Saturday, December 29, 2012

Trying to be the next unicorn

Cross-posted from Engineering Entrepreneurship.

Big company exec-turned-Forbest columnist Steve Faktor posted a funny column Friday that says “Shut Up, You’re Not Apple”.

The introduction is as provocative as the title:

At first, it was funny to hear insurers, IT firms, and startups with no revenues compare themselves to Apple. Since the iPod launched in 2001, I’ve seen hundreds of presentations that liberally use “learnings” from Apple. 1) The word is LESSONS, not “learnings”, my Hillbilly friend. 2) The comparison feels as fresh as that Michael Jackson impression your spouse has been doing since you started dating. 3) Drenching slides (or products) in an iconic brand’s juices won’t transmit innovation, like some benevolent plague. If that were possible, we’d never stop harvesting and packaging Brangelina extract. It’s time for an intervention. Here’s why brands must find their own voice (and scent)…and keep those synthetic Apple fumes from turning into laughing gas.

The ‘why you’re not Apple’ checklist:

I know I’m not alone. We’ve all been to the same Apple-laden meetings…er, orchards. How did those comparisons work out? Did that company become the most valuable in the world? Did that product become iconic and emulated by every company in Korea? Or, did it live and die in its sad PowerPoint tomb.

Using Apple as a model is the business version of ordering jeans after seeing them on Kate Upton. They might not look the same on you. Like Kate, Apple is a unicorn. It defies so many conventions that deconstructing its lessons is silly, unless it’s the last thing between you and a lonely Saturday night at Harvard Business School. To quote my friend and fellow innovator Stephen Shapiro’s book, Best Practices Are Stupid.

It’s not that your company can’t be Apple. It’s that your company absolutely, positively will never be Apple. I’m not discounting your skill or vision. I’m simply acknowledging that Apple’s success is a witch’s brew of leadership, timing, technology, and culture. All those variables can’t be replicated.
He then offers a checklist of factors that it would take to be Apple: a visionary CEO, iconic products, $50b in cash, a million fanboys, and #1 or #2 in most product categories. Yes you can mention Apple in your analysis of the industry landscape, but “as the unicorn in the room.”

As someone who’s studied Apple for almost 30 years, the reality is not just that Apple is one in a 100 million companies: it’s that Apple’s run from 2001 (the first iPod) to 2007 (the iPhone) to 2010 (the first iPad) — will never be repeated in the company’s history. (Or as Faktor put it, “Even Apple won’t be Apple forever.”)

I remember when Neil and I started our company in 1987, we wanted to be the next Hewlett-Packard. Instead, we never got more than 15 employees, a few million in revenues and lasted only 17 1/2 years. Wanting (or posing or emulating) doesn’t bring success: satisfying some need better than anyone else — in a way that’s hard to copy — is what bring success.

When they started in a Los Altos garage in 1975, Steve Jobs and Steve Wozniak didn’t imagine they would have a market cap bigger than IBM. Instead, they were just trying to bring a better PC to market than any of the other hobbyist-hackers out there. Customers didn’t flock to the Apple II, Mac, iPod, iPhone or iPad because Apple wanted to change the world, but because they had a product that no one else had.

Monday, December 24, 2012

Does ease of use matter? Amazon hopes not

During the peak of the Steve Jobs era, Apple’s competitive advantage was a unique combination of three factors:

  • creating or re-inventing product categories, whether the GUI PC, MP3 player, smartphone or tablet
  • elegant industrial design; and
  • superior ease of use.
The goal, of course, has been to sustain the obscene gross margins that have been part of the company’s DNA for 30+ years, enabling it to plow back money into R&D to create the next great thing.

Of course, neither its competitors nor customers are content to let it enjoy those margins in perpetuity. Windows 95 was demonstrably inferior to Mac OS, but it was good enough and ran on cheaper hardware available in a wide range of models from dozens of companies. The "good enough" knock-off nearly killed Apple until the late great Steve Jobs came back and saved the company.

The company still loses its way now and again, as when I try to get its buggy mail client or crash-prone web browser to work in the real world. (The company is best when it controls the end-to-end experience and worst in the wild-and-woolly world of semi-open semi-standards.)

Still, I get reminded now and again how terrible its competitors are. Last year, I spent a week as an Android user before giving up, while my teenager still has a love-hate relationship with her Android phone (to the point that she uses her aged iPod Touch more than the newer and nominally more capable phone).

And then there’s my awful experience with Amazon today and their special Xmas Eve sale on a slew of MP3 albums — $1-2 each for album downloads by Legend, Red, greatest hits by Abba, Carpenters, Johnny Cash, Hall & Oates, Bob Marley, Simon & Garfunkel, Taylor Swift.

I’ve been buying (or at least downloading) Amazon MP3 files for four years, and the experience on the Mac has always had its quirks. The initial model was pretty simple: click and download an MP3 file (like you’d download an installer or PDF). But for multi-songs, they made you install their downloader to parse .amz files, which generally worked well once you had it — at least until today.

Then I spent my $3.98 for two albums (Johnny Cash and Simon & Garfunkel) and still have no songs to show for it. The web client insisted that I install their super-duper special downloader, even though the downloader was currently running on my machine.

In the old Amazon model, tech support would show you a hidden back door to re-download your songs. Now, all your songs become part of the “Amazon cloud player” and you have to manually select each song (not an album) and then apparently register any device to download the songs. As I write this, I’m still waiting to hear from Amazon tech support as to how to get my songs — it’s a busy day for digital downloads, so I may not get an answer before I leave home to start our family celebration.

As with most users, I don’t care whether I get my songs (if I can get them) between Amazon or Apple: it's the same content either way, just delivered in a different format via a different channel. So that leaves price and (at the margins) ease of use.

Apple still has a superior experience for music downloads, although their commanding lead for US music downloads probably has more to do with their head start and dominant MP3 market share. Conversely, Amazon’s dominance in book downloads is more likely due to its readers than a superior product or ease of use.

So Apple’s opportunity is to keep (or gain) market share based on ease of use. Amazon got me to try their MP3 service by offering free songs, and I will continue to take their free songs (as with the dozen free Xmas song I downloaded in the last hour). But if the price is the same, I’ll go with ease of use, and for downloading songs Apple still has Amazon beat.

Sunday, December 16, 2012

Whither public higher education?

On Saturday the Wall Street Journal ran an article that uses the sticker shock faced by parents of a CU Boulder freshman to illustrate the broader financial pressures on U.S. public universities and their students.

Who Can Still Afford State U ?
By Scott Thrum

Public-college enrollment exploded after World War II and the adoption of the GI Bill. As recently as 1951, more Americans were enrolled in private universities than public ones. Sixty years later, more than 15 million students were enrolled at the nation's 678 public colleges and universities, nearly three times the number attending private ones…

State subsidies for these public colleges and universities fell 21%, on a per-student, inflation-adjusted basis between 2000-01 and 2010-11 … Over that same period, tuition at two- and four-year public colleges rose an inflation-adjusted 45% to $4,774 in 2010-11, according to the association. At public four-year colleges this year, tuition averages $8,655, according to the College Board.

But education experts say wrenching decisions on the state level about how to allocate limited public resources are having a very big effect.

"Over the last 25 or 30 years, public higher education has lost out in the competition for state funds with Medicaid," says Cornell University professor Ronald Ehrenberg, director of the Cornell Higher Education Research Institute. "There's so much pressure to spend money on other things."

State funding for the University of California system has fallen 25% over the past decade, to $2.4 billion from $3.2 billion, triggering tuition increases and student protests. At the University of Michigan, state funding has fallen 26% in the past decade. The state now covers 17% of the university's budget, down from 33% in 2002-03.

"The state obligations in Medicaid, prisons and K-12 education are just swallowing up state budgets," says John Vaughn, executive vice president of the Association of American Universities, a group of 62 research universities, public and private.

The financial pressure on CU isn't expected to subside soon. A 2010 study by the University of Denver, a private school, projected that Colorado, given its other funding obligations, might run out of money for colleges and universities within a decade. "We think it's sooner than that," says CU President Bruce Benson.
The article highlights a phenomenon long-visible here in California. When it comes to politicians getting elected to state office — whether measured by popular votes or campaign donations — public higher ed is near the bottom of the list, after transfer payments, K-12 teachers, prison guards, general state bureaucrats, even home care workers. At the same time, administrator salaries (and non-instructional spending more broadly) has been exploding at these universities.

As in other states, CU is pushing politicians to limit the cap on foreign students, so they can aggressively recruit full-fare enrollees at the expense of state residents. I suspect such a philosophy this would be anathema to those who founded these public universities or the national Morrill Act land grant college system that made many of these universities possible.

Thursday, December 13, 2012

Open platforms enable open competition

The Twitterverse last night was agog with the breathtaking news that Google Maps would be returning to the iPhone any minute now. Sure enough, the app was released at the end of the business day and an iPad version is due Real Soon Now.

