Category: Featured Tech.pinions

Are the Latest 10”+ Android Devices DOA?

I’ll admit it, I have a love-hate relationship with Android. I love it as a phone choice, love it on 7” tablets, but think it provides a lousy experience on anything 10” display and above. I’m not alone as Android has captured 75% of the smartphone market but hasn’t had big success in the 10” and above category. Companies like Acer and Asus are now venturing into some very dangerous territory and some of their new Android products risk ending up like previous 10”+ Android devices. I’d like to begin with some Android tablet perspective.

It’s hard to believe that up until a year ago, Android had no tablet market to speak of. Android tablets had really been defined by market debacles like the Motorola Xoom. Samsung cranked out some interesting, high-res 10” tablets and Asus delivered some inspiring detachables, but none of them sold very well. Then came Google IO 2012 and the introduction of the Nexus 7, which redefined the volume tablet market. As Apple and Amazon followed with their new 7-8” offerings, the entire tablet market swung toward smaller screens and cheaper tablets. Even though there some excitement around the Nexus 10, on the whole, 10” Android tablets continued to sit, uninspired. What’s going on here?

The challenge with 10” Android tablets is all about apps, which goes all the way back to the first Android tablets. In fact, there are so few tablet apps that there isn’t even a way to segregate the app store to do a decent count of them. That’s when you know very few apps exist. This is a bit of a chicken and egg problem and Google hasn’t yet dug itself out of this hole yet. So why aren’t devs creating apps for the Android 10” platform?

Devs right now are confused about the Google large display ecosystem. I say “Google” and not “Android” because some devs see what Google and partners are doing with Chrome and need to first decide between Chrome and Android. They see Chrome notebooks selling well on Amazon but they are not seeing big optimism on 10”+ Android devices. Developers are confused and when it gets to the point of lock-up, stick with the safe bet, iPad.

In the end, it’s the consumers who suffer. You can install a 4” Android app on a 10” tablet, but many times it gets stretched to the point where the app is unusable. Imagine how that 4” app looks on that 20” display. Well, about twice as bad as the 10” display. All kidding aside, it is the consumer who feels the pain after they get home and try it out and expect an experience that just works. For users who stay in email, the browser, and a few optimized games it’s probably fine, but for those users who use many apps, the experience will be suboptimal. This brings us to the new Acer and Asus SKUs.

Acer has launched a 21.5” all-in-one with Android 4.0 (ICS) with a very slow OMAP 4430 that’s in the Kindle Fire tablet and Google Glass and 8GB of storage. Given what is under the hood, I can only imagine how anemic this system will be, regardless of the lack of apps. Asus has launched the “Transformer Book Trio”, a 12” two operating system (Android/Windows), dual architecture (Intel Haswell/Intel Clovertrail), tri-modal UI (Metro/Desktop/Android), and tri-modal physical (tablet/notebook/desktop). This is clearly not for the technology weary as bundles nearly every possible confusing variable to a general consumer. Aside from these variables, like the Acer AIO, it will stretch many 4”-designed apps to 12”, providing a less-than optimal user experience. Let me close in on answering the original question.

Are the latest Android 10”+ devices DOA? Yes, they are until Google can motivate application developers to create more Android apps that work well, and not stretched from 4” to 10” to 12” to 21”.

 

 

Why We Keep Hearing About “Internet of Things”

I must admit I’m really excited about all the dialogue surrounding the Internet of Things. I’ve spent the last eight years focusing on the Connected Home, and now I’m finally seeing some of the use cases from my old PowerPoints becoming a reality. Analysts and startups are now using “Internet of Things,” or IoT, to describe the hyper-connected world we’re predicted to inhabit within the next few years. But it’s not only the startups… GE, for example, recently unveiled Project Wink in conjunction with innovation community platform Quirky making thousands of patents available for the creation of connected devices for fleet management, healthcare, and sustainability. Cisco is heavily marketing their “Internet of Everything” vision complete with multipart whitepapers, abundant data sets, and even a resident futurist. Even Intel released a blog post this spring celebrating International Internet of Things Day on April 9th.

So we’re seeing a broad usage of the term “Internet of Things,” but what does it mean? And what are the underlying components setting the stage for IoT to explode. In this post I’ll break it down, review the reasons for its rapid growth, and most importantly propose why it matters to us as technologists.

What is Internet of Things?

Let’s first define “Internet of Things.” The Wikipedia definition is a good start: “The Internet of Things refers to uniquely identifiable objects and their virtual representations in an Internet-like structure.”

So basically imagine a variety of our physical devices—such as lamps, refrigerators, cars, watches, etc.— having a fully digital representation complete with accessibility and an address. We are only beginning to understand the implications of such widely available data, and the impacts to commerce, privacy, and consumer behavior are all highly debatable (will save for a follow-up article), but here’s some industry data on the relative scale of the IoT sector:

  1. By 2020 a cumulative 100 billion processors will have been shipped, each capable of processing information and communicating. (Source: Ericsson)
  2. Only 0.6% of physical objects that may one day be considered part of Internet of Things are currently connected. Between 2013 and 2022, $14.4 trillion of value (net profit) will be “up for grabs” for enterprises globally. (Source: Cisco)
  3. Across the health-care applications analyzed, Internet of Things technology could have an economic impact of $1.1 trillion to $2.5 trillion per year by 2025. (Source: McKinsey)
  4. 15% of surveyed organizations across the globe already have an Internet of Things solution in place, 53% plan to implement one within the next 24 months, and another 14% in the next two to five years. (Source: Forrester)

Examples of Internet of Things

Many of the devices and services we use on a daily basis have been put into the category of IoT. Here are some examples:

  1. “Smart” devices such as refrigerators, electric meters, doorlocks, etc. that use connectivity and intelligence. Nest and Silver Spring Networks are notable in this category gaining a lot of attention and interest from the channel, potential partners, and customers.
  2. Wearable computing for health & fitness such as the FitBit, Jawbone Up, and Basis band as well as Independent Living platforms such as Lively and BeClose.
  3. Industrial-grade devices and applications that aim to improve retail experiences (Euclid, RetailNext), energy efficiency (Enlightened, Greenwave Reality), and healthcare delivery (Telecare, AliveCor).

And these really aren’t exotic use cases that need to happen to make a material impact. For example, home appliances that can identify maintenance required and trigger a proactive service call, a smart meter detecting presence in the home to optimize grid utilization, or even location services like Foursquare sending succinct information to a smart watch.

Matt Turck and the team at FirstMark Capital have done an excellent job of listing some of the major players in the graphic below. There are more companies operating in stealth mode or outside of the traditional VC ecosystem (i.e. inside a research lab at a public company or university), but this offers valuable insight into the various components.

Screen Shot 2013-06-02 at 9.07.12 PM

Reasons for the Internet of Things Momentum

As previously noted in analyst reports, the term “Internet of Things” was coined backed in 1999. But when looking at the overall activity in this sector, things started to inflect around 2011 with the visibility of Quantified Self products such as FitBit and Nike Fuel.

Prior to 2011, my CES experience as an exhibitor in the South Hall between 2007 and 2010 saw incremental improvements to both floor traffic (read: reporters, prospects, and VCs) and interest levels. However, the past two years the South Hall was abuzz with a variety of stakeholders looking to stop by and see what was happening at the ANT+, BodyMedia, Dropcam, FitBit, Nexia, Polar, etc. booths and the respective Z-Wave and Zigbee alliance pavilions. This year saw a lot more coverage, tighter focus on creating end-user value, and exponential growth in interest.

Looking beyond just the hype factor, there are a variety of reasons for the acceleration of Internet of Things. Most notably, but not limited to, the following:

  1. Chip companies via Moore’s Law continue to make smaller, faster, and lower-cost silicon that can embed in new form factors and provide high-efficiency processing.
  2. Networking progress including more down/up stream bandwidth, more reliable Wi-Fi, NFC, Bluetooth LE connections, and hockey stick adoption of smartphones.
  3. IPV6 rollout increases the number of available “internet addresses” by a massive factor. IPV4 could handle roughly 4 billion addresses whereas IPV6 can handle 340 trillion addresses.
  4. Big data tools and methodologies now available to process the magnitude of information coming from connected devices ((caveat: insights and actions from the data still lacking. I suggest an excellent presentation from Greylock’s DJ Patil here:))
  5. Lower barriers to entry with open source hardware options like Arduino and Raspberry Pi, software from Amazon Web Services, and crowdfunding options including Kickstarter.

So Why Do I Keep Hearing About It? Is the Time Now?

In a word, yes. This time is now for staging the opportunity. At 4Home (and most startups that pursued Home Automation in the 2000’s) we realized that we were early to market. There was a sector of hobbyists looking to leave X-10 and a smaller support network of insiders in press, venture, and corporate partners who could push the momentum along. As we were acquired by Motorola and later became a corporate partner in the ecosystem we began to see the market conditions improve. It was no longer Jetson’s inspired serial entrepreneurs; it was a new group of technologists focused on larger and more ambitious projects. Specifically:

  1. Focus on new products that deliver direct end-user value via B2C business. Nest and Dropcam are two examples of companies that have a clear value proposition and execute through a hybrid retail/direct model.
  2. Trade press, analysts, and influencers writing about the sector and people are talking about it more. I’ll make a causal assumption the increased coverage is indicative of increased demand.
  3. Venture Capitalists, who largely stayed out of funding Home Automation, are being active in developing/managing IoT theses. Some notables I’ve met include Tim Chang (Mayfield Fund), Trae Vassallo (Kleiner Perkins), Rob Coneybeer (Shasta Ventures), Mike Dauber (Battery Ventures), and Jason Krikorian (DCM). Others are working closely with Venture Partners or EIRs to atomize the sector and develop investment options.
  4. CRITICAL – talented engineers, designers, product mangers, etc. look at this sector to start or join companies. The flow of high quality engineering talent from Apple, Facebook, Google, Intel, etc. into these companies like SmartThings, Electric Imp, or Jawbone is fundamentally the reason why I’m so excited about this space. Great products need strong benches and it’s great to see a sector I’m very passionate about finally get the attention it deserves.

So while these factors signify a discernible improvement in market conditions the ultimate (and largely unproven) test of IoT will be the wide adoption of these solutions at scale with consumers and in the enterprise. And consequently, do we see a vertical ecosystems develop without wide interoperability or will broad based standards dominate to serve a common open environment? I’m thinking very heavily about this.

Summary

The blatant overuse of terms like “smart ____” and “connected ____” have made some of us (rightly) skeptical about innovations like Internet of Things. But in the case of Internet of Things we will continue to see gradual changes in the near-term (next 12 – 24 months) leading to significant, longer-term shifts in how consumers go about their daily lives and how business is conducted around the world (36+ months). Get ready for one of the most interesting, if not most disruptive periods, in modern tech history as this plays out in your home, at your office, and in the network.

Platforms, Market Share, Profits, and the Future

If anything, John’s column on Android’s market share has stirred a good discussion around the market share vs. profit share debate. Some may argue that this discussion isn’t relevant to end consumers who really don’t care. To that I agree. As an industry analyst these things are of interest to how I study the industry. Data around market share and profit share help shape my perspectives relative to what companies, platforms, and technologies have the best chances of succeeding going forward. Although I agree that end consumers don’t care about market share or profit share, there is a group who does and should care–developers.

Developers Control the Future

Marc Andreesen boldly proclaimed in a 2011 essay in the Wall St. Journal that software is eating the world. He is, of course, correct and in the reality where software is eating the world, software developers control the future. Software developers are the heart of a platform. As long as a healthy software development ecosystem exists, a platforms future is not in jeopardy. Therefore, what interests me in the platform discussion, is what platforms are developers interested in and where is the most exciting software development taking place. I believe wholeheartedly the answer is iOS.

Here in Silicon Valley, where I live and work, I meet many new startups weekly. I talk with venture capitalists investing in the software revolution monthly. The major theme and trend I pick up on in these discussions is iOS first and Android eventually. Most VCs I speak with have invested in many iOS only app startups and they seem to have no problem with this from a business standpoint. Many have also invested in companies making software for iOS and Android but told me that the companies priority was iOS. From my viewpoint iOS is the hot ticket item. And it seems like developers agree. This years Apple World Wide Developer conference sold out in record time, faster than Google I/O for the first time. And it did this despite Android’s 75% smartphone market share.

Below is a chart showing how many minutes it took for each developer conference to sell out. ((I plotted since 2011 since starting that year each conference sold out in less than a day. Each year prior took days not minutes))

Screen Shot 2013-05-30 at 11.28.57 PM

iOS also appears to be the best business bet for a majority of software developers. Distimo released a very interesting study this month highlighting some key metrics related to both the iOS and the Google Play Store. In a section of the report called The Apple App Store is Most Beneficial, Distimo point out:

“The daily revenue (In the US) in April 2013 generated by all applications in the top 200 grossing in Google Play was $1.1M, while the daily revenue of the top 200 in the Apple App Store (both iPhone and iPad) was 4.6 times higher at $5.1M. The vast majority of applications in those two top lists contained free applications with In-App purchases and this business model automatically generates the most revenue in both stores. The higher revenue share in the Apple App Store compared to Google Play was also characteristic for long tail applications and did not apply solely to popular applications.”

