten to her daughter and says: “They don’t make ’em like they used to.”

Thursday, October 21, 2010

Opener than thou

Like many analysts, I thought one of the most striking things about Apple’s earnings call Monday was how much time Steve Jobs spent criticizing Google, particularly on openness. The frenemy of a year ago now seems to have become a rivalry every bit as bitter as Microsoft was during the early 90s. (Perhaps this is a side effect of vying for Total World Domination, much like the European Great Power rivalries from 1588-1918).

(I wasn’t able to capture the money quotes in realtime, but fortunately — as it does every quarter — Seeking Alpha has posted a complete transcript within a few hours. This is a great increase in financial openness over the way things were done 5-10 years ago.)

Here’s are some of the key points that Jobs (clearly) read from his prepared remarks:

Google loves to characterize Android as open, and iOS and iPhone as closed. We find this a bit disingenuous and clouding the real difference between our two approaches. …

In addition to Google's own app marketplace, Amazon, Verizon and Vodafone have all announced that they are creating their own app stores for Android. So there will be at least four app stores on Android, which customers must search among to find the app they want and developers will need to work with to distribute their apps and get paid. …

In reality, we think the open versus closed argument is just a smokescreen to try and hide the real issue, which is, what's best for the customer, fragmented versus integrated. We think Android is very, very fragmented and becoming more fragmented by the day. And as you know, Apple's strives for the integrated model so that the user isn't forced to be the systems integrator.
Some people called this a “rant,” but Jobs was far more factually accurate than the average political ad (admittedly a low bar) or even a typical comparative product TV ad (say from a cellphone carrier.)

Of course, there are important ways that Android is more open than the iPhone. It’s available from multiple hardware vendors and multiple carriers, not just from vertically integrated Apple. And the software is available royalty-free to other potential handset makers from the Open Handset Alliance, facilitating entry by even more vendors.

Other measures of openness are less important. Android founder (now Google mobile exec) Andy Rubin replied to Jobs with his first tweet about “the definition of open” being the ability to modify the source code. Like other Google execs, Rubin has a habit of using openness as a weapon against rivals and has been peddling the Android openness angle for some time.

While I haven’t met him, I’m guessing even a former geek like Rubin is too smart to drink too much of his own Kool-Aid.® Providing source code is only a small part of open source openness: as CNET’s Steven Shankland points out, being able to modify Android source code has little practical value to customers. In reality, Google determines the direction of the Android code base, and because letting go is hard to do, will likely to do so indefinitely.

Google’s openness glass is half-full, too. (Or, more charitably, it’s 2/3 full while Apple’s is only 3/8 full.) As Matt Asay so famously noted:
Google is a self-interested, profit-maximizing, semi-proprietary co that embraces openness when it suits its purposes
In fact, in one way Android is far less open than Apple. To get access to the customers of cellphone carriers, Google and its hardware partners have acceded to the closed demands of those carriers. Exhibit A is MG Siegler’s oft-remarked posting on TechCrunch last month:
Android Is As Open As The Clenched Fist I’d Like To Punch The Carriers With
MG Siegler

The thought of a truly open mobile operating system is very appealing. The problem is that in practice, that’s just simply not the reality of the situation. Maybe if Google had their way, the system would be truly open. But they don’t. Sadly, they have to deal with a very big roadblock: the carriers.

The result of this unfortunate situation is that the so-called open system is quickly revealing itself to be anything but. Further, we’re starting to see that in some cases the carriers may actually be able to exploit this “openness” to create a closed system that may leave you crying for Apple’s closed system — at least theirs looks good and behaves as expected.
The proliferation of carrier-controlled app stores (as mentioned by Jobs) is just one of the problems that ceding control to the carriers has created.

The reality was that breaking the control of the carriers with the iPhone was one of the greatest contributions Steve Jobs (or anyone) has made to ICT openness in the 21st century. Now perhaps someday we’ll get a choice of iPhone carriers here in the US, as other countries have had for years.

Wednesday, October 20, 2010

New Nook needs a niche

Barnes & Noble is hosting an event next Tuesday to introduce the next generation Nook e-reader, just in time for the Christmas shopping season.