This brings some closure to the whole painful episode for Apple. Apple's execution, QC and timing were badly flawed but the strategy was basically sound. Meanwhile, Google gets a badly needed PR win and causes the million of iPhone and iPad owners to trust Apple just a little less.

The whole episode shows an essential attribute of open platforms: enabling intra-platform competition. Openness has many dimensions [link] and degrees: normally pundits focus on whether the core code is available to rival companies (Android vs. iPhone) or the IP is free (Linux vs. Windows), and occasionally whether the platform control is shared, permeable and transparent (Linux vs. Android).

As I noted in my 2007 book chapter on openness, nearly all platforms are open to third party applications: they're essential to the value of most (but not all platforms). There are exceptions, as when Microsoft used selective access to technical information (as well as superior execution) to help Word and Excel crush WordPerfect and 1-2-3.

In practice today, openness for third party applications is rarely a technical or contractual, merely one of business models. Healthy, open platforms give customers access to the widest range of choices, as when Google’s Chrome browser allows users a choice of search engines.

Competition is what gives customers efficiency and choice. It's as essential in platforms as in politics. Even government competition is healthy for society — as is sometimes found within the US, German or Canadian federal systems — at least until such time as all regulators become omniscient, infallible, incorruptible and selfless.

While iPhone users will no longer get lost, Apple still needs to release its own updated Map application. Apple’s app may never be as good as Google’s, but the availability of its own map but it will keep Google honest. Already it seems to have worked, with the new Google app providing the features that Google once held exclusively to Android to provide its own platform an advantage.

As long as Google controls a rival platform and can use its apps for differentiation, Apple still needs to develop its own map application. Meanwhile, giving its users the choice of two (actually three) serious map applications supports a key aspect of the iPhone/iPad value proposition: having the widest variety of third party software.

Friday, November 16, 2012

Ding dong, Hostess is dead

Perhaps the big news of the day is that Hostess Brands is closing its doors after 82 years. Hostess has been attempting a reorganization since its January filing for Chapter 11 bankruptcy, but after a weeklong union strike Hostess said Friday it asked for court permission to close its doors and will lay off most of its 18,500 workers.

The TV news was filed with consumers rushing to buy up what's left of Twinkies and Ding Dongs, some of them hoping to make a quick buck on eBay.

My teenager was sorry to see Twinkies disappear and argued that we should stock up on the sponge cake — because they would store well at least until I'm a grandfather. (Wikipedia says this is an urban legend that may be attributed to a brief Twinkie cameo in the movie WALL-E although the Clinton White House put one in a 100 year time capsule.)

But even the consumers interviewed on TV realize that the brands will be sold to another company. Bloomberg identified at least two possible bidders, Flower Foods and the private equity firm than owns Pabst Brewing.

What went wrong? An Aug. 13 story in Fortune magazine said there’s enough blame to go around, with a mismanaged company, falling demand and high debt since an earlier 2004 bankruptcy filing

But in truth there are no black hats or white knights in this tale. It's about shades of gray, where obstinacy, miscalculation, and lousy luck connived to create corporate catastrophe. Almost none of the parties involved would speak on the record. Still, it's clear from court documents and background interviews with a range of sources that practically nobody involved can shoot straight: The Teamsters remain stuck in a time warp, unwilling to sufficiently adapt in a competitive marketplace. The PE[private equity] firm failed to turn Hostess around after taking it over. The hedges can't see beyond their internal rates of return. Et cetera, et cetera, et cetera.

The critical issue in the bankruptcy is legacy pensions. Hostess has roughly $2 billion in unfunded pension liabilities to its various unions' workers -- the Teamsters but also the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (which has largely chosen not to contest what Hostess wants to do -- that is, to get out of much of that obligation). If the bankruptcy court lets Hostess off the pension hook -- which often happens in these cases -- it only moves the struggle outside the courthouse, and the ante goes up. For the Teamsters can then call a strike -- which its Hostess employees have already ratified by a 9-to-1 margin.
Hostess settled in September with the Teamsters but not with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, who called the fatal strike. The NY Times reported that union decided to play hardball:
Frank Hurt, the union’s president, seemed to lose patience with Hostess’s management, upset that it was in bankruptcy for the second time despite $100 million in labor concessions. He saw little promise that management would turn things around.

“Our members decided they were not going to take any more abuse from a company they have given so much to for so many years,” said Mr. Hurt. “They decided that they were not going to agree to another round of outrageous wage and benefit cuts and give up their pension only to see yet another management team fail and Wall Street vulture capitalists and ‘restructuring specialists’ walk away with untold millions of dollars.”

About a month ago, [CEO Greg] Rayburn said, the bakers union stopped returning the company’s phone calls altogether.
The union workers are gambling they’ll get their jobs back at the same factories under a new owner, but instead the failure looks like the classic lose-lose proposition. It’s clear that they won’t be getting defined benefit pensions or the same salary levels under the new owners, and it’s hard to see how all 18,500 will get their jobs from a new owner seeking to buy only the most profitable assets and to dramatically cut costs.

I think there’s more than just the pressure on high-wage, semi-skilled labor and the public health war on excess sugar. Society has moved to (as Geoff Moore put it) more fractalization of consumer demand, with increasingly specialized products reaching a broad range of tastes. A teenager who might have eaten a Twinkie every day now eats ones once or twice a week, with pretzels, a Larabar or Trader Joe’s fruit wrap the other days. Meanwhile, the Hostess donuts face increased competition from branded donuts, generic store donuts, chain donut stores and a proliferation of bagels everywhere.

Fame is not fortune — in part because the brand is the butt of nonstop jokes (including a tongue-in-cheek TV tribute by longterm union supporter and junk food addict Bob Beckel.) In some ways, the Twinkie (and other aspects of the) brand has become like “spam” — high brand recognition but not high brand equity. Oldtimers even remember the infamous “twinkie defense”, in which Dan White got off with a five year prison term after killing two people (vaulting Diane Feinstein to fame).

So what is the brand worth? Given the company lost $341m on sales of $2.5b (for its last reported fiscal year) with accumulated debts of $800+m, it’s hard to see how the remaining brands will go for even $200m, and more likely much less. By comparison, Zynga is 7 years old, with its main line of business in trouble, lost $404m on sales of $1.1b last year — and still has a $1.7b market cap. (It also has no unions and a 71% gross margin, suggesting a potential upside if it can ever regain scale).

Even when they went into bankruptcy, troubled airlines had a reason for existence, marketable assets, market share and (thanks to frequent flyer programs) switching costs. Hostess has little to recommend it, other than nostalgia (which failed to save Pan Am, TWA, Mercury, Pontiac or Oldsmobile, among others).

Is it worth saving? Two CSU Fullerton professors offer their guidelines as to when brands are worth saving:
While we feel that most brands can be revived, some brands may just not be worth the effort. This is particularly true for brands that suffer from lack of relevant differentiation, low awareness, and a negative image. In such a case, it may be better to kill the brand, than to invest in it.

Sunday, November 11, 2012

Remembrance Day

In Flanders Fields the poppies blow
Between the crosses row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.

“In Flanders Field,” May 3, 1915
by Lt. Col. John McCrae (1872-1918), Canadian Army Medical Corps

Sunday, November 4, 2012


… We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. …
Signed by John Hancock and 55 others, Philadelphia, Pennsylvania, July 4, 1776

Declaration Of Independence Stone 630
Reproduction courtesy of the National Archives

Friday, November 2, 2012

The living undead of storefront retail

I've been meaning to blog about the great cover on a recent Bloomberg Business Week. (Perhaps thanks to its spendthrift mayor, the magazine is now economically illiterate, but it still has good artwork.)

The cover story was about the travails of the quintessential “big box” retailer, Best Buy. (I’d hoped to post for Halloween but October was a hectic month).

Interestingly, in trying to find the cover story (with the magazine’s useless search engine), I found a 2007 story promoting the stock at a target price of $63. (It’s now at $15). I think this illustrates the point that the displacement of storefront retail by online (particularly Amazon) has been quicker and more severe than almost anyone anticipated.

The October story notes that the company has failed in its online strategy due to an excess of caution:
Best Buy’s response to Amazon and other online threats has been inadequate. The company set up as early as 2000, when Schulze was still CEO as well as chairman, but years later, as purchases of TVs, stereos, and microwave ovens shifted increasingly to the Web, the site still lacked such basic features as customer reviews. An Internet unit didn’t get much financial support and was kept walled off from store sales. While e-commerce now accounts for more than 20 percent of U.S. consumer-electronics sales, online is only 6 percent of Best Buy’s domestic revenue.
Cannibalism is a concern of most storefront retailers, but one that can be overcome. Of the top 10 US e-commerce sites listed in the story ( was #11), 5 are by companies with a storefront presence: Staples, Apple, Walmart, Office Depot and Sears. Clearly Apple is agnostic to whether it sells its products online or in stores, but Staples has been a great success in making the transition also.

