Microsoft to Apple: “Not On Our Watch”

“Declaring that Microsoft and its partners had in the past “ceded some of the boundary between hardware and software innovation” to Apple, Microsoft CEO Steve Ballmer told CRN on Monday that the company’s Surface tablet marks a new era in which the computer software giant will leave no “stone unturned” in its innovation battle against Apple.

“We are trying to make absolutely clear we are not going to leave any space uncovered to Apple,” said an exuberant Ballmer in a 30-minute interview after addressing some 16,000 partners at the company’s annual Worldwide Partner Conference in Toronto. “We are not. No space uncovered that is Apple’s.

“But we are not going to let any piece of this [go uncontested to Apple],” shouted Ballmer. “Not the consumer cloud. Not hardware software innovation. We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch.”

Photo of Steve BallmerWho’s On Watch and Exactly What are They Watching?

Now if one were a cynic, one might well ask Ballmer: “If Microsoft is not ceding anything to Apple on your watch, then who exactly has been on watch for the past dozen years?” But let’s not go there.

Instead, let’s focus on the rest of Ballmer’s statement because, in my opinion, it epitomizes exactly why Microsoft has been struggling of late.

Eyes Not On The Prize

Do you think, for even one-second, that the executives at Apple ever sit around and talk about not leaving “any space uncovered to Microsoft?” Of course not. That would be counter-productive. Apple spends its time implementing its strategy and doing what it does best, not “covering” what its competitors do best.

Chasing, Not Leading

Trying to “cover” what Apple is doing is not new behavior for Microsoft. Over the past ten years, Microsoft has followed the same strategy of not leaving anything Apple does uncovered by attacking the iPod with the Zune, attacking the iPhone with Windows Phone 7 and now, attacking the iPad with the Surface. The results, so far, have not been encouraging. The Zune was officially discontinued this year. Come to think of it, Windows Phone 7 was officially discontinued this year too. That only leaves the Surface and, while it may hit the ground running in October, it’s already ceded a two and a half year lead to Apple’s iPad. And that’s too long.

Play to Your Strengths, Not to the Strengths of Your Competitors

The problem, as I see it, is that while Apple is forging ahead on the path that they’ve mapped out for themselves, Microsoft is following Apple around and playing catch up. Instead of acting on their strengths, they’re reacting to their weaknesses.

Further, instead of creating new and innovative devices of their own, Microsoft is playing a game of one-up. They see what Apple has done, they study it, they come up with a differentiated product – perhaps even an arguably better product, and then–two years later–they bring their one-up product to market and declare themselves the victor. Only thing is, by the time they bring their product to market, Apple and the market have already moved on.

Microsoft needs to stop trying to one-up the competition. Apple didn’t one-up the competition with the iPod–they re-invented the MP3 market. Apple didn’t one-up the competition with the iPhone–they re-invented pocketable computing. Apple didn’t one-up the competition with the iPad–they created a whole new category of computing.

A Word of Advice

Microsoft, a word of advice: If you’re so insistent on doing Apple one better, maybe Apple’s attitude toward their competition is just the kind of strategic advantage that you should be adopting and improving upon. Stop worrying about what Apple is doing on your watch. In fact, stop watching Apple altogether. It seems to me that you’ve been watching Apple far too long and far too much already.

Instead…

  • Stop focusing on doing the competition one better and focus, instead, on doing what you do best.
  • Stop focusing on not leaving anything uncontested and focus, instead, on only entering those contests that you’re best suited for.
  • Stop focusing on what you’re going to do TO the competition and start focusing, instead, on what you’re going to do FOR us, your customers.
  • Stop chasing the competition and, instead, start chasing your dreams.

Are Wearables the Next Wave of Computing?

Two weeks ago at Google I/O, Google thrust wearable computing into the mainstream, public eye by performing one of the most incredible stunts I had ever seen on the technology stage.  Wearing Google Glass and communicating via real-time voice and video, daredevils jumped out of a blimp, landed on the Moscone Center roof, rappelled down its side and biked into Google I/O to throngs of cheering participants.  Is wearable computing great for “show” but making no sense in reality, or is this technology truly the future of computing?

We need to first define wearable computing.  This may appear simple in that it’s “computing you can wear”, but it’s a bit more complicated than that as I have seen some very confused news articles on it.  Let’s start with what they aren’t.  Wearables are not computing devices that are implanted into the body.  This may appear at first glance to be an odd thing to even discuss, but over the next ten years there will be very many compute devices implanted to help people with their medical ailments to help with sight, hearing, and drug dispensing.  Related to this, wearables are not implanted into prosthetic limbs either.  Wearables are compute devices embedded into items attached to the body.  Some are hidden, some are visible.  Some are specific compute devices; others are embedded into something we view today as something totally different like glasses, contact lenses, clothing, watches and even jewelry.

So now we know what wearable computers are, let’s look at the current challenges making them more than a niche today.  For all wearables, input and output are the biggest issues today that keep them from being useful or inexpensive.  Today, keyboards and pointing devices (fingers included) are the most prevalent input methods for today’s computer devices.  Useful voice control is new and gaining popularity, but isn’t nearly as popular as keyboard, mouse, and touch.  For wearable input to become popular, voice command, control, and dictation will need to be greatly improved.  This has begun already with Apple Siri and Google Voice, but will need to be improved by factors of ten to use it as a primary input method.  Ironically, improvements in wearable output will help with help with input.  Let me explain.  Picture the Google Glass display that will be built into the glasses.  Because it knows where you are looking by using pupil tracking, it will know even better what you are looking at which adds context to your command.  The final input method in research right now is BCI, or brain control interface.  The medical field is investing heavily in this, primarily as a way to give quadriplegics and brain-injured a fuller life.

