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The Strategic Importance of Intel’s New CEO

This morning Intel finally announced the successor to current CEO, Paul Otellini. Otellini steps down later this month and new CEO, Brian Krzanich, who is currently their COO, will then become CEO.

Here is a short background on Krzanich:

Brian M. Krzanich is executive vice president and chief operating officer for Intel Corporation. He is responsible for Intel’s global manufacturing, supply chain, human resources and information technology operations.
Previously, Krzanich was responsible for Assembly Test from 2003 to 2007. From 2001 to 2003, he was responsible for the implementation of the 0.13-micron logic process technology across Intel’s global factory network. From 1997 to 2001, Krzanich served as the Fab 17 plant manager, where he oversaw integrating Digital Equipment Corporation’s semiconductor manufacturing operations into Intel’s manufacturing network. The assignment included building updated facilities as well as initiating and ramping 0.18-micron and 0.13-micron process technologies. In 1996 and 1997, Krzanich was the Fab 6 plant manager in Arizona. From 1994 to 1996, he was a manufacturing manager for Fab 12 in Arizona. He also served as a process engineer at various Intel locations. Krzanich joined Intel in 1982.

Krzanich was presented an Intel Achievement Award in 1999. He holds one patent for semiconductor processing.
Krzanich received a bachelor’s degree in Chemistry from San Jose State University in 1982.
They also named Renee James President of Intel.

So what does this new leadership change mean for Intel’s future?

We believe this move is quite strategic and sets up an important new phase in Intel’s history. Brian’s strong role in running manufacturing will help Intel drive even more aggressive research and potential partnerships to keep their fabs running at full capacity. Intel is moving fast from 22 nm to 14 nm process designs, which fundamentally says Intel is doubling down in mobile and see’s this as their real future.

It is important to note that Brian’s role is to drive Intel’s strategy and be responsible for what R&D focuses on and anticipate future demands of their partners and what consumers will want in the future. This is what Otelinni has been doing and this top focus will now be in the hands of the new CEO. However, Brian’s intimate understanding of manufacturing and what makes the fabs tick is just as strategic.

We have heard that with the slowdown in the PC industry, most PC semiconductor fabs are not running at full capacity. However, from a bottom line standpoint, fabs need to run at full capacity if they are to be profitable. Intel recently announced the Intel Custom Foundry, which they offer fab manufacturing to fabless companies and has already started doing work for some small fabless design firms. However, Otellini has said that over time they could do work for big companies. I believe Intel’s top priority is filling the Fabs with their own chips, but one possible reason for this move is that over time Intel’s Custom Foundry could become even more strategic to Intel’s future.

Intel has also been criticized for not have a strong succession plan in place. I believe naming Renee James as president is also strategic. Intel has to deal with the possibility that if anything happened to Brian, Renee James could step in and a transition to new leadership in this situation would be seamless. One could decipher from this that James could be the next Intel CEO when Brian leaves the office (Intel has an age cap on CEOs) but I don’t think this necessarily so. I suspect her role as president could set her up for this but strategically speaking, this is in probably in place to protect a line of succession for the immediate future.

We are entering a new era in personal computing and quickly moving to what Steve Jobs called the post PC era. While PCs are not going away, mobile and embedded processors need to be the future of a company like Intel. Brian will have a daunting task to migrate Intel from its PC past and into a new era of personalized computing. I believe this move is the right one for Intel and naming someone with a long history at Intel and a strong manufacturing background is best for Intel at this time.

Making the Cloud Safe for Consumers: Time for Apple To Step Up [Updated]

This has been the Year of the Cloud. Apple, Microsoft, and Google, the three companies that matter most to consumers, have all been rushing headlong to establish personal clouds that will link consumers’ data across multiple devices, making it available anywhere, any time. What could possibly go wrong?

We learned the answer in dramatic fashion this week when a hacker, apparently just out for kicks, wreaked havoc on the digital life of journalist Mat Honan, wiping his iPhone, iPad, and MacBook, deleting data from his iCloud and Google Apps accounts, and sending out a stream of ugly tweets from the account of his former employer, Gizmodo. Honan’s Wired account of just what happened and how is long but well worth reading.