(There is also a certain irony of reading about the death of physical retailers in a physical magazine, given what’s been happening to them recently. The Bloomberg Business Week website seems to violate all the precepts of best-in-class customer-friendly experience, as prescribed for Best Buy.)

So what is the answer? Founder Richard Schulze (now trying to buy back the company) wants to double-down on the in-store experience, a viewpoint supported in an August 6 BBW article about his takeover attempt:
According to Alex Goldfayn, chief executive officer of the marketing strategy consultancy Evangelist Marketing Institute and author of the book Evangelist Marketing, Best Buy needs to focus on improving its in-store shopping experience, rather than competing online. “They need to understand that if they make their business about competing with Amazon, they’re going to lose,” he says. “In fact, they’ve already lost, and they’ve lost painfully and publicly in a very sad and ugly way. Their one advantage in the world is their physical stores.”

Goldfayn, who outlined his Best Buy improvement plan for Mashable in February, suggests a quick and dramatic overhaul. “Rather than thousands of boxes on shelves, which are ugly and don’t do anybody any favors, they need to set up tables for people to interact with the technology,” he says. “There isn’t really a [store] that you can go to now to literally interact with technologies from multiple manufacturers, and Best Buy is in the unique position to let people walk into a store and experience not only the iPad but also the Samsung Galaxy and also another Android tablet.”
Both Goldfayn and Schulze seem to believe that first-rate service would create traffic and loyalty. (It also seems like it would further accelerate showrooming).

The same article also quotes a Morningstar analyst who says customers are driven by price, and the chances of turning around Best Buy are “a long shot.”

Whether Best Buy survives — as a big store, tiny store, discount warehouse or high-service emporium — begs the broader issue of whither storefront retail? The implications go far beyond one company: Books and CDs are gone, electronics is going (cf. Circuit City), and clothes seem to be slowly heading in that direction. Movie theaters are also disappearing in the face of Netflix and (again) Amazon downloads.

Meanwhile, what is the future of commercial real estate in such a scenario? Do strip malls just become restaurants, liquor stores and grocery stores? Does the suburban shopping mall die before it turns 100?

Thursday, November 1, 2012

California holds education hostage

From the WSJ, November 1:

[California Governor Jerry] Brown and his labor allies say Proposition 30 will fix the state's budget deficit and ward off education cuts. But the real choice before voters is whether to issue Sacramento's incorrigible spendthrifts another blank check.

Mr. Brown has threatened to "trigger" $5.9 billion in education cuts if his initiative fails, but he'd make less than $100 million in other trims. How's that for balance?

Such "trigger cuts" could easily be re-configured with a modicum of political will in Sacramento. Instead of slashing $500 million from higher education, Democrats could kill their quixotic bullet train, which will cost about $360 million this year alone in debt service, and chop $100 million in tax credits to their Hollywood friends (who are bankrolling the tax campaign).

Or they could restructure retirement benefits, which cost $6.5 billion this year—up from about $1.4 billion in 1999. There's millions more to be found in modifying current workers' pensions and retirees' cost-of-living adjustments as nearly a dozen states have done. In Rhode Island such reforms have cut the state's pension liability by half.

Barring such reforms, pension costs will continue to balloon and eat up all new revenues. The California State Teachers' Retirement System has projected that it will need between $3.5 billion to $10 billion annually over the next 30 years to stay solvent. So any money allocated to schools will merely backfill the teachers' pension fund.

The only way California can escape its recurring fiscal Frankenstorms is through reform and economic growth. The former would stimulate the latter while the Governor's tax initiative would squelch both. Raising taxes on small business owners when one in five Californians is out of work or employed part-time because he can't find a full-time job is the definition of insanity.

Monday, October 22, 2012

Time for Nokia to replace Microsoft?

An article from the Oct 19 edition of Talouselämä, a leading Finnish news magazine:

Tutkijat: Android toiseksi kärjeksi Nokialle

Nokian olisi otettava Microsoftin rinnalle tai sen sijaan parempi kumppani, kirjoittavat tutkijat Timo Seppälä ja Martin Kenneyperjantaina 19. lokakuuta ilmestyneen Talouselämä-lehden Tebatti-palstalla.
The Google and Microsoft translations are a bit iffy, but here are some excerpts:
Nokia should take into Microsoft alongside, or instead of a better partner, write the researchers Timo Seppälä and Martin Kenney on Friday the 19th October edition of the magazine Talouselämä Tebatti column.

Timo Seppälä is a subsidiary of Etlatieto Ltd, a researcher at Etla, and Martin Kenney, Professor at the University of California (Davis).

The following post is part of a larger BRIE-ETLA research project.

Apple's iPhone revolutionized the mobile use of the Internet. In response, Google developed the Android operating system and offered it to phone manufacturers for free use.

In the past five years has led to a situation where Apple, as well as Samsung and other Android phone manufacturers utilize dominate the smartphone market. Nokia's "burning platform" has shrunk Symbian to insignificance and Microsoft Windows is still the underdog role.

Early last year, however, Nokia chose Microsoft's Windows [as its] only smartphone [platform]. In poker terms Nokia played all in, when the hand was a pair of jacks. Microsoft has no immediate risk at all.
The translation (from Finnish from the original English) is a bit hard to follow, but basically tells Nokia (in its home town) that it would have been better either with Meego or Android, and encourages Nokia to drop Windows (or at least choose a second parallel platform) rather than stick it out "until death do us part."

Saturday, October 20, 2012

Nokia: bad news without end

Like other CEOs of struggling companies, Stephen Elop has an unenviable job. He took over Nokia in 2010 when his predecessor had been unable to arrest the company’s decline.

Still, let’s not put too fine a point on it: Elop’s gamble to bet the company’s future on switching to the Windows Phone platform has been an absolute disaster.

In quarterly earnings announced Friday, the company lost €4 billion for the first 9 months of 2012 — nearly a billion of that in the 3rd quarter — versus €0.4 billion lost in the same period of 2011. This is not a one-time blip: here months ago, Nokia also lost money and announced massive layoffs.

Smartphone sales have been falling since 2010, but the major collapse came this year as the company phased out its Symbian handsets. (née published the damning chart:

[Smartphone Sales]

Nokia has been more successful at killing Symbian — by starving new releases — than getting people to buy Windows Phones. In fact, as late as Q2, Nokia was still selling more Symbian than Windows phones.

The only uptick in smartphone sales in Q3 came because during Q3, the company has rebranded its S40 (now “Asha Touch”) as a “smartphone” platform. Whether or not the new classification is accurate, it doesn’t reduce in increased sales and highlights how far the company has fallen since its 2010 peak.

It seems like the assumptions behind the Windows bet were flawed. Nokia (or at least Elop) hoped that being the big fish in the Windows pond would be better than slugging it out in the Android market.

Yes, Nokia (at least for now) has the majority of WP sales, but that's not much. The assumption was that Windows Phone would be competitive with Android and iOS, but so far it isn’t. Q3 numbers won’t be out until next month, but in Q2 WP was #5 at 3.5%, after Android, iOS, BlackBerrry and Symbian. Meanwhile, the transition has been managed in such a way to kill its Symbian cash cow before the customers embraced its new products.

For years, Nokia was the world leader in both smartphones and handsets. Now Samsung is selling almost 3x as many Android smartphones as Nokia is selling for WP, Symbian and S40. If Nokia isn’t ready to compete with Samsung, maybe it should just close the handset business and focus on infrastructure.

More realistic is the advice from former Apple Europe president Jean-Louse Gasée: fire Elop and switch to Android. If Nokia’s board believed in accountability, they’d lower the axe after the end of the Christmas quarter, but more likely they’re going to limp along until they can no longer deny the reality of Elop’s failed platform strategy.

Friday, October 19, 2012

Death of Newsweek magazine: inevitable or self-inflicted?

Along with newspapers, we also have dead tree magazines going away — the latest being Newsweek announcing Thursday that its print edition is finite at the end of 2012. MarketWatch went out on a limb and said that Newsweek “won’t be the last venerable media organization to take this drastic action.”

The NYT notes that the 80-year-old magazine recently took an odd turn with its forced marriage with The Daily Beast, an online-only opinion site. This came after audio magnate Sidney Harman bought this once lucrative weekly magazine franchise for $1 from the Washington Post Company in 2010. Harman’s heirs indicated earlier this year that they were no longer throwing good money after bad.

From the 1960s through the 1990s, Newsweek was one of the country’s most influential national media outlets, the Avis to Luce’s Time magazine. (The #3 magazine, US News, ended its print subscription in December 2010.) Today, information is no longer scarce, and killing trees is an inefficient way to deliver such information.

It’s certainly true that a weekly magazine delivered two days late to supermarket checkstands is a difficult sale in this era of instant Google-fed gratification. However, some commentators wonder whether the death of Newsweek is as much a function of its final (print) editor, Tina Brown. As the AP reported:

They say it speaks to the magazine's trouble connecting with and keeping its readers.