Some Fool has already written off any hope of Barnes & Noble catching up. In a column entitled “Why Is Barnes & Noble Even Trying?” the owner of an iPad and a Kindle predicts utter failure:

B&N backed itself into a corner, and that's a dangerous place to be for a resources-strapped company fighting a hairy proxy battle for its independent survival.

What can it possibly announce come Tuesday? It's hard for B&N to take prices lower, and it's not as if it's a feature or two away from relevancy. Kindle is going to walk away with the dedicated reader space, while Apple and the flurry of tablets will take over the high-end and graphical textbook market.
He’s wrong: B&N may be down, but it’s not out.

In the e-reader space, the devices themselves are commodities. Yes, there are differences, yes some are cheaper or lighter or brighter. But the key differentiators — screen readability and battery life — depend on outside suppliers available to all. Instead, B&N needs to attack Amazon on one of the other dimensions of competition — the broader value proposition for the slate format.

What’s clear is that the e-readers are a different segment than the iPad, and for now there’s room for simpler, lighter, cheaper devices priced less than the Apple tablet — at least until people can get a $200, half-pound device that runs applications and surfs the web in color.

Amazon has a lead here over Sony, Barnes & Noble and others. It’s hard to tell how much of a lead, since Amazon won’t be honest about its actual sales and by controlling the distribution of Kindles, there’s no way for a third party like NPD or Gartner to measure this objectively.

Perhaps Amazon is hiding how small the book reader niche is. In January, CEO Jeff Bezos said “millions” of Kindles sold and Business Week speculated that the actual number was between 2-3 million. That’s 3 million Kindles in 27 months, versus 6.5 million iPads in 6 months.

Now that Steve Jobs says he’s not making a 7" iPad soon (if ever), this suggests there is a window of opportunity for the 7" readers. However, to win this market, B&N needs to challenge Amazon head-on.

For my own personal use, I’ve been evaluating the iPad, Nook, Kindle and pre-announced Android tablets (like that from Samsung). There are two ways that B&N can grow the low-end segment before Amazon does.

The first is that the e-readers are more than just for buying books. B&N has already offered other features such as browsing books in stores, and free Wi-Fi access at B&N stores. The E Ink display of the Kindle and Nook has its limitations — no color web pages — but B&N can do more to leverage the Android platform and other applications that users want for their mini-tablets.

Secondly, B&N needs to be the honest broker of open content formats. Amazon begrudgingly will support other formats, but if you look at it closely, its strategy is “AZW everywhere.” The company is more keen about promoting its proprietary file format and killing any efforts to establish a rival format, such as ePub. I don’t see Amazon relaxing this approach — any more than Apple wanted to eliminate the lock-in from the FairPlay DRM — unless or until it’s forced too. So if Amazon is a prisoner of its business model, this creates an opportunity for B&N.

Open standards are always a strategy of a follower or new entrant, not the market leader. The playbook is well-known and B&N needs to execute on it. The industry is impatiently awaiting an open format not controlled by any firm — presumably a DRM-infest ePub — but no one approach is yet challenging AZW.

Beyond books, the world has a lot of PDFs out there. I have 6 gigabytes of academic articles on my hard disk, and the average college student (at least in business) has a few dozen PDFs to read every semester: articles, syllabi, etc. The PDF is a semi-open standard, so B&N could get Adobe’s support if the Nook2 is well-suited for taking PDFs on the road. (And for obvious reasons, Adobe fears a tablet world controlled by Apple.)

There is the razor-and-razor blade cross-subsidy issue. Amazon wants to make money on its content and so pushes the Kindle price down in a way that makes it almost useless unless you pay for content. (This is reminiscent of its Seattle neighbor protecting videogame sales by making it hard to convert the XBox to be a Linux box.) Like Apple, B&N needs to make enough on the Nook to be profitable without proprietary content downloads — but perhaps using features like the in-store browsing to drive repeat traffic by Nook owners to its retail locations.