Output for wearables will be primarily auditory, but of course, displays will also provide us the information we want and need. Consumers will be able to pick the voice and personality as easy as they get ring-tones.  Music stars and even cartoon character “agent voices” will be for sale and downloadable like an app is today.  Some users will opt for today’s style earphones, but others will opt for the newer technology that fits directly into the ear canal like a mini-hearing aid, virtually unnoticeable to the naked eye.

Display output is the most industry-confused part of the wearable equation.  The industry is confused on this because they are not thinking beyond today’s odd-looking Google Glass’s glasses form factor.  Over time, this display technology will be integrated as an option into your favorite’s brand of designer glasses. You will not be able to tell what are regular glasses and ones used for wearables.  Contact lenses are being reworked as well.  Prototypes already exist for contact lenses that work as displays, so like all emerging tech, will make it into the mainstream over time.  The final, yet most important aspect to the wearable display is that every display within viewing distance will be a display.  Based on advancements in wireless display technology and the prevalence of displays everywhere, your wearable will display data in your car, your office, the bathroom mirror, your TV, your refrigerator…… pretty much everywhere.

So if the input-output problem is fixed, does this mean wearables will be an instant success?  No, it does not.  Here, we need to talk about the incremental value it brings versus the alternatives, primarily smartphones.   Smartphones may actually morph into wearables, but for the sake of this analysis, it helps to keep them separate.  On the plus side, wearables will be almost invisible, lighter, more durable, and even more accurate for input when combined with integrated visual output.  New usage models will emerge, too, like driving assistance.  Imagine the future of turn-by-turn directions with your heads-up-display integrated into your Ray Ban Wayfarers. On the negative side, wearables will be more expensive, have less battery life, less compute performance and storage, and almost unusable if a display isn’t available all the time.  This is a very simplified view of the variables that consumers will be looking look at as they make trade-offs, but these same elements will be researched in-depth over many, many years.

So are wearables the next wave of computing?  The short answer is yes but the more difficult question is when and how pervasive.  I believe wearables will evolve quicker than the 30 years it took cellphones to become pervasive.  The new usage models for driving, sports, games and video entertainment will dictate just how quickly this will evolve.  I believe as technology has fully “appified” and Moore’s law will still be driving silicon densities, wearables will be mainstream in 7-10 years.

Can You Be Identified from Anonymous Data? It’s Not So Simple

For the past several years, a highly technical but very important debate has raged among privacy experts: How easy is it to identify an individual from a collection of data that supposedly lacks personally identifiable information? Those who say that it is relatively easy argue for greater restrictions on the release of data and more stringent efforts to anonymize it. Their opponents argue that worrying too much about the risk of “re-identification” deprives researchers of valuable data in fields such as epidemiology.

Daniel_Barth-Jones Photo
Daniel Barth-Jones (Columbia Univ.)

A centerpiece of the debate is a 1997 incident in which Latanya Sweeney, then an MIT graduate student and now a computer scientist at Harvard, identified the medical records of Massachusetts Governor William Weld from information publicly available in a state insurance database. The incident led to important changes in privacy rules for medical information, especially under the Health Insurance Portability and Accessibility Act (HIPAA), and 15 years later it is still influencing the debate over data privacy.

But a new draft paper by Daniel C. Barth-Jones of Columbia’s Mailman School of Public Health suggests the Weld re-identification may have been a fluke that depended on Weld’s prominence as a public figure who suffered a highly publicized medical incident. For ordinary folks, the risks of such an identification are much lower.

The facts of the Weld case are not in dispute. On May 18, 1996, Weld collapsed at a public event. He was diagnosed with the flu and released after a brief hospitalization. With knowledge of Weld’s date of birth and zip code, Sweeney was able to locate Weld’s records in the Massachusetts Group Insurance Commission (GIC) database and verify them with a cross-reference to Cambridge voter-registration records.

Barth-Jones points out that this is not at all the same as finding the records of an arbitrary individual. For one thing, the date and place of his hospitalization were public information. But his bigger concern is with the use of voter registration data to confirm that the GIC records, which had no names associated with them, were truly Weld’s. The danger of a false positive arises from the possibilities that there might be individuals in the  zip code with the same date of birth who are not registered to vote in Cambridge and therefore do not appear in the database. In fact, Barth-Jones concludes that there was only a 62% to 66% probability that the re-identification of Weld through the voter list was correct. The U.S. has no universal listing of citizens by name, let alone by name and address. Voter lists are about as good as it gets.

This is not merely an academic dispute. Barth-Jones credits Sweeney’s 1997 paper for bringing needed limitations on the amount of medical data made public under HIPAA. For example, published records may now only contain a three-digit rather than a five-digit zip code and year, rather than year and day, of birth. This means a much larger number of individuals will share the same basic information, making successful identification far more difficult.

Privacy advocates, however, sometimes continue to argue as if these changes had never been made and that the Weld re-identification is a typical event. For example, Paul Ohm of the University of Colorado Law School argues, “Thus, easy, cheap, powerful re-identification will cause significant harm that is difficult to avoid. Faced with these daunting new challenges, regulators must find new ways to measure the risk to privacy in different contexts.” Barth-Jones maintains that re-identification is nowhere near as cheap and easy as Ohm suggests.