That brings to mind some questionable covers, like the July 2011 what-if image depicting what Princess Diana would have looked like at age 50, or last month's "Muslim Rage" cover depicting angry protesters, which was roundly mocked on social networks like Twitter.

Newsweek is using a difficult print ad environment as an "excuse" for its decision to end print runs, said Samir Husni, director of the Magazine Innovation Center at the University of Mississippi School of Journalism. He lays the blame at the feet of Tina Brown, the editor who took control of Newsweek when it merged with the news website she ran, The Daily Beast, two years ago.

"Tina Brown took Newsweek in the wrong direction," Husni said. "Newsweek did not die, Newsweek committed suicide."

Sunday, October 7, 2012

Is Pandora boxed in by supplier pricing power?

The 1990s brought numerous dot-com companies that never turned a profit, but had a “business model” of selling themselves to the greater fool, whether it be public shareholders or acquisition by a large firm. (This trend confused my students, who after several years of bad examples thought flipping a money-losing company counted as creating a business model).

Most of those companies are long gone. Instead, we have Pandora, which has yet to show a profit since its June 2011 IPO, but has a market cap of $1.7 billion.

To be fair, it has survived predictions of failure from four years ago. In a difficult market segment where firms have little control over costs (i.e. royalties), Pandora remains the most successful Internet radio service of all time, with Last.FM swallowed up (and largely forgotten) within the bowels of CBS, Live365 remaining privately held and most of the other firms now defunct.

The recent interest (and speculation) in Pandora centers on Apple’s rumored plans to create its own music streaming service. (More recent accounts say Apple’s plans have been delayed by the greed of the same record companies that make it impossible for Pandora to turn a profit.) The speculation knocked Pandora’s stock off its highest price since March, but other than that temporary blip, the stock has been trading in a range of $10-11 per share for nearly five months — although below its $16 offering, that would be a raging success by Facebook standards.

Now some (including Business Week) speculate that Apple’s interest will prompt Apple’s major rivals to buy Pandora to compete. Google competes with Apple on cellphone platforms, while Amazon is its major competitor in music streaming.

This comes despite analyst predictions of 2012 Pandora losses nearly doubling to $30 million. As with three years ago, Pandora is losing money on every sale but making it up on volume. (Thanks to the IPO, the company’s balance sheet is solid enough weather several years of such losses, even without any secondary offering).

Business Week even speculates that Clear Channel might be interested in supplementing its online service with Pandora (much as CBS bought Last.FM). This seems the least plausible, given all Clear Channel has spent on iHeartRadio, the mobile clients and even live concerts to promote the brand.
So as in the dot-com era, we have the hope that losses will be redeemed by a beneficent acquisition before the company runs out of money. But where is the business model? If it’s not possible to make money with current pricing (and cost structure), will volume solve the problem?

From following the cost structure of Internet radio for more than a decade, I see no cause for optimism. Facing a collapse in their core business, Hollywood labels hope extract every penny from newer (and smaller) channels, including Internet streaming. The bigger and more successful Pandroa gets, the more money record companies will seek to extract. Like a Dumas musical, it’s unlikely to turn out well for the protagonist.

Wednesday, October 3, 2012

T-Mobile's exit strategy

Since having its $39b sale of T-Mobile USA to AT&T nixed on antitrust grounds, Deutsche Telekom AG has been trying to figure out another way to exit the US market.

Today DT announced that its US subsidiary (#4 with 33.2 million subs) will be merged with the #5 US carrier, MetroPCS (with 9.3 million subs). The press release is here and the story is covered by Fierce Wireless (among many others)

It’s being called a “merger” but it’s clearly an acquisition (structured as a recapitalization), since T-Mobile USA will retain its name, technology, HQ and CEO — while MetroPCS will lose all four. It will retain its NYSE stock listing but presumably not its PCS ticker.

Although the cash payout is only $1.5b — funded by a $2.4b sale/leaseback of T-Mobile USA towers — MetroPCS shareholders will own 26% share of the new company. I haven’t seen any estimate of the value of the acquisition. The market suggests that the cash only accounts for one third of the value: today MetroPCS has a market cap (on inter-day trading) of about $4.5b, vs. $4.2b yesterday and $3.5b a month ago.

So instead of being paid $39b to exit, DT is paying $1.5b cash to build up a more stable company. I would presume that DT hopes that it will be able to gradually unload its 74% holding in the combined company through open market sales.

The two companies will be run as separate operations until T-Mobile can get all MetroPCS customers to phase out their CDMA handsets in favor of GSM ones. At today’s press conference, T-Mobile said it hopes to pull the plug on the MetroPCS network by the end of 2015. In the meantime, T-Mobile gets cheap LTE spectrum that both types of customers can share as the CDMA voice footprint goes down and the GSM voice footprint goes up. Or perhaps both end up on VoIP, i.e. VoLTE) which MetroPCS announced it plans to introduce in 14 US markets by early next year.

The acquisition puts pressure on #3 Sprint (56.4 million subs), which was a more obvious buyer for MetroPCS (which would have avoided the disastrous technology incompatibilities of its Nextel purchase). But so far, Sprint shareholders seem not to have reacted (either way) to the news.

One thing I haven’t seen mentioned: this is the merger of the iPhone outsiders: the #1, #2 and #3 carriers have the iPhone but #4 and #5 do not. Perhaps this will make Sprint want to buy the #6 carrier (which does have the iPhone): San Diego’s Leap Wireless which has 5.9m subscribers on its Cricket network.

However, the two hitches are technology and pride. Sprint is migrating its 4G strategy from WiMax to LTE, while Cricket uses TD-LTE, the Chinese variant not used by the top 5 carriers. (However, Cricket only offers LTE service in Tuscon right now, so perhaps it could drop the incompatible LTE if its acquired soon).

The other problem is that Leap turned down acquisition efforts by MetroPCS since 2007. Perhaps its due to bad blood between the companies that wouldn’t apply to Sprint, or perhaps Leap will realize that it lacks scale to operate its own network indefinitely in an ever-commoditized market.

Friday, September 21, 2012

Retailers decide to stop slitting own throats

Wal-Mart has announced that it will stop selling the second hottest tablet line, Amazon’s Kindle. In doing so, it joins Target in ending support for its online rival.

Revenues aside, the support for the Kindle seemed puzzling by both retailing giants. Now that they have settled into a comfortable duopoly, the greatest threat they face comes from Amazon‘s continuing successes in moving people out of stores to their web browsers. This calls to mind a Marxist critique (source unknown) that rich countries in their greed will finance their own downfall.

Both Wal-Mart and Target continue to sell the world’s leading tablet, the iPad, from a company that’s an also-ran in online content (except for music). They also sell Barnes and Noble’s Nook line, which is promoted by the leading book retailer but is an also-ran both in hardware and proprietary content.

This raises the question: when or how will the coalition of willing anti-Amazonians be formed? Apple and Wal-Mart are losing the online content battle (which Target has ignored), so is there a possibility for a shared platform, content format standard or other deeper cooperation? Otherwise, it’s hard to see how the tide will be reversed that has favored Seattle’s online shopping conglomerate.

Sunday, September 9, 2012

Eroding freedom has its price

During my first visit to South America, I was struck by the contrast between Chile (one of the economically freest nations of the Western Hemisphere) and Argentina (only Venezuela and Cuba are worse). Chile has enjoyed the benefits of its economic freedom, as the only Latin American country in the OECD, and through economic might that enabled it to cope with natural disasters and potential national tragedies.

Meanwhile, Argentina is suffering from a man-made disaster of more than a century of corrupt and incompetent rule, first by the oligarchs then by the Peronistas. As Stef Haggard noted in his book Pathways from the Periphery, Argentina was one of the wealthiest countries in the world in 1900, but was easily passed by Korea and Taiwan with their access to education and the concomitant labor mobility.

Last week, the AP reported on the stark consequences Argentina by President Cristina Fernandez. With inflation running at 25% annually (10x that of neighboring Chile) none of the locals want to hold pesos, so for years they have been rushing to trade them in for foreign currency or goods:

Legally trading pesos for dollars or euros has become ever more difficult as President Cristina Fernandez tries to keep dollars inside the country and bolster the Argentine peso's sliding value. And new rules taking effect this week are squeezing them still further by going after credit card spending.
Until now, travel has offered a limited exception to the currency controls first imposed last November: People up to date on their taxes and poised to cross a border, tickets in hand, can get permission to buy no more than $100 per person for each day abroad. The process is bureaucratic and intrusive, and many say their requests are rejected for reasons they don't understand.
Credit and debit cards provided a legal way out, enabling people to make purchases and get money while abroad. But now the government is cracking down there as well.
The new measures make using plastic inside or outside the country less affordable by charging 15 percent in taxes on all foreign purchases that appear on credit or debit card bills, plus a 50-percent customs duty on any goods from abroad that might be brought back to Argentina. Internet purchases on sites such as Amazon, eBay and the Apple Store are included, along with anything bought using online services such as PayPal.
The measures are Fernandez’s attempt to protect her sagging popularity by reducing the symptoms of economic mismanagement, but they don’t do anything to resolve the underlying issues.

