Problems with Cloud Gaming Today

Services exist today for cloud gaming like OnLive and Gaikai.  They have received a lot of press, but it’s uncertain if their business models and experiences would exist years from now if they stay with their current approaches and implementations.

Scalability is one issue.  Services need to directly match one cloud game session with one graphics card, so if you have 1,000 gamers, you need 1,000 graphics cards.  You can just imagine the challenges in scaling that experience out to millions of users.  You would need millions of graphics cards, which in a data center environment doesn’t make a lot of sense logistically or financially.

Latency is another issue.  Cloud game services need to maintain severs 100s of miles away to maintain an appropriate latency in game-play.  Latency is the lag time between when a user does something and they get a response. Imagine if there were a one second delay between the time you pull the trigger in Battlefield 3 and the time which something happens.  This would render the cloud game absolutely unplayable. Latency in social media apps like Facebook is acceptable, but not with games. Having to provide “edge servers” close to end users like the industry does today is completely unproductive as you cannot leverage these same servers during off-times and it’s difficult to even leverage servers across different time zones.  Therefore, servers are sitting around idle with nothing to do. This places another immense financial burden on the cloud game provider.  NVIDIA and their partners are attempting to solve these problems.

Nvidia VGX and the GeForce Grid

NVIDIA, with VGX and the GeForce Grid is attempting to solve the scalability and latency problems associated with today’s cloud gaming services like Gaikai and OnLive.  NVIDIA VGX are the technologies addressing the current virtual display issues and the GeForce Grid is the specific implementation to attack issues in cloud gaming.  They are addressing the problems with two very distinct, but related technologies: GPU virtualization and low latency remote display.

Virtualization of the GPU enables more than one user to share the resources of a graphics card.  Therefore, the one to one ratio between user gaming sessions and graphics card goes away.  With NVDIA VGX, multiple users can share a single, monster-sized graphics card.  This provides much better scalability for the cloud game data center and correspondingly reduces costs and increases flexibility.

Lower latency remote displays enable a significant improvement in the speed at which the remote image is sent to the end client device.  In this cloud gaming scenario, the gaming frames are actually converted into an H.264 movie and sent to the user.  NVIDIA has enabled improvements in the process by eliminating many steps in the process.  The frame of the game no longer needs to touch the CPU or main memory and is encoded directly on the NVIDIA VGX card and sent directly over PCI Express to the network card.  By bypassing many of the previous components and removing steps, this speeds up the process immensely.  This delivers a few benefits.  First, all things equal, it can deliver a much faster experience to the gamer that they never experienced before.  The experience just feels more like it is happening locally.  Combined with GPU virtualization, the reduced latency also enables cloud gaming data centers to be located farther away from users, which increases data center utilization and efficiency.  It also enables entire geographies to be served that could never be served before as “edge servers” can be consolidated.

Wither Future Game Consoles?

If NVIDIA and its partners can execute on the technology and the experience, it would essentially enable any device that could currently playback YouTube video well to be a virtual game device. Gamers could play any game, any time, and immediately.  What kinds of devices do that today?  They are all around us.  They are smartphones, Smart TVs, and even tablets.  There’s no loading games off of a disc, no downloading 500MB onto a PC; its just pick the game and play.  Once the gamer is done playing on the TV, they can just take their tablet and pick up in their bedroom where they left off.

This kind of usage model is quite common when you think of it.  Many consumer books, movies and even music in this same way, so why not games?  For many consumers, convenience trumps quality and that’s one of the issues I can see with future consoles.  There is no doubt that the visual detail and user interfaces will be much more sophisticated than cloud gaming. As I look to how well the iPod did with its “inferior” music quality, consumers chose convenience over quality.  Look at Netflix on a phone or tablet.  Consumers can get much higher quality on the local cable service, but a growing number of consumers choose convenience over quality.

Device makers and service providers who don’t see any monetization currently off of games today will very aggressively adopt this approach.  TV makers, for instance, see no revenue from any game played on their devices.  Gaikai, as an example, is cutting deals with TV manufacturers like LG to provide this service built into every Smart TV in the future.  Telcos and cable companies are also very motivated to tap into the huge gaming revenue stream.

I believe that consoles will adopt cloud gaming capabilities in addition to physical media or they will be viewed as lacking the features gamers want.  I also believe that cloud gaming will seriously cannibalize future game consoles.  Many who would have purchased a new game console if cloud gaming with NVIDIA VGX and GeForce Grid had not existed will not buy game consoles.  With that premise, it begs the question if future game consoles have a bright future.  If game console makers don’t do something aggressive, their future is looking dim.

If you would like a deeper dive on NVIDIA VGX and the GeForce Grid, you can download my whitepaper here.

It’s hard to generalize based on a sample of four not randomly selected individuals. But based on what I heard from a panel of consumers at the Privacy Identity Innovation conference in Seattle May 14, these folks, at least, have a nuanced and generally accurate view of the state of online privacy.

Ralph Munro

One interesting conclusion from the panel, moderated by my friend and CBS Radio technology analyst and ConnectSafely.org co-director Larry Magid, is that privacy concerns are focused much more on the use of information by friends, enemies, potential employers, and other individuals than the on the possible sale of data by corporations. “My generation is pretty aware of the implications of putting information out,” said Landon Bennett, a University of Washington-bound Seattle high school senior. “It’s at the back of my mind at all times.” He admits that the world is becoming “more fishbowl like.”