As impressive as that US centric data is, I think two clarifying points are necessary. First you will notice that Distimo specifically points out that the Apple app store revenue includes iPhone AND iPad. Why does this matter? First because there are disproportionately more iPad specific apps in the Apple App store than there are tablet specific apps in the Google Play store. In fact, I would be so bold as to say that there are so few tablet specific apps in the Google Play store that it barely showed up as a blip, if at all, in the Distimo app IQ tracking solution.

Second, this breakout which includes iPad, shows how attractive iOS is from both a smartphone standpoint and a tablet standpoint in terms of opportunities to make money for software developers. ((It is clear the iPad is a strong component to the strength of the Apple app store. Unless Google fixes this with tablet apps, the imbalance will remain))

Now, the above mentioned data was US centric, where we know the iPhone is dominant. So how about the rest of the world? Distimo makes the following observation:

“The Apple App Store was still the larger market compared to Google Play in April 2013 in terms of total revenue. However, Google Play’s piece of the pie has increased significantly over the past six months. While only 19% of the combined revenue came from Google Play in November 2012, this share went up by eight percentage points to 27% in April 2013. The Japanese and South Korean markets were the main contributors for the growth in Google Play’s revenue share.”

Distimo makes a point that the Play Store has increased, and indeed it has. However, they also explain the answer.

“The Japanese and South Korean markets were the main contributors for the growth in Google Play’s revenue share.”

One word. Samsung. One question. Sustainable? ((I will be doing a deep dive on my thoughts on Samsung’s sustainability long term as a part of a new service we are launching soon. Sorry for the shameless plug))

Focusing on Android Software Development

Indeed, John’s column spurred quite the response from those in the church of market share. Of course Android is relevant and it’s not going anyway any time soon.

The question is can developers make money and sustain a profitable business developing for Android. Interestingly this is exactly what the Distimo report set to find out.

In the report Distimo highlights several developers and apps that have found more or at least equal success in the Google Play Store vs. the Apple App Store. The primary examples were game developer Mobage.

“In April 2013, Mobage generated more than $5.1M in Google Play in April 2013. The Apple App Store total revenue during April 2013 in the U.S. was $5.6M, which was slightly higher. This equates to a revenue share of 48% for all Mobage apps in Google Play in April 2013, while 52% of revenue came from the Apple App Store (iPhone and iPad).”

Not bad. Mobage has several popular games, Blood Brothers and Rage of Bahamut being two of the main ones. As you can see for this developer Android is a significant contributor. They are also a large publisher with games with strong brand cache.

The other Android highlight was Final Fantasy III.

Screen Shot 2013-05-30 at 11.24.45 PM
Again a game with serious brand affinity. As you can see Android is not a lost cause for developers. However, it does seem there is a template which is required to follow in order to make Android development worthwhile.

Conclusions

Android is a viable market place. However, as we see, it is also highly regional and more often than not success is being found by large developers with name brand apps. Therefore app developers need to be very targeted about the region and strategic about the business model that will work in that region.

The Android market is filled with successes but it also favors the larger more established app developers whose software has a strong and established brand to leverage. [pullquote]iOS presents the greatest opportunity for the entrepreneur app developer[/pullquote]

The data and the evidence constantly coming to light showcases how developers large or small are profiting from iOS development. But in my opinion, iOS presents the greatest opportunity for the entrepreneur app developer. The small to mid-size developer. The person who writes apps in their spare time and has a dream to quit their job and start their own business creating apps. This is where some of the most exciting software development is coming from. This is where the companies of tomorrow will be born.

So here is my advice to the smaller independent and garage software developers looking to build or continue to build their software development business. Follow the strategy being employed by the many silicon valley app startups. Start with iOS, build the business and the brand, then as the business grows expand. It would be foolish to ignore Android. It would also be foolish to start there. ((This is of course my opinion and you are welcome to disagree))

Screen Shot 2013-05-30 at 11.30.14 PM

I have given this advice to dozens of app developers a month who seek my feedback and opinion. And I am told I am not alone in this opinion. Many remark that this advice is also given to them by their mentors, advisors, and investors (if they have them.)

It is of course true that developers can make money on Android. The Android market will continue to develop and grow. But can it attract and be a viable marketplace for the small software startups? Or for the long tail marketplace which is clearly in Apple’s App stores favor at the moment. I will agree and end with the conclusion Distimo makes in their report:

“We draw the conclusion that although the majority of applications still generate more revenue in the Apple App Store than in Google Play, there appears to be a great opportunity in Google Play in terms of revenue – and (as noted in previous publications) localization is the key.”

Apple’s Insularity Could Get Dangerous

It started with a question I asked Apple CEO Tim Cook during his presentation Tuesday at the D11 conference in Rancho Palos Verdes, Calif. Noting that Microsoft and Google offered cloud solutions that provided access to a wide variety of platforms, I asked Cook whether it was time for Apple to broaden its iCloud service to facilitate sharing for customers who are likely to own both Apple and non-Apple gear.

Cook didn’t bite. But Donald Leka, CEO of TransMedia, whose Glide service has provided cloud-based file sharing for a wide variety of devices since before anyone talked about the cloud, jumped in. In a press release announcing the release of a new Glide iPhone app that provides access to Dropbox, Microsoft SkyDrive, and Google Drive accounts, Glide said:

“Consumers really don’t care that much what platform they are on, where their files are stored, or what the file types and file formats are,” said TransMedia Chairman and CEO, Donald Leka. “They simply want to be able to easily access and share a family photo, a letter to a friend, a favorite song or show.”

This drew an email response from a representative from Apple Worldwide Developer Relations (shared with me by Leka):

…We believe the best press releases for a product launch concentrate on that product. Your release is ostensibly for the launch of your iPhone app, but the copy actually references other apps on other platforms more often than it mentions the one being launched.  We think the customers, bloggers, and media who follow app launches are usually quite parochial — quite focused on specific platforms — so we counsel developers to craft press releases tailored to each individual platform.

And that brings me to my final point: the tone of your release and your product positioning is at odds with not just our primary marketing messaging, but the entire reason Apple exists. To wit, you are quoted in the press release as saying “Consumers really don’t care that much what platform they are on…”  Our drive, our passion, our singular focus on creating the best products we can make is rooted in the fundamental belief that customers really do care about the products in which they invest their time, money, and energy.  We strive to make the best products we can because we believe the right product will change a customer’s life.  And customers do indeed care about things that change their lives.

Our experience is that customers are interested in apps that help them get more from their iPhone, that give their cherished, chosen device exciting new functionality that fits their mobile lifestyle.  I’d encourage you to recast your messaging in this positive, affirmative way.

I suspect Apple’s customers are a lot less parochial than Apple is, or than Apple thinks they are. These days, it’s not unusual for someone to own an Android phone, an iPad, and a Windows laptop–and want to share information among all of them. I’m sure Apple prefers that they switch to an iPhone and a Mac, but that’s not the world we live in. By failing to accommodate their desires and instead to promote a closed, Apple-only ecosystem, Apple could be building big trouble for itself.

4 Mobile Business Models, 4 Ways To Keep Score

The hundred meter dash, archery, weightlifting and the long jump are four very different Olympic sports with four very different methods of keeping score. The hundred meter dash is scored on speed. Archery is scored on accuracy. Weightlifting is scored on strength. The long jump is scored on distance. You don’t judge the participants in the hundred yard dash by how much weight they can lift. That would be the wrong way to measure them.

“…looking at ‘smartphone share’ or ‘profit share’ or ‘platform share’ all tell you something about the industry, but all three metrics mislead you if you try to treat them as a way to see who’s ‘winning’, because ‘winning’ means different things for Apple, Samsung or Google. After all, Google may well still make more money from searches on iOS than it does from searches on Android.” ~ Ben Evans, On market share

Hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms are four very different business models and they have four very different methods of keeping score too.

You don’t take the metrics used to measure one business model and apply them to another business model. That would be the wrong way to measure them.

Each business model demands its own specific forms of scoring. The goal should be to devise, discover, or discern a form of measurement that properly and accurately reflects how a business is performing in the business model in which it is participating.

Biathlons, Triathlons and Decathlons are all unusual Olympic events in that they group together several disparate sports and then determine an overall winner. Think of Apple, Google, Samsung, and Amazon as Olympic teams that compete with one another in the four interrelated mobile business models – hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms – a sort of Quadrathlon. Each team has its strengths and its weaknesses, each team wants to win the events that they’re best at and maximize their score in the other events in order to win the overall Quadrathlon.

Let the games begin!

Hardware Manufacturing

Last week I tried to explain how using only market share to analyze mobile hardware manufacturing was not only the wrong way to keep score of that business model but that it was actually obscuring the real score.

“The truth is that focusing on market share as the primary metric is the only way to paint the iPhone as anything other than a roaring success.” ~ John Gruber

I suggested an alternative measurement known as the “Fair share profit analysis,” in order to generate some perspective but, truth be told, the only real way to accurately “score” who’s winning in hardware manufacturing is with net hardware profits. When it comes to selling mobile hardware, do Apple, Samsung, HTC, Motorola, etc. really care what their market share is? No they do not. That’s the top line, a means to an end. The only thing that matters when they are selling mobile hardware is profit. That’s the bottom line, the end for which the means were made. Market share is all well and good but only if it brings home the profits. Keep your eyes on the prize – and profits are the prize.

So who’s winning the medals in the olympic sport of mobile hardware manufacturing?
genuity
Source: “Who’s Winning, iOS or Android? All the Numbers, All in One Place”

Awards Ceremony: Apple walks away with the Gold (both figuratively and almost literally), Samsung takes the Silver and no one else even medals. The Bronze podium stands empty.

Advertising

The only proper way to score advertising is net advertising profits retained. Market share and platform may be used to garner advertising revenue but they are only the means and they should never be confused with profit, which is the end.

Today, there are three great truths in mobile advertising:

1) Google is killing it in mobile advertising.
2) Google is killing it in mobile advertising…but mobile advertising is still relatively small; and
3) The vast majority of Google’s mobile advertising revenue is generated on the iOS platform, not the Android platform.

1) Google is killing it in mobile advertising.

Google dominates the mobile search market with 93% of US mobile search advertising dollars, according to eMarketer. Facebook is at No. 2.

2) Mobile advertising is still relatively small.

The mobile ad market alone stood at roughly $4.1 billion at the end of last year, up from $1.5 billion at the end of 2011. Google, currently has more than half the mobile ads market with annual revenues of around $2.2 billion.

Just to keep things in perspective, mobile ad revenue only accounted for 9% of all online ad revenue last year, although the percentage of mobile ads vis-a-vis other online ads is rapidly growing. And mobile ad revenues paled in comparison with mobile hardware sales. While it took an entire year for ALL mobile ad revenue to reach $4.1 billion, Apple alone, and in 90 days, and in what many considered a down quarter, brought in revenues of approximately $31.4 billion just from iPhone and iPad sales.

3) Google is making its advertising money on iOS, not Android

“(I)t’s Android’s large market share that is the winner for Google. The more Android devices being used, the more Google services with Google ads are being used.” – Virtual Pants

Actually, not so very much. Most of Google’s advertising dollars are generated by iOS’s relatively smaller market share, not by Android’s massive market share.

MoPub-Ad-Spend-Share-Jan-Feb-March

Source: MoPub

Take a good hard look at the chart, above. The iPhone ad spend doubles the ad spend share of ALL of Android. The iPad almost matches ALL of Android BY ITSELF. And even the lowly iPod has one-quarter of the ad spend that ALL of Android does. Market share is all that matters? I don’t think so. That’s like arguing that acreage is all that matters in real estate. The size of the lot does matter in real estate but location, location, location matters more, more, more. And market share does matter in mobile advertising but it is the location of the market share that matters even more.

— Apple’s iOS Mobile Ad Metrics Dominates Android

— Why 75 cents of every dollar spent on mobile advertising is spent on iPhone and iPad

— iOS leads Android in mobile ad revenue

— Apple’s iPad dominates online shopping traffic & revenue generation

— iOS Still Top Platform For Monetising Mobile Ads, Opera’s Q1 Study Finds, iPhone Also Beating Android For Generating Ad Traffic

— iPad Still Dominates Tablet Ads With iPad Mini Gaining, Velti Finds

“My belief, though, is that what Google is winning with Android is a booby prize — overwhelming majority share of the unprofitable segment of the market.” – John Gruber

When it comes to ad revenues and profits, we shouldn’t be counting Android as a single entity anyway. Ad revenues don’t help Android, the platform. They help specific digital stores. Ads going to Amazon, Google, and the various stores in China and elsewhere need to be broken out separately, not lumped together.

Awards Ceremony: Google wins the Gold and they win it going away. But they receive their Gold medal standing on the Apple iOS platform, not the Android platform.

Silver and Bronze? I’ll let you decide if it’s Facebook, Yahoo, Microsoft’s Bing or someone else. They’re all so far back that it doesn’t much matter now anyway. That may change over time but we’ll have to wait and see how this market develops.

“Razors-And-Blades” Content Sales

“(T)he razor and blades business model, is a business model wherein one item is sold at a low price (or given away for free) in order to increase sales of a complementary good, such as supplies…” ~ Wikipedia

The “razors-and-blades” business model is tricky to score.