Brazil once had an inflation problem too, but seems to have a more competent government that has promoted industrial development and economic growth. I don’t know a lot about Brazil, but the socialists seem more pragmatic (with an economic freedom index comparable to Italy) than in Argentina (which is more like Angola). Both are plagued by corruption (unlike Chile) but Brazil has average property rights and financial freedom versus Argentina’s abysmal record on both counts.

Despite their abysmal economic record, the Peronistas have dominated Argentinian politics for decades. Apparently populist demagoguery trumps actual competence — thank God we don’t have that problem in the U.S.

Tuesday, July 31, 2012

Farewell, Ma Bell

Today SBC AT&T turned off the phone service that we've had at our house in San Jose for nearly 10 years. I think this will mark (with a few brief exceptions) the first time in my adult life that I’ve not had telephone service with AT&T — over 30 years' worth.

As a high school phone hacker (not quite a phone phreak), I owned my own phones back before that was allowed. I had service in college (except my first year in a dorm) at UCLA and at MIT, and when I moved back to California permanently after college I turned on service the minute I had an apartment. The only exceptions were a) during a summer spent in Dublin my service was suspended when my apartment-sitter ran up the long distance bill and b) as a newspaper reporter, there were a few months where I couldn’t afford to pay the phone bill until I gave up my 1BR and moved in with someone else.

AT&T's loss was not due to their normal reason. Unlike our teenager — who I expect will have only a personal (mobile) number for her life — our household is keeping a landline.

And it’s not like I’m mad at The Phone Company — as I was at various points during the past 30+ years, even to the point of (in high school) making our own student film called “We Hear You,” a low-budget ripoff of “The President’s Analyst.” (I did special effects and played the bad guy driving my dad's menacing-looking sedan).

Nope, we’re switching (for now at least) to phone service from our cable company, for four reasons. One, it’s cheaper — mainly because US long distance is free. Two, they came up with a clever way to solve the power failure problem (which was highly salient for San Diegans after last fall). Third, our respective parents both have it and since neither of them are technically savvy, it must be pretty seemless.

Finally, it’s not just that it’s replacing AT&T with cable, but which cable company it is. In SoCal we get Cox, an innovative responsive company that did a great job for us (particularly on Internet) when we lived there before. If we were staying in the Bay Area, there’s no way we’d ditch AT&T for Comcast, which has been terrible and is a ruthless monopolist that would make ol’ Ma Bell blush.

So bye-bye, Ma. It’s been good knowin’ ya, and perhaps our paths will cross again.

Friday, July 27, 2012

Google still winning cloud race

I now have firsthand experience with various cloud based email services, and Google still remains firmly in the lead.

My life is pulled in (at least) three directions when it comes to cloud-based (aka hosted, aka SaaS) mail services:

  • This month, my employer (a Microsoft shop) decided to migrate from an Exchange server to the Office 365 hosted services. I guess as an IT-knowledgeable employee, they made me one of the guinea pigs. So this week I'm trying to reconfigure my Mac and cellphone to work with the new servers.
  • Meanwhile, on July 1, my wife was forced to migrate from (aka to iCloud. As the household IT support desk, the task fell to me, and we still haven’t been able to get it to work with her Mac.
  • Finally, my teenager and I are loyal users of gmail and other Google services. My teenager won’t use a client app anymore, while I use my various gmail addresses with my Eudora client. Both of us also use Google Voice.
(I also have an old Yahoo web mail account, but since they don’t support client apps for free, I only give that email address for website registration and other spammers.)

From what I’ve seen so far, Google remains far ahead for web-based services. This is not to minimize the advantages Microsoft and Apple have for their locked in proprietary client customers.

A few years ago, Google and MS were warring over providing hosted mail and office apps to the 23-campus California State University system, America’s largest university system. Google won and at SJSU we were migrated in mid-2010..

However, before that the SJSU business school was an Exchange shop, as was my previous b-school and my current employer. So despite being a Mac user since 1984, I was forced to deal with Mac/Exchange interoperability issues (which as much better than when I was researching my dissertation 15 years ago).

Microsoft Outlook Web Services are not very impressive so far. The web client seems slower than the old MS web app.

It was terrible — absolute pits — for explaining how to configure a 3rd party client (cellphone or whatever). First off, can’t find that help starting from scratch in the online help. I could only find it because my employer provided a link. Secondly, they don't publish their POP/IMAP/SMTP server settings on a web page like normal web services. Apparently the settings are client-specific (which suggests their DNS load balancing technology is inferior to Google’s) Third, if (after logging in) you want to find the mail settings, the steps are so complicated that they want you to watch a video. Since I was on a lousy airport WiFi connection, I figure out how to get through the various windows (also buried in their web page) to find the answer.

On the Apple front, the iCloud migration is going badly. and supported Internet standards, but iCloud deletes POP support and their IMAP implementation is incompatible with my wife’s Eudora client. So we are stuck on webmail until we find a replacement for the client or iCloud.

Meanwhile, Google has a huge lead in features and design. The gmail server supports all the protocols, multiple desktop and mobile clients. And if you find the mail server or client too limiting, you can forward to any other server.

Yes, Apple is going to get customers from their iPad lead and iPhone sales, and Microsoft is going to pick up all the firms that run all-Microsoft shops. But if an IT manager is try to pick the best solution, Google seems to be winning both on its execution and its standards-based approach (allowing third-party integration).

Wednesday, July 18, 2012

Internet revisionism

At a campaign stop last week in Virginia, the president said

The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.
He also made some other controversial remarks on the role of government in a capitalist economy, but I just want to fact check these two sentences.

Yes, nothing "gets invented on its own." It takes people to do that, whether individuals or quasi-permanent groupings working in an organization who (under US law) are people too (and have been since Roman days). And it’s also true that a complex systems architecture — of which the Internet is the most complex — requires coordination of the distributed efforts of a large number of people.

But who did the inventing? To me, “government research” implies “government researchers” when it was actually university and corporate researchers. Yes, much of this research was government-funded research, including most of the research in the 1960s and 1970s.

The definitive first-hand account of the creation of the Internet was published in 1997 in the leading US computing journal. It said
  • An MIT professor, J. C. R. Licklider, conceived of a "galactic network” in 1962 [although other accounts say he was then a vice president of BBN, an MIT spinoff company]. He then went to ARPA, the DoD’s advanced research funding agency
  • An MIT graduate student, Len Kleinrock, wrote a paper about packet switching in 1961
  • An MIT [Lincoln Labs] researcher, Lawrence Roberts, set up the wide area network (over a dialup line) in 1965 and then in 1966 went to ARPA and proposed the ARPANET. [Wikipedia says in 1971 he went on to found Telnet in 1971, a packet switching common carrier].
  • The switches that made the ARPANET possible were built by BBN, and Kleinrock (then at UCLA) got the first one in 1969.
  • The Network Working Group [a small group of university and nonprofit software engineers] developed a spec for the first host-to-host communication standard in 1970
  • In 1972, Ray Tomlinson of BBN wrote the first e-mail program.
  • (D)ARPA funded a spec for TCP, which was implemented by Berkeley in Unix
  • Connecting more than one machine at a given site was made possible by Ethernet, invented by Xerox PARC [and then sold as hardware by companies like 3Com.]
  • The domain name system was created at USC.
  • In 1985, the NSF created a second network, NSFNET, which would serve universities, not just the DoD and DoD contractors — and then defunded it in 1995, forcing it find its own way to self-finance.
  • Leadership of the Internet passed to self-organizing [formal or informal] nonprofit entities, including the Internet Engineering Task Force, the Internet Society, the Internet Architecture Board, the Internet Engineering Steering Group and the World-Wide Web Consortium. [Starting in the 1990s, most of the resources for these entities were provided by corporations and universities using their own funds]
So yes, it took a village to create the Internet, and the ball would not have been started rolling without ARPA’s sustained funding over many years. But the actual work of designing and building the Internet was not done by the government, but for the government by smart people that it picked.

Then there is the question of what happened after the ARPA-designed data pipes were in place. An independent account by David Mowery and Tim Simcoe of Berkeley wrote in 2002:
Adoption of the Internet in the US was encouraged by antitrust and regulatory policies that weakened the market power of established telecommunications firms and aided the emergence of a domestic ISP (Internet Service Provider) industry. The large size of the US domestic market, as well as American firms’ large investments in desktop computing and computer networks, created the conditions for rapid diffusion of the Internet following the introduction of the WWW. “Network effects” created by the scale of the US market and the predominance of English language content also contributed to rapid US standardization and diffusion.