A watershed event. It’s rare that a single incident marks a true tech watershed, but this may well be one. The personal cloud is definitely looking like the Next Big Thing. But the problems raised for cloud purveyors including Microsoft, Google, and above all, Apple are not just issues of public relations or marketing. They are going to have to make some real changes to assure safety.

Apple bears the biggest initial burden because of the ease with which the still unidentified attacker winkled Honan’s password out of Apple technical support and the company’s utterly incompetent handling of the issue once Honan discovered his problem. (Amazon played a relatively small but critical role in the attack, which relied entirely on social engineering rather than a technical assault. Wired Gadget Lab reports that Amazon has quietly plugged the hole.) But Apple, as it its wont, has remained stonily silent on the matter. According to Gadget Lab, Apple appears to have shut down telephone iTunes password resets, the crucial point of attack against Honan, but the company has announced no policy changes.

UPDATE: Apple spokesperson Natalie Kerris confirms that the company has stopped providing password resets over the phone. It plans to resume the service at some unspecified point in the future, but when it does so, users will be required to provide stronger authentication.

By his own admission, Honan made several serious mistakes in this episode, the most serious being the way he linked his Apple iTunes, iCloud, and Google accounts. That allowed a successful attack on one to be used against all. But if a savvy and experienced tech journalist couldn’t get this right, how much greater is the risk for the average consumer? Apple all but forces you to use the same username and password for iTunes and iCloud; the password you use to secure 99¢ song purchases can open the way to someone wiping out the data on a Mac.

Friction isn’t always bad. Apple’s goal in setting up iCloud was clearly to make transactions of all sorts as frictionless as possible. But friction is by no means always a bad thing, especially when it slows down an attackers. There is nearly always a tradeoff between convenience and security, and its clear that the dial is going to have to be turned toward security.

Keeping the focus on iTunes/iCloud, iTunes itself does not require a very high security barrier. Although you have a credit card on file, it’s hard for an attacker to buy very much very quickly. The main change needed is that Apple should greatly speed up the process of sending email purchase notifications. On Amazon these are nearly instantaneous, but I sometimes don’t get iTunes Store or App Store notifications until a day after the transaction. Your best protection is to get immediate notice if someone is making unauthorized use of your accounts.

Changing account settings, especially the email address associated with the account, should require a much higher level of protection, as does access to any iCloud data and the Find My Mac, iPhone, and iPad features. These features are used infrequently, and introducing a little, or better yet, a lot of friction will provide protection with minimal inconvenience. And password recovery procedures need a top-to-bottom reconstruction. For example, an individual who cannot produce acceptable credentials online or on the phone might be required to go to an Apple Store with government-issued ID and a credit card to establish identity. Yes, it is inconvenient; it’s supposed to be. (In Honan’s case, stronger passwords would not have helped in the least since the attacker was able to obtain his password.)

Unintended consequences. Another issue the industry as a whole has to come to grips with is unexpected interactions among different cloud services. This is an old and very difficult problem in security. Amazon’s policy on revealing information on existing credit cards when you entered a new one was mildly dumb. But combined with a totally unrelated Apple policy that let anyone use the last four digits of a credit card number to recover an iTunes password, it became catastrophic. Honan thought linking iCloud to Google was an innocent choice, but it, too, proved to have disastrous consequences.

The personal cloud is far too valuable to put it at risk through stupid security practices like those that clobbered Honan. It’s time for the services to take the lead and fix the problems in a public and transparent way (I’m looking at you, Apple.)

Final bit of advice to users: Honan says his biggest regret in this episode was the loss of photos of his child’s first year. As useful as the cloud is, it is no substitute for a secure local backup or backup to a dedicated service. Sync is great, but it is not backup. You should understand how different sync services work. I’m a big fan of SugarSync, which not only stores data in the cloud but, for important files, creates up-to-date local copies of files on multiple PCs. For important data, a belt, and suspenders, and maybe a second belt isn’t too much.

