Friday, March 25, 2011

LinkedIn hits 100 million

Everyone focuses on Facebook’s march towards 1 billion users — last guess 600 million. But today LinkedIn is bragging that it’s hit 100 million users, in anticipation of its planned IPO.

The company sent out emails to stroke its early adopters. Apparently those with member numbers under 100,000 got a special e-mail today. I guess I’m in a slightly less elite group:

Dear Joel,

I want to personally thank you because you were one of LinkedIn's first million members (member number 156889 in fact!*). In any technology adoption lifecycle, there are the early adopters, those who help lead the way. That was you.

We hit a big milestone at LinkedIn this week when our 100 millionth member joined the site.

When we founded LinkedIn, our vision was to help the world's professionals be more successful and productive. Today, with your help, LinkedIn is changing the lives of millions of members by helping them connect with others, find jobs, get insights, start a business, and much more.

We are grateful for your support and look forward to helping you accomplish much more in the years to come. I hope that you are having a great year.


Reid Hoffman
Co-founder and Chairman
I had never heard of LinkedIn before moving to Silicon Valley, and didn’t join until 2004 when an open source business acquaintance and then a Stanford Ph.D. student (true early adopters) asked me to link to them.

I haven’t looked at the S-1 to see how they plan to monetize going forward. Like so much of the Internet, LinkedIn is one of those sites that I signed up for precisely because it was free. While I appreciate the free beer, and want them to continue provide it, I’m not likely to ever pay for the service.

Even though I have 302 connections, I think I’m much more selective in linking than most professional schmoozes (my previous job before becoming a college professor.) My guidelines for making a connection:
  • LinkedIn is for business associates — someone with whom I’d do lunch (or vice versa). Certainly I’ve done a one-on-one meeting (with or without food) with at least half of the existing list.
  • FaceBook is for closer friends — someone where I’ve been to their house or vice versa. (I’ve also included people who’ve hosted other members of my family.)
I don’t link to all my former students, usually only the top student or students in a given class (plus all of our honors students.) I encourage my students to be equally selective.

So congratulations to LinkedIn on its milestone. Good luck on that monetization thing — I hope you do better than the average Web 2.0 business and business model.

Friday, March 11, 2011

Tragic ground thunder

I woke up this morning to hear people talking about a possible tsunami in California, which turned out to be a minor footnote to the Great Tohoku earthquake of 2011 (東北大震災).

As far as I can tell, one person died from the tsunami in California, while more than 1,300 have died in Japan. Damage in California was less than $20 million and in Japan it is likely over $100 billion. Still, the insipid Bay Area TV reports concentrated on the 3' tidal wave in California rather than the horrific destruction in Japan from the quake, fires and a 30'+ tidal wave. (The NYT story I read this morning spent 1/3 on Japan and 2/3 on the possible effects elsewhere of the tsunami.)

NHK reported that the 8.9† earthquake was the strongest in Japan 140 year recorded history — greater than the 1995 Great Hanshin earthquake (淡路大震災) that killed more than 6,000 people in and around Kobe and the 1923 Great Kanto earthquake (関東大震災) that killed 140,000 people in greater Tokyo.

Obviously Japanese building standards have improved over the last century — along with California, Japan has the best seismic safety standards in the world. However, the state of California has never experienced an earthquake of this magnitude, so our preparedness remains TBD.

The quake was centered 80 miles from Sendai, a town of 900,000 about 190 miles NNE of Tokyo. Sendai was the nearest major city to the quake, and it was heartbreaking to see the damage to this beautiful city. During my visits to Japan in the 1990s, it was the one city I could imagine living in — large enough to be cosmopolitan for a foreigner, but small enough to escape the oppressive crowding of Tokyo and Osaka.

But even more heartbreaking will be the pictures from the small coastal town of Matsushima (松島), proclaimed one of Japan’s three prettiest sights since the 17th century (日本三景). Given the damage to Sendai from a wave that travelled 6 miles inland (according to NHK), it’s hard to imagine how much will be left standing in this historic fishing village. One can only pray that the 16,000 residents made it to higher ground.

