Heading for a Hollow Victory on Phone Unlocking

Photo of chained phoneThe news that the ranking Republican and Democratic members of the house Judiciary committee plan to introduce legislation to legalize the unlocking of mobile phones by consumers greatly increases the chances that Congress will reverse the refusal of the Library of Congress’ Copyright Office to approve the practice. But despite the excitement among tech activists, the victory is likely to be largely meaningless in practice. The only real beneficiaries will be owners of very new phones who are looking to use them on foreign networks without paying exorbitant roaming charges.

The problem is that while altering the software that ties a phone to a specific network removes artificially barriers to interoperability, formidable technical barriers remain in place. The convergence of fourth-generation networking technology on a standard called LTE was supposed to ease or eliminate the problem, but if anything, it has made matters worse. The problem is that U.S. carriers are all implementing LTE differently, specifically on different frequencies, and phone makes have not been able (or perhaps willing) to incorporate enough radios to make the phones interoperate. For example, Apple sells different LTE iPads for Verizon and AT&T and even though they are sold unlocked, they cannot be used on each other’s networks.

Verizon and AT&T are both rolling out LTE on spectrum in the 700 MHz band formerly used for analog television. But they are using different portions of the  band. And the Federal Communications Commission has not required AT&T and Verizon to act to make their networks or their phones compatible, although it would take no great technical effort to do so. Sprint is deploying LTE at the same 1900 MHz frequency it uses for existing 3G and voice services. T-Mobile will be offering services at 1700 MHz. This means that no two carriers are offering compatible services.

If you are willing to forgo LTE, you can get some partial compatibility. AT&T and T-Mobile phones will work on each other;s networks, though you can’t count on the fastest data performance. Those phones can change networks simply by swapping SIM cards. You should be able to get an unlocked Verizon phone registered on the Sprint network, and vice versa, but performance of a Sprint phone on Verizon may suffer if the phone does not support Verizon’s 800 MHz service. And giving up LTE means giving up a lot.

In other words, the hubbub over phone unlocking has been disproportional to what is likely to be achieved. Consumers may win a purely symbolic victory, but in practical terms, their phones will be as locked as ever. The time to have made a fuss was back in 2007, when the FCC was setting the rules for the 700 MHz auction. Everyone knew going in that AT&T and Verizon were going to emerge as the winners, and required interoperability of  their LTE services would have made a huge difference. But that ship has now sailed.

The carriers will make a big show of opposing any unlocking legislation. I think they do this partly because they simply do not like being told what to do and partly to keep their lobbyists in practice. In fact, the bill that is likely to emerge from the Judiciary leadership will require them to do things they are mostly or entirely already doing. It will be a feel-good victory for advocates, but it will change little or nothing.

 

 

What Microsoft Needs to Do With Windows Blue

windows-blueBy now you probably have been hearing about a major update to Windows 8 called Windows Blue.
Various tech sites have written about it after Win8China wrote about it and suggested it would have tighter integration with Microsoft’s search engine Bing. Some news sites suggest that this version is a major upgrade to Windows 8. There is no doubt Microsoft needs something to inject life back into the ecosystem for their hardware partners. The real question is whether Windows Blue is what the doctor ordered. We think there could be two specific ways Microsoft can address needs in the market.

Low Cost Tablets

Ben wrote a column here last week titled “the invasion of cheap tablets” and pointed out that we are about to see dozens of cheap tablets hitting mature markets this year, making it possible for people to own many for use in their home and businesses. He also pointed out that low cost or cheap tablets, mostly in the 7” to 8” range, should dominate the tablet market going forward and that Microsoft has no answer for this form factor. To date all of their “tablets” are in the 10.1-inch range and the version of Windows 8 on these tablets cannot be scaled downward for use on screens below 10.1 inches–at least in current specs.

If Microsoft were smart they would allow Windows Blue to help fill this gap. To do so Microsoft would need a new pricing strategy for screens in the 7″ and 8″ size range. It should be priced low enough so these new lower cost Microsoft tablets can be priced in the $199-$349.00 range. Most Windows 8 tablets today start at $499. If Microsoft does this, they could finally have a competitive product to Google, Samsung and Amazon. Mind you, however, they would still not be competing for the ultra low end of the 7” tablet market that is now in the $89.00 to $129.00 price range. News of late suggests they will offer a $20 discount to OEMs for devices below 11.6 making these price points possible.