Why Microsoft’s Development Must Be More Open Than Apple’s

Matt Rosoff at Business Insider writes that a principal reason why Microsoft reveals a lot more about its development process than Apple does is that Apple is a consumer products company while Microsoft is a technology company.That’s somewhat oversimplified, but mostly true as far as it goes. However, it misses some deeper reasons for Microsoft’s greater openness.

The most important reason is that Windows lies at the heart of an extremely complex ecosystem. Microsoft needs to provide its partners, both computer manufacturers and enterprise customers, with a clear development roadmap. For OEMs, this is vitally important if they are to be able to ship optimized hardware, such as the new Windows 8 tablets, when the new software is released. This requires lots of lead time.

Windows also runs on an almost uncountable variety of of hardware configurations. Device manufacturers, like computer OEMs, need lead time to have optimized drivers ready when the new OS ships. Fortunately, Windows 8, like Windows 7 and unlike Vista, does not require extensive rewriting of drivers. But there are always issues of fine-tuning the software.

The variety of configurations also calls for extensive beta testing. There’s no way Microsoft can test any but a tiny proportion of the possibilities in-house. It needs debugging input from a large number of users.

Apple, by contrast, tightly controls the ecosystem. It can, and does, regularly release OS versions that render relatively new hardware and software obsolete. Apple can get away with this approach, which enables it to avoid Microsoft’s endless problems with legacy code, largely because it does not have to worry about keeping enterprise customers happy.

Apple’s development secretiveness does cause problems. New OS releases often cause serious compatibility problems. Even a relatively minor upgrade like Lion has produced a long list of hardware and software incompatibilities that probably would have been a lot shorter had Apple been more open with third-party developers. This is a price Apple is willing to pay, but that Microsoft, because of its different position in its own ecosystem, cannot afford.

Apple After Steve

Everybody has heard the news by now: Steve Jobs resigned because he “could no longer meet my duties and expectations as Apple’s CEO.”

In his letter of resignation to the Apple Board of Directors and the Apple Community, Jobs wrote: “I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.

My first immediate reaction is sorrow that he’s stepping down. I presume that his decision is health related, and wish him and his family well.

My second reaction, to paraphrase Monty Python, is that he ain’t dead yet. His brief and eloquent resignation letter says he plans to hang around a while.

Will Steve Jobs die? Of course. Silly question, as he would be the first to say. (Actually, “stupid f&*$#$g question” is more likely how he’d say it.)

In his graduation speech to Stanford’s Class of 2005, Jobs said: “No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new.”

I suspect he might see stepping down as CEO in the same Schumpeterian way. He and Steve Wozniak started Apple in a garage and it’s now the most valuable company on the whole f&*$#$g planet. Apple sets the agenda for the global technology industry. Jobs himself is by consensus the most important business executive alive today. Earlier this year he effectively decreed that the Personal Computer era was over, and last week the world’s No. 1 PC company, Hewlett-Packard, effectively said, “You’re right again, Steve. We’re toast. You kicked our butt. We give up.”

It would be hard to conceive of a better time to say “Mission Accomplished” and hand the keys to the next generation.

I haven’t checked the after-hours ticker but I assume AAPL is getting cored. That’s silly, too, for anyone with a view that goes beyond a day or two.

There’s always lots of new stuff in the pipeline at Apple, stuff that takes months and years to develop, and Tim Cook already has been running things on a day-to-day basis for some time. Will Cook be as good a CEO as Jobs has been? No one knows. Can he be even better? Again, no one knows.

Could he be worse? Hey, it’s not like Tim Cook is the second coming of Gil Amelio. I remember sitting in the front row at a Macworld conference in the mid-1990s, as a Jobs-less Apple appeared to be in a death spiral, as then-CEO Amelio gave a rambling keynote address while absent-mindedly beginning to undress himself on stage. Apple PR folks were apoplectic. It’s hard to imagine Tim Cook melting down in a similar way.