Note on title: according to my favorite online E-J dictionary, the Kanji symbols for earthquake (地震) mean ground and thunder.

† Update: The USGS has since upgraded the quake to 9.0, and estimates now say thousands (if not more than 10,000) coastal residents are missing and may have been swept to sea.

Wednesday, March 9, 2011

Nook needs that long overdue app store

Brett Arends wrote a glowing review Wednesday in the WSJ of his nookColor and why it’s a better bargain than the iPad 1 or iPad 2. The main difference between his experience and mine is that he hacked his to be a fully functioning Android tablet:

I downloaded a very simple, perfectly legal software fix from the Internet that turned it into a fully functioning tablet running on Google's Android platform. The fix, known as a "rooting," unlocks Barnes & Noble's proprietary overlay. The instructions came via Ars Technica, a reputable site devoted to technology, and were pretty easy to follow.

I wasn't really expecting it to work. I tried it as an experiment. But the results were remarkable.

The Nook Color, which was designed mainly for reading books and magazines, is about half the size of an iPad or a Xoom. It weighs about 30% less. It runs on WiFi, but not 3G. It has an absolutely superb screen. And, once you've unlocked the software, it runs many Android applications, from email to news readers TweetDeck to, yes, Angry Birds.
He argues that it should stop stalling on its plans to make available its own app store:
A company spokeswoman would only say yesterday that it is still "in the works."

Huh? Time is not this company's friend. It should be seizing the moment while it can. Barnes & Noble stock, which was north of $40 five years ago, closed Tuesday at $11.67, a 14-year low. Not even the travails of arch-rival Borders Group, which has filed for Chapter 11 bankruptcy protection and is closing many of its stores, is helping.
I also have long thought B&N could grab the low-end tablet market if it wanted to. In particular, the Kindle is a locked platform while (in principle) the Android-based nook and nookColor are an open one, available for third party development.

The problem is that B&N, like Amazon, wants to make its money from content. Having people pay $250 or $200 for the tablet and never buying a book or magazine is exactly like hackers buying an Xbox or Xbox 360 and converting it to a Linux box without ever buying a game.

But B&N has a pretty clear choice: either get people to carry around its tablet, or proliferate its reader app and forget about selling tablets. I am much less enthusiastic about the nookColor than when I bought it, because without the basic apps that you would find in a 1995 Palm Pilot — like a synchronized address book, a calendar and a simple note-taking app — I still have to carry a laptop or smartphone to every place that I take my nook. (Or I can just carry the laptop and leave the nook at home).

My guess is that by 2015 both B&N and Amazon will be out of the tablet business, or at best will be private labeling someone else’s high volume tablet (like HTC or Samsung) the way Sears does for washers or refrigerators. So the next 2-3 years could be used to build loyalty to e-downloads (assuming it fixes its store) and perhaps further leverage the brick & mortar stores for supporting electronic content platforms.

Update Thursday 8:30am:
Arends was interviewed on the WSJ “Digits” video blog, reiterating the points of his column. Two points I’d argue with.

First, while he praised the screen as being better than other low-end tablets, he (or his host) concluded it wasn’t suitable for watching “Digits” on. In fact, that’s how I watched the interview: the nookColor does a great job of showing the video, even without Flash. However, the nookColor (or the WSJ web page) take over the screen and there’s no way to navigate back to the original page or to the next video. (I’m surprised he would say anything about this without trying it first.)

Second, while I long agreed with his general point about commodity tablets, he clearly underestimated the B&N achievement: 
Barnes and Noble is hardly a cutting edge technology firm. They have managed to come out with a pretty good Android tablet — from a standing start, I think within a year they set up the whole nook thing. If they can do it, anybody can.
This is like saying that because Google has created a mobile phone OS that competes with Apple, anyone can. That’s certainly not true: so far Nokia, RIM and the Koreans have failed, and it remains to be seen whether Microsoft will either.

B&N put together a crack team of Silicon Valley veterans in Palo Alto to make an easy-to-use mobile device. I don’t see the Asian commodity producers doing this, which means that (as with many other products over the last 40 years) most will have solid inexpensive hardware and incomprehensibly bad software. I think people will be much more tolerant of incoherent software in their TV or DVD player than in a handheld computer.