A final serious problem is identified by Tim Carmody of Wired: execution. Even the best ideas don’t count if they’re not executed well. This is doubly true against an entrenched rival with a 2-year headstart, if the main battle ground is the narrow window of the 2-month Christmas selling season. As Carmody notes, B&N couldn’t ramp up quickly enough last year:
Last October, Barnes & Noble announced the dual-screen, Android-powered Nook, promising preorder delivery and in-store sales before Christmas. The company wasn’t able to ramp up production to meet demand and had to fix immediate firmware bugs, delaying some preorders and pushing back in-store availability to February.
I’m sure B&N knows this too. My understanding is that the Nook was rushed to market in less than a year, creating a new organization from scratch. Now it has a Nook software development group in Palo Alto, in Silicon Valley just down the road from Stanford.

So this year the execution will definitely be better. Will it be enough for Barnes & Noble to gain on Amazon? Only if they outflank their proprietary rival with openness and features that Amazon is (so far) unwilling to offer.

Monday, October 18, 2010

Tablets: When, not if

Today I listened live to the Apple Q4 earnings call, which featured a surprise guest appearance by his Steve Jobs. In his prepared remarks, his Steveness focused on the two-horse race with Android for smartphone leadership and its efforts to preserve its lead in tablets.

Apple shipped 4.19 million iPads (accounting for $2.79b in revenue) in the 13 weeks ending Sept 25, versus 3.27m (and $2.17b) in Q3, its first quarter on sale. (Apparently analysts had expected 5 million iPads to be sold.)

Deutsche Bank and Fortune got a flurry of publicity this morning when they added Apple’s iPad sales to its Mac sales, making it the US market leader with 25% share. (Tim Carmody of Wired adds more details, and discusses the limitations of this analysis).

Even without the iPad, Apple’s Mac products had the highest unit sales increase of any major PC maker, up 24% according to IDC. Meanwhile, the rapid rise of the iPad is clearly cannibalizing netbook sales and hurting traditional PC component suppliers like Intel and AMD, as AMD’s CEO admitted last week during his company’s earnings call:

Q: Any perspective you may have on tablets' impact on netbooks, or the growth or potential in that market next year?

Dirk Meyer: Clearly, in the last quarter or two, the tablet has represented a disruption in the notebook market. If you ask five people in the industry, you'll get five different answers as to what degree there's been cannibalization by tablets of either netbooks or notebooks.

I personally think the answer is both, and given the pretty high price points of the iPad, there's probably some cannibalization even of mainstream notebooks.
In his own call (according to my notes) Jobs said:
The iPad is clearly going to affect notebook computers. The iPad proves it's not a question of it but a question of when.

One of the analyst questions in the call was (paraphrasing): Apple is not number one with either the Mac or iPhone, but retains more than 50% global share for the iPod — so which one is more representative for the iPad?

Jobs clearly expects Apple to dominate the tablet market for another 12 months. He predicted failure for the current rush of tablets based on Android 2.2, given that Google has recommended waiting for the next version of the OS. (Apparently LG and Archos reached the same conclusion.)

But Jobs also predicted overall failure for the 7" tablet form factor — which he called a “tweener” because “it’s too big to compete with a smartphone, too small to compete with an iPad.” He also notes that while screens can get higher resolutions, touchscreens will not get higher resolvability unless people “sandpaper” their fingers.

I think it’s realistic to expect that Apple will retain its dominance in tablet computers for the next 6-12 months, and quite probably beyond that.

One factor is how long that Apple retains the ease of use advantage that (as Jobs argued passionately) it obtains from end-to-end control of the integration of the software, hardware and services. But the other major issue is whether Apple has the correct conception of what people want in a tablet.

Is Jobs right about the 10" size and the 1.5 lb weight, priced at $400? Or is the Kindle at a third of the price and weight more the wave of the future? If the latter wins, this would be somewhat reminiscent of the Palm Pilot defeating the Newton 15 years ago.

However, I think the form factor issue is part of a much more basic question. People aren’t going to carry around 3 screens: phone, tablet and laptop, so which one loses? I see the tablet as a browsing device that competes with a phone, while Jobs argues it’s a work device that competes with a laptop. Perhaps when the iPad bundles a virtual projection keyboard I’ll buy the laptop argument, but not yet.