Ralph Munro, born in 1943, brought the perspective of another generation. The former Washington secretary of state noted that the loss of privacy is nothing new. “I was raised in a house with no phone,” he said. “Our first phone was a party line and there was no privacy.” (For those of you too young to remember, a party line was a phone line shared by two or more families–a sort of primitive voice Twitter. To make a call, you had to listen to see if anyone else was using the line, and once there, you could eavesdrop to your heart’s content.)

Munro noted that people are perfectly willing to surrender privacy for small rewards. “People worry about privacy, but everybody signs up for a Safeway card. People are giving up their own privacy.” And when Munro suffered a serious illness a few years ago, his family sacrificed privacy to put out daily reports on CaringBridge. “I got messages from all over the world. I can’t tell you what that meant to me.” But, he admits, “Most people my age have no idea of the lack of privacy on the internet.”

Diana Henneuse, the mother of an eight-year-old daughter, shared the typical concerns of parents: “I’m concerned because of all the temptations out there. I worry about bullying and stalking. I want to be with her when she is on the computer.” And she worries that both children and adults spend their lives distracted by technology.

Imei Hsu is a psychotherapist and belly dancer and has the possibly unique problem of managing those two very different identities online. As a psychotherapist, a major preoccupation is protecting patient privacy and complying with the laws, such as the Health Insurance Portability and Accountability Act. “The laws need to catch up,” she said.”HIPAA and the like can interfere with the practice of medicine” by preventing practitioners from taking full advantage of communications technology.

When you listen to politicians such as, say Senator Al Franken (D-Minn.), you get the impression that Americans are cowering at the assault on their privacy by Facebook and Google.  ”The more dominant these companies become over the sectors in which they operate, the less incentive they have to respect your privacy,” Franken told the American Bar Assn. “When companies become so dominant that they can violate their users’ privacy without worrying about market pressure, all that’s left is the incentive to get more and more information about you.”

But based on what I heard from an admittedly limited sample in Seattle, that’s not where real peoples’ concerns lie. Their worries about online privacy are less corporate and much more personal and intimate. Privacy concerns are real, but the policy responses can seem like solutions in search of problems.

There are many books out about Apple these days that talk about everything from Jobs’s history, tenets of Apple’s business models, to secrets about Apple’s internal management ideas. And most know that they differentiate themselves through great industrial design, incredible software and a rich ecosystem of software and services. However, after years of watching Apple close up and personal and having dealt with every one of their CEO’s from the beginning, as well as interacting with various Apple execs over the years, I would like to suggest that the reason Apple is hard to catch is that there are five additional principles, that guide Apple, that makes competing with Apple so difficult.

For any products that Apple creates, the people who create them have to want it themselves.

So many times, in projects I do with other tech companies, the goal is almost always based around the technology first and then if people really want to use it second. Geeky engineers are dazzled by the technology at their disposal and often create something because they can. But Apple’s approach is quite different. The engineers who are creating Apple products actually make them for themselves. And Jobs was the chief “user” of Apple products when he was alive. All of their products are based on his intuition that represented the real customer. And his engineers had to come to grips that in designing a product, it has to be something that they personally would have “technolust” for and could not live without.

The products have to be easy to use

Steve Jobs was a stickler on this point. While industrial design is a critical component of any product they make, if it is not easy to use, it is considered worthless to the consumer. This is what drove their user interface designs from day one and is still the mantra pushed to their software and hardware engineers every day they come to work. All of the products they create have to be intuitive, easy to understand, and learn. As technology has become more intricate and users want more features, the task of keeping things simple is sometimes difficult. And Apple creates tools for power users to rookies, which can mean a broad range of ease-of-use issues. But even with that, Apple is the only company I deal with where ease of use is more important then the product itself and Apple makes this a critical goal of their approach to creating anything for the market.

Keep things simple

I was in Paris for the last two weeks and had talks with various French telecommunication officials on many mobile computing issues. But one conversation I had in particular emphasizes this keep-it-simple point. We were discussing how to compete with Apple, a major pastime for all Apple competitors and carriers these days, when the question of why Apple is really successful came up. And one exec nailed it when it when he said he felt that the real reason Apple is successful is because they have one product, in this case the iPhone, and minimize the decision making process for the consumer by making things simple. The person speaking was with a carrier in France and he said that in their stores, they have to have as many as 25 different models of phones available. That makes it hard for his staff to be really knowledgeable about all of them all of the time and their customers just have too many options to choose from.

But Apple only has one iPhone model and anyone who has gone into an Apple store understands that every staff member there knows a great deal about each of the four major products they carry in their stores. They don’t have 5 iPhone models to choose from; they have only one. While this may seem limiting given the amount of smartphones available to users, the truth is the reverse. Our company has done consumer research for over 30 years and consumers constantly tell us that while choice is nice, in reality they want the process of choosing a tech product to be simple and easy to do and not complicated by a plethora of choices.

Yes, there are tech savvy people who like more choices and sometimes even like complexity, but from years of experience as a market researcher, I can tell you that in the end, the majority of users are not tech savvy and keeping things simple for them is a plus. Apple understands this and is never tempted to add multiple versions of an iPhone, iPad or even more then one or two types of iPods to make buying an Apple product simple. And consumers seem to appreciate this considering the huge number of iDevices they are selling each year. I know the tech media and techies are the most vocal about this issue of choice, but in the end, while choice is good for competitive pricing, what non-techie consumers really want is simplicity.