Monday, March 7, 2011

Antitrust won't help Google's codec fight

Nowadays, Google is normally considered the next monopolist on the losing end of antitrust scrutiny. This month, Google is getting help from antitrust authorities in its uphill efforts to get VP8 video codec (and its WebM project) established against the dominant H.264 codec.

In January, Google announced plans to drop support for H.264 in its Chrome browser, nominally because of the H.264 patent royalties. Meanwhile, Google licenses VP8 and its associated patents with the claim that it’s royalty free:

Please explain how WebM is "royalty-free."

Some video codecs require content distributors and manufacturers to pay patent royalties to use the intellectual property within the codec. WebM and the codecs it supports (VP8 video and Vorbis audio) require no royalty payments of any kind. You can do whatever you want with the WebM code without owing money to anybody. For more information, see the License page.
However, all Google can promise is that it won’t charge royalties on VP8. It can’t promise that its source codec doesn’t infringe the patents of others: that’s up to the patent holders to allege and (ultimately) for a court to decide. (Its policy is that people can’t use WebM without licensing their own patents to WebM users.) The only way around third party patents would be for Google to indemnify users against these claims.

Since MPEG LA is in the business of managing and licensing patent pools, including a pool of some 800 patents that read on H.264 (including 273 US patents and 469 Japanese patents) it has long expected that many of these patents could also be essential for implementation of VP8. So last month it asked all parties (both current and other licensors) to submit their patents for review. Needless to say, this brought squawking by Google and the usual anti-software patent crowd.

Now, the Wall Street Journal reported that the US Justice Department is looking to help Google in its efforts to resist MPEG LA patents:
Antitrust enforcers are investigating whether MPEG LA, or its members, are trying to cripple an alternative format called VP8 that Google released last year--by creating legal uncertainty over whether users might violate patents by employing that technology, these people added.
The Justice Department and Federal Trade Commission start many more antitrust investigations than they bring to court. There is no per se legal problem if patent holders want to charge royalties to VP8 users, as long as they are on comparable terms to those charged to H.264 users. As the FTC antitrust website states:
Restraints in the supply chain are tested for their reasonableness, by analyzing the market in detail and balancing any harmful competitive effects against offsetting benefits. In general, the law views most vertical arrangements as beneficial overall because they reduce costs and promote efficient distribution of products. A vertical arrangement may violate the antitrust laws, however, if it reduces competition among firms at the same level (say among retailers or among wholesalers) or prevents new firms from entering the market.
So the only problem is that MPEG LA wants to run the licensing business for both H.264 and VP8. Normally in competing standards (think Blu-ray vs. HD DVD) competing organizations run the patent pools. So while the DoJ will not find anything wrong with charging patent royalties for VP8, it might force MPEG LA to exercise greater transparency in royalties or even to spin off the VP8 pool efforts.

The research has clearly shown that patent pools increase the efficiency of patent collection for both licensors and licensees. (The only downside is that licensees might hope that without pools that would-be licensors might not bother to enforce royalties.)

If MPEG LA comes under pressure, I think it could easily solve the transparency problem by separating royalties into three piles: patents that apply both H.264 and VP8 (or WebM), those that apply to H.264 and those specific to VP8. If the terms for the first pile are the same for either standard, VP8 supporters would be hard-pressed to show any anti-competitive effects of the patent policy — other than their fantasy of releasing a patent-free codec.

All this kerfuffle over MPEG LA royalties ignores three other factors:
  • the effect of the annual royalty cap (as with H.264) in making MPEG LA royalties negligible for large firms like Apple, Google or Microsoft
  • as with any other standard, the existence of other patents that are not “essential” to the standard but may be commercially necessary
  • Google’s ability to use its own patent leverage (including those it acquired when it bought the WebM developer) to force a cross-license or non-assertion agreement by key patent holders

Saturday, March 5, 2011

Commoditization is hell

In an AP dispatch† from the distant reaches of San Francisco, the San Jose Mercury News today reported that the life of a videogame developer ain’t what it used to be:

Nintendo President Satoru Iwata said in the conference's keynote speech Wednesday morning that "game development is drowning" because of the rise of cheaply made and priced mobile and social games. He expressed concern that those platforms have "no motivation to maintain the value of gaming" and that they lower gamemakers' ability to make a living.
In other words, 99¢ iPhone games have killed the market for $60 console games.