— Hardware revenues and profits mean NOTHING in the “razors-and-blades” model. In fact, it’s not unusual to LOSE money from hardware (razor) sales.

— Market share means both nothing and everything in the “razors-and-blades” model. It means nothing because it doesn’t actually generate any profits but it means everything because it is a prerequisite to generating profits. In fact, the only reason you’re giving away your hardware in the first place is to acquire massive market share which, in turn, will hopefully lead to massive profits.

— Ultimately, the only way to measure the success of the “razors-and-blades” model is on the net profits generated by the sale of the complementary goods (razors). In mobile, the complementary goods are content such as music, video, books, etc. and apps. Amazon also has the added advantage of being able to sell everything from their sprawling retail catalog.

As I tried to explain in my tersely titled article: “Selling The Amazon Kindle Fire and Google Nexus 7 Is As Silly As Selling Razor Blades To Men Who Love Beards“, the “razors-and-blades” model makes no sense in this market space. At least it makes no sense to me. In the “razors-and-blades” model, the complementary sales – whether it be blades for razors, or ink for inkjet printers or games for gaming consoles – must be proprietary and must command a premium price. That’s the whole point. Give away the razor, make it back – and more – by selling the blades at a premium.

If you’re selling content, you want to be platform agnostic so that you can sell as much content as possible. This, in my opinion, should be Amazon’s strategy.

If you’re giving away hardware in order to sell content, then you want that content to be tied to your hardware product so that you can monopolize the sale of the complementary product and command a premium price.

In the mobile space, the complementary sales ARE NOT proprietary, they ARE subject to competition and they DO NOT command a premium price. Amazon and Google don’t sell content that is any different or superior to that being sold by Apple and other content providers and their content isn’t being sold at a premium. In fact, Amazon often sells their merchandise at a DISCOUNT which – in the “razors-and-blades” business model – is completely bat-manure crazy. ((Then again, we all know that Jeff Bezos is crazy like a fox.))

So who’s winning in the “razors-and-blades” business model? Why, surprisingly, it’s Apple and it’s Apple in a runaway.

— Google Play now at 90% of iOS app store downloads; iOS still holds a 2.6X revenue lead

Despite growing competition from other tablets, Apple’s iPad still accounts for a whopping 89.28 percent of e-commerce website traffic, and also rakes in more money on a per-user basis than any other platform. ~ Monetate

Distimo reports that iOS App Store revenues were 430% larger than Android during 2012. ~ Apple F2Q13 Earnings Call

“…iTunes inclusive of Apple’s own Software generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year.” ~ Asymco, So long, break-even

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Source: Canalys

Apple sells their content, not in order to make money but, in order to make their hardware more attractive so that they can sell ever more hardware and make ever more profits. With regard to tablets, Apple is playing the OPPOSITE game that the Amazon Fire and the Google Nexus are playing. While Amazon and Google subsidize their tablets (razors) in order to make money on the sale of their content (blades), Apple should be subsidizing the sale of their content (blades) in order to make money on the sale of their hardware (razors). But that’s not how Apple rolls. Instead, Apple sells their hardware at a premium AND they sell their content at a premium. That’s not supposed to happen but that’s just how good the Apple ecosystem is.

It’s like a walk-on winning the Olympic marathon while everyone else is stuck in the starting blocks.

You can say that it’s elitist or arrogant to argue that iOS users are better customers than Android users. But you can also say that it’s the truth. ~ John Gruber, Church of market share

One last thing. If Amazon and Google have an incentive to sell discounted hardware and premium content and Apple has an incentive to sell premium hardware and discounted content, one of those business models is going to fail and it’s going to fail hard. Since Apple is, so far, successfully selling premium hardware AND premium content, I’ll let you be the judge of how this is going to play out.

Awards Ceremony: I’m tempted to award all three medals to Apple just for having the sheer audacity to win a game that they didn’t even enter. But I guess Apple will have to console themselves with just winning the Gold.

And the Amazon Fire and the Google Nexus tablets? Disqualified for not understanding the rules of the game that they were playing.

Remember, Amazon and Google sell their hardware at cost. They don’t make a penny off those sales and they might even be taking a loss.

Market share? Yes, they have taken some minor market share…in a market where they are GIVING AWAY THEIR MERCHANDISE. And market share is not how you score in the “razors-and-blades” game. While the press and the pundits fawn over the market share of the Amazon Fire and the Google Nexus, what they’re entirely missing is that in the “razors-and-blades” business model, market share should be a GIVEN. I mean, honestly, if you can’t obtain overwhelming market share when you’re giving away your product at cost, then you should be ashamed, embarrassed, abashed, chagrined, humiliated and mortified ’cause you’re doing something terribly, terribly wrong.

You win the “razors-and-blades” game by scoring the most content profits. All those Amazon Fire and Google Nexus market share numbers that the analysts are always going gaga over? Meaningless. They should be removed from the count. They’re probably not hurting the sales of the other available tablets and they’re not helping the bottom lines of their makers either. There is zero proof that Amazon and Google’s hardware giveaways have led to increased retail sales which, after all, in the “razors-and-blades” model, IS the point.

And if you’re going to prophesy that market share alone gives Google data that will someday, somehow, be worth something to someone, then you need to go back and re-read how the “razor-and-blades” business model is scored.

What we desperately need in analyzing mobile computing is far more attention paid to profits and far less attention paid to prophets.

Next Time

Next time I will finish with the “mother” of all business models – platforms – and do the medal count.

Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

Read Part One of John’s column entitled: Android’s Market Share Is Literally A Joke

Read Part Three of John’s column entitled: Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

The author would like to gratefully acknowledge the contributions of Ben Bajarin and Steve Wildstrom. All the great ideas, that you agree with, were theirs. All the bad ideas, that you disagree with, were mine.

Trying To Love Windows 8

I’ve been using Windows 8 in one form or another for well over a year and I keep hoping that it will become as comfortable as every other version I have used, going back nearly a quarter century to Windows 3.0. I hoped the final version would be better than the various previews. It was, but not enough. I hoped that using it on a new system with a touchpad designed for Win 8’s new gestures. Again, better but only a bit. Even a touch display was not enough to overcome my frustration and sense of foreignness.

Over the past few weeks, I have been using Windows 8 particularly intensely in an effort to discover the sources of my unhappiness. I have used both a Lenovo ThinkPad X1 Carbon Touch with a 14” touch screen and the Hewlett-Packard Envy X2, a clever design with an 11.6” touch display that can detach to become a sleek tablet. ((The Envy X2 delivers a very light, thin package with excellent battery life—7 hours for the tablet and 12 hours with the keyboard and its auxiliary battery attached. But you pay a price in performance; the 1.8 GHz Atom processor struggles to keep up with the demands of Windows 8 and response was often sluggish.)) I’ve come to the conclusion that there are three basic issues.

One is the two-headed nature of Windows 8: It keeps forcing you to switch back and forth between its touch-centric Modern (or Metro) user interface and the traditional Windows Desktop. In an effort to create an operating system that worked with both conventional PCs and tablets, Microsoft came up with a hybrid that doesn’t feel right on either. The second is the difficulty of discovering features and functions. And third is the painful lack of apps designed for the new UI. Time and the release of a new version, codenamed Blue, in coming months, should erase these problems, but are unlikely to solve them. There are a lot of good things about the Modern UI, though I have come to the conclusion that Microsoft’s much-promoted live tiles really aren’t worth the space they occupy; I would rather just have more apps on my home screen. The interface is a bit clumsy used with a mouse or a touchpad, but works very well with touch. The problem is that you just can’t stay in Modern. Many common tasks require the use of Desktop, including most utilities and the great majority of control panels. For example, trying to troubleshoot any sort of wireless connection problem requires opening the Desktop Network and Sharing Center control panel. Even requesting help on the Modern PC Settings screen brings up a Desktop help window. And Desktop windows, with their tiny controls, do not work at all well with touch.

It’s an enduring mystery how Microsoft failed to see that this would be a massive problem that makes Windows 8 very difficult to use without a keyboard and pointing device. And, of course, the lack truly touch-optimized versions of Word, Outlook, Excel, and PowerPoint make Microsoft’s claim that only Windows 8 tablets can run Office an empty boast. The double-headed nature of Win 8 also gets badly in the way of discoverability. Modern adds maximize screen real estate by hiding nearly all of the “chrome”—the buttons and controls that make things happen. On all applications, Modern or Desktop as swipe from the right edge of the screen or touchpad–on the HP, this worked consistently only on the screen ((That wasn’t the only issue I had with the Envy’s Synaptics touchpad. Tapping the touchpad often brought up the right-click context menu for no apparent reason.))–brings up the system-level “charms”: search, share, start, devices, and settings.

In many, but not all, Modern apps, a swipe from the bottom of the screen brings up app-specific charms, such as what you would expect to be the most common menu items in the Mail app. The system charms work in inconsistent ways that take a lot of getting used to. For example, if you start typing with the Start screen open, the search charm opens for a search of apps. But if you type on an empty Desktop, nothing at all happens. And since there is no Start menu, you have to open the search charm manually to choose application if its icon is not on the desktop or in the task bar. If you are in the Mail app, the Search charm lets you search through all your messages and ctrl-F opens a new message window. In Internet Explorer, the search charm opens a Web search (though you can accomplish exactly the same thing by typing in the address bar) and you must use ctrl-F to search through the content of a page. Of course, that’s only in the Modern version of IE. In the completely separate Desktop IE (different bookmarks, different history, different preferences) the search charm activates the app search—as best as I can tell, system charms never work within Desktop apps. I could go on, but I think you get the picture. All of this wouldn’t be so bad if there were more and better Modern apps so that you didn’t have to switch between the two UIs so often. But the build in Mail app lacks basic features, such as saved searches or smart folders, that we have taken for granted in mail programs for more than a decade and there are so far no third-party alternatives. This forces you to use Outlook or another Desktop mail application.

There are also serious UI consistency problems with third-part Desktop apps. A two-finger swipe down on the touchpad should cause text to move down on the screen, as it does if you touch the display directly. But in Google Chrome, it moves txt up, as you would expect in older versions of Windows. At least when Apple switched the scroll direction in OS X Lion to make it work the way people had come to expect on iPads and iPhones, it managed to make the change work for everything. More than eight months after Windows 8 shipped, there’s still no official Modern Facebook app. You can use Facebook in IE, of course, but Facebook serves you a standard version that is not optimized for touch. This renders Facebook all but unusable without a keyboard and mouse. In general, few websites recognize Modern IE as a touch browser that requires differently configured pages. I hope that Blue, which is supposed to be out in a preview version at the end of June, addresses the worst of these problems. Windows 8 As it exists just plain makes you work too hard to be even a little lovable.

Next week: Trying To Love a Google Chromebook.

Platform Wars: Some Things Will Never Change

Regular readers of Tech.pinions will know that John Kirk’s column last week on Android’s market share being a joke, went massively viral. As I watched the stats of real-time visitors and new hourly spikes of traffic I was truly amazed. Many of you may not know but for about a year and a half I was on the executive team of one of the popular tech and gadget blogs. In my time there I never saw anything do what John’s column did in terms of global attention.

With the wide-spread circulation of John’s 2400 word analysis came a slew of comments. Over 560 and counting to be precise. Many of our regular readers jumped in and what ensued was a pretty healthy dialogue for the most part. But in the course of the large comment thread, I think we saw every major anti-Apple argument come out. ((I hope to do a summary of the major points from each side and provide key thoughts on each of them)) Which leads me to my point. In regard to these platform wars, some things will never change.

Ultimately, humans are tribal beings. We have a strong urge to associate and affiliate with a tribe. This is perhaps most strongly demonstrated at any major sporting event. We praise the home team but boo the opposing team and all their players. We have a strong desire to win and be on the winning team. So it shouldn’t surprise us when a polarizing situation presents itself that we see tribal behavior.

It doesn’t matter how rational of a conversation we try to have about understanding the complexities of business, like market share statistics for example. Or that business is made up of a complex web of market forces that when isolated do not tell the whole story around the health or viability of a product, company, or market.

So many points in this platform war discussion are based on flawed assumptions that everyone values the same thing. That people are pragmatic, and rational beings. Nothing could be farther from the truth. Humans are diverse and that diversity is reflected in the diversity of products and solutions that exist in the markets we study. It is this profound market diversity that many don’t understand.

So this discussion will continue and we will all try to have an informed dialogue on the complexities of business but some things will never change. Humans are tribal beings. If only we could recognize that there are situations where for one tribe to win the other does not have to lose. If only.

Microsoft and Google’s Game of “Office Chicken” is Just Alienating Users

Google and Microsoft are battling it out on a lot of fronts, but many times there is little collateral damage to end users. Unfortunately, in a few cases, end users have been cast aside in the spirit of strategic lockouts and bickering. Two immediate examples are the Windows Phone YouTube app and the battle of the calendar. I’d like to drill-down into Google dropping EAS and Microsoft not supporting calDAV in MS Office to highlight just how much these two giants are damaging the end user and I’ll end suggesting a unique solution.