Offer great customer service and in-store experiences

Steve Jobs understood one of the major conundrums of technology. That conundrum is that even if you create products that are easy to use, the variety of things people want to use their technologies for often creates complexity, and because of this, consumers at all levels may need some hand holding from time to time. I was one of the most vocal critics of Apple when they introduced their first retail store in Tokyo in 2002 and thought it was crazy for them to try and go into retail. At the time, and even today, tech retail stores are in decline and big box stores like Costco and Walmart sell products on price and nothing else. I thought that if price were the issue, an upscale retail store would be DOA. Wow, was I and other naysayers on Apple’s store strategy wrong about this.

Apple uses this conundrum to their advantage. Because they keep product SKU’s simple, the salespeople inside their stores know their products really well. Notice that when you go into an Apple store and are greeted by one of their sales staff, you are not asked “how can I help you?” Instead they ask “What would you like to do today.” They go right to the heart of any technology users question that is always related to what they want or need to do with the technology they are interested in.

And once you explain your needs, in most cases they can take care of it on the spot. Or if you need more hand holding, they turn you over to the Apple Geniuses. No wonder 50% of people buying Apple products are new to Apple. Apple’s products are simple to understand and use but if you do have a problem, Apple can take care of it at their stores or over the phone quickly.

Apple only makes a product if they can do it better

Apple normally doesn’t invent a new product or product category. Sure, they did invent the first commercial PC with the Apple II and the Mac improved on PC’s with a graphical UI and the mouse input. But since these were introduced in the late 1970s and early 1980’s, all of their other products were recreations of existing products. They did not invent the MP3 player-they reinvented and made it better. They did not invent the smartphone-they reinvented it. And they did not invent the tablet-they reinvented it. Or in essence, they made it better.

As Apple designer Johnny Ives said recently, “Our goals are very simple – to design and make better products. If we can’t make something that is better, we won’t do it. Clearly, Apple applied that thinking first to iPods, smartphones and more recently, to the iPad.

Apple stays at least two years ahead of their competitors.

This is the one that scares Apple’s competitors the most. While those competing with Apple are just getting products to market that are competitive with a current Apple product, Apple is already working on the products at least two years out. For example, the new iPhone that will most likely go to market in Oct, was designed and signed off two years ago. And the iPhone they are working on now is for the fall of 2014. The same goes for the iPad. The new iPad that we will most likely see next March was signed off two years ago. The one they are working on now we will probably see in 2015. This is a nightmare for Apple’s competitors and will continue to be for some time. Besides having geniuses in design, software and retail, they also have the cash to invent components, manufacturing processes, etc., which almost makes it impossible for the competition to make any real headway against Apple. And don’t let the fact that Android has become the #1 smartphone OS make you think that it is the big winner. Yes, Android has gained ground by the sheer numbers of companies and products pushing Android. But the real measure of success is in the profits and Apple is making as much as 70% of all the profits in smartphones and about 85% of the profits in Tablets. Just ask any Android competitor which they would like more, market share or profits and you get the answer to the real measure of success in this market.

These five principles may seem a bit simplistic given the fact that they also have great software, industrial design and a powerful eco system of content, apps and services as part of their success equation. However, I can tell you that from my three decades of following them, that it is these five key principles that are what really makes them successful. And as long as they adhere to them, it is pretty likely that Apple will continue to grow and command a relatively large share of the market in the product categories where they compete and continue to give their competitors real headaches for some time to come.

Maybe he’s right. But it is disconcerting to hear this sort of complacency from the head of Intel, especially at a time when ARM-powered smartphones and tablets pose an unprecedented threat to Intel’s core laptop and desktop business.

I can only wonder what Andy Grove would say. Grove, who was Intel CEO from 1987 to 1998, famously wrote: “Business success contains the seeds of its own destruction. Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” Grove also once ordered an advertising campaign attacking what was then the company’s most successful product the 80286 processor, in an effort to get customers to move to the newer, much more capable, and ultimately wildly successful 80386.

Grove remains a senior adviser to Intel and has always avoided any public criticism of his successors. But I find it hard to believe he is happy watching the company he built acting so passively in the face of a threat.

Side note: Intel was actually a major player in the ARM business for some years. It bought Digital Equipment’s StrongARM business in 1998. The chips, renamed XScale, powered many handheld computers and early smartphones. Intel sold the division to Marvell in 2007.

Interestingly, I have found that my preferred use for docking the iPad and using the keyboard is in portrait mode. I am convinced that computing in portrait mode is far superior to landscape mode for many different tasks. This hit me the hardest when I used the iPad for the first time for browsing the web. Browsing the web in portrait mode is by far the best way to browse the web. This should be obvious since many websites are designed with up and down scrolling rather than left to right. Browsing the web in portrait mode allows you to see more of the website at one time. Beyond browsing the web there is another use case that I believe computing in portrait mode is far superior for and that is writing.

Better In Portrait Mode

I do quite a bit of writing whether it be reports, columns, or even responding to clients with lengthy emails. This is one of the reasons that using a keyboard accessory with my iPad is a must. Writing while using the iPad in portrait mode is a powerful experience. The primary reason for this is because you can see more words on the page when writing in portrait mode. Throughout human history, whether penned by hand, or while using a typewriter with a paper stand in the back, producing the written word on a medium that is longer than it is wide has been the norm. When you see people using pen and paper today you don’t normally see them turning the pad of paper sideways. Yet if you think about it, writing, working, and being productive while looking at a medium that is longer than it is wide is something that is foreign to the world of computers.