During the late 1990s, the Internet entered a third phase of growth characterized by the development of commercial content and business applications. This phase followed the completion of a long process of infrastructure privatization and a dramatic surge in Internet use associated with the introduction of the WWW. Commercial interest and activity were fueled by the availability of capital from the US venture capital (VC) industry, as well as the strong performance of the US economy.
Mowery would certainly be the first to argue for the importance of government-funded research, but in the end, the Internet would have been little more than a research curiosity (or an internal network for a few universities or DoD sites) without the private investment necessary to grow it into what we have today.

As campaign hyperbole goes, this probably rates only one or two Pinocchios — certainly not a whopper on par with Al Gore claiming he invented the Internet. But I’d hate to think that young people, listening to soundbites, took away from this campaign claim that an omniscient and omnipotent Federal government is how we got the Internet and how we will get similar innovations in the future.

Thursday, July 12, 2012

Content owners heading for the guillotine?

The ongoing efforts of Hollywood TV and movie syndicators to extort more money out of distributors and their end customers reminds me a little of the French royalty in the late 18th century. For Marie Antoinette and her husband Louis XVI, things were going on swimmingly — until they weren’t.

If that analogy seems too obscure or overblown, think about the record industry cartel 15 years ago. The six major labels were able to charge whatever they wanted—and then their revenues fell by more than half. People didn’t stop listening to music — but a whole generation stopped pay for recorded music while spending shifted to live concerts (where the publishers can’t extract their vig).

So now Viacom is mad because it can’t get DirecTV to pay $144 million more annually ($7.30 per subscriber) to carry its 26 channels. To put pressure on DirecTV, Viacom set up a Facebook page with snappy clip art featuring its Nickolodeon, Comedy Central, MTV and other characters.

DirecTV set up its own webpage to attack Viacom and, in particular, its bundling strategy requring all or nothing from subscribers. When DirecTV page “Other Ways to Watch” linked to online versions of Viacom content, Viacom took down its Internet content for everyone. (At the risk of mixing metaphors, this reminds me of a hostage-taker who puts a knife to his own throat).

We all know how this is going to end: at some point, the cable and satellite TV distributors will be unable to charge a premium over Internet channels. This means that revenues from distributors will eventually be going down, not up. Content producers will need a new business model: the only way out I can see is that there will be embedded ads and product placement for the content no matter where it is consumed.

On the DirecTV website, CEO Mike White delivers an impassioned speech supporting his side. Or, as the text says

By holding firm in negotiations and disputes, we’ve held our price increases to half of the industry average. Some networks or TV stations are asking for as much as a 300% increase in their monthly rate. Imagine the impact to your bill if we just simply accepted those demands for one network, let alone the hundreds we offer you. There’s a reason DIRECTV has been able to offer our customers the lowest annual rate increase of 4% among all providers over the past two years. We’re always by your side.
As a consumer, I think White isn’t aggressive enough (but if his rivals are accepting cost increases and passing them along, his options are limited).

For the past 10 years, our San Jose home has been served by Comcast basic cable at less than $20/month. When we move to our new home, we’ll take the Cox $25/month teaser rate until it expires, and then at that point drop the cable — possibly adding Dish or DirecTV. During the six month period, we also plan to evaluate whether we can get by with over-the-air supplemented by a monthly subscription to Amazon, Hulu, Netflix or Vudu. We may not even need to pay for the latter, as our teen prefers to watch YouTube video clips over 22-minute TV episodes.

So good luck Mr. White. You’re on the right side of history, even if shareholders may not give you the time to see this through. And a word to Jon Stewart, Stephen Colbert and their Viacom masters: be careful what you wish for, because the French people had a lot more freedom after the old order fell.

Saturday, July 7, 2012

Picking a CEO: narcissists need not apply

Narcissism is rampant among high achievers, whether movie starts, business executives or politicians. It seems like the more successful some people get, the more they surround themselves with bootlickers who cater to their ego rather than tell them what they need to hear.

Writing on the HBR blog, executive headhunter Justin Menkes recalls the advice he gave a CEO looking to groom a potential successor from among his high-achieving subordinates.

How do you know when someone can make the leap from high performer to CEO? There is one driving factor that determines the answer: narcissism.

Those selected for development have one universal trait in common: They are by definition high achievers. But there is a difference between those superstar achievers that can make the leap to CEO and those that will implode: To what degree do they feel invigorated by the success and talent of others, and to what degree does the success of others cause an involuntary pinch of insecurity about their own personal inadequacies? Only an individual who feels genuinely invigorated by the growth, development, and success of others can become an effective leader of an enterprise. And it remains the most common obstacle of success for those trying to make that leap.
Menkes has a checklist from the Narcissistic Personality Inventory:
  • Are the individual's relationships with others based on honest, intimate exchanges, or are they formed using a dynamic that regularly reinforces the narcissist's role as a "hero"?
  • Does the individual often talk about how his star qualities make him distinct from his peers?
  • Does he like to be the center of attention?
  • Does the remark, "I insist on getting the respect that is due me," resonate with his worldview?
All of these items play to a twisted egocentrism that assumes the world exists for the benefit of the high achiever. But if eliminating narcissists from consideration is necessary, IMHO it is not sufficient.

A related predictor of failure that I’ve seen time and time again is an insular approach to gathering information, getting advice and making decisions. It seems to be the single best predictor of failure among US presidents — where the raw power being wielded causes senior aides to jealously (and zealously) guard their access. (Cases in point: Nixon, Carter).

So yes, the narcissist has a particularly pathological form of reality denial. But if a leader can’t deal with the world as it is — rather than how he or she imagines it to be — the final outcome is going to be the same.

Monday, July 2, 2012

Twitter's war on partners: strength or weakness?

On Friday, LinkedIn announced it would no longer be distributing Twitter’s (140-character) content. Ryan Roslansky, “head of content products” helpfully pointed out that the policy only applied to content in, not content out: if you start a conversation on LinkedIn, it can be mirrored out to Twitter, but not vice versa.

Roslansky said the three-year collaboration was ended by Twitter, pointing to a blog post by a Twitter product manager entitled “Delivering a consistent Twitter experience” which was described as the nominal reason for the change to cut down on partner access to Twitter’s APIs and content.

Of course, this is brazen dissembling, as with similar claims last summer taking over URL shortening (bypassing, tinyurl, etc) was to provide security. Twitter is kicking out partners because it wants control and to my mind that’s both a strength and a weakness.

The strength is that Twitter can do it — so far it’s the only game in town. If it aspires to end-to-end integration ala Google, the more partners it can disintermediate, the better. As with its website redesigns, this allows it to better know what’s going on — unlike the WWW, you can’t read anything on Twitter without signing in (and letting the company know whether you’re searching for Obamacare or Kardashian). If it has shut off LinkedIn, how far behind is Facebook?

At the same time, the increasing integration could also reflect a sign of weakness, specifically its one-trick business model. The only way Twitter makes money is putting eyeballs in front of ads. Any chance to view content away from Twitter is a chance to follow Twitter’s content without Twitter ads. That — and a natural fear of the 800 lb gorilla — is why it cut off Tweets from Google searches.

However, this increasing control has come at the expense of the user experience. I have long used the Tweetie client by Atebits LLC. Twitter bought Atebits, eliminated the client, and replaced it with a defeatured substitute posted to the Mac App Store. The website design also provides me less control of what I see and what I show on my website.

To my mind, this strategy is begging for competition. Twitter is gambling that nobody can knock it off the hill: the (direct) switching costs are low, but the network effects are huge. Google is certainly trying, but so far it’s not gaining traction and if Google doesn’t have the content (and customers) to displace Twitter, who does?

In the end, Twitter may become for me a write-only medium: I’ll give Twitter free content (that supports my blog and professional career) but not read content there. I suppose we both make out from the deal, but — like any other cranky old-timer — I’ll now and again remark how Twitter was once a useful news service back in the good ol’ days (when I walked 5 miles to grade school through the San Diego snow).

Saturday, June 16, 2012

Less than excited about Apple updates

It's been almost 10 years since my last Apple developer's conference. (IIRC I last made the pilgrimage in 2003, 18 months before my Mac software company went away). So I have to rely on news accounts of the announcements Apple makes, like the ones CEO Tim Cook and friends made Monday.

A week ago, I thought there might be something there for me, since I’m in the market for a tablet, a smartphone and an updated (Mac) laptop. However, nothing announced at WWDC will cause me to open my checkbook.

The most hullabaloo was about the “MacBook Pro with Retina display” (not to be confused with the “MacBook Pro”). It’s a cool idea to have a 2880 x 1800 15" laptop (vs. half that for the conventional 15" MBP), but I’m not pay $2200 for no stinkin’ laptop, even if all the opinion leaders are doing so.

And it’s not just the prospects of paying more for less. As David Pogue put it:

Remember, too, that this MacBook Air-inspired laptop lacks both a DVD drive and an Ethernet jack. Apple says that Wi-Fi is everywhere now, and if you want to watch a movie, you can stream it from the Internet.