And there is a cost to further restrictions on the availability of data. In a paper entitled “The Tragedy of the Data Commons,” Jane Yakowitz Bambauer of the Brooklyn Law School, who has collaborated with Barth-Jones, writes: “[A]nonymized data is crucial to beneficial social research, and constitutes a public resource–a commons–under threat of depletion…. [S]ince current privacy policies overtax valuable research without reducing any realistic risks, law should provide a safe harbor for the dissemination of research data.”

The Case for 7-inch Tablets

Last week the rumor mills and tech blogs were bustling last week about the possibility of a 7-inch iPad, potentially called the iPad Mini. Rather than focus this entire column on why it makes sense for Apple to make a smaller version of the iPad, I figured I would point out why I think there is a market for 7″ tablets and how such a product may fit in Apple’s and others portfolio.

The Evolution of Portable Entertainment

In my view the 7″ tablet represents the evolution of portable entertainment. In many of the same ways that the iPad itself represents the evolution of portable computing, so would a smaller iPad represent the evolution of portable entertainment. I spoke about this and was quoted on the subject last week with many press, and my overall point was that the right way to think about a smaller iPad is that it represents more the evolution of the iPod than the evolution of the iPad.

7″ tablets may very well be the ideal size for an ultra-portable entertainment focused tablet. The form factor itself makes it highly portable. It can fit in purses, coat pockets, and many other places easily. The screen size is more enjoyable for entertainment than the most pocketable computer (the smart phone) but still small enough to be more portable than a 9.7-10.1 inch tablet.

The larger tablets like the iPad are more mobile than notebooks but still capable of being used for productivity. In my view the iPad is a general purpose tablet where a 7″ tablet is more specialized and its value will be centered around entertainment.

For the iPad customer I don’t see the value of owning an iPad and an iPad mini. The iPad in my opinion is capable of fulfilling the task of personal computing for the vast majority of mass market, non power user consumers. In our talks with this specific group of consumers were are finding that their iPads are slowly replacing their traditional PCs and we expect this trend to continue.

However, there will still be plenty of consumers who still desire, want, need, a new notebook. This market may very well benefit from a more portable media companion like a 7″ tablet. The notebook plus a 7″ tablet combo will be an ideal solution for a certain segment of the market. And the sufficiency of the iPad as a portable media companion and personal computer will meet the needs of other segments of the market.

An iPad mini strengthens Apple’s ecosystem plain and simple.

For Google, and Amazon, a 7″ tablet is not an ecosystem strengthener it is an ecosystem extender. Amazon’s strategy is to drive commerce and they desire their screen to be consumers personal window to spend money in the Amazon commerce engine and consume Amazon services.

Google’s desire is to extend all of the Google services to a market broader than smart phones. The Nexus 7 is the first solid step in this direction and has all of Google’s services tightly integrated.

For all the above companies a pure media tablet play makes sense. All the above companies have more ways to make money on these devices than just the hardware. So where does that leave everyone else?

There was no MP3 Market

I recall the saying that there was not an MP3 market there was only an iPod market. The same case can be made for the iPad to date. The question in my mind is whether or not this 7-inch tablet market is sustainable for many or just a few. More specifically can anyone but Apple, Google, and Amazon make any money from this form factor?

I use the MP3 market illustration because I am willing to bet that the fundamentals of the 7″ tablet market will function very similar to the iPod market. Namely because the 7″ form factor represents the evolution of portable entertainment, which the iPod was an evolution of as well. These devices will also likely not see subsidization from a carrier any time soon or heavily discounted from a retailer. They are also highly dependent on a rich media ecosystem of services like music stores, video and TV show stores, digital books and magazines, etc. In many ways these devices represent to consumers a larger version of what they knew and loved about the iPod.

The devices being positioned primarily as entertainment devices, and their subsequent dependence of rich media services, only strengthens the case that this market favors the few over the many. I am in no way saying others can’t compete only that it will be very difficult and they may need to turn over new stones in order to find partners who own all or parts of a rich media ecosystems.

Where is Microsoft?

This discussion about the 7-inch tablet segment begs a fascinating question. Can Microsoft play in it? Microsoft has fundamentally built their next generation operating systems as the purest blend between a full desktop and full tablet software platform. This philosophy is not going to work on a segment that is focused purely on media. Metro may all by itself but not Windows 8. So is the answer Windows Phone? Is Windows Phone the solution Microsoft can offer any potential customers looking at the 7″ segment? Microsoft has Nook assets at their disposal but the Nook platform was built on Android. Do they need to revamp Windows Phone or create something new around Nook assets? Or does Microsoft let Android have the 7″ market as the platform of choice for any company not named Apple?

Microsoft is on the eve of simply trying to gain a foothold in tablet computing at large, while on that same eve a new category is dawning that I don’t believe the are even remotely prepared for. Microsoft’s reaction to the 7″ tablet market will be one of the more interesting story lines to watch.

All in all the tablet category is still the fastest growing segment in personal computing. Even though 7″ tablets will be focused on entertainment and media they will continue to ignite this new growth phase of personal computing. I think we can again confidently predict that tablets will be hot again this holiday.