It all started with Google’s “Winter cleaning” in December where they decided to stop supporting Microsoft Exchange Active Sync (EAS). This meant that Microsoft products like Outlook and even Windows Mail and Calendar 8 would no longer work if they were connected using EAS. It also screwed over users like me who run their businesses off of Google Apps who wanted to use the calendar inside Windows 8 for use with their Windows 8 touch devices. I already used Outlook and synced with Google Apps using Google Sync free of charge. At the time, Google Sync didn’t work with Office 2013, so I was stuck with Office 2010 which is a horrible touch experience.

Microsoft could have invested some work into their offline or online calendars to work with calDAV, but they didn’t, and I believe that it was for the “Scroogled” cause, not because it’s difficult. You see, 20 person development shops or less support calDAV. At a minimum, Microsoft could have been more transparent about why they weren’t supporting calDAV or whether they would ever support it.

I’ve tried many times to get away from Outlook. I may be in the minority, but I cannot run a small business off of web mail and calendar. Some can do this just fine, but many of us need a real app, not a web app as it’s faster, has better offline capabilities than Google Calendar and has many more robust features. I tried Thunderbird, eM Client, Zimbra, but they all have fatal flaws; eM Client doesn’t support conversation email, Thunderbird requires the buggiest of calendar and address book plug-ins, and Zimbra is this odd web-app that didn’t connect with my Google Apps Contacts. For a Windows 8 touch experience, I just hid the Windows app and placed an Explorer link on my desktop to my Google Apps Calendar.

Last week, Google announced that Google Sync finally supports Office 2013. I was very excited, because this may enable me to have my Windows 8 desktop and Metro touch experience in one app. I installed Google Sync and the calendar wasn’t syncing. I uninstalled Sync and reinstalled it. That reinstall failed and it said I should reinstall Office. I uninstalled Office and reinstalled Office and then Sync. No joy. I searched for the problem and found it here. The forum post says,

“Hi XYZ,We apologize for any inconvenience caused, we’ve identified an issue with Google Apps Sync with Microsoft Outlook 3.3.354.948 which can cause calendar events to not sync. Mail and contacts are not affected. Our engineers are aware of the issue and are currently investigating. You can also find this information on our known issues page referenced.

Regards, PDQ”

In other words, you can’t sync your calendars with Office 2013 or 2010, we don’t know root cause, and don’t know when it will be fixed. Thankfully, Google did provide a link that did work with Office 2010 but remember, 2010 doesn’t work well at all with touch and that’s what I am trying to solve.

I am going through this excruciating detail to emphasize a point: It’s users who are getting caught in the cross-fire between Microsoft and Google, and when they do, it wastes a lot of time and money and causes a lot of consternation. If I could punt both Microsoft and Google for office productivity, I would.

There is a solution though, and one that may surprise you. If you are a Mac user, you know what I am talking about here. You see, Macs work great with Google services, supporting IMAP for mail, calDAV for calendar, and carDAV for contacts and tasks. It’s built right into the native programs bundled with every Mac. Macs don’t support touch, yet, but if you are a consumer or a small business owner like me who is wedded to Google Apps and need a good desktop experience, then you need to strongly consider going to the Mac.

The moral of the story here is that by messing with users to play big company games with power plays, Microsoft and Google both risk alienating their base of users and driving them into the arms of Apple, at least in this situation. Users don’t like to be forced to do anything they don’t want to and want the freedom of choice. In a way, I hope losing users to Apple would shed some light a fire inside Microsoft and Google not to mess with users as this would be good in the long run.

The Dividing Line Between Human and Replicant Already Happened

In the film, Iron Man 3, the good guys encase themselves in tech. The bad guys put the tech inside their bodies. This is telling. Hollywood – and most of America – remains oddly uncomfortable with the notion of technology which “alters” our self – even as it alters everything we see, hear and touch.

No surprise, then, that Tony Stark, the man inside the Iron Man suit, fires off witty bombs in the vain hope it will ease his mental suffering rather than taking a pill – blue, red or otherwise – to help resolve his constant panic attacks.

This idea that the tech we place inside us is to be feared, unlike all the tech swirling outside of us, is a dated and dying relic of our fading, twentieth-century upbringing.

We are all already replicants.

Wikipedia defines “replicant” as “a bioengineered or biorobotic being created in the film Blade Runner. (Replicants) are virtually identical to an adult human, but have superior strength, agility, and variable intelligence depending on the model. Because of their physical similarity to humans, a replicant must be detected by its lack of emotional responses and empathy to questions posed in a Voight-Kampff test.”

What test could we use today to detect a replicant? Should we? Probably, it’s too late to discern. Rather than optimizing artificial intelligence tests, we may ultimately need to design tests to determine what is really real – assuming our future technology affords us one “true” sanctioned reality.

I suspect that many of us fear technology which goes inside us because we deeply fear that this changes, possibly forever, who we are, how we think, what we can do, what we believe, how we feel, even if only a little. As the world changes ever-faster, we cling to the idea that somehow we – our being, our self, our consciousness – can forever remain the same.

This is a false belief.

The truth is more frightening and far more awesome. Very soon, we will refuse to deny ourselves – all of us – the clear and present self-altering benefits and protections of advancing technology even while, as in our fiction, we cling to a idealized notion of the purity of who we are.

I believe I can prove this.

We are already live-tweeting (and vining) brain surgery. Anyone can witness a man’s brain being altered – or “repaired.” Highly technical work on human brains is about to become as commonplace as the work done on our hearts. Only this time, we will watch – making it radically more accessible.

Kaiba Gionfriddo, nearly 2 years old, is alive because doctors at the University of Michigan used a 3D printer to create a airway splint so that he can breathe. As the physical went digital, now, the digital – restricted only by our imagination – becomes physical.

Young Grady Hoffman was confined to an isolation room for two months. The child used a telepresence robot to interact with the outside world – which included his parents and siblings. How much of that child’s being was contained within the robot? 5%? 50%? How much a mere 5 years from now?

Should this young boy from South Africa be denied having a hand crafted for him by a 3D printer? Of course not. Should he not be allowed to pitch on his Little League baseball team even if the hand offers him some advantage? What if he goes pro?

These headphones monitor brainwaves then play songs to match the person’s mood. What better knowledge graph or recommendation engine could there be? On what day will Google Glass offer this capability – and make it worth our while to serve up exactly the right content in exchange for the stunningly personal data they can mine?

Children are alive, and we are entertained, by altering our bodies and having our brainwaves probed. Given that we cannot prevent our brainwaves from escaping our “being,” today’s brain monitoring headphones will probably lead to tomorrow’s grocery store Muzak – mundanely and algorithmically sending specific songs into our head – and ours alone – to entice us to spend more money in the toiletries aisle. How is this any different than commanding to a “replicant” to mop the floors?

Publicly funded scientists in the United States are actively working on fully restoring memories – such as those lost to the ravages of Alzheimer’s.

In people whose brains have suffered damage from Alzheimer’s, stroke, or injury, disrupted neuronal networks often prevent long-term memories from forming. For more than two decades, Dr. Berger has designed silicon chips to mimic the signal processing that those neurons do when they’re functioning properly—the work that allows us to recall experiences and knowledge for more than a minute. Ultimately, Berger wants to restore the ability to create long-term memories by implanting chips like these in the brain.

The path to success in this, which almost no one objects to, obviously opens up the potential for creating or altering memories. A memory, after all, is nothing but a series of electrical impulses. Tweak one or tweak them all – they have been changed. The fact is, the technology to alter and to create memories is a given. All that’s left now is to figure out how cheaply and massively scalable such technology is.

Everything about us – who we are, who we believe we are – is already altered by technology. Today’s baby-steps are next decade’s global disruption to our very notions of life, living and humanity.

Deliberate, publicly-sanctioned alterations to the human mind is the final frontier – and the future has arrived. UC Berkeley scientists are working to protect computing systems by having your brain activity serve as a identifier – your personalized access code, as it were. The few people who actually read William Gibson’s Neuromancer thirty years ago likely never really believed they would be alive to experience such a blurred physical-cyber existence.

In fact, we may have already surpassed this fiction. Researchers at the ATR Computational Neuroscience Laboratories in Kyoto are using bulk computing power to monitor an individual’s MRI scans to determine what that person is dreaming. Know what a person hears, perceives, dreams – and feels – is to know that someone or some external force can alter each of these. Won’t each of us embed technology within ourselves just to prevent this?

Soon, we will consume technology if for no other reason to retain our sense of self, not lose it.

We are a society that fears the potential ill effects – and possible amorality – of consuming drugs like ecstasy while at the same time idly accepting shockingly advancing changes to who we are as human beings. We need to face the truth: we are on the cusp of technologically altering our self to maintain our self.

The Perils of Market Share

If you’re on this site, you probably know we have had a lively debate going on for the past couple of days about the meaning and value of market share in the smartphone market. I thought it might be valuable to fire up the time machine and go back to look at some past winners in PC market share.

Let’s take a look at 1996, the first full year of Windows 95 availability and pretty much the peak of Windows PC dominance. The worldwide market share leader, according to Gartner data dredged up by Wikipedia, was Compaq, at 10%. In fact, Compaq led every year between 1996 and 200 with its share peaking just short of 14% in 1998. IBM held second place at 8.6%. Packard Bell NEC was third at 6%. Apple was a close fourth at 5.9%. And HOP rounded out the top five.

What has happened to each of these players? Compaq was acquired by HP in 2002 in a deal from which the company has never quite recovered. (HP has been entrenched at No. 1 for the past six mostly profitless years.) IBM sold its PC business to Lenovo which, after several years of struggle, today is the only big PC player whose sales volume is growing. Packard-Bell ended up as an entry-level brand for Acer in Europe while NEC is a small player in Asian markets. And Apple, which nearly died in 1997, now dominantes very profitable high-end computer sales, especially in the U.S., though it has never returned to the worldwide top five.  Dell, which dominated the business in the early 2000s, entered the top five in 1997 and Acer first made it in 2005.

Whatever hardware market share is good for, it doesn’t seem to translate into long-term dominance. Sic transit gloria mundi.

Apple vs. Android: The Open Factor

Judging by the comments on John Kirk’s post “Android’s Market Share Is Literally a Joke,” we are well into another operating system religious war. As is always the case in religious wars, it’s tough to make sense of the the arguments. As Harry McCracken notes at Time Techland, we can’t agree who is winning because we can’t agree on what “winning” means.

Advocates often argue that victory for Android is inevitable because Google’s platform is more open and open always triumphs over closed. That proposition is debatable at best. But the arguments is muddled by the confusion of several different concepts of openness. I’m going to try to at least clarify the terms of the debate. There are at least three concepts of open clamoring for our attention; I am going to call them open hardware, open software, and open systems.

Open hardware. In the beginning, all personal computers had an open architecture. The first really popular PC, the Apple ][, followed the design of earlier CP/M-based systems and included slots for hardware add-ins. (One of the more successful of these was the Microsoft SoftCard, which let the Apple ][ run CP/M programs.) In 1984, the Mac came along in a sealed box. There’s a widely held, but almost certainly incorrect, view that Apple lost the first OS war to Microsoft because Macs were closed and IBM PCs and later clones from Compaq and many others allowed modification. This may have been a small factor but much more important was the fact that IBM and others marketed to business, and business, not the rest of us, was buying most of the hardware. Besides, by the time that Apple lost decisively to Windows in the mid-1990s, Macs too had gone to an open architecture. Apple even tried the Microsoft approach of licensing Mac OS to third-party hardware makers. It didn’t work.

Today, this argument is almost entirely moot. Lots of people still buy open Windows boxes (more than you probably think), but hardly any of them ever open them up. Laptops and Apple’s iMac and Mac mini are about as closed as the original Mac. And phones and tablets make hardware modification impossible. The hardware openness argument is strictly of historical interest.

Open software. Google makes Android code available, license and royalty free ((Just because Google gives away Android doesn’t necessarily mean that you are free to use it without licenses or royalties. In particular, Microsoft claims patents on a number of aspects of Android and nearly all tier one Android OEMs except Motorola are paying license fees to Microsoft.)), to anyone who wants to use it. Sort of. If you want to use the Android logo and have access to Google services such as Maps and Google Now, to have to agree to play by Google’s rules. As a result, there are two distinct forms of android out there, official Android licensed by Google and used on all the brand-name phones, and Android Open Source Project devices, including the Amazon Kindle Fire and a gazillion no-name Asian phones.

There are fierce sectarian disputes within the “free and open source software” community over just how free and open code must be to qualify, to the point where the Free Software Foundation’s Richard M. Stallman has denounced Ubuntu, a leading Linux distribution, as “spyware.” A lot of code these days mixes open- and closed-source components. Both iOS and Mac OS are based on an open-source BSD kernel, but the higher level of the OS are proprietary. Apple’s Safari and Google’s Chrome browsers are both based on the Apple-developed open-source WebKit. Even Windows contains many open-source components.

Fundamentally, open- and closed-source are two different models of software development. Both have their proponents and arguments in their favor and there is no reason to believe that either is inherently superior to the other, But the bottom line is that except for those swayed by religious arguments, whether a given piece of code is open source or not makes no difference to users.