Low Cost PCs

If that is true and they do offer this lower price point on devices under 11.6-inches then it could also be used in some type of hybrid or clamshell offering for the lower end of the tablet and notebook market. We are hearing from OEMs that there is interest in using Windows 8, and in this case it would be Blue, in an ultra-thin Netbook like device priced well under $399 to be in the market this holiday season. For that price I doubt it would have a touch-enabled screen in a clamshell style device but if it were a tablet with detachable keyboard it would have a touch screen as part of the design. A well designed clamshell with touch screen could possibly be in the $499-$549 range.

If what I am hearing is correct, this could be a very interesting holiday season. While really cheap tablets will drive much of the tablet growth, there is still big demand for robust tablets with multiple cameras, more memory, faster processors, all priced in the $249-$349 range. At the moment Apple, Samsung, Google own this market, especially with tablets in the 7.9 “ to 8.1” range.

With Windows Blue it would give Microsoft a fighting chance in this low-end tablet space as early as this holiday. If they do make it possible for OEMs to bring out an ultrathin clamshell using Windows Blue at consumer friendly prices, it could also be a solid product for the consumer market even if it is netbook-ish in nature. This is because of the Windows 8 app ecosystem that is starting to finally grow, which would make a clamshell like this much more acceptable to the low end consumer market. And of course, it would be able to runs the tens of thousands Windows applications already on the market.

What is interesting about some of the conclusions I have made with regards to the Windows ecosystem is that we are talking about success being needed in the low end. This is not a game every OEM is positioned to succeed in, but it is unfortunately the road it looks like Microsoft needs to go down.

I suspect we should be hearing more about Windows Blue in the next coming months. If Microsoft is smart with Blue, it could boost their partners volumes, help turn around their struggles in tablets, and inject some needed life back into their ecosystem.

The Late Microsoft Windows 8

10x091098b5efaIn 2008, Microsoft’s Windows OS ran on 95% of all computing devices. By the end of 2012, Forrester estimated that Microsoft’s market share had declined to 30%.

In 2012 there were more Android devices sold than Windows devices. By the end of 2013, it is probable that there will be more iOS devices sold than Windows devices too. If so, by the end of this year, Windows will be only third in terms of OS sales.

Microsoft’s Profits

By the fiscal year ending June 2009, Microsoft had made $14.5 billion in profit. By 2012, that number had grown to $21.76 billion.

That sounds pretty good until it’s compared to Apple. Apple’s net income for the fiscal year ending September 2009 was 8.2 billion. By the end of fiscal 2012, its income had risen to $41 billion. Not only had Apple made up the difference between the two companies, in 2012 it lapped Microsoft, making almost exactly twice as much in profits as Microsoft had. The iPhone, alone, makes more profit than all of Microsoft and by the end of 2013 it is expected that the iPad, alone, will make more revenue than all of Microsoft too.

Microsoft’s PC-centric Problem

chart-of-the-day-microsoft-income-by-segment-oct-2012

The purple portion of the graphic, above, represents income from Microsoft Office. The green portion represents income from Microsoft Windows. Microsoft’s problem is that both of those cash cows are located, almost exclusively, on desktop and notebook PCs and PCs are in decline both in actual and in relative terms.

In 2012, PC shipments fell 3.7%. And IDC just slashed its 2013 PC shipment forecast from growth of 2.8% to a decline of 1.3%.

Windows 8 was supposed to reverse the downward trend in PC sales but, if anything, it has made things worse.

The new operating system launched on Oct. 26, along with heavy advertising by Microsoft and its PC hardware partners, including Hewlett-Packard (HPQ) and Lenovo. But the response to Windows 8 has been “underwhelming” and worldwide PC shipments tumbled 8.3% in Q4, the most substantial decline recorded for a holiday quarter, IDC said.

The Plan

The plan was to create a single user interface for all Windows phones, tablets and PCs. By migrating Windows’ substantial user base in desktops and notebooks to Windows 8, it was hoped that users would become familiar with the unified user interface and then naturally migrate down from Windows desktops and notebooks to Windows tablets and phones.

The Reality

The reality has been quite different.

First, Windows phone sales have been a disaster. Despite the introduction of Windows 8 phone and the Nokia Lumia, Windows phones actually LOST market share in the recent holiday quarter.