Frankly, that’s a typically too-soon Apple conclusion. Wi-Fi isn’t everywhere, and lots of movies aren’t available legally for streaming. (Ever fly on a plane? You can’t stream any movies at all if the flight doesn’t have Wi-Fi.) As a workaround, you can buy an external DVD drive ($80) and Ethernet adapter ($30).
While Apple might have been right about dialup modems — in a similar move nearly a decade ago — it’s wrong about the end of Ethernet. I will be using Ethernet for the next 5+ years at work — my office is not near a hotspot — and probably at home too so I can do backups over the network. Wi-Fi alone won’t cut it.

Supposedly there is a ThunderBolt to Gigabit Ethernet adaptor available, and a ThunderBolt to FireWire (for my legacy HDDs) is due Real Soon Now. Support for USB 3 is a plus since that’s what the cheapest new HDDs have.

So I might be tempted to get the regular MacBook Pro at $1200, but — like the “with Retina display” cousin — it requires a new MacSafe2 adaptor, rendering all my existing power adaptors obsolete. Since I need at least 3 adaptors (home, work, briefcase) I’l either need to spend 4x for new bricks or $10 each for the “MagSafe to MagSafe 2 Converter.”

So yes, Apple saying “we’re changing our peripherals strategy” gives me pause. But the reality is that the 2013 model of the MBPwRD or MBP or MBA wthat ill probably suit me better than this year’s model. Since I need a minimum of 250gb — about half that of David Pogue — that means either a spinning disk, paying a huge premium for solid state disk drives, or waiting for next year’s models.

There were no iPad announcements: no update to the 10" (not surprising), no long-rumored 7" model. I’ve been tempted by a possible 7" but the 10" would duplicate too much the size and weight of my laptop. At this point, our teenager seems likely to become our first iPad owner (since there’s no reason for her to start with a laptop if the form factor is on the way out).

Similar, this month’s announcement brought no iPhone LTE, just a vaporware iOS 6 with new web-based service: better Siri, and non-Google maps. The improved OS is nice, but better hardware — true 4G capabilities — are what everyone’s waiting for.

And that brings me to the announcement that is most likely to cause me to part with my money: a discount iPhone announced the week before WWDC. The (unsubsidized) iPhone on Virgin Mobile offers the cheapest data plan option around, worth $500+ over the life of a typical big carrier contract. Who knows: five years after writing about the iPhone I may actually get one.

Thursday, June 14, 2012

Cutting their way to greatness, Espoo Edition

The news from Espoo this morning was grim: Nokia is axing 10,000 (about 8%) of its workers over the next 18 months, in hopes of getting operating expenses (for its core Devices & Services division) down to €3 billion by the end of 2013 (vs. €5+ billion in 2010). The company will be closing R&D facilities in Germany and Canada and a factory in Salo, Finland.

In conjunction with a new earnings warning, Nokia’s market cap fell to €8.3 billion, shares shares fell to their lowest level in 16 years, less than 3% of its peak back in late 2000. The cumulative effect of the layoffs mean that in five Nokia employees will be gone by the end of 2013.

In conjunction with the announcement, three executive vice presidents are resigning at the end of the month “to pursue other opportunities outside of Nokia”. CEO Stephen Elop offered touching testimonials upon their departure:

"Jerri has made a positive impact on Nokia's advertising, marketing and brand efforts. Our marketing has made great strides under her leadership," said Stephen Elop. "I will particularly miss the fresh insight and new energy that Jerri injected into the Nokia brand."

"Mary's leadership has been instrumental in our efforts to connect the next billion people to the Internet through innovation in new devices and services," said Stephen Elop. "Under her direction, Nokia has brought new opportunities to consumers throughout growth markets and contributed strongly to Nokia's business. I will miss the value she has brought to Nokia."

"During his 16-year Nokia career, Niklas has successfully supported our growth and transformation through leadership roles in groups ranging from services to, most recently, sales, marketing, supply chain and IT," said Stephen Elop. "Niklas has been a valued partner to me during my tenure at Nokia and his many ongoing contributions will be missed."
If that were true, why were they all forced out? For that matter, why are these execs being forced out and not the CEO? So far, there’s no evidence that any part of Elop’s strategy is working.

Mercury News tech columnist Troy Wolverton was even more cynical about Nokia’s announcements, as he tweeted:
Troy Wolverton @troywolv
Nokia's press release about its restructuring is an amazing collection of Orwellian doublespeak, starting with its headline...

Troy Wolverton @troywolv
Here's the headline: "Nokia sharpens strategy and provides updates to its targets and outlook"

Troy Wolverton @troywolv
What that really means, in plain English: "We're firing 10,000 people and our bottom line is going to be much worse than we forecasted."

Troy Wolverton @troywolv
I love this line too: "...Nokia is making changes to its management team by tapping into the strong leadership bench at the company."

Troy Wolverton @troywolv
What that really means, of course: We're firing a bunch of executives...
Nokia was the world’s largest handset vendor from 1998 until this year, when it was passed by Samsung. Its market share has been in a freefall, and the profitability story has been even worse as it lost the profit sanctuary that the N-series phones once provided b.i. (before iPhone).

Part of the problem is that Nokia didn’t move quickly enough to respond to the iPhone. I was a consultant to Symbian (which made the N-series operating system) from Dec. 2006 to Dec. 2008, and while there was an appreciation of some of the iPhone features, I don’t think the company was really worried. For indirect evidence, it appeared that the Nokia execs were even more confident than their English software supplier — until Android came along. Today, Apple sells more smartphones than Nokia and earns most of the handset industry profits.

Right now, I don’t see how Nokia’s going to turn things around. On the one hand, as they phase out Symbian they’ve given up platform control for most of their smartphones — having cast their lot with Microsoft. On the other hand, Samsung is also dependent on others for its smartphone platform — i.e. Google — with only about 12% of its phones that carry the Bada operating system.

Theories for the differing outcomes abound. One is that Samsung bet on the right smartphone and Nokia didn’t. Certainly no one is enjoying great success with Windows mobile phones, while Android is the bulk of the smartphone market. However, I think the Nokia’s long indecisiveness was part of the problem: it shipped its first Windows in late 2011, 2 1/2 years after Samsung’s first Android phone.

Today, there‘s one differentiated platform — the iPhone — and a bunch of commodity smartphone suppliers competing on execution — via time to market, small feature enhancements, and of course price. Nokia made its money when it had customer lock-in as the only game in town, and its DNA is not well-aligned for today’s competitive price-sensitive markets.

But in hearing about the latest round of cuts reminded me of Silicon Valley companies also trying to cut their way to greatness, notably HP and Yahoo. Cuts will not make a mediocre company great — they will only cause it to lose less money. Success will come from growing the top line, and thus far Nokia under Elop (and his immediate predecessors) has been heading in the wrong direction.

Nokia resembles HP in that both were once world-renown innovative companies, and both have stumbled as the market matured and price premiums disappeared. Apple was in this place 15 years ago, but were turned around by brilliant market-driving innovation. However, the Apple Steve Jobs turned around was smaller, more nimble — and more scared — than Nokia is today. If there’s a reason that Nokia’s slide will eventually end, so far I haven’t seen it.

Sunday, June 10, 2012

More bullet train OPM

Facing a $17 billion annual deficit — and, unlike the Feds, no ability to print money — Gov. Edmund G. (“Jerry”) Brown has come with a novel solution: commit the state to spending an additional $70 million (perhaps $100 million) on a money-losing high-speed rail system.

Unfortunately, for Gov. Brown, the public no longer supports the plan, with voters now opposed 59% to 33%.

This morning, the San Jose Mercury News (which supported the plan in 2008) came out in opposition, saying

There is a fine line between visionary and delusional. California's high-speed rail project whizzed across that line long ago and now is chugging toward the monorail station at Fantasyland.
Two of the state’s other major papers, the Los Angeles Times and the San Francisco Chronicle, seem fully committed to spending millions of other people’s money on the system.

However, railroad historian Richard White of Stanford explained to LA Times readers how the high-speed rail yarns parallel those used by 19th century railroad barons Leland Stanford and C.P. Huntington:
The ghost of Huntington hovers over the California High-Speed Rail Authority. Its members are supposed to protect the California public, but there is too much money to be made from this project to do that. They are boosters who tell us what they want us to know. They sell the Legislature short, and in this they may be right. They sell the governor short, and in this too they are probably right. They also sell the California public short. They think we are suckers.

I hope they are as wrong in this as they are in their calculations.
The state’s senior political correspondent, Dan Walters of the Sacramento Bee, noted last week how Brown claimed the rail system paralleled that of the Bay Area’s great bridges of the 1930s. However, while those bridges were successfully financed out of their respective revenues, Brown wants to use other people’s money — the state’s general fund — to guaratee the “bullet” train debt:
If the train is as financially viable as Brown and the authority insist it is, why wouldn't they have the guts to do what the bridge-builders did – float revenue bonds to be repaid from the train's supposed operating profits?