Computing in portrait mode is relatively unexplored territory. Since the beginning computers have had square monitors which eventually evolved into the norm for today which is 16:9 landscape. Due to the standard landscape orientation of computers to date, software has mostly been written with this screen orientation in mind. What happens, given the massive growth of tablets, and the fact that they are also computers, if software developers start thinking of writing software for use while in portrait mode? Most apps today, with the exception of things like games, support different screen orientations. What is missing is that the user experience with the software does not change much based on my screen orientation. Apple’s Mail app actually does change the UI when in portrait or landscape mode. However, when I am in portrait mode I can focus on the email because the side bar containing my inbox goes away. But when in landscape, the inbox sidebar is present and stays in sight.

This is a good example of a software interface being designed to make the application useful whether it is in portrait or landscape mode. Different screen orientations will present different looks and ways to use screen real estate. I believe that as software developers re-imagine their software for tablets they will also consider dual screen orientation experiences with the same software.

Portrait vs. Landscape

With this in mind I have been thinking a lot about the types of things I prefer to do while in portrait versus landscape modes with the iPad. Nearly all tasks that would qualify as productive I prefer to do in portrait mode. While the other tasks, with the exception of web browsing, like playing games, watching video, etc., I prefer to do in landscape mode. Reading is sometimes productive and sometimes for entertainment but either way reading is far better in portrait mode over landscape. This of course makes sense for things like video since they are produced in widescreen not portrait. For games it depends on the game since there are many great games that use both screen orientations. What has stood out for me though was how many tasks that were considered working or productive tasks that I preferred using the iPad in portrait mode.

This is something that is only possible with tablet computers since laptops and desktops are not designed to allow you to change your screen orientation based on the software experience you desire to have. This also makes a very compelling case for a keyboard accessory for a tablet.

One of my biggest complaints with the iPad’s virtual keyboard is not that I can’t type fast on it because I actually can. My biggest complaint is that I can’t use it for any real productive input while in portrait mode. And when I use it in landscape mode it takes up nearly half the screen leaving me with very little of the software application to see while typing. This completely defeats the profound experience I have while writing in portrait mode due to how much of the screen and words I can see at one time.

These are the kinds of experiences that are only available on the tablet form factor. I hope that as keyboard accessories continue to get refined and perfected, so will the software that will change not only our computing paradigm from mouse and keyboard to touch but to also break away from landscape computing as the only mode for working on a tablet.

The Replay 4000 DVR from 2002.

A cool feature, but hardly new. When ReplayTV introduced the first DVR in 1999, it included a 30-second skip-forward button, a revolutionary idea at the time. (Replay was the brainchild of Anthony Wood, who went on to found Roku.) Three years later, Replay, by then owned by SonicBLUE, introduced the Replay 4000. The new DVR included the ability to skip commercials automatically as well as a feature that allowed sharing of recorded programs with other Replay owners over the internet.

As I wrote at the time, this was viewed with great alarm by Hollywood, and the studios predictably rose up and crushed SonicBLUE, which had a fatal penchant for provoking legal challenges. But Replay, which launched a bit before the more successful TiVo, played an important part in revolutionizing how we watch television.

There’s a lot to be said for the bravery of a fighter that repeatedly gets back up after being knocked down. However, RIM has been knocked out. The company needs to take a step back, regroup and do something substantial.

In its latest debacle, RIM hired a busload of protesters in Australia to hold up signs outside the Apple store that read “WAKE UP.” Really? Apple needs to wake up?

While nobody knew it was RIM that organized the protest, sleuths on the Internet quickly tracked it back to them. A couple of weeks later RIM followed this up with its “Wake Up. Be Bold.” Web site. The site contains the most confusing message directed at Apple.

It reads:

It’s time to mean business.

Now, before you go looking for your suit and briefcase, we’re not talking about that kind of business.

Business is no longer just a suit-wearing, cubicle-sitting, card-carrying kind of pursuit.

These days being ‘in business’ means you’re the kind of person who takes action and makes things happen.

You don’t just think different… you do different.

It’s a simple choice:

You’re either here to leave your mark and eat the opportunity for breakfast

OR

You’re satisfied to just float through life like a cork in the stream.

Now, we know some people will choose to float on by and that’s fine.

Being in business is not for everyone, but unfortunately… there is no middle ground. You’re either in business or you’re not.

For those of us with our eyes wide open, we need to realize there’s only one device for people who mean business… the brand that’s been in business from the very beginning.

The only word I could come up with to adequately describe this campaign is pathetic.

RIM is talking to Apple, the company that changed the smartphone and tablet markets forever. Apple is defining every market they enter, forcing all of its competition to rummage for the second place scraps.

These days, RIM isn’t even on anyone’s radar as a competitor. Remember this is the company that made it’s name with secure email and then released a tablet that couldn’t do email.

What RIM needs to do is keep quiet for a while so it can work on products that will appeal to consumers and businesses. It is the quality products, not silly marketing campaigns that will win people over.

RIM is right about one thing. “Being in business is not for everyone.”

A bit of background: Browsing on Windows 8 for Intel/AMD processors will be open to all comers. But Windows RT, the ARM version, places many restrictions on applications. Microsoft says the only applications with full, desktop-style access to the system with be a version of Office, the Explorer file manager, and the Internet Explorer 10 browser.

Strictly speaking, Mozilla is right. It does not appear that browsers other than IE will be allowed on Windows RT. But so what? Microsoft was nailed in the turn-of-the-century antitrust suit for using Windows’ mono[poly position on desktop computers to restrain competition in the browser market. But Windows’ monopoly isn’t what it once was, and Win RT doesn’t have a monopoly of anything. We have yet to see a fully functioning version of it demonstrated publicly.