One thing we do know is that Jobs’s DNA already inculcates the culture at Apple. That may change a few years out, but … that’s a few years out. The fact that Jobs is no longer CEO of Apple is not suddenly going to make HP or Microsoft or Dell any smarter. The fact that Tim Cook is now running things is not suddenly going to invigorate any of Apple’s competitors to execute their strategies any better.

Another thing we know is that Apple is probably going to introduce a fifth-generation iPhone that will run on all carriers, including new carriers in China, the world’s largest untapped market for smartphones. That fact that Steve Jobs is no longer at the helm will not cause millions of Chinese, or Americans for that matter, to slap their foreheads with an epiphany that Android, Windows Mobile, and WebOS are suddenly better choices for mobile platforms.

Notice also the not-so-subtle jab at the media in Jobs’s letter of resignation: “I strongly recommend that we execute our succession plan.” There is in fact a succession plan at Apple and the Board just approved it.

I suspect that Tim Cook didn’t open his first conversation with the Board of Directors by saying, “Okay, boys, now that I’m running the show we’re going to reinvent this company from top to bottom. I’ve been itching to go completely open and dump this whole ‘Apple ecosystem’ strategy.”

At the same time, I can’t think of any company that is as closely identified with its CEO as Apple was under Steve Jobs. Apple without Steve Jobs (or, to be accurate, Apple with Steve Jobs in the Sinatra-esque role of Chairman of the Board) will not be perceived as the same company with Jobs on the sideline. Jobs is a genius. The genius is (sort of) gone. Therefore, some of Apple’s genius is gone, too, until proven otherwise.

In that commencement address at Stanford six years ago, a healthier-looking Jobs gave a speech that was very much like the Apple products for which he is known: Elegantly crafted, attentive to detail, rich in content, but no unnecessary words or buttons. He was talking to a fresh crop of Stanford graduates, but his message almost certainly applies to Tim Cook, Phil Schiller and all the other top Apple executives who are now at the helm.

“Don’t be trapped by dogma,” Jobs said, “which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

Jobs also said this: “I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been ‘No’ for too many days in a row, I know I need to change something.”

So, Steve woke up one morning recently and decided he needed to change something besides the world. Namaste, dude.

A version of this post appears in Fiscal Times.

What If Apple Puts A-Series Processors in MacBooks?

Apple Insider posted a bit of news around the rumor that someday Apple may use its own A-Series chips in products like the MacBook Air and MacBook Pro. When Apple made the move to design their own ARM processor by acquiring P.A Semi and Intrinsity it became clear that using their own processors in all their products made perfect sense.

Apple wants to control all the critical elements of the value chain. For smart phones and tablets it’s clear that Apple wants to control the semiconductor in those products so it can highly optimize iOS for a proprietary SOC. The interesting question is if they want to do the same for OSX in the future.

Apple has no control over the architecture decisions that Intel makes, nor do they control the timeline of those decisions. One could see how future MacBook products could benefit if Apple specifically designed A-Series chips to run OSX. The optimizations they could make for efficiently running OSX could make the OS that much better and that much harder to compete with.

In this scenario Apple unlike Intel doesn’t need to try and make a processor that can run any and all software and operating systems. In fact they don’t even really need to follow Moore’s law in their designs like Intel and AMD. All Apple needs to do is design the most effective piece of silicon to run OSX.

You may think they could never do something like this because of all the software for OSX now running on Intel silicon. That is true but if you remember they made the move from the G5 to Intel and it was fairly smooth. Their developer toolkits and their virtualization software Rosetta could be key pieces in making a smooth transition to their own silicon.

The real question in all of this however is where would that leave Intel if Apple ever stopped using them as a supplier?

My Advice to HP: Give All the TouchPad’s Away

Shock and Bewilderment swept the industry as well as the tech journalism and blogger community yesterday. HP announced that they are not just looking to spin off their PC business but that they are also discontinuing all webOS hardware which included the HP TouchPad.

It was fascinating to watch the twitter stream of people commenting when the news hit about the HP spinnoff. Shortly after the initial shock of the news the big question got raised: What does this mean for webOS?