Second, support for Windows RT is rapidly drying up. Acer delayed their RT offering, HP an Toshiba opted out altogether, Samsung refused to produce an RT product for the U.S. and now Samsung is withdrawing its RT product from the European markets.

Third, despite a massive advertising campaign, there is absolutely no indication that Windows 8 tablets are capturing the imagination of consumers. In fact, all of the evidence points to the exact opposite conclusion.

charty-chart-ipad-130304

Source: The Yankee Group

The Yankee Group recently surveyed consumers, asking them which brand of tablet they intended to buy. The iPad dominated the discussion but if you examine the chart carefully, you’ll see that Microsoft and its hardware partners barely registered at all.

Chitika-Tablet-Usage-US-and-Canada-January-2013

Source: Chitika

Further, in terms of Tablet Usage Share, Microsoft tablets are barely a blip on the radar. The Microsoft Surface, for example, shows up at Zero Point Four percent, behind even the discredited Blackberry Playbook.

Fourth, it appears that the growth in Windows 8 apps is rapidly declining.

When windows 8 was first released, there were 500 apps being added to the Windows 8 market each and every day. By December 27, that number had dropped to 415. By January 28, the number had dropped much further to 156.

Fifth, in a sign of how poor sales have been, Microsoft has started to discount Windows 8 licenses in order to spur the growth in Windows 8 touchscreen notebooks and tablets.

Conclusion

Microsoft is not in any danger. But their personal computing empire is.

Microsoft is making more and more of their money from their server and tools division, which is a good thing. But their income from Windows and Office is still huge and it seems that both are tied to the declining PC sector. And as Microsoft loses its monopoly position, its dominance over even the declining PC sector is waning too.

Microsoft will continue to make money on the sales of Windows 8 licenses but the goal of Windows 8 was to transfer Microsoft’s user base from desktops and notebooks to tablets and phones. That bid has, so far, failed.

Is it too early to say that Windows 8 has failed? Or is it already too late for the late Microsoft Windows 8?

The App Developer Dilemma

A lot of great data came out yesterday that I believe is worthy of a deeper look. In my opinion, this data begins to shed light on some of the key questions I have had around platform engagement.

Flurry released some very insightful data that dug into the vast platform fragmentation across platforms. This data helps us draw clean conclusions around why it is very difficult for small to mid-size developers to survive if their goal is to have an app on as many devices as possible. To highlight this, Flurry makes the following point:

(for a developer) to ensure that your app is optimized to function well on 80% of the individual connected devices currently in use. How many different device models (e.g., Kindle Fire HD 8.9″ Wi-Fi, Galaxy S III) do you think you need to support? (the answer is) 156.

A developer would need to index and code for the different variables for 156 different devices just to cover 80% of the current connected devices in use. That sounds like a lot of work.

The Flurry data goes on to focus on more reasonable device coverage and estimated that if a developer simply wants their app to run on 50% of connected devices in use, it means supporting 18 devices. If you know anything about how app development, testing, troubleshooting, etc., works then you know this is a problem.

From the get-go my analysis has highlighted that developers would continue to commit the bulk of their resources to support iOS due to the minimal screen size and OS generation discrepancy that exists in Apple’s model. From the many startup briefings I am having with software companies in Silicon Valley, the iOS first mantra still rings true.

The next bit of data worth highlighting is around application engagement in iOS and Android. Flurry’s data highlights that even though Android has a greater number of people using the platform, iOS has a significantly greater application engagement level. iOS users engage an application 14 times more frequently than a user on Android.

bar_chart_1_V2-resized-600

Flurry even analyzed the data further and decided to look at application engagement not just of Android but by specific device brands running Android. The bit that stood out to me was the data around Samsung devices running Android. Flurry’s data returned that iOS (iPhone and iPad) users engage applications 7.7 times more than users on all of Samsung’s Android installed base.

bar_chart_2_V2

This one has always been a puzzler for many of us because we constantly see the data (from many sources both public and private) telling us that iOS users are far more engaged with software on their smart devices. So with all the data pointing in this direction, we are faced with the question of why? I attempted to shed light on this with my column on iOS and sophisticated simplicity. My core conclusion is that iOS makes it easier to engage more with the software, but this point is subjective so let’s look at more data.

The Flurry data should shed some critical light on the development challenges facing many developers. The bottom line is for developers this is an issue of massive strategic proportions. comScore also shared some of their data, also targeted at developers, with the goal of highlighting some core differences between Android and iOS customers.