Furthermore, Apple, which arguably does have a monopoly (and remember, a monopoly is only illegal if it is obtained illegally or if it is abused) in tablets, doesn’t welcome browsers other than Safari on iOS devices. There are alternative browsers available in the app Store, but they are skins slapped on Safari. Apple would seem a more appropriate target for frozen out Google and Mozilla.

Maybe this is just reflex, or maybe Microsoft seems an easier target because of the antitrust history. But the Modified Final Judgment that settled the case lapsed a year ago, though there is still ongoing supervision as a result of a case brought by the European Commission.

That may be what’s behind a curious comment attributed to Microsoft Deputy General Counsel David Heiner. CNET reports that Heiner told Mozilla that Windows RT “isn’t Windows anymore.” That may just be a lawyerly way of saying that Windows RT is a new product, outside the scope of previous antitrust judgments.

Large parts of North American populations don’t spend long periods of time commuting on things like trains. In many other parts of the world this is the case and those markets are the ones where Mobile TV has had more success. However, with the rise of tablets, and perhaps even greater installed base of smartphones I wonder if Mobile TV could make a comeback.

While here at CTIA I got caught up with an organization called the OMVC or Open Mobile Video Coalition. This organization is helping launch a new service in the fall called Dyle.tv. What makes this solution different, and perhaps what gives it the best chance to succeed, is that it is built upon the existing ATSC digital broadcast infrastructure. DVB-H required quite a bit of new infrastructure investments and many did not make them. By integrating right into the existing ATSC infrastructure for broadcast today many broadcasters and networks immediately take advantage of this solution. There are two requirements to make this work. First the broadcast stations need only spend between 15,000-25,000 dollars to add the additional infrastructure to broadcast their existing ATSC signal to mobile devices. This, I am told, is very simple to install and would take a technician about two hours install. Second, the DTV chip needs to be embedded in a mobile device or built into an accessory for a mobile device like a tablet or smartphone.

Dyle.tv will be a free service and will be available as an Android and iOS app. The only cost associated is what is added to the cost of the hardware or can be purchased separately as an adaptor for things tablets and smartphones. The key point is that the rights from every major North American broadcaster have been secured and broadcast content from every major network will be available through the Dyle.tv service.

Dyle.tv will launch in the fall and details about the launch, supporting devices, and adapter accessories will be released around that time as well. It will launch in 210 markets in the US.

Although the market and the infrastructure may be right for mobile TV to make a comeback there is something a bit more interesting with this service. Networks who choose to use their existing infrastructure to deliver mobile TV via Dyle.tv to consumers will deliver up to 19.4 mbps bandwidth to devices enabled with the DTV chip. This means that it is possible, should the major networks participating in this service, to also make their streaming content available for catch up TV through this application. And oh by the way the group behind Hulu is the same group who is helping drive this service.

My opinion of mobile TV is that it is only good for live content like news, sports, and check-in-tv. The concept of “check in” TV is where you quickly flip to see what’s on when you are bored or standing in line or want to kill time. It breaks down when you come up against content you have not seen yet due to missing the narrative. Plus with the time shifting habits of most American TV watchers most shows are sitting on the DVR waiting for them at home. So the concept of mobile TV as a time killer is more the value proposition. Integrating this solution into automobiles could be interesting as well. However, if catch up TV solutions via a streaming model get integrated with the Dyle.tv service then it could present a much more compelling value proposition.

I will be curious to see more of the details when this service launches in the fall. There are some interesting elements, that if done right, could become an interesting feature and a differentiator for some hardware vendors.

Verizon CEO Dan Mead

If you listen to wireless operators, their industry is on the brink of a catastrophe caused by success. “Innovation is at risk today due to the spectrum shortage that we face,” Verizon Wireless President Daniel S. Mead said in a keynote at the CTIA Wireless 2012 show. “There is no doubt there is a looming spectrum crunch.” CTIA President Steve Largent says we are “on the brink of a major wireless traffic jam.”

Demand for wireless data is definitely growing quickly, though just how fast is subject to dispute (as in the glory days of wireline internet growth in the late 1990s, there’s a tendency to overstate current growth rates and then project them into the indefinite future.) But despite the claims that we will exhaust our wireless data capacity by 2014, or 2016, or 2020, the evidence that a shortage of capacity is crippling wireless now, or will anytime in  the near or medium term future is simply lacking.

And that’s a good thing, because notwithstanding the wailing of the wireless carriers and their trade association, the CTIA, the prospects for any major new allocation of spectrum are grim. Congress has authorized a complex scheme known as incentive auctions, in which television broadcasters will receive part of the proceeds if they allow the government to auction off spectrum they are not using.

It’s a fine idea, but it’s complicated by the fact that creating usable blocks of bandwidth will require some TV stations to move to new frequencies. Broadcasters are not flocking to offer spectrum. Bottom line,  it’s going to take a lot longer to free any bandwidth for wireless data and in the end, the amount of  new spectrum is likely to be substantially less than the 120 MHz that the Federal Communications Commission was hoping for. Wresting unused or underused spectrum from federal agencies (especially the military) is likely to prove even harder.

Promoting spectrum shortages serves carriers’ interest in several ways. AT&T used it as a major justification for its failed acquisition of T-Mobile and Verizon makes the argument to support its proposed purchase of unused spectrum from a group of cable operators. Considering bandwidth  a scarce resource  helps justify high prices and restrictive usage caps.

What carriers can do.