It’s Time for New Industry Innovations

First I wanted to thank the many folks who through Facebook, twitter and other social media found out that I had a heart attack that led to a triple bypass. So many of you sent get well notes and notes of prayers and good thoughts and they were all greatly appreciated. The doctors told me I was 30 minutes from a major stroke and 60 minutes from losing 50% of my heart muscle. I am glad I listened to my body and went to emergency and that saved me.
I am now in serious healing mode and am told I will be good as new by Sept . That is why I have not written any columns here at Tech.pinions for about 6 weeks. Only now am I getting my strength back to start writing again.

One interesting by product of this is the fact that for 2 weeks I was completely disconnected. I suppose if you keep a guy on morphine you can keep him disconnected. So once I was switched to a regular room the first thing I asked for was my iPad and Macbook Air. It took me a week to catch up and when I got home I devoured as much industry info I need to do my job.

Although a lot of news passed under the bridge, to be fair, I found nothing earth shattering. Even more disappointing was as I perused the products from Computex and they all seemed the same. Most of what I saw was just some type of variation on the same theme. This was played out later in the week when Microsoft introduced their Surface Computer. It too was a variation of things already done albeit with their version with their unique touches to it.

It seems to me that the industry is at a standstill. Where is the innovation going to come from? Where is the next iPad that revolutionizes personal computing? Where is the new user interface that change how we interact with our computer? Where are the flexible screens that would change the way we view things? When does the network become the computer?

It appears to me that Apple leads and then the industry spends the next 5 years catching up. That has been good for Apple but devastating for competitors. At some point, the industry needs to step up and make some bold steps of innovation on its own. HP has one of the richest labs known to man. They need to commercialize some of their great technology. Xerox PARC is known for their technology and mostly for things that got away such as Postscript, The Mouse and the graphical User Interface. They have great stuff Inside. In fact, nearly all of the OEM’s have innovation labs of their own and it is time for them to dig deep and start innovating from within.

I expect Apple to continue to innovate and lead, but for this industry to really make some strides and start changing the compute landscape dramatically, it is going to take more then Apple to make it happen. I am normally an industry optimist but those two weeks away from everything has made it clear that we are kind of stuck in a circle. Apple innovates and the rest of the industry spends the next 5 years playing catch up. Apple should innovate but the rest of the industry needs to innovate as well and at warp speed. If they do, the future of personal computing can be bright. If not, it will only be bright for Apple.

Smartphones, Tablets, and PCs: A Computer for Every Purpose

View of SantoriniI’m fresh back from a couple of lovely weeks cruising the Mediterranean. In addition to providing some needed relaxation, the trip convinced me that we are truly living in a golden age of computing. Whatever your need, there’s a device ideally suited for it–and this specialization will shape the future of the tech market.

I traveled with more equipment than was strictly necessary: A 13″ MacBook Air, a third-generation iPad with a Zagg keyboard, iPhone 4S, and a Kindle Fire (plus my wife had an Acer 10″ Honeycomb tablet.) The iPhone proved to be the workhorse. It was the device for which I had arranged international data service, so it was where I read my mail, checked my Twitter feed, and generally kept in touch.

When Wi-Fi was available (I refused to use the ship’s very expensive, very slow satellite-based connection), I’d fire up the iPad. At need, I would connect it through the iPhone, but I avoided tethering as much as possible to minimize the drain on a very limited data plan. I hardly used the MacBook at all. On one occasion when I decided to write a full Tech.pinions post on shipboard, I used the laptop because it was there, but could have done the job on the iPad. Mostly I used the MacBook just as a pipe to transfer photos from my camera to a small external hard drive. The Kindle was used exclusively for reading, and I ended up wishing I had brought a an E Ink Kindle rather than the Fire because the LCD screen was hard to read on deck.

My point here is that each of these devices fits into a usability niche and it makes sense, especially given the trend of falling prices, for people to have multiple computers–and all these devices are computers of varying capabilities–and choose the one they need for the job at hand. The devices I took all slid easily into my daypack with lots of room left for other stuff, and together they weighed less, and probably cost less, than the laptop I would have taken instead a few years ago.

The experience leads me to agree with Jim Dalrymple’s conclusion that Bill Gates is way off the mark with his argument that competitive pressure will force Apple to come up with a more versatile device along the lines of Microsoft’s forthcoming Surface tablet. Microsoft has always championed the idea that the most versatile device is the best device and that Windows is literally an all-purpose operating system. Microsoft is again missing the point in coming up with hardware and an operating system, Windows 8, that tries to be all things to all people at all times.  Apple continues to have a much better idea of device segmentation: the iPhone (and its cousin, the iPod touch), the iPad, and the MacBook  each fits into a specific niche of usability and each comes with core software closely tailored to that functionality. The iPhone is the device you always have with you. You turn to the iPad when you need a bigger display and software capable of greater complexity. And is you need multiple windows, true multitasking, lots of local storage, and maximum software flexibility, you fire up the MacBook. And if Apple does produce the hotly rumored mini-iPad, I suspect it will come with features that will determine its distinctive niche.

The do-it-all general purpose computer had a nice quarter-century run. But its day is over.

 

Bill Gates is wrong

In an interview with Charlie Rose earlier this week, Microsoft’s co-founder Bill Gates said it is “a strong possibility” that Apple may have to create a Surface-like device. Gates also said the introduction of Microsoft’s Surface tablet “is a seminal event.” I completely disagree on both counts.