Open systems. Here we get to a real difference. Apple’s iOS ecosystem is tightly controlled. The iPhone and iPad are both tightly locked down devices. Unless you have “jailbroken” your device, a warranty-voiding software modification, an iPad or iPhone can only load software through Apple’s iTunes App Store. And software sold through the App Store must meet a long list of Apple requirements, ranging from those designed to protect the system from malware to those designed to protect the user from pornography to those intended to protect Apple from some kinds of competition. iOS users implicitly accept a tradeoff: Apple makes a lot of choices for them, and in exchange, they get software that is very unlikely to mess up their device or infect it with malware.

Android is a very different world. Google imposes minimal supervision on apps sold through the Google Play store, and a simple change of one setting on any Android device lets the user install software from any source. Many Android phones let users replace the manufacturer’s firmware, a way to get around the sluggishness of OEMs in distributing Android updates but no way to enhance stability or security.

This sort of openness is extremely important to a relatively small group of enthusiasts who really want to dig deep into their devices and who will accept some inconvenience and risk to gain more freedom. They definitely should by Android products. But I suspect that there aren;t enough of them to explain more than, at most, a couple points of share. The great bulk of Android buyers are choosing on other criteria: screen size, price, or what the guy in the phone store happens to be pushing.

The only aspect of openness that really seems to matter to the bulk of buyers is that Android devices come in a wide variety of sizes and designs. With iPhone, you have the choice of the 4/4S or the 5, while Android comes in a wise variety of sizes and designs. The fact that Android is increasingly synonymous with Samsung reduces the choice somewhat, but Samsung seems determined to offer a product for every market niche.

 

 

 

Why Google is Not the New Microsoft

My history with the PC industry is very long. I got to work on the original IBM PC with Don Estridge’s team in Boca Raton and saw up close and personal how the PC industry developed and how the value creation for the industry came about. I also got to work on early marketing programs for the Mac as well as programs for Compaq, Dell, HP, Toshiba, DEC, and many others as the PC market was hatched and eventually became an almost trillion dollar industry. Perhaps the most interesting fact from the early days of the PC is that IBM created their PC from off the shelf parts and never even considered developing a proprietary design at first. By using an open approach to the PC architecture it did not take long before others created IBM PC clones and took IBM on soon after the IBM PC hit the market in 1981.

Most industry folks know that when IBM sought out an OS for their PC, they first visited Gary Kildall and his company Digital Research Inc. as they were interested in his CPM OS. But when they arrived, Gary was not there and more or less snubbed them and they instead went to see Bill Gates and as they say, the rest is history. I did many Computer Chronicle shows with Kildall and he refuted the idea that he intentionally snubbed them; regardless, the end result was that IBM ended up using MS-DOS and it became the heart of their and many PC Clone’s operating system for almost a decade.

Over the years Microsoft has become an industry behemoth and has gotten into many different businesses to help extend their Windows franchise. But from the beginning, Microsoft did have one important goal and focus. It was to give PC OEMs an OS and actually help them make money with their PCs. Microsoft licensed MS DOS and then Windows to PC makers and continued to refine it and upgrade it along the way. The PC vendors could then create hardware optimized for these operating systems and add value through hardware and software add-ons. With each new version of Windows, Microsoft helped their PC partners grow their business and as people upgraded from one version of the OS to the others, many people along the value chain were greatly enriched. Besides PC companies making money, VARs, retailers and value added service providers all benefited from an ecosystem in which they could build new designs and services around Windows and keep all of that money for themselves.

When it comes to money and value creation for their partners, Google’s goals are very different and this is what really sets them apart from Microsoft.

A One Sided Relationship

While they too have an OS that companies can license, the real goal of their licensed OS is to bring users of these devices into direct contact with Google’s ads and services. Google says they really want their partners to be successful and while that is probably true, what they really mean is that if partners are successful in distributing their OS, than Google can reap the majority of the financial benefits. Sources tell me that a company like Samsung, who is literally their largest partner and almost single handily making Android successful, gets only a 10% commission on any of Googles ads or services they bring to Google. That same 10% commission applies to a giant like Samsung as well as any other companies distributing Android on their smartphones and tablets, except for Amazon and Barnes and Noble. In these two cases, Amazon and Barnes and Noble have forked Android for their own uses and can keep all proceeds from products and services sold through their devices. This works because they have an ecosystem of books, music, apps, and services that are their own and don’t need Google’s content to be successful. But most of Androids partners, such as Samsung, HTC and others, must rely on Google for music, video and apps and must pay this very large tax to Google if they want to use Android.

This is not to say that Microsoft’s OS licensee fee is not a tax in its own right. However, once that fee is paid, Microsoft gets no extra revenue from their partners regardless of what they sell in way of their hardware and services. And even if they tap into Microsoft’s ecosystem of apps or services, I understand their revenue cut to their partners is much more than Google gives their partners. This is why there have been rumors that Samsung has not been happy with Google since they do all of the hard work in creating a device, optimizing Android’s OS and delivering a value added UI to it as well as managing the channels and pay to make their own ads. Yet Google treats their cut of the profits the same as a small player that sells a much lower volume of devices than Samsung does with their products. No wonder analysts are looking closely at Samsung’s recent decision to fold their own mobile OS called Bada into Tizen and suspect that if Samsung wants to control their own destiny and keep more of the app, ads and services for themselves, that they might move more and more to Tizen as their mobile OS of choice.

While many rag on Microsoft as being a 900 pound gorilla lording their wares over their partners with a heavy hand, they at least let their partners make and keep as much profit as they can from any products and services they offer their customers. Not so Google. They too are a 900 pound gorilla but in their case these vendors are just a front end distribution medium for putting Google’s ads and services before their customers and ultimately reap the lions share of most of the profits made at the expense of their partners. And in this sense, the difference between Microsoft and Google is glaring indeed.

Apple and the Washington Shakedown

Columnist Tim Carney of the Washington Examiner has a good article on Apple’s problems in Washington, well worth reading is you want to learn something about how the capital really works.

In the popular view of political corruption, lobbyists and PACs shower politicians with money, expecting to buy influence. In reality, the flow runs nearly entirely the other way. Members of Congress spend an inordinate share of their waking hours on the phone, trying to extract contributions from often grudging donors, often with the  not very veiled threat that those who fail to pony up will not find important doors open. Ever wonder why the House and Senate floors are usually empty during “debate”? The members are often at their nearby off-site hideaways, dialing for dollars (Congressional rules prohibit fundraising in the Capitol or in House and Senate office buildings.)

Much of the tech industry refused to join in for a long time, but most of the big companies are now regulars n the lobbying and check-writing circuit. Apple remains a significant holdout.

That’s probably not the reason the Senate Permanent Investigations Subcommittee chose to grill Tim Cook about Apple’s offshore tax avoidance rather than some other multinational CEO. The Senators knew that Apple gets good play in the media. But the treatment of Cook might have been  bit gentler if Apple played the political game with more enthusiasm.

Android’s Market Share Is Literally A Joke

This is the first of three articles looking at how we measure – and mis-measure – who is “winning” in the mobile sector. Article one focuses on market share and was inspired by an article written by Bill Shamblin, entitled: “Chasing Smartphone Market Share Is A Chump’s Game.” Article two will focus on the proper way to measure or “score” mobile hardware manufacturing, mobile advertising and the “razors-and-blades” content models. Article three will focus on the role that market share plays in the network effect and will examine the proper way to measure or “score” how well a platform is doing.

The Joke

Have you heard this one?

Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. After counting their money at the end of the day, they realized that they’d ended up with less money than they’d started with.

“See!” said the one farmer to the other. “I told you we shoulda got a bigger truck.”

Or how about this one?

Android is winning because they got a bigger truck.

The Joke Is On Us

Both “jokes” are based upon the old saw that one can lose money on every sale but make it up in volume. Unfortunately, the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits and lapped up by the press and investors. You think I’m exaggerating? Take a gander at some of these recent tech headlines:

— Android is crushing Apple and Microsoft in the mobile device market
— Android looks like it’s winning
— CHART OF THE DAY: The iPhone’s Market Share Is Dead In The Water
— Despite its upmarket history, Apple needs to compete on price
— Gartner: Apple falls below 20% in smartphone market share
— Harvard Liquidates Apple Stake After IPhone Sales Lose Steam
— How Apple Is Losing Mobile
— IDC: Apple’s share of worldwide tablet market drops under 40%
— iPhone growth stalls as Android continues to nip away at Apple’s market share
— iPhone Market Share Stuck At 18%
— Nearly 75% Of All Smartphones Sold In Q1 Were Android
— Sharp to seek Samsung edge for survival as Apple sales lose steam
— Why Android Is Winning The Tablet Wars

I could link to a dozen more headlines just like them. These headlines – or their underlying articles – all have two things in common:

1) They contend that Android is winning and Apple’s iPhone is in deep, deep trouble; and
2) They point to market share as the sole or primary basis for their conclusion.

TechCrunch sums up the thoughts of many this way:

“The latest numbers are in: Android is on top, followed by iOS in a distant second. There is no denying Android’s dominance anymore. There is no way even the most rabid Apple fanboy can deny that iOS is in second place now. Android is winning.”

ReadWrite takes it one, final step further, stating:

“The Mobile Battle Is Over – And Google Won.”

In other words, pundits think that Android has won because they “have a bigger truck” (i.e. more market share) – regardless of how much – or how little – profit Android manufacturers make. Android, the pundits opine without a hint of irony, is not making much, if any, money but that’s okay because they’re making it up in volume.

But is that really how market share works? Can you tell how well a company or an operating system is doing solely by measuring its market share?

No, of course not.

Quiz #1: Market Share Alone

Question: Company A has 25% market share. Company Z has 75% market share. Which company is doing better?

Answer: With market share alone, there’s simply no way to know or tell. Company A might be bringing in all the profits and company Z might be going bankrupt.

The Wrong Way To Calculate Who’s Winning

(T)he primary problem with using market share as a measure of business health is it provides no insight into the profitability of the product being sold. ~ Bill Shamblin

Scoring by market share alone and ignoring profit is like saying that a baseball team won because it had more hits when the other team scored more runs. Scoring by market share alone and ignoring profit is like saying that a football team won because it gained more yards when the other team scored more points. Scoring by market share alone and ignoring profit is like saying that a hockey team won because it had more shots on goal when the other team had more goals.

Market share without context is not only useless, it is worse than useless because it is likely to be misinterpreted.

First, market share without context assumes that each percentage of market share is equal to another – that every Android activation is equal to an iOS sale. Nothing could be further from the truth. You can’t simply total up market share and determine a winner any more than you could count up coins or poker chips without knowing the underlying value of those coins or chips. A penny does not have the same value as a quarter and only a small child would rather have more coins than fewer coins but more money.

Second, market share without context implies that market share is a zero sum game – that market share gains for one always result in a loss to another. But in a rapidly growing market, a company can actually LOSE market share yet have both positive unit sales and profit growth. Not growing as fast as another company is not nearly the same as “losing”, especially if the growth is coming in a more desirable portion of the market.

For example, despite a decline in Q1 market share, iPhone sales actually increased based on year over year comparisons. (iPhone sales were not declining,they were growing slower than the overall market.)

The same was true of tablet sales. Last quarter, Apple LOST tablet market share, but because the entire market was rapidly growing, they GREW unit sales by 65%.

tablets-q1-2013

Source: Apple 2.0, “Pie charts of the day: Tablet sales grew 140% year over year”

The “Fair-Share” Way To Calculate Who’s “Winning”

What matters is not only market share and not only profit share but the ratio between them. This is called Fair share profit analysis. Fair Share Profit Analysis contends that 1 point of market share should deliver 1 or more points of profit share.

Less than a 1-to-1 ratio of profit share to market share demonstrates that a company is buying market share; that the company has not been able to differentiate its product in the market and is likely competing primarily on price.

More than a 1-to-1 ratio of profit share to market share demonstrates a company’s ability to differentiate its products, provide more value than its competitors, command higher prices, charge a premium and enjoy pricing power.

Quiz #2: Market Share or Profit Share

Question: Company A has 25% market share and 75% profit share. Company Z has 75% market share and 25% profit share. Which company is doing better?

Answer: If you said anything other than company A, then you are dumber than a doorknob. Any intelligent person would take company A’s profit share over that of company Z’s market share.

No one would be confused if Apple had 50 percent market share and 50 percent of the profits. But apparently it’s very confusing to some that Apple has only 5 percent of the market share and well over 50 percent of the profits. ~ John Gruber, The church of market share

Imagine, for example, that Apple were a hamburger chain who made more money than McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers. Would anyone seriously contend that Apple was “losing” the hamburger wars?

Apparently so. For example, take this analysis from Matt Asay of ReadWrite (please!):

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market.

It turns out it’s a really big deal to maintain market share, and not simply profits. Profit share follows market share.

Profit share follows market share? Are you kidding me? Show me a business sector where profits have a 1-to-1 correlation with market share and I’ll show you the exception that proves the rule. The reason market share doesn’t necessarily correlate to profit share is because profits are made up of both market share and margins. And market share alone tells us nothing about margins, therefore market share and profit share are almost always going to be unbalanced.

screen-shot-2013-04-16-at-4-16-4.16.46-pm

Source: Asymco, Escaping PCs

Take, for example, the Apple Mac. As the pie chart above demonstrates, the Mac has 45% profit share with only 8% of the market share. That means that Apple pulls in an awesome 5.63% of the sector’s profits for each and every 1% of its market share.