The main point I found interesting in the comScore data was their findings that the extremely high satisfaction rate of the iPhone leads to much higher device loyalty. Something I believe many in the media who write their famed “I’m switching” articles fail to realize is that the mass market simply doesn’t change for change sake. If they are happy and satisfied, then churn is rare.

Another bit of interesting data is related to the average income of consumers of both platforms.

Screen Shot 2013-03-06 at 7.10.38 PM

As you look at the chart above, you may be tempted to look at the lower part of the Android graph. That isn’t the one I want to focus on. I want to focus on the bottom part of the Apple graph. If you would have seen data going back a few years that looked at average income per platform, you would have seen that most Apple users skewed higher overall on the average income level. What we are now seeing is the iPhone growth, which led to 3.5% gains this last quarter, and caused Android to lose 1.3% market share, being a result of Apple growing their share of the lower end of the market. So what do you think will happen when a new iPhone comes out and the iPhone 5 becomes $99?

The Flurry article brings up an important point facing small to mid-size developers. Where should the focus their time and financial resources? This group is where true software innovation often comes from. Rather than spread themselves thin supporting a fragmented device universe, it seems wise that they focus on the customer base and platform which will reward them financially so they can keep innovating. This decision is of monumental strategic importance.

Can We Call Windows RT a Flop Yet?

samsung_ativ_tab

Windows RT was a bold move by Microsoft to make its mark in the world of ARM-powered tablets. But five months after launch, it is looking more and more like an expensive flop.

The German site Heise Online reports (h/t to The Verge) that Samsung has cancelled its plans to roll out the RT-powered ATIV Tab in Germany and elsewhere in Europe, do to weak demand. This is the latest blow in what has been a steady pullback of OEMs from the RT market. In addition to Microsoft’s on Surface RT, there appear to be just three RT tablets available in the U.S.: The Asus VivoTab RT, the Dell XPS 10, and the Lenovo Yoga 11. Hewlett-Packard has announced that it is skipping the RT market and other OEMs seem to have no interest in expanding their product lines.

Tablets running full Windows 8 seem to be doing considerably better, with Microsoft still having difficulty keeping the Suface Pro in stock. The big question is whether these tablets, and the relatively slow sales of traditional Windows 8 PC, give developers enough incentive to create apps specifically for the user interface formerly known as Metro, or whether developers will prefer to try more touch-friendly versions of apps using the traditional Windows UI.

The End of Purchased Software (Updated)

For Rent and For Sale (© Kristina Afanasyeva - Fotolia.com)Buying software has always been an illusion. When you bought a program in a box, it seemed like you were purchasing something like a book or a music CD. But if you looked closely at the terms and conditions you had to agree to before installing program, you realized what you really had was a conditional license to use the software in ways the seller deemed proper.

For most people, this was a distinction without much of a difference. You could do pretty much what you wanted with the software, even sell it used (though you might run into trouble with a package that used an activation key.) That may be why hardly anyone bothered to read the terms & conditions.

But now the illusion of software ownership is fast disappearing. The big change is Microsoft moving to a subscription model for Office 2013. Yes, you can still buy the software (or more properly, buy a perpetual license to use it). Microsoft Office 2013 Home and Business (Word, Excel, PowerPoint, OneNote, Outlook) costs $220.The Professional version costs $399 and adds Publisher and Access. Office Home and Student. $140, subtracts Outlook and, at least technically, may not be used for commercial purposes.

These prices offer a lot less value than earlier editions. You used to be able to activate each copy of Office on two computers.These were supposed to be a desktop and a laptop, but this license requirement was not enforced in practice. And if you replaced a computer, you could uninstall Office fromt he old system and activate it on the new.

No more. All editions of Office 2013 are licensed for a single computer and are tied to that system forever. (Microsoft has the technical means to enforce that, though it remains to be seen how rigorously they will do so.) SEE UPDATE BELOW.