By trying to combine what people do on their PC with what they want to do on a tablet, Microsoft feels it is offering the best of both worlds.The problem with that, as I’ve said before, is that people interact differently with a tablet than they do a computer. So, in reality, you don’t get the best of both worlds, but rather a mishmash of each.

The interaction people have with a touch device is something Apple understood early on and they embraced it. In doing so, they created a new way to interact with apps that includes using multi-finger gestures, as well as utilizing hardware components like accelerometers to enhance gaming.

Perhaps this isn’t what Microsoft had in mind for the Surface. It could be that Gates is referring to working on spreadsheets and word processing documents. This is why one model of the surface will allow you to use current desktop apps, like Office.

You can work with spreadsheets on the iPad too, using Apple’s iWork suite of apps. The major difference between the two is that with iWork on the iPad, you use your finger to interact with the app. You swipe, tap, touch and type all on the screen — exactly the way you would expect a touch app to work.

I’m not sure how Microsoft expects people to work with apps on the Surface. Desktop apps don’t work like touch apps, so the experience will undoubtedly be confusing. Some apps you swipe, others you using a stylus and still others you… do something else?

I still give Microsoft credit for not blindly following Apple into the tablet space, but I’m not convinced that this hybrid PC/Tablet model is the way to go.

I can see why Gates would consider the Surface such an important release. He’s betting the company on its success, and let’s face it, Microsoft hasn’t exactly been releasing successful products over the last 10 years.

Dumb or Disrupted? The Demise of RIM

Poor, dumb, old RIM

There sure has been an awful lot of talk of late about just how awful things have gotten for poor, dumb, old RIM. Some of the talk is sympathetic: “How could it have come to this?” A lot of the talk is apoplectic: “What is wrong with the players in the mobile industry?” Some of the talk is sad and regretful: “Oh, those poor people in Waterloo, Canada.”

But much of the talk has been downright giddy, spiteful, and soaked through and through with twenty-twenty hindsight.

“RIM,” the critics chortle, “was too arrogant to recognize the dangers posed by the iPhone and Android; too slow moving to react when they finally saw the danger; and too dumb to know what to do when they finally did react.”

“Keyboard loving co-CEO’s Jim Balsillie and Mike Lazaridis got exactly what was coming to them. Their sanctimonious, self-righteous, self-assured, sanguinity finally caught up to them and now they, and RIM, are paying the price for their arrogance and their ignorance.”

Hmm. Maybe. Maybe so. But then again, maybe not.

A Littler Perspective

In 2006, the crown princes of smart phones were RIM, Palm, Nokia and Microsoft. They were smart, successful companies run by smart, successful men.

Today, Palm is gone, Windows Mobile is gone and its replacement, Windows Phone 7, is running in place unable to gain any traction in the market. Meanwhile, Nokia has given up its independence and become a vassal to Microsoft and RIM has one foot in the grave.

Did all of these powerful companies and all of these smart CEO’s suddenly become incompetent and deadly dumb all at the same time? Or did something external happen that made them just look stupid to unsympathetic and unforgiving critics like you and me?

The iPhone Happend

In 2007, the iPhone happened. it’s not like the industry wasn’t watching. But what they saw didn’t scare them at all. It was pretty obvious, even at a cursory glance, than the iPhone was no phone competitor. They were oh so right. But that’s what made what was about to happen so very, very bad. Bad for them, at least.

Market disruption is caused when an innovation creates a new value network. Prior to 2007, smart phones were phones that did a little computing on the side. The iPhone was a computer that that did a little phone calling on the side. RIM, Palm and Nokia were phone companies. Apple, Google and Microsoft are computer companies. When the value shifted from the phone to the pocket computer, the advantage moved from the phone companies to the computer companies.

Palm, Nokia, RIM and Microsoft’s Windows Mobile thought they were safe from another phone competitor – especially one that wasn’t that great a phone and didn’t even come with a keyboard. They were right. But what Palm, Nokia, RIM and Microsoft didn’t realize was they weren’t competing with a phone. They were competing with a pocket computer.

The value chain had shifted. The incumbents were still – successfully – defending the old value chain. But their customers weren’t leaving them for better phones, they were leaving them for better computers. They fact that those computers sent texts, did email and even made phone calls was simply a bonus. The phone makers were blind-sided. The pocket computers were good enough to compete with them. But they had no answer to the superior benefits provided by the pocket computers.

  • Google
  • Google (Android) was the first to react. They dumped their RIM-like phone designs and (eventually) created a superb alternative to the iPhone. Their market success is a testament to their flexibility and their programming prowess.

    I don’t want, in any way, to diminish the stellar job that Google did with Android, but, in addition to being good, they might also have gotten just a little bit lucky too. (Nothing wrong with that.) Their timing was ideal. Their OS was ready, they hadn’t yet committed to the market and when the newly minted iPhone arrived on the scene, the Android team pivoted on a dime and took advantage of a gap in the market and what turned out to be a golden opportunity.

    The stuff of champions.

  • Palm
  • Palm was the next company to see the writing on the wall. They ditched their existing OS and went all in on webOS. Unfortunately for Palm (and perhaps for us all), they didn’t have the resources to sustain their efforts. They ran out of money, ran out of time and they ran out of chances.

    (I’m not going to rehash their second chance with HP. Too painful.)