Profit share always follows market share? Not hardly.

The truth is, anyone can get market share if they want it badly enough. All they need to do is sell their product at cost, give it away for free or, better yet, subsidize (pay their customers) to take the product off their hands. This is called “buying” market share, but it always comes at the cost of profits.

Pricing to gain market share simply for the sake of market share is a chump’s game. ~ Bill Shamblin

The problem is, you can “cheat” and buy market share, but you can’t do the reverse and “cheat” to buy profits. You have to EARN profits. Buying market share is a downhill race to the bottom but gaining profits is an tortuous uphill climb and it can only be made if the manufacturer is able to produce highly valued and differentiated products. The company that buys market share must inevitably go out of business or reverse its course and fight its way back up to profitability. The company with the value and the profits, on the other hand, has the advantage of holding the high ground and can choose to take market share at will.

Quiz #3: Less Market Share Can Be Better Than More

Question: Company A has 25% market share and 50% profit share. Company Z has 75% market share and 50% profit share. Which company is doing better?

Answer: Anyone with any business sense would say company A.

Company A is commanding 3 times the price of Company Z. The formula is 50% profit share divided by 25% market share (50/25 = 2). This means that for every one percent of market share, company A has two percent of the profit share. Company Z’s position is reversed. For every one percent of market share, they command only 0.5% profit share (50/75 = 0.66). Company Z would have to work three times as hard and sell 3 times as much product just to match the profits of a single sale by company A.

Grading The Contestants

Android accounts for approximately 70% of global smartphone shipments and 29% of global profits. This means that the average Android manufacturer creates just .41% of profit for each point of market share (0.29/0.70 = .414). In other words, the average Android manufacturer needs to capture 2.4 points of market share just to increase their market profit by 1%.

Such a low fair share profit index may indicate that Android manufacturers are:

— Having difficulty differentiating their product;
— Sacrificing profits in order to buy market share (the “race to the bottom”);
— Unable to reach economies of scale in the manufacturing process.

(Profit data, source: Canaccord, Market share, source: IDC)

Samsung is doing far, far better than the average Android manufacturer. Samsung’s 2013 Q1 market share was 33% and its profit share was 43%. This means that Samsung reels in 1.3% of the profits for every 1% of the market share it owns (0.43/0.33 = 1.30). Samsung, unlike all other Android manufacturers, is earning, rather than “buying”, market share.

(Profit data, source: Canaccord, Market share, source: IDC)

Apple’s iPhone 2013 Q1 market share was 18% with 57% profit share. This means that Apple’s iPhone took in a lavish 3.12% ((0.57/0.18) of all profits for each 1% percent of market share it controls.

If Android manufacturers needed to sell 2.4 phones just to gain 1% profit share, they would need to sell a staggering 7.5 units just to match the profits that Apple garnered from the sale of a single iPhone.

As Daniel Eran Dilger puts it:

“… Apple could simply have blown through much of its $13.1 billion quarterly profit to “beat” Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.”

Further, in 2012 Q1, Apple held 23% market share and 74% profit share. This means that each 1% of market share was equal to 3.22% (0.74/0.23) of the sector’s profit share. Apple’s market share to profit share ratio remains almost identical, which means that Apple has maintained its pricing power. Not only that, by focusing on just a few smartphone models, Apple has become the low-cost manufacturer in smartphones as well.

slide-11-638-1

Source: Ben Evans, Mobile is eating the world

Take a good hard look at the chart, above, then go back and re-read the headlines I listed at the start of this article. What each and every one of those headlines is contending is that Android is winning and Apple is losing because Apple doesn’t control the green portion of the chart, above.

I mean, honest to goodness, take a look at the total units sold compared to the paltry profits obtained from those green sales. Who in their right mind would even WANT that market share?

Price Elasticity

What we’re really talking about here is the economic concept of price elasticity. “Price elasticity” seems to be way beyond the pay grade of most pundits and analysts who follow the mobile sector, but what it essentially means is that when the price of something goes down, sales almost always go up, but the rate of that sales increase depends upon the price elasticity of the product. In other words, dropping prices may increase sales but the increased sales may result in disproportionately larger or smaller profits.

Unless we truly understand the price elasticity of the iPhone, we really shouldn’t be calling for Apple to drop its iPhone prices.

Summation

It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so. – Will Rogers

Not only do the high priests of market share have it wrong, they have it exactly backwards. The company with the lower market share and the higher profits has all of the leverage. The goal is to INCREASE, not decrease, the ratio of profits to market share. Increasing market share at the cost of profits is a recipe for disaster, not a formula for success.

Apple may or may not do well in the future but right now, and contrary to popular belief, they are winning the smartphone wars and winning them handily.

RATIO OF PROFITS TO MARKET SHARE
3.12% Apple
1.30% Samsung
0.41% All Android

Not only is market share not the best way to evaluate the relative positions of competitors but, without context, it is one of the worst. Assuming that market share will always bring you success is like assuming that a bigger truck will always bring you bigger profits. It’s literally a joke.

Next

Next, I’ll talk about how market share affects hardware manufacturing, advertising and the “razors-and-blades” content models. The series will conclude with a discussion of platforms and the network effect.

Read Part Two of John’s column entitled: 4 Mobile Business Models, 4 Ways to Keep Score.

Read Part Three of John’s column entitled: Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

How Android Vendors Can Compete With Samsung

The initial title of this article was going to be “How HTC can compete with Samsung.” Then I decided to branch it out and make a point that is relevant for HTC but also for all Android handset vendors looking to compete with Samsung.

The public learned this week that HTC is losing key personnel at a rapid rate. Through friends of mine that worked there ((They no longer work there)), I had a sense this was coming for a while. For the past few years I have been watching the numbers of all the handset vendors and HTC was one that concerned me the most given the trends.

Unlike many other Android handset competitors, HTC only has one business, selling smartphones. Samsung, LG, Motorola etc., all have many other businesses to help them deal with growth or declines in other areas. Chinese competitors are simply focused on the low-end for the time being, but HTC is geared to play in the mid to high-end arena. Which is close to no mans land when employing HTC’s current strategy.

That is why in 2010, I wrote an article stating why I felt Microsoft should buy HTC. ((I still feel this is a good idea and likely)) I had concluded at that time HTC was in trouble. If I was them, or any other mainstream Android OEM looking to make a dent in Samsung’s 95% of the Android profit pool ((It is impossible for Android handset makers to survive competing for only 5% of the profit pool)) this is what I would do. [pullquote]deeply embed every one of their core services as if they literally own you[/pullquote]

I would surrender to Google. Stop trying to differentiate through software or UI value ad-ons and just simply make extremely elegant and innovative hardware, running the latest and greatest stock Android OS. Be vigilant about Android upgrades making sure your devices are always up to date in every area. Work closely with Google to deeply embed every one of their core services as if they literally own you. Focus on making great, elegant, affordable hardware and let Google take care of the rest. This way you can get a portion of the ad-revenues, and other service revenue sharing Google offers, and you have built your device and integrated Google’s services in a way to maximize Google’s revenue potential and yours. Be a Nexus device, without officially being a Nexus device.

This logic is absolutely counter to a market where one needs to stand out through differentiated software experiences. The problem is only Android competitor has successfully done this. I have championed against the Android sea of sameness and now I recommend pursuing it aggressively. People like HTC devices. Carriers like HTC devices. ((With a few exceptions of course, like the First)) As Avi pointed out on Monday, other than the iPhone, HTC devices hold their value longer, this is good for carriers. HTC makes great hardware and can still do well by focusing on great design and unique hardware innovations. They simply need to let go of the software and work closely with Google to ship the latest and great stock Android on their devices.

This is a template that could work for HTC but could also work for others. The bottom line is the current strategy being employed by Samsung’s Android competitors is not working. Stock Android is very good and arguably always the best Android experience ((As much as I applaud and appreciate the attempts to differentiate Android, I prefer stock Android every time)). If needed there is room to add some better apps, like a better exchange email app for example, but don’t change the interface and leave the rest to Google.

Why Microsoft Can Win the Living Room

As Ben Bajarin pointed out in his post here yesterday, Microsoft’s Xbox One is a whole lot more than a game console. Of course, the Xbox has long been the leading edge of Microsoft’s effort to dominate digital home entertainment. But a combination of clever new hardware and Microsoft’s unique positioning with respect to the entertainment industry could propel it to victory–and reverse in faltering fortunes in consumer businesses.

Of course, the hardware still has a lot to prove. The ultimate goal of the digital living room is a single box that can deliver all your entertainment desires. On paper, at least, the Xbox One comes closer than anything we have seen before. But features on paper, or even in a demo, are one thing and real life is another. Even Google TV looked sort of good in a demo before flopping with consumers.

The biggest challenge facing the Xbox One is the promised integration with cable set top boxes. Success will depend on the new Xbox’s ability to control the set top box through an easily set up HDMI connection. It needs to banish the cable box to irrelevancy for everything except accessing and decoding content, ultimately becoming your DVR and your gateway to video on demand. That would make it a huge breakthrough. But if it needs IR blasters to control cable, it will go the way of Google TV. Microsoft is so far silent on which boxes from which cable operators the Xbox will integrate with.

It also remains to be seen how well the gesture and voice control will work to replace traditional remotes or controllers. Again, these are technologies that often demo better than they work, but successful elimination of the need to use hardware to control the box would also be a huge step forward.

So it looks like Microsoft will have a hardware edge when the Xbox One ships “later this year.” The real challenge is to build on what already appears to be a slim lead in the availability of content. Here Microsoft can built on two advantages. One is that it has been a technology partner of both studios and and cable and satellite operators for years. For example, AT&T U-verse service runs on Mediaroom IPTV technology developed by Microsoft (the division was recently sold to Ericsson.)[pullquote]If Apple ever announces that unicorn of tech unicorns, an Apple television, it will have to get over a bar that has been raised by Microsoft. It’s been a long time since we could say that about any product.[/pullquote]

But a more important reason, and an odd one given Microsoft’s history as the big bully of the tech industry, is that Microsoft is the company that Hollywood is not afraid of. Microsoft’s leading rivals in the living room are Apple, Amazon, and Google (Sony could claw back into contention, but it has fallen a long way behind.) Each of these competitors inspires fear and loathing in the studios. Apple is the company that ate the music business. Amazon is the company that seems to destroy value in every market it enters–good for consumers, but torture for producers. And Google is a company whose ambitious are scarily unbounded. Apple and Google TV effort has been hobbled by lack of cooperation from content owners and distributors’ Google so far has restricted itself to selling and streaming downloads to other companies’ devices, though it is rumored to be contemplating a set top box of its own. In this company, Microsoft can position itself as an honest broker, a neutral player with no dog in the fight.

The only entertainment content deal that Microsoft announced at the Xbox launch was an exclusive with the National Football League that will bring a lot of “second screen” content, such as stats and highlights, while watching a game on your Xbox. But there was no word about making the games available outside of the NFL’s existing deals with CBS, Fox, NBC, and ESPN. (Microsoft will also get branding on the hoods of replay stations; let’s hope that works out better for them than Motorola branding on coaches’ intercom systems.)

In the end, it is Microsoft’s ability to strike content deals with studios, networks, and sports leagues and getting cable operators to support deep integration of Xbox with their services that will determine success in the living room. At a minimum, though, it seems that if Apple ever announces that unicorn of tech unicorns, an Apple television, it will have to get over a bar that has been raised by Microsoft. It’s been a long time since we could say that about any product.

 

Xbox One and the Future of the Digital Living Room

When I started my career as an industry analyst in 2000, my focus was on the video game industry and the digital living room. We had a belief that at some point in the future rich media and entertainment would collide and set the norm for living room multimedia and immersive experiences. Today with the unveiling of the newest Xbox generation, called the Xbox One, Microsoft has taken another step closer to this vision.

I’ve closely observed each major console announcement since 2000 and at each and every one there was a clear and focused message: this console was first and foremost about a great gaming experience. No longer is that the message. Great gaming experiences are simply assumed. They are the new normal and expected. The question that consoles need to address in order to evolve and appeal the wider audience necessary for broader adoption is: what else can you do for me?

Microsoft spent not only the introduction of the Xbox One but the vast majority of the presentations emphasis not on gaming, but on the what else can you do for me. This is very telling. Not just about where we are as an industry but Microsoft’s living room agenda at large.

I’ve long said, and I’ll continue to state that I believe Microsoft’s best asset to build upon and around is the Xbox. It is, arguably, the strongest and most relevant consumer brand they own today. It is also the strongest from an ecosystem standpoint, and the one I feel they need to build out from with regards to personal computing.

Of course the Xbox One will have amazing games, and I for one am extremely excited about that aspect. But, the most interesting parts of the unveiling were not the graphics, or games, or even the exclusive titles. The most interesting announcements were the OTHER exclusives.