Microsoft is making it very clear through these unattractive terms that it doesn’t want you to buy software anymore. It wants home users to spend $99 for an annual Office 365 Home Premium subscription that offers all of the core Office applications on up to five computers (Windows or Macs). The package also includes 20 gigabytes of SkyDrive storage and 60 minutes a month of Skype calling. Like the old Home and Student version, commercial use is theoretically prohibited. Business versions come in a complex variety of plans depending on the number of seats and the applications and back-end services covered. but the basic Small Business Premium offering, which includes hosted Exchange email and Lync conferencing, costs $15 per month per user for up to 25 users.[pullquote]Microsoft is making it clear through these unattractive terms that it doesn’t want you to buy software anymore.[/pullquote]

Microsoft is hardly the first software company to go down this path. Last year, Adobe rolled out its Creative Cloud, a subscription service for its Creative Suite applications, including Photoshop, Dreamweaver, Audition, Premiere, and other creative tools. Access to the full CS6 suite on up to two computers simultaneously costs $50 a month on an annual contract; a single application is $20 a month.

Get used to this. Software vendors, Microsoft in particular, are recasting their business models to become service providers. Microsoft no longer want to just sell you Office; it wants you to use Office as part of its rapidly growing cloud infrastructure. If you are a small- to medium-sized business, someone who in the past might have been a Windows Small Business Server customer, it want to sell you hosted SharePoint for collaboration; hosted Exchange for mail, calendar, and contacts; Lync for conferencing, and anything else it can dream up. And it wants to stay a step or two ahead of Google Apps for Business, a cheaper, but in many ways less capable, offering.

None of this is necessarily a bad thing for businesses or consumers. If you had been in the habit of upgrading office every three years or so, as Microsoft brought out new versions, an Office 365 subscription could end up being less expensive than the old purchase model, especially if you want to install the software on more than two computers or if you have a mixture of Windows PCs and Macs.

My main concern is with making sure the system works smoothly. When you subscribe to Office 365, the programs reside on your computer and there are no issues working offline. However, since Office is only licensed for as long as your subscription is current, it has to check your activation status with a server from time to time, and this process can go awry. Adobe, which has been checking activation status of its creative apps for years, has had occasional problems with activation servers that have led to software becoming temporarily unusable.

Another issue is what happens if the company from whom you rent your software goes out of business or stops supporting a product? Adobe recently did provide for permanent activation of some very old versions of Creative Suite for which it wanted to shut down the activation servers. It’s a far-fetched worry that Microsoft would ever leave Office users high and dry, but it is worth thinking about since you could end up  with unusable software and files in an unsupported format.

UPDATE: The policy of tying purchased copies of Office 2013 to a single computer forever met immediate resistance from customers and didn’t last long. In a March 6 post to the official Office Blog, Microsoft announced that purchasers would be allowed to transfer the software to a different computer and that the original purchaser of a copy of Office would be able to sell it, provided the purchaser agreed to the original terms and conditions. However, activation is still limited to one computer, not the two allowed for previous Office versions. (Tip of the hat to Ed Bott of ZDNet for flagging the change.)

Lytro-Type Cameras for Smartphones Coming Soon?

Lytro fascinated many with the first mass marketed camera that enabled the user to alter the focal point dynamically after thelytro picture was taken. The camera won a lot of awards but also came with some downsides, too. The Lytro’s opening price point was high at $399, was packaged an unorthodox tube form factor, and the output was a very low 1.2MP. Wouldn’t it be great if you could get this kind of experience on your smartphone and at a much higher pixel rate? Believe it or not, that technology is just around the corner.

One of the biggest improvements to the next generation of smartphones nvidia comp photoyou are hearing from smartphone technology providers like Qualcomm, Intel and Nvidia is called “computational photography”. Computational photography enables many improvements to taking pictures with your smartphone. HDR (High Dynamic Range) is improved by enabling an always on, ghost-free, motion-blur-free and even a panoramic experience. DVR-like functionality is also being added where you never miss the shot because the camera is taking the picture before you actually take the picture. Face, smile, and special people detection are also being pulled from higher end digital still cameras and pulled into standard smartphones. These improvements are driven by improvements in the ISP (image signal processor), sensors, and dramatic increases in CPU, GPU and DSP performance.

None of this, however enables a Lytro-like experience because of the kind of focusing mechanism used in today’s smartphones. The focusing mechanism just cannot focus the camera fast enough to pop off 3-5 pictures at different focal lengths in less than a second. All of today’s smartphone cameras use what is called a VCM, or voice coil motor to focus the picture. A VCM is a motor using magnets and electrical pulses to change the position of the lens and harkens all the way back to the days of Alexander Graham Bell. In fact, the original VCM patent goes back to the 1870’s. And you thought you were using the latest in technology.