  • Microsoft
  • Microsoft was the next company to see the light. We can mock Ballmer all we want for initially laughing at the iPhone but once Microsoft decided to act they acted decisively. Microsoft unceremoniously dumped Windows Mobile and entered into a massive effort to create the wholly re-imagined Windows Phone 7.

    Their reward? A tiny sliver of the market and no traction whatsoever. All of Microsoft’s business connections and all of their resources couldn’t buy them back into the market. Most didn’t know it at the time, but the window of opportunity to climb back into mobile phones that were really pocket computers had already closed or was closing fast.

  • Nokia
  • Nokia was the next to see the light or, in their case, they were next to see the “burning platform”. Ex-Microsoft executive Stephen Elop shoved Nokia off the platforms that were Symbian and MeeGo right into the icy waters that are Windows Phone 7. Their efforts, not unexpectedly, were met with a chilly reception. Nokia isn’t sunk yet but they may be going down for the third time. If circumstances don’t throw them a life preserver soon, we’ll be writing requiems for them next.

  • RIM
  • RIM was the last to have the scales fall from their eyes. And while it’s true that RIM’s co-CEO’s kept us all constantly entertained with their oh-so-dumb,-we-obviously-don’t-get-it quotes, it was probably over for them long, long ago.

    If it was already too late when Palm tried to make the switch; it if may have already been too late when Microsoft tried to make the switch, what chance did RIM’s belated efforts really have?

    Not an Excuse, but an Explanation

    It may be true that RIM was arrogant, RIM was slow to change and RIM made some bad choices. But if you had been in their shoes, you too may well have followed the same path that they did.

    In 2007, RIM was a bastion of strength and the iPhone was an impudent interloper. Go back and read the commentary from the time and you’ll see that even as the iPhone started to catch on and even as Android started its meteoric rise, RIM’s future was assured.

    RIM had an impenetrable moat built around their business. BBM’s instant message service and RIM’s security gave RIM two unique and competitor-proof features. Customers adored (and still adore) using RIM’s BlackBerry phones for texting and emailing. And business and government entities were never going to give up their CrackBerry’s and the airtight security that came with them.

    For RIM to have changed in 2007, 2008 or even 2009 would have seemed like madness. Why abandon one’s strengths to chase a chimera? Let consumers play with their Apple and Android toys. Real phone lovers loved to do real work on real phones like the RIM BlackBerry. And RIM’s loyalty and sales retention were second to none. They didn’t call those phones “Crackberries” for nothing.

    Requiem for RIM

    We can make fun of RIM and their codependent CEO’s all day long or – maybe, just maybe – they deserve our understanding instead of our derision. Maybe, instead of mocking RIM, we should be whispering a silent prayer of thanks that Apple didn’t come into our back yard and disrupt our business and make us all look as dumb as a box of rocks.

    Was RIM really dumb or were they doomed from the get go? The iPhone and the Android phones were pocket computers. Apple and Google and later Microsoft were computer companies with tons of experience in creating computer software and computer operating systems.

    RIM was a phone company that did computing on the side. Compared to Apple and Google, they had little experience in computers and computer operating systems. They would have had to abandon their roots, toss out everything they knew and chose to compete with computer companies on their terms, all while their current business model was still, not only viable but, very successful and profitable as well. When you think of it that way, it’s asking a awful lot.

    Conclusion

    Maybe RIM did wait too long. Or maybe their so-called window of opportunity never really existed in the first place. When the iPhone first appeared, RIM could have tossed everything that had worked for them in the past and chased a device that, by all rights, was sure to fail or, at best, become a niche product. They could have done that. But most likely, RIM never really had a chance at all. They were finished that moment, in January 2007, when Steve Jobs lifted the iconic device over his head and declared: “…and we call it..iPhone!”

    Why Apple Needs a 7 Inch Tablet

    Last week, most of the tech industry was consumed with Google I/O, Google’s annual event to woo software and hardware developers to Googlenexus 7 and consequently away from Apple and Microsoft.  In addition to Google Glass-adorned daredevils jumping out of blimps and scaling down the sides of buildings, the Nexus 7 Tablet, the first full-featured, no-compromise tablet was launched at $199.  What’s very clear is that the Google Nexus 7 will sell well and take business away from Apple’s $399 iPad 2.  This is exactly why Apple needs a 7” tablet or else face the prospect of losing market share and profit dollars.

    The Kindle Fire was released back in September 2011 to big fanfare.  I was accurate in stating it would take share away from the $499 iPad 2, which was true until the iPad 3 was launched and iPad 2 reduced down to $399 back in February.  The situation has changed now as the Fire is slogging away and is losing share to the iPad 2 and even to the $199 Nook Tablet and the $169 Nook Color.  It makes sense, as the Fire is a stripped down tablet and the iPad 2 is not, and many consumers were willing to pay the extra $200 to have the full experience.  The Fire used a smartphone operating system, had an SD display and users got a large smartphone experience.  It wan’t a great experience, but it wasn’t horrible, particularly at the ground-breaking price point.  The Fire also lacked access to the broad Google Play content and application environment, too, which, to some, was limiting.

    The Google Nexus 7 Tablet is an entirely different animal.  It comes with the top of the line NVIDIA Tegra 3 with 4-PLUS-1 processor, the latest Android Jelly Bean OS, NFC, an HD display, camera, microphone and full access to the Google Play store. After seeing Jelly Bean in action, it is a marked improvement over prior Android operating systems  I have used that just didn’t quite feel right and toward which I have been so critical.  The Google Nexus 7 will sell well, which is good for Google, Android, ASUS and NVIDIA, but bad for Apple, unless they act before the holidays.