Hmmmm...let’s see. Consumers would rather have a cheap portable way to pass the time rather than an expensive immersive experience that requires they sit in front of a TV all day.

Actually, the concerns of developers are exaggerated. The industry is cyclical, chronically depending on the latest hit console — at a time when the major console developers are stretching out platform life cycles, trying to milk their cash cows for all they’re worth.

The problem seems to be that the industry believed its own hype that it would soon surpass the movie industry in revenues and societal impacts.

There’s no reason to suspect that videogames would be immune from the commoditization pressures facing any other industry.

As with any technology-based industry, the growth of performance eventually slows downs — or efforts to add features no longer increase the value perceived by customers. As Clay Christensen noted, the threat in these cases is that a cheaper technology soon becomes good enough.

Time to face reality: commoditization is not going away. The 99¢ games will become more compelling as the mobile devices become more powerful, siphoning off business from the high end formerly mainstream product.

† Apparently the Merc had to close their San Francisco bureau due to budget cuts, or perhaps they decided to stop covering videogames since ace reporter (and author) Dean Takahashi jumped ship.

Friday, March 4, 2011

Barns & Noble: searching for an answer

The year 2011 should be a good one for Barnes & Noble. As Best Buy was with Circuit City, B&N should be the primary beneficiary of the Borders bankruptcy and closure of another 200 Borders stores.

It also has a promising tablet computer in the nookColor, which is being developed by a team of Silicon Valley veterans in its Palo Alto R&D facility. It is distributing and supporting the devices in its 700 physical stores, including free Wi-Fi and free book browsing for nook owners.

It’s also leveraging Amazon’s sales tax disputes with the states to attract potential marketing partners. States can’t legally tax out-of-state sales under Quill v. North Dakota unless there’s a physical presence. If the states want to argue that website affiliates are a physical preference that makes it liable for tax — a point Amazon disputes — then Amazon will shed those affiliates. Since it’s already stuck paying California taxes, B&N is now soliciting those soon-to-be-former Amazon affiliates to promote its own site.

For many years, B&N was a successful fast follower in its rivalry with Amazon. When I taught my first MBA course in 1998, I wrote a caselet to show how Barnes & Noble moved aggressively to respond to the Amazon threat with a “clicks and mortar” (aka “bricks & clicks”) strategy. That strategy held up pretty well for a decade, except that it found its physical stores made it futile to fight state sales tax levies, leaving it at a cost disadvantage in high tax states..

Competitive Strategy: Techniques for Analyzing Industries and CompetitorsWhen it comes to e-books, Barnes & Noble seems to have tried its best to match Amazon’s Kindle AZW content with its own supply of (proprietary DRM) epub files. In a spot check, both had Michael Porter’s two most popular strategy books at the same price, while neither store had anything by J.K. Rowling — a search for “Harry Potter” instead produced books about Rowling and her billion-dollar manchild (68 on the B&N site).

However, the search algorithms for finding the B&N content seem primitive, particularly when on B&N’s own tablet — where navigation is inherently slower and more frustrating than on a keyboard-equipped laptop. I noticed the problems Thursday after I took my nookColor to my local B&N store.

Nook owners can browse books inside the shopping app, or use a web browser like everyone else. When you go to the website on a nook, it has the same tiny text hyperlinks that work great on a PC and terribly on a 7" tablet. One would presume that the website would know that a nook version of the WebKit browser suggests interest in nook content.

Known and Unknown: A MemoirBut the worst thing is the search algorithm. In some ways, it’s a prisoner of a literalism stuck in the 1990s. Unlike on Amazon, at the BN website and the nook shopping app when I searched for “Don Rumsfeld,” it found nothing. If I put “Donald Rumsfeld” into either one, it found the New York Times bestseller. (Amazon and of course Google will even suggest the correct option if I type “Donalf Rumsfeld”).