Sunday, October 17, 2010

John Sculley, a refreshingly honest screwup

The blog Cult of Mac has an interview with former Pepsi salesman John Sculley in which he admits he was in over his head during his decade as Apple CEO of Apple Computer (1983-1993), as part of a larger interview praising the genius of Steve Jobs.

When I was writing the final draft of my dissertation almost exactly a decade ago, I credited Sculley with almost single-handedly destroying Apple. He lacked the technical skills and management abilities to make the operational decisions necessary to run the company, and then he doubled down when he named himself CTO in March 1990. As I wrote back in the summer of 2000:

Sculley was right in judging that this job was crucial to Apple’s innovation strategies. But he apparently did not consider how engineers would react to being led by a Wharton MBA whose previous job had been marketing soft drinks — let alone the possibility that he was technically over his head. As late as July 1992, when asked what he would have done differently, Sculley’s first response was that he would have become CTO even earlier:
I would have taken on the job of chief technology officer years ago. I wish I’d done that, and not waited so long. I should have done that probably when Steve Jobs left [in 1985]. The problem is, I didn’t know enough about the computer industry then, I’d only been in it a few years, and I’m not sure I could have succeeded at it then. But I waited too long on that one, and it should have been at least two years earlier (Yoffie 1992).
Sculley’s tenure as chief technical officer brought disaster, not only with the money wasted on unused technologies, but also the opportunity cost of technologies not developed and the hemorrhaging of invaluable software engineers.
Perhaps the biggest mistake was as CTO he encouraged most of the best software engineers to go to the “pink” team and then on to Taligent — while others left for General Magic — working on products that never shipped and with most never returning to Apple.

High Stakes, No Prisoners: A Winner's Tale of Greed and Glory in the Internet WarsIn his 1999 book, former Apple consultant (later FrontPage entrepreneur) Charles Ferguson wrote:
I had seen John Sculley up close as he wrecked Apple. Sculley was a reasonably smart, charming man. But he had an enormous ego, he knew virtually nothing about technology, and he was competing against Bill Gates, who was obviously much smarter, tougher, and more committed. Watching Sculley go up against Gates was rather like watching a rich playboy who was ordering his yacht to attack a carrier battle group.
In the recent Cult of Mac interview, Sculley makes it clear that he didn’t know how much he didn’t know:
I didn’t know really anything about computers nor did any other people in the world at that time. This was at the beginning of the personal computer revolution, but we both believed in beautiful design and Steve in particular felt that you had to begin design from the vantage point of the experience of the user.
Yes, few outside Xerox or SRI understood the implications of a GUI-based personal computer — or the idea that a computer would be primarily used for information processing rather than calculating — but there were plenty of people who knew a lot about computers. In 1983, Apple was six years old, the PC was 8 years old, and larger computers had been around for decades. (At that point, I’d been programming computers for over a decade.)

Jobs’ first choice for CEO was Don Estridge, creator of the IBM PC, who was posthumously named person of the decade in 1991 by PC Magazine. Estridge would have been a brilliant choice, but he decided to stay at IBM, and then was among 135 people killed two years later when a Delta L-1011 crashed at DFW.

Instead, Apple chose Sculley, who then forced out Jobs and remained CEO until sacked himself in 1993. He never ran another tech company again, although he served as a consultant, investor and board member for various startups.

Even if in 1983 Sculley didn’t know what he didn’t know, at age 71 he’s now following Harry Callahan’s maxim:
Looking back, it was a big mistake that I was ever hired as CEO. I was not the first choice that Steve wanted to be the CEO. He was the first choice, but the board wasn’t prepared to make him CEO when he was 25, 26 years old.

They exhausted all of the obvious high-tech candidates to be CEO… Ultimately, David Rockefeller, who was a shareholder in Apple, said let’s try a different industry and let’s go to the top head hunter in the United States who isn’t in high tech: Jerry Roach.

They went and recruited me. I came in not knowing anything about computers. The idea was that Steve and I were going to work as partners. He would be the technical person and I would be the marketing person.