During the aftenoon we came to find out that although HP is discontinuing all webOS hardware operations, they are still commited to the software. If this is true, then I contend that they should give away all the TouchPads left at retail for free. They should at least HEAVILY discount them. Maybe let Best Buy do a special promotion where if you spend more than $200 dollars you get a TouchPad for free. Perhaps run a promo where if you buy HP products like specific printers, notebooks or desktop you get a TouchPad for free.

The reason is because if HP is commited to still supporting webOS it will only live on now by way of license. However no one will want to license it if there is no software ecosystem or apps surrounding webOS. There will be no software ecosystem or apps developed if there are no devices on the market for developers to write apps for.

This is why HP should just give them all away – all 400,000 sitting in a store house. They are already writing off this hardware so why not get it into the market any way possible.

Consumers are simply not going to buy them now because with this news will also come a lack of consumer trust in HP and the TouchPad. However people will accept one that is free just to try it and if they don’t like it they can give it to a friend or loved one. This move would also create a positive image for HP in light of the hit they are most likely taking.

The bottom line is doing this would create a market for webOS software developers to create apps for. My sense tells me consumers would actually be quite impressed with the TouchPad once they got it in their home and maybe would even spread the word about how great webOS is to their friends.

The bottom line is HP needs to move that hardware. Consumers won’t buy them or invest in webOS because it is risky and unknown. Give them all away. There is no downside to the consumer and I would argue only upside for all parties involved.

So to HP’s management-Give them away and make it easier for whoever buys it or licneses it to have a built in installed base of users to build on. I know this sounds bold and risky but that is exactly what you need right now.

Why Google had to buy Motorola

At the end of the year, when I made my predictions for the New Year, I stated that I believed Google would buy Motorola Mobile. And last week, Ben wrote here in Tech.Pinions about why he thought Google should buy Motorola. We had no inside information on this. But as we have studied how a complete eco system of hardware, software and services are critical to the success of a company bringing out tablets and smart phones, it became pretty clear to us last year that Google, at some point, was going to have to buy a hand set maker if they really wanted to control their destiny and the destiny of Android.

With today’s acquisition of Motorola Mobility group by Google, Google has now closed the loop on building out and controlling an entire eco system of hardware, software and services. With it they can now drive Android in the direction they see fit and innovate in all three areas. Like Apple, they now own the hardware, software and services and can become an even greater force in the future of mobile products.

In his comments on the acquisition, Google CEO Larry Page stated that part of the reason they did the deal was to also gain access to Motorola’s patent pool.

This could have an impact on the suit against Motorola as a starter.
And depending on the patents, it could also help them in the multitude of legal suit against Android out there as well, although it is not clear how much Motorola Mobile has that would related directly to these other Android suits.

But as important as this is for Google and Motorola, it is highly problematic for Google’s partners. Now HTC, Samsung and other licensees will be competing directly with Google/Motorola. And this leaves a lot of big questions on the table. For example, Google uses a lead partner with major new versions of Android. We assume it will now always be Motorola? If so, how does that affect the other licensees?

And, although they claim Android will continue to be open, just how much of an inside position will Motorola Mobility have over the competitors? I have already fielded multiple calls from clients who license Android who are, how do I put this, “concerned” about this news.

I believe that the major fall out from this is that there is now room for a third mobile OS to come out that would give vendors a broad solution they can use without having to compete with Google/Motorola. If I were Microsoft I would be touting Windows Mobile as an alternative.

However, here is a more interesting suggestion. If I were HP and Todd Bradley, I would immediately license the Palm Web OS as an alterative. This is by far the best Mobile OS besides Apple’s IOS on the market and it could become of great interest to Android licensees who feel threatened by this move by Google.

There are still a lot of other questions about this deal, like how will they deal with two distinct cultures and who drives the future of Android given Motorola’s greater experience in mobile then Google has?

But no matter how this turns out, we will mark today as the day that the mobile world changed forever as Google has begun to rewrite their history again.