Exclusivity is No Longer About Game Titles

We have a name for exclusive games. We call them platform drivers. The first Halo on the first Xbox was a platform driver. It was the single greatest selling point for that generation of XBOX hardware and it was exclusive to the Xbox. Many other top-tier titles were born as Xbox exclusives and its continued demand and strong sales were tied to those exclusives regardless of whether they stayed exclusive. It was almost always Xbox first or Xbox only with many top-tier franchises. To be fair Sony has many of their own, but the elusive hard-core gamer between the ages of 18-35 seemed to generally gravitate to the Xbox and the exclusive titles that drove the Xbox experience.

Today, however, Microsoft discussed exclusives of a new kind. Of course there will still be exclusive games, but now games are not the only exclusive content Microsoft appears to aggressively going after. Exclusive TV series, and network deals with the NFL, along with unique interactive content with SportsCenter were key parts of this announcement. I get the feeling that Microsot hopes that unique content of this kind may drive platform adoption the same way exclusive titles have in the past.

We keep wondering when our set-top boxes will break free from the mercantilist nature of our cable and TV programing companies. My thoughts on this is that we are simply waiting for an Internet only, or over-the-top-service only, blockbuster success. If that happens we will almost certainly see a paradigm shift. Perhaps Microsoft with the Xbox One will be the catalyst to drive this paradigm shift and create a true leadership position in the digital living room.

SKAA: Better Than AirPlay and Bluetooth for Premium Wireless Audio?

Wireless audio speakers and headphones are growing as a consumer category.  Best Buy has 192 different “wireless speakers” on their website, Amazon, 400.  The growth in wireless audio was helped by the growth of the premium music headphone phenomenon, started by Beats Audio.  Of these wireless speakers, the clear majority utilize either Bluetooth or AirPlay to connect the device to the speaker or headphone. The problem is that both of those standards fall short on premium audio quality, openness or ease of use. Skaa, an emerging audio standard with roots in pro wireless could solve most of today’s problems inherent in today’s wireless solutions.   

Let me begin with Bluetooth.  Most wireless audio products on the market today use stereo Bluetooth, A2DP. It’s on all modern smartphones, tablets and on many but not all computers.  Bluetooth’s primary use is very straigh-forward: connecting one phone to one headset or earpiece from Plantronics or Jawbone so drivers can talk and drive.  But as we have all experienced at some point, Bluetooth is an absolute nightmare to pair and maintain a reliable pairing. To add to the pairing nightmare, Bluetooth-based speakers also face a contention problem.  Wireless audio contention occurs when people, in my case family members, have paired to the same wireless speaker, allowing anyone to take control. In my house, we share a wireless Bose Soundlink II system across 4 people.  We have taken it everywhere inside our house, to parties, and when we travel.  If my wife is connected, even if she’s not using it, I have to ask her or my two daughters to turn off Bluetooth on their phones to let me in.  The other issue is distance. I cannot take my phone too far from my speaker or else the audio starts degrading.  The speaker starts hissing and popping.  I personally don’t use the Bose wireless speakers anymore because it is such a hassle. The final challenge for Bluetooth is bit rate.  I interviewed a few audiophiles for this piece and they literally said they do not buy any wireless Bluetooth devices because of its “less than MP3 quality” nature. I wrote a more technical note here, which provides a technical comparison. Let me switch to Apple’s AirPlay.

Another wireless audio alternative is Apple’s AirPlay.  I think AirPlay is an awesome feature to mirror my Mac and iPad displays and share photos with a group of people, but it comes with its own set of major issues for a premium audio experience. First, you need a WiFi network to use it, at least until WiFi direct is enables.  The network requirement eliminates the option of taking AirPlay-based set of wireless speakers to the park, unless you’re a mega-geek and bring a router with you.  Secondly, AirPlay is limited to Apple host devices, the iPhone, iPod, iPad, and the Mac.  I recently switched from an iPhone 4S to an HTC One X and my tablet to a Nexus 7, therefore limiting my AirPlay investment.  Staying inside the premium walled garden of  AirPlay is great if you or the family is all-Apple, but not for the other 75% of smartphone owners out there.

AirPlay also limits my ability to enjoy certain audio usage models.  First, there are no AirPlay headphones.  You can still do wireless headphones on Apple devices via Bluetooth, but AirPlay uses too much power as its basis is WiFi. Secondly, if I want to play a game or watch a movie directly on my iPad, I cannot send the audio to a wireless speaker as it will be out of sync with the video over AirPlay and for any other WiFi-based wireless speaker solution.  This is because AirPlay uses the unreliable home WiFi network with higher latency.  If the home network is 2.4Ghz., it is susceptible to interference from Bluetooth, the neighbor’s WiFI, microwave ovens and cordless phones.

There is a developing standard for wireless audio called Skaa, which eliminates many of the premium audio challenges inherent with Bluetooth and AirPlay.

SKAA comes from the professional and pro-sumer music world. The basis for SKAA is a standard called PAW, or Pro Audio Wireless, and powered the wireless gear for artists like Justin Bieber, Lady Gaga, Keith Urban, Kanye West, Eminem Band, and Justin Timberlake. These bands used PAW in concerts for wireless guitars and speakers because of its high quality with a high bit rate, long range, and because wasn’t susceptible to interference from other 2.4 GHz devices like smartphones and WiFi. SKAA, simply put, is the consumer flavor of PAW, designed for consumer phones, tablets, computers, TVs, and game consoles.

With SKAA, users can connect up to 4 speakers from one device, and because it has long range and multi-point capabilities, consumers could have four speakers in the kitchen, living room, dining room, and bed room all broadcasting the same, synchronized audio. The pairing nightmare goes away as it uses small, mobile-friendly, wireless transmitters that immediately start playing the music after pressing one button the first time you get a speaker.  These small, wireless transmitters are currently available for Apple’s 30-pin devices and USB for all computers, Mac, PC, and even Linux. Apple’s Lightning devices, micro-USB for Android devices, and other wireless transmitters are coming soon. So am I saying that Bluetooth and AirPlay are going away?  Absolutely not as these are two pervasive and flexible standards that will be here for a long, long time.  For audio, particularly premium audio, I do believe that SKAA-based speaker and headphone companies will start adopting the new standard and challenge AirPlay in the premium audio space.

If you want a more technical dive, I have written a short note here.

The iPhone and the Death of the Mid-Tier Smartphone

I’ve been a consumer device analyst for long enough that I’m usually pretty comfortable calling things as I see them, but sometimes there is simply no substitute for hard data. Current Analysis tracks U.S. device pricing for phones and tablets, and if you slice and trend the data, you see some really interesting patterns. It is no secret that smartphones are selling extraordinary well, but in subsidized markets, the gains are highly concentrated by OS platform with sales are split between high-end flagship phones and entry-level models. The data tells the story why this is so.

Apple’s iPhone sets the pricing floor ($0 for the model from two years ago), middle ($99 for last year’s model), and ceiling ($199 for this year’s model). Just two phone families – Apple’s iPhone and Samsung’s Galaxy S – make up the majority of U.S. smartphone sales overall. AT&T is particularly iPhone-centric; 80% of smartphones it sells are iPhones, so even though the carrier prides itself in offering the widest variety of phones, vendors, and operating systems, practically speaking, there is little room for rivals to sell into. This is a residual effect of AT&T’s long exclusivity with the iPhone and its smart policy of locking consumers into family and business contracts. But carrier exclusives overall have been declining on a percentage basis, even as the total number of smartphones on offer has grown:

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Not only are carrier exclusives declining on a percentage basis, but the best phones are increasingly the ones available across carriers – the iPhone, HTC One, Samsung Galaxy S. (At a recent presentation for the Competitive Carrier Association, I pointed out that this means the playing field is now basically level in terms of devices. Smaller operators may need to agree to fairly high minimum orders, but they can get access to the devices that are in the highest demand.)

As exclusives have waned, pricing at the high end has dropped. Samsung’s Galaxy Note straddles the line between a smartphone and a tablet, and it has launched at premium pricing even for a flagship. However, the Note seems to be an exception – LG’s Optimus G Pro, which also sports a 5.5” display with higher resolution and more storage than the Note 2, launched at just $199. (However, the Optimus G Pro is an exception to the previous dataset – it is an AT&T exclusive.) Apple and Motorola have offered versions of their phones with additional memory above $199 for a while, and Samsung and HTC have finally picked up on that strategy, but on average, flagship smartphone pricing has declined over the past three years:

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Here’s where it gets interesting. Not all flagships are created equally, and when a vendor’s high-end phone does not sell well, it drops in price:

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As expected, Apple and Samsung phones have strong price stability, but Apple’s ability to maintain a premium price level for a full year in a hyper-competitive market is simply mindboggling. While it is true that iPhones sell best the first quarter they are available, iPhones continue to outsell rivals in non-launch quarters as well. HTC has enjoyed strong carrier launches which has kept prices stable even as its sales have declined overall. Smartphones from Sony and LG have not fared well, and within 3 – 4 months of launch, they drop into mid-tier pricing territory. Unsurprisingly, this has impacted the number of mid-tier smartphone launches:

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It is awfully hard to sell a phone designed to sell for $99 with subsidy when consumers continue to snap up last year’s iPhone model for the same money a full 18 – 24 months after Apple introduced it, and three-month old flagship Android phones are pushed down to $99 as well.

The trends are quite clear, but there is one wildcard going forward: T-Mobile USA’s installment purchase plans. T-Mobile is asking consumers to buy their phones upfront, but it will split the cost of the phone into monthly installments alongside a no-contract voice plan. If consumers treat this as a direct replacement for subsidized plans – or if T-Mobile is simply too small to impact Verizon and AT&T at this point – then I expect the trends to continue. However, if enough consumers see the real cost of their flagship phones and opt to buy less expensive models, then we may see the return of the mid-tier phone in the U.S. after all. We don’t have data on that – yet.

While analysis can sometimes be a solitary pursuit, I owe a huge debt to my team for tracking, trending, and charting the data presented here. In particular, Peter Han was instrumental in pulling this together, and he co-authored the report that this column is based on.

Microsoft is Missing Apps the Same Way They Missed the Early Internet

It seems odd to me that Microsoft of all companies is so drastically behind the curve when it comes to apps for Windows 8 and Windows Phone. When you think about it, Microsoft of all companies was in the best position to create a better software buying experience, via an app store than anyone. Windows had 97 to 98 percent market share for the bulk of the PC era and software played a key role in that dominance. Why was there no Windows app store until the end of last year? ((Updated: There was a Windows Marketplace but came no where close to the app stores I am talking about)) It just makes no sense.


Similarly, Microsoft was in a growing position in smartphones with Windows Mobile. They had tinkered with software stores but the experience never really gained significant traction. Companies like Handango helped fill the gap but again much of what existed then is gone now.

The most robust third party mobile developer network I witnessed when I joined Creative Strategies 13 years ago was the Palm developer community. In fact, the Palm developer community in terms of passion, excitement, and quality of applications being developed, reminds me a lot of today’s iOS developer community. Microsoft never enticed the same commitment and passion for their mobile platforms as the Palm community, even when they gained share and Palm itself began shipping Windows Phone. Despite their efforts Microsoft is still today struggling with weak developer interest.

As I think about this situation that Microsoft is in, it reminds me of the situation they were in with Internet Explorer for so long. They missed the boat on leading the Internet revolution and now again they have missed the boat on leading the app revolution. All while they were in the best position to lead in both.

The Network Effect

Both Palm and Apple achieved the network effect.

In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a goods or service has on the value of that product to other people. ((Alpheus Bingham and Dwayne Spradlin))

The economics in turns of monetary opportunity for developers, as well as the critical total addressable market achieved by both Palm and then with Apple, created a strong network effect. This is still going strong for Apple today.

Interestingly, despite Microsoft’s position in PCs, I would argue they never achieved the network effect. ((Happy to debate this point.))

You may have noted that I did not include Android in the network effect discussion. While it’s true Android has the lions share of the smartphone market, we also know just looking at Android’s market share does not singularly indicate the strength of a platform. Engagement is consistently reported as lower on Android than iPhone and developers are continually facing economic challenges of making money with Android.


Being in Silicon Valley I get to meet and talk with a lot of software startups. Android to many of these software companies I meet with is treated as a secondary priority. Rarely, do I meet with a company creating software for Android first or only. If this platform was doing well for the masses then I would imagine we would see more exclusive applications and I would see more software startups getting funded for Android only development. This is simply not the case. Android is benefiting from the network effect of iOS, however, as developers are generally taking their iOS first apps to Android eventually. Android has achieved a degree of the network effect by default, and on the heels of the iPhone.

This network effect is a key area that is driving both iOS and Android. This network effect has created long tail applications.

Long Tail Developers

Chris Anderson helped popularize the concept of the Long Tail with his book called The Long Tail: Why the Future of Business is Selling Less of More. (link) The concept in short is that there is value found in having large quantities of something (apps in this case) which appeals to smaller groups of people. Another way of describing would be simply to say having a successful long tail model means having massive quantities of niche content. [pullquote]Popular apps may be the most profitable but long tail apps are often the most discoverable[/pullquote]

A successful long tail strategy, the one that I would argue creates the highest degree of loyalty to a platform or service, is one that has all the mass market goods (the popular items) but also and large quantities of goods that appeal to smaller groups of people. When we apply this theory to apps only iOS and to a degree the Google Play store are in the discussion. Popular apps may be the most profitable but long tail apps are often the most discoverable.