The reason why I said it was a mistake to have hired me as CEO was Steve always wanted to be CEO. It would have been much more honest if the board had said, “Let’s figure out a way for him to be CEO. You could focus on the stuff that you bring and he focuses on the stuff he brings.”

Remember, he was the chairman of the board, the largest shareholder and he ran the Macintosh division, so he was above me and below me. It was a little bit of a façade and my guess is that we never would have had the breakup if the board had done a better job of thinking through not just how do we get a CEO to come and join the company that Steve will approve of, but how do we make sure that we create a situation where this thing is going to be successful over time?

My sense is that when Steve left (in 1986, after the board rejected his bid to replace Sculley as CEO) I still didn’t know very much about computers.
Even if Sculley has no career to protect, such a personal sense of accountability is refreshingly candid. In religion, philosophy and literature, both enlightenment and redemption come to those who fully repent of their mistakes.

Now if we could only get failed politicians (and past presidents) to do the same

Wednesday, October 13, 2010

Freedom enabled by freedom

In a combination of bravery, perseverance and technological innovation, 33 Chilean miners are now free after 70 days of subterranean confinement. As the WSJ quoted one Chilean involved in the rescue: “It was 75% engineering and 25% a miracle.”

But in Thursday’s paper, a WSJ columnist argued that we also need to take economic freedom into account:

Capitalism Saved the Miners
The profit = innovation dynamic was everywhere at the mine rescue site.
By Daniel Henninger
It needs to be said. The rescue of the Chilean miners is a smashing victory for free-market capitalism.

If those miners had been trapped a half-mile down like this 25 years ago anywhere on earth, they would be dead. What happened over the past 25 years that meant the difference between life and death for those men?

Short answer: the Center Rock drill bit.

This is the miracle bit that drilled down to the trapped miners. Center Rock Inc. is a private company in Berlin, Pa. It has 74 employees. The drill's rig came from Schramm Inc. in West Chester, Pa. Seeing the disaster, Center Rock's president, Brandon Fisher, called the Chileans to offer his drill. Chile accepted. The miners are alive.

Longer answer: The Center Rock drill, heretofore not featured on websites like Engadget or Gizmodo, is in fact a piece of tough technology developed by a small company in it for the money, for profit. That's why they innovated down-the-hole hammer drilling. If they make money, they can do more innovation.

This profit = innovation dynamic was everywhere at that Chilean mine. The high-strength cable winding around the big wheel atop that simple rig is from Germany. Japan supplied the super-flexible, fiber-optic communications cable that linked the miners to the world above.

A remarkable Sept. 30 story about all this by the Journal's Matt Moffett was a compendium of astonishing things that showed up in the Atacama Desert from the distant corners of capitalism.

Samsung of South Korea supplied a cellphone that has its own projector. Jeffrey Gabbay, the founder of Cupron Inc. in Richmond, Va., supplied socks made with copper fiber that consumed foot bacteria, and minimized odor and infection.
What I found fascinating was the broad range of technologies involved in the rescue. This was a complex operation, and a systems approach was required to solve the myriad of problems in both sustaining the miners and extracting them from 700 meters below ground.

Henning made another important point: the market supplied most of these technologies in advance of their need under extreme circumstances in Copiapó. Individual decentralized inventors solve problems without waiting for a command-and-control bureaucracy to request it.

Finally, the miners lucked out in another way: they have a successful entrepreneur rather than a lawyer for president. Sebastián Piñera made his fortune off LAN Chile, an unusual well-run transoceanic airline in an industry that requires mastering extreme levels of operational complexity.

It doesn’t hurt that Chile ranks ahead of the US in at least one yardstick of economic freedom. But then the economic resilience of Chile saved even more lives last March, during the strongest earthquake of the past 40 years.

Thursday, October 7, 2010

It's the economy, stupid

For a nation, the choices that determine whether income doubles with every generation, or instead with every other generation, dwarf all other economic policy concerns. — Paul Romer, “Economic Growth,” in The Concise Encyclopedia of Economics