Further Reading:
Why Microsoft WILL Buy Nokia

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The Stage is Set for An iPhone Christmas

Data from Piper Jaffray analyst Gene Munster was released Monday that resulted in similar data to research my firm has been conducting. The conclusion of Munster’s data is that there is huge pent up demand for Apple’s next version of the iPhone, the iPhone 5. Munster’s data revealed several key points.

Among those who do not have an iPhone but plan to buy an iPhone next, 60% are specifically waiting for the iPhone 5
Of those Verizon subs who do not have an iPhone but plan to buy an iPhone next, 74% are specifically waiting for the iPhone 5
Among existing iPhone users, 94% expect to buy another iPhone (6% expect to switch to Android)
Among existing Android users 47% expect to buy another Android smartphone (42% expect to switch to iPhone).

Granted his sample size was relatively small at 216 people however the data resulted in similar findings to our own independent research. Our interest was in non-smart phone customers primarily but we did survey a mix of current early generation smart phone owners as well. This research is still underway but early conclusions are showing something similar to Munster’s, which is a large amount of consumers are waiting for the iPhone 5.

Over 75% of those we have surveyed so far state that they are waiting for the iPhone 5 for their first smart phone. In fact I was speaking with a college student who has a two year old and very worn BlackBerry. When I asked him what his plans were for his next phone he looked at me like I was crazy and said “duh the iPhone 5.”

What else is interesting is that when we dig into the kinds of consumers we are talking to we find out that they are largely in the early majority and late majority. These happen to be the largest group of consumers and demand for smart phones is entering into the largest sector of the market. What Munster’s data and our early analysis is showing is that a significant number of people will be in the market for new phones this holiday season, smart phones in particular, and their overwhelming choice appears to be the iPhone 5.

Another interesting bit of information we are finding is that a large number of BlackBerry consumers are due for upgrades this holiday season and are in the market for a new smart phone. We are in the process of finding out the mix of Android to iPhone preference in these consumers and will release those stats when we have them.

The bottom line is if you combine the number of new consumers in the market for a smart phone this fall who are leaning toward an iPhone with the number of consumers upgrading, the result is a huge holiday season for smart phones in general but may tip heavily in Apple’s favor with the iPhone 5.

I would not be surprised if in the US this holiday season more iPhones are sold than Android phones.

Can Google TV be Saved?

As of yesterday Logitech has been offering their Revue Google TV set top box for $99. I was at Logitech’s media day where they launched the Revue and I remember the mumblings from the media and analysts when they announced the price of $250. It was as if everyone knew that Logitech clearly priced themselves out of the market. $250 is quite a lot to spend on a product that was truncated at launch.

I was also at Google IO where they first announced and demonstrated Google TV. I remember at the time thinking that this product had potential but that it also had a good deal of hurdles to overcome. The experience from the first Google TV reminded me of many experiences I had with early products in the digital media adapter segment. Many of the products worked to a degree but did not necessarily nail the overall experience.

In fact i’m yet to see a product in the connected TV / Smart TV sector that nails all that a connected TV should be. If I was to nail down what I feel the biggest hindrance to connected TV moving forward it’s Hollywood.

I worked and consulted with the entertainment industry very shortly but long enough to understand how hard it is to work with Hollywood. Ask anyone who has been serious about looking into connected TV solutions and you hear constantly that lack of content is the biggest missing piece.

We are yet to see an offering in the connected TV space that has the depth and breadth of content as our cable or satellite service provider. The main reason for this is because they pay Hollywood and the network studios a massive sum of money to have the rights to broadcast their content.

Generally speaking the Internet is not yet a fully functional substitute for a cable or satellite service provider. Some consumers depend less on things like real time news and sports and can therefore come closer to being able to replace their service providers. Others have no problem waiting days, weeks or month’s to watch their favorite TV shows after they have aired. In some cases you can have your programming needs met from the Internet. Those situations however are the minority not the majority.

For the technology industry to bring to market a full connected TV solution that can replace a TV programming service provider is going to require the help from Hollywood.

For more interesting reading on the subject check out Jared Newman’s article at Techland called “How Google TV Can be Saved.”

Make Competitive Smart Phones or Get Out of the Market

We all know the world is moving from feature phones to smart phones. This is happening in some regions like the US and Europe faster but it is happening at a global level.