A disruptive technology called “mems|cam” was announced by DigitalOptics at this year’s Mobile World Congress and I got mems camthe chance to check out its features and functions. The most disruptive feature is its variable focus technology at high mega-pixel rates. Versus the VCM, DigitalOptics demonstrated that it could focus the lens up to 7X faster than the best smartphone cameras on the market today. This means it could take multiple pictures in rapid-fire succession at different focal lengths. Users can choose the picture they really want after the picture is taken. [pullquote]With this technology the industry could be on the precipice of never having an out of focus picture. [/pullquote]

What about the other attributes? Well, the quality is better, it uses 100X less power, and takes up 1/3rd less footprint than other camera assemblies. Sounds too good to be true, right? Not when you dig in and research how DigitalOptics does it.

The mems|cam uses technology recognizable in its name called “MEMS”, or “micro-electromechanical system.” Think of MEMS as tiny machines that have miniaturized almost every other important sensor including gyroscopes, barometers and microphones. These tiny machines are manufactured in a fab just like a microprocessor. They are very small and take a small fraction of power, create less heat, and are more precise versus their large predecessors.

My biggest question isn’t about the technology, but more about why we don’t see smartphones with MEMS-based cameras. First, the technology is being perfected for mass-volume manufacturing and we should see cameras this year with the technology. The market is billions large so you better know how to build them. Then there is the matter of the older-school VCM market. It has a lot to protect and aren’t exactly running to the new technology with open arms. Buggy whip makers were slow to embrace cars, too, until they saw their business crumbling in front of their eyes. This is the scenario I can see coming with this new breed of cameras.

One of the biggest areas of smartphone differentiation is photography. Apple, Samsung, Nokia, LG and HTC all have a great camera experiences in their top 3 marketing list and therefore being perceived as the leader is very important. Now that mems|cam is a possibility for the next generation of cameras, it provides a black and white differentiator for an OEM or ODM. As a strategist and marketer, I would have seen this kind of feature as a huge opportunity. Mems|cam can do something that no other camera can do and it has a black and white reason for doing it better, which is, MEMS technology. I like to call that the “reason to believe” which harkens to “why the clothes are whiter” with the answer being the “magic blue crystals”.

Variable focus technology for smartphones like DigitalOptics mems|cam are a distinct possibility in phones this year and it is something the entire industry should get excited about. Since when has there been such a black and white and demonstrable smart phone differentiator?

Speaking of Tablets

I spoke at the TabTimes conference in February, but I also spoke at one in November in New York. The February video will be up soon but in the meantime I wanted to share some highlights from the November conference. Also, we are exploring some things to do with video for our readers here at Tech.pinions. I happen to own fancy video equipment, so we are interested in ways we can use video to add some new dynamic elements for our readers. So please share any thoughts in the comments section.

Why Tablets are Reinventing the PC

Touch as the Foundation of this new Paradigm

It all Comes Down to the Ecosystem

The Apple Walled Garden is Grounded in Old Fashioned Product Superiority

The value attributed to ecosystem “lock in”, such as the value Apple derives through tightly integrating its devices with its proprietary AirPlay, and the iTunes and App Store platforms, for example, is overstated both by industry analysts and by Apple’s competition. Counter-intuitively, I believe this is a win for Apple, as its competitors focus their efforts on a false equation. Even if switching costs were reduced to zero, few would leave Apple’s ‘walled garden’.

iTunes, App Store and accessories are a significant business for Apple. Recently, Horace Dediu of Asymco noted that these revenues are greater even than the Mac business line. Equally surprising, Apple’s content, software and accessories business generates more revenues than any mobile phone vendor is generating in total, excepting Samsung:

iTunes revenues surpasses mobile phone competition

Users have clearly invested a great deal in Apple-backed apps, content and accessories. I am just not convinced, however, that their intent — or effect — is to appreciably increase user “switching costs”. The real switching costs are more elusive to define but of far greater value. Competitors, such as Amazon and Google, appear convinced that app freebies, lower-priced music, below-cost streaming video and near-zero margin hardware will enable them to snare current and potential Apple customers away, hopefully forever. This is a strategy that I believe is doomed to failure.