Speed LTE deployment. But there is a lot the carriers can  do–and in some cases are doing–to alleviate any crunch. The first is an accelerated move to LTE technology. The carriers have promoted LTE as being faster than existing technologies and, in general, it is, but its real importance is that it that it uses its bandwidth far more efficiently than the 3G EV-DO and HSPA technologies. Verizon, which had hit a speed wall in EV-DO has been the most aggressive in deploying LTE, but AT&T is catching up. Sprint,  which made a bad bet on alternative WiMAX technology, and T-Mobile are starting to move.

More Wi-Fi offload. Especially in the locations where demand is greatest, carriers can ease the pressure on their wireless networks by moving data traffic to Wi-Fi. The new Hotspot 2.0 (IEEE 802.11u) standard  should provide for seamless transfer  of sessions between wireless broadband and Wi-Fi. But the carriers have to support the hotspots and provide adequate backhaul capacity.

Small cells. Cellular communications is based on the concept that bandwidth can be reused by having each base station provide coverage to a relatively small  area whose size is governed by power levels and the height of the antenna. In rural areas, carriers use very tall towers to cover big, but lightly used, areas, while in dense city cores, antennas are mounted much lower. Carriers could provide for much greater reuse of spectrum by going to even smaller microcells, which would be more like Wi-Fi hotspots in coverage. The downside is that this required building, paying for, and siting many more base stations, but it could greatly increase capacity. Ericsson, Alcatel Lucent, and Cisco are all developing small-cell gear and AT&T plans to begin testing service later this year.

Agile radios. From the beginning of wireless communications, the basic approach has been to assign dedicated spectrum to each user, with hardware designed to operate at very specific frequencies. This guarantees am environment in which some assigned frequency bands are very crowded while others are underused. There may be plenty of spectrum in the aggregate, while specific slices of it are clogged. For years, the dream has been to move to the use of agile, or software-defined, radios that could operate on  any available spectrum. The technology is finally reaching the point where this sort of agility is technologically possible. But the transition will be very complex: We have a nearly century-old regulatory regime based on discrete spectrum slices. Licensees have valuable assets in their assigned spectrum, which also serves as a powerful barrier to new entrants. And billions of existing devices  would have to be replaced to take advantage of an agile system. Needsless to say, a move to a new system is going to take a very long time.

Wireless is clearly the future and a powerful driver of innovation and economic growth. More spectrum is always better. But there are good solutions to alleviate shortages in the short and medium term. The situation is nowhere near as dire as the carriers would have us believe.

HTC announced the HTC One family in Barcelona at Mobile World Congress 2012. The HTC One X was one of the bigger standouts as it indicated the best in breed of Android phones available on the market. Some even said it would threaten the iPhone. Does it live up to the hype? I had the chance to use the HTC One X International version for a few days and I wanted to share my first hand experiences with you, which were very positive.

Background

I have been evaluating Android phones well before the first T-Mobile G1 launched back in 2008. I was a BlackBerry addict like many for so long until the Nexus One arrived, then I switched to Android wholesale….. for a while. The iPhone 4 finally pulled me from the Android world with its consistent performance, robust app store, quality photographs, and perfected HDTV Airplay mirroring functionality. Could the HTC One X International pull me back over to Android with its much more sophisticated ICS Android 4 operating system and higher quality app and media store? Maybe.

What I Enjoyed About the HTC One X International

Facial Login
I have been evaluating face login for about a decade and this is one of the first I have used that worked well. It’s missing a few features like auto-adjusting the display to provide light, but it worked well in most environments. If it did miss-read my face, it backs off to a secondary security method like typed password or drawing a pattern. I have not tested for false positives using photographs or videos either.

Multitasking
Quite simply, I have never used a phone this fast and did so many tasks at the same time as I did with the One X International; installing apps, updating apps, syncing Sugarsync data, and browsing in Chrome Beta at the same time were very fast. As hard as I tried to slow the system to a crawl using real apps and not benchmarks, I failed. This is a first for me as I had previously tried nearly every major flavor of Android phone. I attribute most of the multitasking prowess to the Nvidia Tegra 3 processor with its 4-PLUS-1 quad core architecture. When doing heavy multitasking, all four cores were blaring. When reading email, it only uses the one battery-saver core.

Display
The One X sports a monster 4.7″ HD display at 1,280×720 resolution. In comparison to my 4S, this provides 60% larger viewable image area at a very comparable PPI (pixels per inch). The contrast ratio was one of the best I had ever experienced, too. The georgous display made web surfing, viewing photos, watching movies, and playing games a very enjoyable experience.

Games
This is where the One X showed one of its key strengths. I prefer the eye candy and my preferred games are FPS (first-person shooters). I tried many of the titles in the Nvidia TegraZone to stretch the Tegra 3 as far as it would go. ShadowGun THD looked great not only on the integrated display, but also when displayed on a 60″ HDTV screen. I have an XBOX 360 and while I wouldn’t say it’s the same quality graphical experience as the latest Halo, it is close. To have this capability built into a phone, for “free”, is exceptional. I can see how tomorrow’s phones based on Tegra graphics will give future consoles a run for their money.

Camera
The camera experience overall was positive. I appreciated the fast, multi-picture taking capabilities and taking pictures in low light. I thought my iPhone 4S was fast, but the HTC One X was even faster. I also appreciated taking pictures while I was taking videos, and I can imagine making some very interesting photo-video mashups. Unlike the iPhone, I’m not limited to sharing my pictures from Photos just to Twitter. Right from Gallery, I can share to Facebook, Dropbox, SkyDrive, Flickr, Instagram, Picasa, Skype, and yes, Twitter.