    Historically, Apple has been OK taking the high road on unit market share, particularly in PCs.  The situation changed with the iPod, iPhone and the same is true for iPad.  Apple wants market share and will do what it takes to get it, as long as it’s profitable, they can deliver a great experience, and stay true to their brand. Apple could do just this with a 7”, $299 tablet. Apple would be very profitable as well, as the most expensive piece-parts of a tablet are the display and touch-screen, which are priced somewhat linear with size. Apple may have redesigned some of the innards of the new iPad 2 as they lowered the price, but not nearly enough to offset the $100 price reduction, so a mini-iPad would be additive, not dilutive like the $399 iPad 2.

    Would consumers pay $100 for the Apple brand and experience?  In most traditional geographies, yes, they would, as consumers have shown the willingness to pay more than $99 more for iPods and $199 more for iPads.  This is exactly what the mini-iPad would be; a large iPod.  That’s not bad, that is good in the sense that  the iPod is still the most popular full-featured personal media player out there.

    Will Apple productize what they undoubtedly have running in their labs?  I will leave that to the numerous Apple rumor sites, but one major occurrence suggests they will not, and that was one of the great proclamations from the late Steve Jobs.  According to Wired, in October of 2010, Jobs apparently said the following during an earnings call: “7-inch tablets are tweeners: too big to compete with a smartphone and too small to compete with the iPad. These are among the reasons that the current crop of 7-inch tablets are going to be DOA — dead on arrival.” Does this say Apple would never do a 7” tablet?  Actually it does not, as it is really a statement about non-Apple products and  Jobs left Apple some wiggle room to maneuver.  What I know for sure is that Apple must act in the next few months or risk tablet share degradation to the Google Nexus 7.

    Celebrate the Fourth with Warring Declarations of Internet Freedom

    Image of Declaration of IndependenceWhen the Continental Congress met in Philadelphia in 1776, it was rife with divisions: north vs. south, slave vs. free, big states vs. small states. But the delegates managed to compromise on a document that remains fresh, relevant, and revolutionary. Today, things are different. So on the 236th anniversary of the Declaration of Independence (in those slower times, it was passed on the 2nd and published on the 4th), we have competing declarations of internet freedom.

    The Electronic Frontier Foundation, Free Press, and others got the ball rolling with a Declaration of Internet Freedom. Although these groups lean leftward in their political orientation, the sin of the declaration is not its partisanship but its insipidness. It’s so brief that I’ll include it in full:

    We stand for a free and open Internet.

    We support transparent and participatory processes for making Internet policy and the establishment of five basic principles:

    • Expression: Don’t censor the Internet.
    • Access: Promote universal access to fast and affordable networks.
    • Openness: Keep the Internet an open network where everyone is free to connect, communicate, write, read, watch, speak, listen, learn, create and innovate.
    • Innovation: Protect the freedom to innovate and create without permission. Don’t block new technologies, and don’t punish innovators for their users’ actions.
    • Privacy: Protect privacy and defend everyone’s ability to control how their data and devices are used.

    This reminds me a little of the “Oppose Terrorism” license plates that Virginia issued after 9-11. Anyone taking a firm stand where no rational person would want to take the other side isn’t saying much. Unless you do a lot of reading between the lines based on the positions taken by the groups sponsoring the declaration on issues such as network neutrality and copyright, there’s nothing there to disagree with. Or rally around.

    This declaration prompted Tech Freedom, the Competitive Enterprise Institute, and other libertarian-leaning groups to come up with their own Declaration of Internet Freedom. It’s longer,  more controversial, and a good bit more substantive. Though it clearly reflects its sponsors’ preferences for minimal government (“Government is the greatest obstacle to the emergence of fast and affordable broadband networks.”) it’s not overly partisan and offers much, particularly a forthright defense of free speech, that would put EFF, Free Press, and Tech Freedom on the same side of the issue.

    It probably wouldn’t have taken too much effort for these groups to have reached out to each other and come up with a unified statement of rights that actually might have some impact. They actually agree on more than they disagree about, and the agreement covers most of the central issues. But today, alas, it is far too easy to get up on your electronic soapbox and shout than to do the hard work of coalition-building.

    Further Thoughts on Apple and Investors

    In a post this morning, Ben Bajarin speculated on what it is in investors’ thinking about Apple that keeps the stock price relatively depressed. Like Ben, I am not a financial analyst, but I think the mystery is even deeper than he suggests.

    Price/earnings ratio chartApple’s stock price has move up smartly in recent months, but it has stayed pretty much in step with earnings–and the remarkable thing is how little investors think $1 of Apple profit is worth. The chart shows the price/earnings ratio–the recent stock price divided by per share earnings over the past 12 months–for Apple and a number of other tech companies. Apple’s PE of 14.2 actually puts it below the average of 15.4 and the median of 14.5 for the S&P 500.

    None of the explanations advanced skeptically by Ben can begin to explain this. I think it is inevitable that the meteoric growth that Apple has enjoyed in recent quarters will soon slow if only because it is gradually saturating its markets–and the larger your base is, the harder it is to sustain high growth rates. But there is every reason to believe that Apple’s growth over any reasonable period in the future will exceed that of IBM, Oracle, or SAP, all of which enjoy higher PE ratios. And it makes no sense that a dollar of Google earnings is worth 24% more than a buck of Apple profit. It all seems a sort of anti-magical thinking.