The fundamental difference between Apple and its competitors lies not at the margins but in the totality of sterling hardware, comprehensive and ongoing support, usability assurances, unequaled product integration and unmatched reliability. To effectively compete with Apple, companies must tackle all of these. Be forewarned: these are costly, take years to achieve, demand a relentless focus and are hard to sustain.

Ready to Switch

Google’s Android platform has rapidly overtaken Apple to capture the lion’s share of the smartphone market. Numerous vendors offer Android phones at a variety of price points and form factors. Android – the OS – and Android the line of smartphones, has no doubt steadily improved over the past three years. In the mind of many analysts these improvements, when combined with relentless, price-sensitive competition will deeply cut into Apple sales and/or margins. Except, this continues to be proven false. The view which perpetuates the industry is that marketing and high switching costs are preventing many from leaving Apple’s ecosystem. This is false.

Consider some of the mission-critical and more commonly used smartphone applications across all major platforms. Phone, email, text, mapping and GPS. Skype, web browser and search. Facebook. Instagram. Twitter. Angry Birds. Words with Friends. Are all these or any of these truly so much better on iPhone than on any competitive Android product?

The fact is, for most users and for most user activities, the bulk of their interactions with their smartphone and tablet has a negligible switching cost.

There are numerous other examples. Your Kindle account can easily transfer to a different device. Same with your Netflix and Hulu+ services. YouTube plays just as well on Android as iPhone, maybe better. Yet in their last quarter, Apple sold a record number of iPhones and iPads. Their rather conservative guidance for the following quarter included gross margins between 37.5% and 38.5%.

Apple’s success is not due to switching costs. Rather, Apple products, systems and service is simply superior.

I do not want to suggest there is no financial cost whatsoever to switching. Your apps and accessories, for example, may become worthless if you move from iPad, say, to the Nexus 7. Plus, there are ‘costs’ borne through the often tedious process of switching to something new. Additionally, moving your music collection from one platform to the next, for example, or across multiple machines, takes time and patience. These cost. Such costs are real. But, most analysts appear to be overestimating such costs. They operate under the assumption that if only Google or Samsung, for example, can offer viable alternatives to iTunes, then Apple can be beat. This strikes me as a strategic misstep. Instead, these companies need to undertake the long, hard, costly effort of building a truly better product; one that is reliably serviced, simple to operate and fully supported for years to come. To date, who else is doing this?

Apple Assurances

We can get nearly anything we want, from anywhere, at any time. This has led to reduced prices, more competition and often to greater innovation. It has also created massive uncertainty. Where, exactly, do I go to service my Google Android Nexus LG phone? From my carrier? Who will guarantee it is updated regularly? How well will the newest HTC Android phone work with my Samsung Google Chromebook? What of the content I purchased from the Android Market, which was fully revamped as Google Play?

The real switching cost is manifested through the massive uncertainty that other users face on a regular basis, which Apple users do not.

Anyone remember Google Television? Why are there several Android phones by Google’s Motorola division yet for the true “Google experience” I should purchase a Nexus phone made, this year, by LG? Or a Nexus 7 tablet by Asus. Or a Nexus 10 tablet by Samsung.

The Apple premium is earned not through high switching costs but by the assurances Apple delivers, day after day, and across the millions of customers it sells to and services. Moving me off Paypal and iTunes, for example, and over to Google Play and Google Checkout, is a minor hassle, nothing more. Kill off any iTunes and App Store advantage. Wait for Google, or Amazon or Samsung to have as many active credit cards on file. Assume Apple’s accessories products become universal standards – including for Windows Phone, Blackberry, Nexus tablets, even competitor notebooks. Reduce “switching” costs to nearly zero. How many will leave the Apple fold? I suspect very few.

The User is the Buyer

One of the revolutionary aspects of this new age of personal computing, where we have rapidly transitioned from PCs and laptops to smartphones and tablets is not only the rise of mobility, nor the rise of the touchscreen nor even the slow, inexorable rise of the voice UI. Rather, this new age of computing has aligned the actual product user with the actual product buyer. This is a clear advantage for Apple. As Steve Jobs noted in 2010:

What I love about the consumer market, that I always hated about the enterprise market, is that we come up with a product, we try to tell everybody about it, and every person votes for themselves. They go ‘yes’ or ‘no,’ and if enough of them say ‘yes,’ we get to come to work tomorrow. That’s how it works. It’s really simple. With the enterprise market, it’s not so simple. The people that use the products don’t decide for themselves, and the people that make those decisions sometimes are confused. We love just trying to make the best products in the world for people and having them tell us by how they vote with their wallets whether we’re on track or not.