Battery Life
I was pleasantly surprised with the battery life as I didn’t notice many demonstrable differences between the One X and my 4S. One area was web browsing where I was using Chrome beta on the One X, which delivered a fuller web experience than Safari, but felt like it was using more battery. Most impressive was that I could get decent battery life with a four core processor, great mobile graphics, on a display with 60% more area. I have to admit, when I first heard about Tegra 3 on phones, my head went directly to concerns on battery life. Nvidia pulled off something real big by enabling good battery life while having four processor cores and Nvidia graphics.

What I Would Like to See Changed About the HTC One X

Size
This is a personal preference, but I like to control the phone with my thumb, without two hands. . The One X requires me to use two hands which rules it out of quick stop-light usage in the car. Techpinions columnist Ben Bajarin goes into depth here on this idea here.

Charging
Like I said above, I like to multitask with my phone, using it more like a mini-tablet than a simple phone. As I would near the end of a battery charge, I would plug in the phone so I could keep playing or working. Often, I would get a warning message warning me that I was draining power quicker than I could charge the unit. This will hopefully get addressed in a software update as it is inconvenient.

Packaging
A beautiful phone deserves beautiful packaging. If you like eggs, great. The One X ships in what looks like a giant, single egg carton. The phone is beautiful and deserves to sit right next to the iPhone 4S, but the packaging should be hidden from human eyes.

Photo Skin Quality
All my shots of people outside in bright sunlight has a red or pink tinge to their skin. Either I had a defective unit or some calibration is required in the driver. I scoured the web and found a few instances of this happening to others. I cannot imagine this not getting fixed.

Trading in my iPhone 4S?

As I said previously, I prefer smaller phones I can control with one thumb. For those who desire the benefits of a larger display phone like the HTC One X International version, I can recommend this phone to those who don’t have access to LTE. The multitasking and games are better than anything I have used to date and when combined with the awesome 4.7″ display, the One X satisfies.

Technology Review

When the iPad came out two years ago, many in the magazine industry, along with Apple itself,  hailed the tablet as the savior of the troubled publication business.  While the iPad has vastly exceeded original expectations for most classes of apps, magazines have been a dismal flop. Pontin explains why better than I ever could, so read his piece.

But I have to admit I am not all that surprised. The goal of most apps seemed to be to recreate the print product in electronic form,  a goal that never felt right. And the apps tended to be big, slow, and buggy.

I still get a bunch of print magazines, but the only publication for which I have a paid online-only subscription is the Kindle Fire edition of The New Yorker.  The New Yorker works as an app better than most simply because it is almost entirely text, laid out in the most boring way imaginable, so the design elements, such as they are, survive. That  said, I actually hate the New Yorker‘s Kindle app. It’s slow and buggy. It violates Kindle user interface standards by requiring a vertical swipe to turn pages; a horizontal swipe takes you to the next or previous article. And it won’t let me rotate the Fire to get that annoying power button out of the way.

But I was surprised by Pontin’s explanation of just how dismal the economics of the app have been. It looks like magazine publishers will have to go on looking for their salvation.

It seems odd that given the competitive market conditions in smartphones that Facebook would even consider doing a smartphone, which is why some people I talk to dismiss the idea of Facebook even venturing into this crowded market. But I believe there is a scenario that could actually allow them to do something innovative and interesting even with the smart phone market competition at an all time high.

Today, most smartphones are based on a specific OS, whether it is iOS, Android, Blackberry, etc. And while a dedicated OS is important given the need for local apps, there is another way to approach this market, especially on a device that you know will be always connected to a 3 or 4G radio. I think that Facebook is smart enough to not get drawn into the iOS and Android wars and if they do release a smartphone, I believe it will be strictly an HTML phone. I have started to hear some rumblings that this is the approach they will take if they enter the smartphone market and in many ways, this would be a smart and potentially disruptive idea.

With iOS and Android, there are very rich development tools for creating apps and with both of these operating systems; local apps make a lot of sense since these apps can be used on things like the iPod or tablets with no Internet connection. However, anyone who has used apps on connected devices knows that it is the wireless connection that allows most of these apps to really sing and dance. But if the goal of Facebook is to strictly bring out a mobile connection to Facebook and have their smartphone serve as a portable vehicle for them to deliver a whole host of social, commercial, and media related services then HTML would work just fine on a smartphone that always has a connection.

This would mean that the Web browser would be the OS, so-to-speak, and all of the apps would come through this HTML browser. And since it would be always connected, it could deliver some pretty rich applications and services if done right. This is a rather intriguing idea since the operative word here is doing it right. Mobile Web browsers have come a long way in the last five years and are capable of delivering pretty good renditions of Web pages and Web apps even on devices that have localized apps. But if a browser is to serve mainly as the way to get apps as well as Web content then this browser needs to be pretty smart in its own right.

But with this move, Facebook would be really moving into new territory. Besides not having any history as a smart phone vendor, they would have to be dealing with the carriers, something that Palm has shown in the past is quite difficult to do right. And, I would like to think that if the only way to gain access to apps is via the Web, then the data deal I would want on a Facebook smartphone would probably need to be an all-you-can eat plan. A plus is that they don’t need a special SDK for apps and, at least in theory, any HTML app should work fine in mobile mode.

Now I have no clue personally if Facebook is really doing a smartphone even though there are a lot of things pointing to the fact that this may be happening. But I do feel that if they jumped into the smartphone market with an Android device it would just be another me-to smartphone.