Harry Potter and the Deathly Hallows (Book 7)Conversely, the search options within the nook shopping application are nearly useless for popular topics. Like Amazon, has an “advanced” search option for specific fields, but on the nook app there’s just one free-form text search field, and no “advanced” option. So if I’m only interested in books with “Harry Potter” in the title and “Rowling” in the author field, the nook shopping app won’t let you do that.

Let’s take a more ambiguous case: the word “Bible” brings up 259,000 entries under “books” at, 79,000 books at and 10,000 in the nook shopping app. Entering "Bible" and “New International Version” produces 2,000 hits on and 118 in the nook app. In the former case, all of the first 100 hits are NIV Bibles, but only one of the top 10 hits in the nook store is correct — the other 9 have nothing to do with the NIV.

It’s hard to imagine a more strategic priority for B&N than making it easy for customers to find and buy books. Thus, it’s long past time for B&N to update its search and discovery algorithms., Bing, Excite, Google, Yahoo and even Baidu know who Don Rumsfeld is, evne if does not. Perhaps if it searches hard enough, Barnes & Noble can find a way to leverage external technology (we call it “open innovation”) to catch up to its #1 rival.

Wednesday, March 2, 2011

iPad: price is no object

Steve Jobs returned to work briefly on Wednesday to introduce the iPad 2. Clearly launching new platforms and changing the industry is his passion.

The introduction was and was not what everyone expected. It’s still a 10" tablet, but adds two cameras, a new operating system and much faster processor into a smaller and lighter box.

What didn’t change (despite various predictions) was the price. For example in March 2010 ZDNet flatly predicted “You know Apple will drop prices with the second generation iPad.” The price cut predictions continued up until Steve Jobs walked on stage — but the only price cuts were the clearance prices on last year’s model.

Instead, Apple is counting on superior execution to hold continued loyalty of the press and the customers. It’s also available next week in the US and two weeks later in major overseas markets, closing the window rivals had hoped to exploit: Apple will ship its second tablet before HP (and especially RIM) can ship their first.

The analysts who underestimated the iPad in 2010 are outdoing themselves to be bullish in 2011. Forbes quoted one prediction of 26 million units in 2011 — nearly double the 14.8 million sold in 2010. Again this year, Apple will remain the leader of the tablet market, with the #1 product, the #1 company market share and the #1 platform market share. Keeping 2/3 of the market in 2011 might be an underestimate.

In contrast, this year’s round of iPhones are rumored to include a lower cost model. Of course, this is year 5 for the iPhone and year 2 for its iOS cousin. Apple has both more serious competition and a more saturated high-end market in phones than in tablets.

However, indications are also that by setting the bar so high, Apple is making it difficult for competitors to undercut it on price. Its $500 iPad 2 competes with a $800 Motorola Xoom, which despite Motorola’s decades of high-volume mobile device experience, has a bill of materials cost higher than the original iPad. Steve Jobs showed a slide Wednesday noting the higher prices of its Motorola rival.

Apple also spent $3.9b of its excess cash to invest in its display suppliers, both enabling capacity expansion and locking up scarce inputs that are now unavailable to rivals. For now, most of its rivals (vertically integrated Samsung excepted) will have difficulty matching its volumes and prices of screens.

As Matt Asay noted last month, Apple’s rivals have no hope in the near term of taking away customers from Apple at the high end, among discerning early adopters:

No one beats Apple at being Apple. The best bet for the iPad also-rans, then, is to run a different race, aiming for mass market appeal….with much lower price tags.
For now, the only opening for its rivals is in the 7" tablet, which for now Apple has lambasted as a losing form factor. I disagree, and if I were a company like HP/Palm, I’d put all my resources in 2011 into becoming the #1 vendor of 7" tablets, and hope Barnes & Noble doesn’t get their act together quickly enough to own that market.

Now above $350, Apple shares were trading at $150 a year ago and $85 two years ago. Boy I wish I’d bought some: my 401(k) might actually be something I could use for retiring.

Update 3:30pm: Goldman Sachs reiterated a “buy” rating and set an AAPL target price of $450 — reiterating the pre-announcement prediction.