Imagine being a Windows Phone or BlackBerry user for a moment. Your friends or family members are all talking about the new apps they discovered or are using, for things like health and fitness, education, gardening, sports, etc. They all rave about these great apps that they love and are adding value to their lives. These apps don’t exist on your platform and probably won’t for a long time if ever, unless a critical mass is acquired. Which, of course, is not going to happen without long tail apps and long tail app developers. Its a chicken and egg problem.

Or imagine your kids sports team starts using an application to help manage schedules and parents assignments, but it only exists on iOS or Android. Your favorite grocery store, market, magazine, favorite brand, etc., comes out with an app, but it’s only available on iOS or Android. Your kids schools offer mobile apps, but they are only on iOS or Android. The workout video series you just bought has an app but it is only on iOS or Android. I hope you see my point.

Windows Phone and possibly BlackBerry may get the popular apps from the big developers, but where the platform really suffers is in the long tail apps and content, which is the driving strength for the mass market with iOS and Android. Only iOS and Android are attracting long tail developers at the moment.

Developing a critical mass of long tail apps and the developers who will continue to make them, is the biggest single hurdle I believe Microsoft, BlackBerry, and any other platform that aspires to enter the market. Without them, these alternative mobile operating systems will continue to struggle to find customers for their products until the same long tail apps make it to their platforms. If they make it to their platforms of course.

Google’s Android And The Path Not Taken

Yesterday, Google held its I/O keynote address. Ben Thompson of “stratēchery” has written an excellent article entitled: THE ANDROID DETOUR. I highly encourage you to take the time to read it. I’m going to re-state and build upon his thoughts here.

1) In 2007, Apple introduced the iPhone. Google’s then CEO, Eric Schmidt was a member of Apple’s board and an honored guest at the iPhone presentation. It appeared that all was right with the worlds of Apple and Google – Apple was going to do its hardware thing and Google was going to do its services thing and a new era of mutually beneficial cooperation was about to begin.

2) In 2008, Google introduced Android – a direct competitor to Apple’s iOS – and the Apple/Google alliance quickly began to unravel. Schmidt soon left Apple’s board, Steve Jobs later vowed to go “thermonuclear” on Android and the Apple/Google alliance was over almost before it had begun.

3) It’s clear that pre-iPhone, Google was initially aiming Android as a Blackberry and Microsoft Mobile competitor, but as soon as the iPhone appeared on the scene, Google’s Android focus dramatically shifted. Assuming that competing with Apple was the right strategy, Google should be given all the credit in the world for pivoting as rapidly as they did from their original plan to creating a legitimate iPhone competitor.

4) As an aside, I also give Microsoft lots of credit too. When the iPhone initially appeared, Microsoft didn’t foresee the danger it posed. But soon afterwards, they not only recognized the danger but they acted and acted decisively. They took the radical step of abandoning Windows Mobile altogether and initiating their new Windows Phone 7 platform. It was a bold move, but as history as shown, it was one year too late. Windows Phone 7 (now 8) has never gotten any traction and it languishes in third place, just above the rapidly fading Blackberry OS.

5) I think I could make a pretty compelling case that Google should never have made Android a competitor to Apple’s iOS. By doing so, they destroyed a promising alliance and, perhaps, took a long, long, detour down a path that they never should have taken. But that’s all moot now. We’ll never know how that alternative reality would have played out, so there’s little point debating it.

6) What can’t be debated is the effect that Apple’s iOS and Google’s Android have had on the incumbent smartphone competitors. Palm and WebOS were wiped out. Blackberry was devastated. Nokia was humbled. Microsoft Windows was abandoned and replaced by Windows Phone 7.

Pundits often frame the smartphone/tablet wars as a battle between Apple’s iOS and Google’s Android, but in reality, those two operating systems – with Apple descending from above and Android rising from the below, crushed the existing smartphone competitors between them.

comscore-q1-2013

There is little proof that Android has ever made any significant income for Google, but if the destruction of their enemies was Google’s aim, then there is no doubting that the Android strategy was eminently successful.

7) Google’s I/O keynote barely even mentioned Android or any kind of hardware at all. If there was a common theme, it was about service unification between Chrome and Android.

Instead of an updated Nexus 7 tablet or a new Chromebook model, Google spent three hours during Wednesday’s keynote to discuss services and feature upgrades for both Chrome and Android.

If I could describe #io13 in one word it would be “unification”. Same features, services, UI and experiences on Chrome and Android. ~ Kevin C. Tofel

I think that Ben Thompson is spot on with this analysis:

“Services are where Google excels, and it’s where they make their money. It’s why they make the most popular iOS apps, even as their own OS competes for phone market share.

Apple, on the other hand, makes money on hardware. It’s why their services and apps only appear on their own devices; for Apple, services and apps are differentiators, not money-makers.”

“Apple invests in software, apps, and services to the extent necessary to preserve the profit they gain from hardware. To serve another platform would be actively detrimental to their bottom line. Google, on the other hand, spreads their services to as many places as possible – every platform they serve increases their addressable market.”

8) The battle for mobile is over. Apple’s iOS and Google’s Android reign as a duopoly and Microsoft and Blackberry hang on by the skin of their teeth. Google is free to put its web services on Android and iOS and to ignore the Blackberry and Windows 8 operating systems. Android has ensured that Google’s services are freely accessible on the only two operating systems that matter. The Android strategy was a success although, perhaps, at great cost. Google’s I/O keynote is living proof that Google is now re-focusing on their original mission of dominating web services.

A Significant Product Differentiation

Philip Elmer-DeWitt is calling him the man who figures Apple is worth $240 a share. I read his blog post and dove into his theory of ROIC. Something he said stood out to me.

Without significant product differentiation, Apple cannot maintain the ultra high profit margins and ROICs.

I don’t know about David, but I consider iOS a significant differentiation. I believe in Apple the company. It is just becoming harder to believe in Apple the stock.

Trouble in the Cloud: Lessons from AP and Bloomberg

Its been a bad week for the cloud. Businesses of all sizes are under a lot of pressure to save money by moving IT operations into the cloud. for many companies, it can be a lot cheaper and more efficient to pay someone else to manage your email, storage, and servers  and provide other IT services than to do it yourself. But the disclosure of of phone surveillance of the Associated Press by the U.S. Justice Dept. and snooping on customer activities by Bloomberg News reporters, neither of which has anything obvious to do with cloud computing, might give you some pause about trusting your data to a third party.

The issue isn’t security, and least not in the conventional sense of protecting your data and operations from malicious hackers and other no-goodniks. In truth, most service providers are better at that sort of security than businesses from whom IT and IT security are not core competencies. The problem is the amount of control you surrender when a third party hold your information.

In the AP case, the government subpoenaed call records for 20 phone lines used by AP reporters and editors, apparently as part of an investigation of leaks about the disruption of a terrorist plot in Yemen. I’ll leave it to others to discuss the legality and the First Amendment implications of DOJ’s actions. But the implications for privacy are disturbing.

The government was able to obtain the phone records by issuing subpoenas to carriers–and neither the government nor the carriers bothered to inform the AP of the request. The news service found out only because regulations require eventual, after-the-fact notification–but only for news organizations. If you are any other sort of business, you might never find out about the surveillance.[pullquote]If you control the data, you can make your own choices, including going to jail to protect it. If a third party has it, the choice is theirs, not yours.[/pullquote]

Phone records are always highly vulnerable. You don’t have the options of operating your own telephone system. And telephone carriers have a history of giving up call records, and sometimes a lot more, to the government on the slightest provocation. But what about e-mail? Here things get murky. The Electronic Communications Privacy Act which covers email, was written in 1986, in the MCI Mail era. Under the government’s interpretation of it, mail stored on third-party servers that is more than 180 days old or that has been opened can be obtained without a subpoena. That interpretation is currently tied up in several law suits. But the government could also subpoena current mail records and there is no requirement that you be notified.

AP was lucky. It apparently hosts its own email, so there is no way the government could read it without a direct request to AP, which it then could have fought. There’s hardly a guarantee of success, but at least it would have known what was going on. If you control the data, you can make your own choices, including going to jail to protect it. If a third party has it, the choice is theirs, not yours. (Twitter has an admirable policy of notifying users of government data requests; most other service providers do not.)

You have equally little control over data stored on third-party servers. And the Obama Administration is pushing for new rules requiring internet service providers to retain more data on customer activities and to keep it for longer. The more you outsource, the more data you have out there under third-party control.

I’m not arguing against cloud computing or outsourcing of services. The benefits may very well outweigh the risks. But businesses (and individuals, for that matter) should be aware of just what those risks are.

The Bloomberg case exposes a completely different risk. Using third-party services necessarily exposes a lot of your information to the service provider. Even if you use the best security practices and encrypt all of your data both in flight and at rest, you traffic is moving over their networks and, as any good intelligence analyst will tell you, you can learn a great deal just from traffic analysis.

The standard Bloomberg contract, like the one obtained by Quartz, contained language allowing Bloomberg to monitor customer use of the system “solely for operational reasons.” Such language is typical in service provider contracts and is usually interpreted to mean that monitoring is allowed to the extent technically necessary to provide the service. But whether it is a rogue employee or, as appears to be the case with Bloomberg, a matter of policy, it is all but impossible to prevent the misuse of customer data. All you can do in the end is choose your vendors carefully and trust them.

 

 

Only Apple Can Play Apple

It has been a challenging few days in the press for the Microsoft camp. In a positive move, Tami Reller, CFO and head of marketing for Windows, gave more details on how many Windows 8 licenses had been sold, details on what they had learned from Windows 8, and what they intended to do to improve the experience.  The overall press reaction was very negative to the point that Microsoft’s head of communications, Frank Shaw, penned a blog defending the company and singling out two press outlets.  How did Microsoft get to this point?  Well, as I was quoted a few times this week, it’s because “only Apple can play Apple”.

Apple’s style, love it or hate, has been around exclusion and secrecy.  Their product, PR and analyst programs are very exclusive and at least from my experiences, impossible to get a response from. Large scale analyst days are non-existent and their product launches are held in smaller-venue locations.  This exclusionary strategy works well for Apple when it is doing great and bringing a constant flow of ground-breaking product to the table like the iPod, iPhone and iPad.  For the Apple of the 90’s, outside the Mac proponents, it was looked at with disdain, which was actually helped to bind the Mac crowd together. Microsoft’s adoption of Apple’s strategy is part of Microsoft’s challenge today.

During Windows XP and Vista time-frames, Microsoft had some of the most inclusive practices on the planet of any technology company out there.  During the Vista time-frame, Microsoft literally invented the large company social media interaction.  Forget about Vista the product, their social media strategy was phenomenal.  Oh yes, don’t forget, this is where Robert Scoble got his social media start. Microsoft also pioneered what I consider the “super-user”, or MVP program, which is still in practice today. For Windows, Microsoft would give a tremendous amount of details, very early on, about upcoming versions of Windows and had very inclusionary analyst and press practices.  Then came Windows 7.

During Windows 7, communications changed dramatically.  They became a lot more like Apple’s than Microsoft’s.  Ecosystem briefings, disclosures, and two-way communications seemed to slow to a crawl.  But that didn’t seem to have an effect on Windows 7 as the operating system was wildly successful.  The problem was, that this new communications strategy mythically became one of the reasons, inside of Microsoft, that Windows 7 was so successful.  The logic was that because we (Microsoft) spent less time listening to people who don’t really add value, we executed faster and introduced a superior product everyone wanted. Then came Windows 8.

At the same time Microsoft was developing Windows 8, Apple was on their meteoric rise and all eyes were on Steve Jobs and his autocratic style.  It became even more reinforced inside of Microsoft that one of the keys to success was to basically, act like Apple.  No one actually said “we need to be more like Apple” but I was told, “Look at Apple, they do that, and it’s working great for them.” And then the Windows 8 started.

Windows 8 was the first major Windows UI overhaul since DOS.  It went from keyboard, mouse, icons and folders centricity to touch, swipes, charms and live tiles. The application development tools changed completely.  ARM support was added.  Literally, everything about Windows changed from top to bottom.  At a time like this, Microsoft needed early, widespread, inclusive communications with the entire ecosystem, not exclusive, secretive communications of the Windows 7 era. The result is what you see today, where it appears Microsoft can’t seem to get a break.  The 100M licenses sold that many companies would kill for gets picked apart, admission of Windows 8 challenges gets “I told you so’s”, and people are calling Windows Blue the Windows 8 that should have been.

You see, this has very little to do with the product itself and is a result of years of Microsoft trying to adopt many of Apple’s characteristics I outline above. This has unfortunately created a negative environment where the ecosystem, because they don’t feel heard or a part of creating Windows 8, doesn’t feel ownership of Windows 8.  It’s a disconnected relationship, like a distant cousin. Anyone like me who was a very strong part of the Windows ecosystem for years knows exactly what I am talking about.

While I will save for a future post exactly what I would do to turn this around, I will say this is all about carving out that unique positioning and acting on it.  There still exists a need for an inclusive and over-communicative tech giant, and it’s up to Microsoft and Google to determine who wants to take it. I have seen some positive signs coming out of Microsoft that they would like to head in this direction, but we will all need to wait and see.  Don’t forget, only Apple can play Apple.