I am the buyer. I am the user. I am prepared to switch. Neither my apps, my downloads, nor my music collection is holding me back. Apple’s competitors have simply failed to offer me equivalent or better value.

Apple competitors are actively copying the parts of Apple that are easiest to copy. Instead, they need to do the hard work of building a superior product, offering superior customer service, committing their company to improving its product, bit by bit, year after year. Like Apple, they need to do everything they can to assure their customers that everything will be exactly the same next year – only better. This is hard. This is why Apple is rewarded. This is why so few switch.

Does the World Need Another Mobile OS?

All-mobile-OS-logos

There has been a lot of news about mobile operating systems lately. In the news of late has been the launch of the Firefox Mobile OS, LG’s purchase of webOS and Samsung’s renewed focus on Tizen. Given the fact that we already have two mobile operating systems, iOS and Android, which dominate the market, and a third with Microsoft making a go at it. This news causes me to beg the question of whether we really need a new mobile OS and if so, how would it fare against these two operating systems that reside on the majority of all smartphones and tablets today?

It is pretty clear that Apple’s iOS will be their only mobile OS. RIM has their Blackberry OS, but other smartphone and tablet vendors have the option of Android, Windows 8 or Windows 8 Phone. Another option is to create their own version of Android (known as a fork) as Amazon has done with their Kindle Fire HD tablets. Now OEMS have the option of the Firefox Mobile OS, Tizen and mobile Linux as well.

Given the strong market adoption of Android and iOS with the rich ecosystem of software, apps, and services tied to both, even Microsoft and Blackberry will have a tough time gaining any ground on them. On the surface, these new mobile operating systems have a bigger problem. In their case, there is not a solid ecosystem of software and services directly tied to their new OS offerings.

Leverage

However, at the competitive level, I believe that these new mobile OS options may play an important strategic role, especially against Google, whose market position is exploding. Google receives the main monetary benefits of Android running on vendor’s devices and they give their partners a paltry portion of any ad revenue that comes through their partnerships. It is true that some of the smaller handset makers may continue to back Android no matter what. However, if a vendor has a lot of clout, the option of a new mobile OS could give them some interesting leverage against Google to try and gain more favorable terms. If they took this tact, one of these new mobile operating systems could become a strategic weapon for them.

The one company where this could become a real issue is Samsung. Today, Samsung gets only 10% of any ad revenue that Google gets from their devices. Samsung is by far Android’s biggest customer and in fact, many now think of Samsung when they hear the word Android. It is pretty clear that Samsung is now in a place to have a lot of clout with Google and if they are smart, they try and leverage this in their favor. Of course, Google would have a hard time giving more of the ad revenue to any partner and even with Samsung’s strong position, and reach, they could balk at any push to give them more advertising revenue lest it set a precedent for other Android vendors who would want similar terms.

Samsung’s decision to fold their mobile OS, Bada, into Tizen could be a first volley in a strategic dance with Google. I have heard from a few other handset vendors that while they make Google and Android more successful, their return on the investment of Android is minimal to them. Although Android is technically free, they pay through the nose in terms of ad revenue they have to give Google as part of the licensing deal. At the same time, word on the street has been that Google is getting very concerned about Samsung’s great market penetration with their smartphones and tablets. Google fears that Samsung could come back to them and ask for a larger share of the advertising revenues.

Interestingly, should Samsung decide that working with Google on their terms is just too onerous, it is not too far fetched that they could do their own version of Android like Amazon does and keep all of the advertising revenue for themselves. Given Samsung’s new push with Tizen, they could threaten to drop Android and over time migrate all of their customers to Tizen. They could conceivably even develop some form of virtual emulator that would allow Android apps to work on Tizen. I just can’t see Samsung becoming this great powerhouse in mobile and not at some point take control of their entire ecosystem. This would include owning and controlling the mobile OS. Without doing that, they just continue to feed the Google bank and leave a lot of money on the table that should go into their pockets.

While there may be some emerging markets that could use the Firefox Mobile OS, or mobile Linux, I find it hard to believe that any of these mobile operating systems will gain any serious traction in mainstream markets in developed countries. On the other hand, these new mobile operating systems do provide all vendors an interesting option should any of them continue to be concerned that Google is getting to powerful.