    The fact is that even if Apple falls to earth with slower growth and no new blockbuster products, its stock should reasonably fetch more than it does. But Apple’s PE ratio has been flat for about a year and was falling before that, so this isn’t a prediction that the price will go up anytime soon either.

    (Disclosure: I do not directly own any Apple stock, though funds I invest in may.)

     

    Do Investors Truly Believe in Apple?

    Image: Fool.com
    I am not a financial analyst and I don’t do the kind of analysis solely to be used for making short or long term investment calls. I have provided analysis for some financial institutions as a part of their internal analysis but my role as an industry analyst is to study markets, trends, and the industry at large. So I plan on tackling this issue of Apple’s stock fluctuations, and most importantly Wall Streets somewhat hesitant stance toward Apple, from an industry analyst perspective not a financial analyst perspective–since I am not the latter.

    Apple’s stock is where it is today because Apple has continued to post quarter after quarter revenue and profit growth. Apple has done this primarily on the back of key fundamentals like vertical integration, their ecosystem, attention to design and user experience, solutions based thinking, and a focus on satisfying customers rather than Wall St. just to name a few. Although Apple’s stock has been relatively consistent on its upward trend there are still interesting fluctuations despite their unchallenged dominance in many product segments over the past 10 years. I know many firms who are bullish on Apple. Yet there seem to always be folks who are hesitant to embrace Apple as a long term growth stock and the question is why?

    Too Good to Be True

    There is a theory I have heard a number of times that there is a belief that Apple’s growth trend is too good to be true. I suspect that there is some truth to this and that there are investment firms out there with this belief. I believe this is an incorrect perspective, but if the too good to true belief is out there we must be aware of it.

    Financial investment firms are in the business of not just predicting what the long term stock potential is but also what other firms may do. If investors, regardless of their long term trust in Apple’s stock, know there are those who may sell shares if there is a hint of bad news, then they have to be ready for a potential sell off. Investors often have to bet with or against the market and the key is to know which and when.

    So if the too good to be true theory is partially to blame then it has to be taken into consideration by a firm if they are to make an educated guess on when to bet with or against the market.

    Even though the too good to be true theory is wrong in my view, there are bound to be some who cling to it regardless of the facts. However, I feel the root of some hesitancy about Apple’s long term stock is rooted in something deeper.

    History is Not on Apple’s Side

    I tend to believe that the main thinking affecting investors with a negative sentiment in Apple’s long term future is one of historical perspective. Apple with their closed and vertical model lost to the more open model of Microsoft long ago. So the conventional thinking would be that both Google or Microsoft with their more open platform approach will again rise to dominance if history does repeat itself. There are, however, several things I believe are wrong with the thinking that history will repeat itself.

    To see the first error all we need to do is observe many recent events. If the conventional wisdom is that open always wins then those open platform players just committed suicide. Microsoft with Surface and to some degree Google with the Nexus program, but more specifically what they may do with Motorola, are both a step in the vertical direction. In fact if you read between the lines from statements from both Microsoft and Google around the importance of tightly integrated hardware with software, then you will observe that those statements are in fact a validation that Apple’s vertical model is not only the right way forward but the superior way forward.

    The other flaw in focusing only on historical perspective is that it does not take into account that the market has changed drastically. Specifically, the market for personal computers has matured. To use historical perspective to compare an immature market with a mature market is nearly impossible. The buying psychology of customers in a mature market vs an immature market are fundamentally different.

    In fact I would argue that for most of the time when Microsoft dominated the industry, the mass market consumers were not the main purchasers of computers but rather corporations and institutions were. Therefore in the 90s specifically, corporate IT were the customers where in todays markets end consumers are the customers and they buy fundamentally differently than IT historically has.

    The market is also significantly larger than when Microsoft was dominant. Nearly every person on the planet will someday be a candidate for a personal computer of some kind. Which means that there is still a tremendous amount of growth ahead of us and my conviction is that Apple is in this for the long haul.

    For these reasons, it is impossible to use historical perspective or the argument that history is not on Apple’s side as a reason to be bearish.

    Where Do We Go From Here?

    The biggest question in my mind, which needs further analysis and thought is whether or not there can be more than one leader in the industry at a time. It is clear that right now Apple is setting the trends and to a degree dictating where we are headed with personal computing.

    When a market is maturing or even in the process of becoming post mature there tends to be a leader responsible for standardizing a solution. But in mature markets of other industries like packaged goods, consumer electronics, automobiles, etc., we don’t typically identify a clear leader, rather each company charts out a course and stays with it.

    Of course the market for personal computers may be very difficult to compare with other mature markets but if we were to find one that is closest I would say it is automobiles. I don’t have an answer, or a fully formed opinion as to whether the personal computing industry can have multiple leaders but I am sure that topic will make for good discussion.

    If we can make the case that there can only be one, or at the least very few, leading a segment then I believe we can confidently make a strong case that two decades of leadership–or more– is not out of Apple’s grasp. This and the fact that there is so much headroom for growth in personal computers globally.

    When you add market growth potential, with Apple’s fundamentals, the vertical trend, and their constant success in customer satisfaction, it is my opinion that it is hard to bet against them.