Public works projects make sense when they fill well-documented needs.

When they don't, they are just political ego trips.

Thursday, May 31, 2012

Once-unthinkable disintermeditiation: higher ed

Ever since MIT introduced OpenCourseware in 2001, higher ed faculty have been watching with curiosity to see how giving away free content would impact the school’s brand and corse business model. Last December, my alma mater announced MITx, where students could earn a “credential” from online courses, and then on May 16, it named the leader of MITx, Provost L. Rafael Reif as the 17th president of MIT.

MIT is far from the only university to embrace and promote this change. In 2007, Yale launched Open Yale Courses and Stanford helped launch iTunes U in 2005, and recently began offering courses with 10,000s of enrolled students. However, the biggest visibility for such efforts came on May 2, when Harvard joined MIT to announce edX, which will combined MITx and Harvardx to offer certificates but not course credit.

Many of us business profs have been watching with both curiosity and trepidation. On the one hand, there is no business model yet for the (well-endowed) colleges to give away content, even at low cost. On the other hand, we’ve seen this movie before — whether with CD Now and Wherehouse (or Sam Goody or Musicland), Amazon and Borders or Amazon and Circuit City.

In particular, the talk by these pioneers that these efforts are complementary to traditional education is just talk. As the outgoing MIT president said on May 2:

“Online education is not an enemy of residential education, but rather a profoundly liberating and inspiring ally,” MIT President Susan Hockfield said in announcing the project, according to a Harvard Gazette report. She explained that "you can choose to view this era as one of threatening change and unsettling volatility, or you can see it as a moment charged with the most exciting possibilities for education leaders in our lifetimes."
I recall how when I started my full-time computer career in 1980, the PC was a toy and any serious work was done on a mainframe. Now everyone carries more computing power in their pocket than the mainframes of 30 years ago, but most of our computing power and storage capacity is provided cheaply by a few on-demand clouds.

As we business profs are painfully aware, online higher education shows all the signs of becoming a classic Clayton Christensen “disruptive innovation.” It will start out lower quality, but eventually it will get good enough to replace the traditional product and destroy most of the market due to its larger scale and lower cost. (NB: When will this effect come to secondary education?)

An op-ed in this morning’s Wall Street Journal by John Chubb and Terry Moe — two Hoover Institution (i.e. Stanford) fellows and education reform authors — was a little more blunt:
Over the long term, online technology promises historic improvements in the quality of and access to higher education. The fact is, students do not need to be on campus at Harvard or MIT to experience some of the key benefits of an elite education. Moreover, colleges and universities, whatever their status, do not need to put a professor in every classroom. One Nobel laureate can literally teach a million students, and for a very reasonable tuition price. Online education will lead to the substitution of technology (which is cheap) for labor (which is expensive)--as has happened in every other industry--making schools much more productive.

For now, policy makers, educators and entrepreneurs alike need to recognize that this is a revolution, but also a complicated process that must unfold over time before its benefits are realized. The MITs and Harvards still don't really know what they are doing, but that is normal at this early stage of massive change. …

But like countless industries before it, higher education will be transformed by technology--and for the better. Elite players and upstarts, not-for-profits and for-profits, will compete for students, government funds and investment in pursuit of the future blend of service that works for their respective institutions and for the students each aims to serve.
Even this is a Panglossian (or, more likely, intentionally sugar-coated) view of the world. Retired USC professor Lloyd Armstrong wrote:
One could imagine that a few years from now, MITx would have the equivalent of entire degree programs on line. Students successfully completing the demanding sequence would not, of course, get an MIT degree, but rather a MITx "super-certificate" certifying their success in the entire degree program. They would not be equivalent to MIT grads, but because of the rigor of MITx courses, they would likely be better prepared than the grads of a large fraction of accredited schools. I believe that the MIT reputation is such that employers would see this MITx super-certificate as providing a meaningful description of the skill set of the recipient.
OK, maybe a BSEE from Berkeley (or even Cal Poly) is worth more than an online certificate from MITx, but how would the certificate compare to a BS from CSU Nowhere or ITT Tech?

At the Chronicle, the trade journal of higher ed, Kevin Carey is a little more blunt:
Harvardx won’t compete with Harvard University in the business of running admissions tournaments for aspiring members of the ruling class or assembling great minds in a single place to conduct world-class scholarship and reseach. Harvardx will be competing with everyone who isn’t Harvard University, or its general equivalent. Expensive, newly-arrived, brand-deficient for-profit online colleges probably have the most to fear, followed by over-priced private non-profits and then lower-quality non-selective public institutions.
This news comes at a time when California politicians continue to mismanage the state economy and state budget, spending billions on pet projects we can’t afford while defunding public higher education. The cuts are real, not hypothetical, and they are weakening all three levels of higher education — UC, CSU and JCs. Since college expenses are mostly people, as with the past decade of cuts, the latest cuts mean hiring freezes, layoffs and likely less students being served (or increased prices, or both). The generate incremental revenue, the UC graduate and professional programs — MBA, JDs, MDs, MS engineering — have already raised their prices to public school levels, and CSUs are heading in that direction.

It‘s clear where this trend is going. As with online retailing, scale economies reduce costs, increase scope and eliminate natural geographic boundaries of competition. All colleges will need to increase labor productivity (both efficiency and effectiveness) to survive.

Writing on TechCrunch, Gregory Ferenstein attacks the problem of effectiveness — the unspoken problem that rather than mastering material, students everywhere cram information into short-term memory just long enough to take a test:
[S]aying that EdX is "the biggest change in education since the invention of the printing press" ignores the fact that lectures are often the least educational aspect of college: after four years of instruction, research shows that many students haven't mastered basic reasoning or communication skills. Students forget most of what they hear in lecture and then only recall 40% of the tested material two years later. Lectures do little for students actually enrolled in the school, let alone the millions of online users who will study part-time, without a supportive community or frequent feedback from a professor.
The answer is to change the actual delivery approach in residential education, i.e. use online methods to eliminate the lecture and use classroom time for feedback and personalized instruction:
[l]ast week, two Stanford professors made a courageous proposal to ditch lectures in the medical school. "For most of the 20th century, lectures provided an efficient way to transfer knowledge, But in an era with a perfect video-delivery platform -- one that serves up billions of YouTube views and millions of TED Talks on such things as technology, entertainment, and design -- why would anyone waste precious class time on a lecture?," write Associate Medical School dean, Charles Prober and business professor, Chip Heath, in the New England Journal of Medicine. Instead, they call for an embrace of the "flipped" classroom, where students review Khan Academy's YouTube lectures at home and solve problems alongside professors in the classroom. …

Prober and Heath point to a recent one-week study that compared the outcomes of two classes, a control class that received a lecture from a Nobel Prize-winning physicist and an experimental section where students worked with graduate assistants to solve physics problems. Test scores for the experimental group (non-lecture) was nearly double that of the control section (41% to 74%).

"Students are being taught roughly the same way they were taught when the Wright brothers were tinkering at Kitty Hawk," they explain. After a revolution, an organization should bear little resemblance to its former self. Harvard and MIT have merely placed the 20th century education model online. Stanford, on the other hand, is completely doing away with the old model of the "sage on the stage" and embracing a learning environment that mirrors life forever connected to the world's information.
My new employer is pursuing exactly this approach of flipping the classroom to improve effectiveness. Being small, nimble and non-bureaucratic, I think we can get there quicker than most. But, like every other graduate professional program, we will have to demonstrate the value proposition and career benefits of our residential program.

Still, it’s clear to see where this is heading. Higher education has long resisted improvements in labor productivity, but online education efforts such as edX and OCW provide the path forward. Improved efficiency means less labor used for the same quantity of goods delivered. In a “flipped” classroom, much of the work today done by professors will be done by grad student TAs, people with master’s degrees, or otherwise less expensive or higher productivity workers.

The one missing piece was grading: the labor-intensive, non-automatable part of the education equation. Stanford’s CS faculty have been working to create an artificial intelligence approach to grade more arbitrary forms of homework (including someday essays). This would provide order of magnitude improvements scale, allowing one faculty member to teach not 500 but 50,000 or 100,000 students, without having (as in a traditional lecture-recitation approach) provide one section leader for every 30 students. (MIT says their electronics class of 120,000 students has “the number of TAs you would expect for a class with 100 or 200 people,” by relying on discussion boards as a substitute for class discussion.)

As a result, employment numbers for PhD-holding faculty will fall by at least a third (probably more like 50%) by the middle of this century: college professors will not quite go the way of cold type typesetters, keypunch operators or record store clerks, but our jobs are not as safe as manicurists or lifeguards. Like other elite research universities, MIT will continue as a contract research lab for industry, government and other sponsors, hiring PhDs and grad students to deliver that research (and less frequently, teach classes).