On the other hand, taking an HTML approach with a smartphone that is really optimized for Facebook’s social experience and using it to deliver more personalized content, apps, information, and games through Facebook–could be quite interesting. It would allow this phone to have broad access to Web content and apps, and if done elegantly, keep Facebook users in the Facebook ecosystem longer and thus helping their cause of monetizing more apps and services tied directly to their mobile handset.

In a way, Apple already does this with the iPod, iPhone, and iPad in that they are all tied directly to Apple’s ecosystem of apps and services. However, Apple lacks the social connection that Facebook could have with their smartphone. And given the fact that Facebook already has close to a billion users, if they could get this smartphone priced cheap, their handset could be quite disruptive as it could take potential buyers away from Apple, Andrid and Windows mobile phone vendors who are especially coveting new users in emerging markets.

Facebook continues to be quite coy on whether they are doing a handset and their denials could be true. Also it would be a risky move given the current glut of cell phones and smartphones already on the market. But if I were a betting man, I would bet that they have surveyed the market for smartphones and, at the very least, have done some serious R&D around this idea of creating an HTML based smartphone that is tied to the Facebook ecosystem and their social community. And it would not surprise me at all if later this year they actually introduce something like this to capitalize on a growing Facebook community around the world that just might be interested in a Facebook smartphone.

Verizon hasn’t been shy about its preferences. It banished the iPhone from its booth at the Consumer Electronics Show because it was displaying only LTE models and I expect it to do the same at the CTIA Wireless show next week.

I argued back in March that Apple should leave LTE out of the iPhone for now because the iPhone does not badly need faster data and the LTE still imposes an unhappy battery life/processing power/size tradeoff. I suspect that reflects the thinking at Apple, which has never been very happy on the bleeding edge of technology.

But I’m not sure that even mighty Apple can resist the pressure it is getting from the most important carrier in its most important market. We’ll know in the fall.

Apple is perhaps the best example in this metric as a recent statistic points out. Asymco shared that in the smartphone segment Apple obtained 73% of operating profits, Samsung 26% and HTC 1% while everyone else lost money. Apple continually captures significant profit share of the markets they compete in, and to Apple profit share is more important than market share.

A common thread of thought in the tech industry, which I believe seriously lacks perspective, is that industry history will repeat itself to the degree that a platform will have the majority share of a market for a long period of time. What I truly believe many are waiting for or looking to happen is for the “open platform” like Google or Windows will rise to dominate the market since open should always win–a premise I reject. If anything I would place my bet on the closed system in a pure mature consumer market.

In my last Dear Industry column I pointed out many reasons why I don’t believe history will repeat itself. My whole argument is based on other consumer goods in other mature markets where there is simply not a dominant market share leader. Again this is true because consumer preference drives segmentation in mature markets.

If you look at other companies in mature or post mature markets like consumer goods or automobiles, you find that each of them focus more on operating efficiency in order to maximize profit share. Of course they would love to see their market share increase dramatically but in post mature markets consumers are driven by personal preferences. Consumers driven by personal preference know what they want and why they want it. Because of preference driven choices, market share shifts simply don’t happen often due to preferences being established. Think Coke and Pepsi, or Mercedes and BMW, or Nike and Adidas.

There are, of course, a number of differences between the computing market and consumer goods. But there is something about consumer markets that I think is interesting that may shed light on how to focus on profit share over market share.

A Deeper Look at Consumer Preference

What is interesting about consumer preference is that it is largely subjective. Although their preferences become refined over time that refinement often comes from subjective perceptions rather than objective ones.

To what extent subjective refinements around personal preference take place over time as consumers shop for computing products is yet to be determined. However, as the market for products like smartphones and tablets matures; I have a hunch that many early perceptions and experiences happening currently with technology products will shape future consumer preference.

On that point, a common foundation shaping consumer preference is the experience they have with a brand, product, or service. If consumers have a poor experience with a brand, product, or service, it becomes increasingly difficult to win them back. The importance of first impressions with consumers can not be overstated.

Understanding consumer preference is a key to understanding how to focus on profit share.

Create Features of Value

The second key point to drive better profit share is to focus on creating features consumer segments find valuable. If you look at any mature product strategy striving for profit share you find that the strategy is to maintain price but layer on features with each new product generation.

The key to that specific product strategy within a segment is to identify value and anticipate future value through research and development. Companies that do that well continually introduce new features that the market segments they are focusing on find valuable. Creating features of value is one of the better strategies to maintain a desired price within a segment and to avoid a race to the bottom.

Specifically in regards to the computing segment it is important to create products that do things better than other products on the market. Right now I am seeing a number of smartphone vendors start do this around the camera. The HTC One X for example is touting several features specific to the camera that is differentiated from the pack. For this strategy to work a “better” camera needs to be perceived as a feature of value that is important enough to sway consumers.

In an increasingly segmenting market feature centric products and product experiences are key to sustainable differentiation. When this strategy is employed it creates a better foundation to focus more on profit share of a specific segment.

Of course operating efficiency is key as well to drive better profit share. But both of the above points of understanding consumer markets and focusing on creating valuable products and experiences will shape operating decisions all the way down to the supply chain.

A strong argument can be made that by focusing on profit share by creating valuable features and experiences could lead to better market share. My overall point is that the right way to approach strategic product and roadmap decisions is to focus more on strategies that drive profit rather than market share.

Companies that employ a market share only strategy run the risk of gaining no market share and making no money.