The latest data from Strategy Analytics and IDC released today both show overall growth in the global handset market along with declining growth of the feature phone market.

This is significant when we look at the top 5 leaders of global handset sales. They are in this order:

The first thing we need to observe is that one on that list is not like the other. Everyone but Apple makes both feature phones and smart phones. This is why the Nielsen data released yesterday confirms Apple as the number 1 smart phone handset maker.

So if you look at the data over the past few days you will conclude that having a competitive smart phone will be critical to anyone on that list above Apple if they want to stay above Apple. Apple climbed to the top of the smart phone vendor chart quickly and they can climb to the top of the global handset list as well just as quickly.

I agree that feature phones are still important particularly in the developing regions but those who are in that market hopefully realize that priority needs to shift in future thinking and RND around the smart phone market. If they don’t they will become irrelevant.

For more data on the profits captured and lost related to this data check out Asymco’s article on how “Apple Captured two thirds of available mobile phone profits in Q2.”

Lastly I believe it is only a matter of time before HTC makes it onto this list. They released record earnings today as well as 12.1 million handsets shipped in Q2 2011.

Why It Matters that Apple is the Number 1 Smart Phone Manufacturer

Data came out this morning from Nielsen providing insight to the current smart phone operating system market share in the US. There are several observations about this report that I want to make.

First off, although this is a report highlighting the state of smart phone operating system market share it demonstrates that Apple is the leading manufacturer of smart phones. Android has 39% smart phone operating system market share however the key point is that is spread out across multiple device manufactures.

What’s amazing to me is that Apple has accomplished 28% iOS smart phone market share with only one single new product each year. They haven’t needed a dozen or more devices on the market at any given time to garner such a large footprint in the market place. They have only needed one called the iPhone.

Second, I am pleased for HTC collecting 20% of the handset market between their mix of Android and Windows Phone. HTC is being rewarded in the market place for their own innovations with things like Sense and other custom applications. These things were created intentionally to differentiate them from other vendors using the same OS and it is working.

Lastly RIM has dropped to 20%. It seems like just yesterday that most of my market share analysis was pointing out that RIM was leading the pack with OS market share and smart phone handset shipments. How quickly things change in this industry.

One last-last point. I also like how Nielsen choose to visualize this data. Rather than a pie chart they broke it out in what they like to call a “brownie pan.” I actually think looking at data represented this way is more helpful than a pie chart.

Americans Elect’s Online Nomination Is a Recipe for Trouble

Americans Elect, a group that promises a new way of nominating a candidate for President in 2012, lept into prominence in recent days with a ringing endorsement from New York Times columnist Thomas Friedman. I don’t propose to debate the merits of the group’s ideas, but I want to take a look at the practicality of the proposed online nominating process. It’s not going to work.

The information Americans Elect gives on its web site is very sketchy, but the basic idea is that any registered voter can become a “delegate” simply by signing up. It’s not clear how, or if, voter registration is verified. All I had to do when I signed up was give an email address and create a four-digit PIN code. It appeared to me to be trivial to create multiple accounts using different email addresses; I asked Americans Elect about this but have not yet received a reply. [See update below]

There’s a good reason why we generally don’t see online voting for anything more serious than American Idol winners. Running a clean and secure online election is very, very difficult. Under the conditions we generally expect of formal elections, both security and anonymity as close to absolute as we can make them, it may be impossible. Last year, a modest experiment with online voting for U.S. military personnel abroad had to be suspended when it proved hopelessly insecure.

Systems that have been tried for serious online voting generally require the distribution of voting tokens–generally a one-time password of some sort–through a secure offline channel. Often this is done by sending the information via postal mail. Americans Elect doesn’t say whether it plans to use such a system, but it would be complicated and expensive for sort of multi-stage nominating process it plans to use.

There’s a big risk that the Americans Elect nominating process could be turned into a circus. Unless exacting measures are in place to protect the integrity of the voting, the system could very easily be gamed (as has happened with American Idol voting.) It will be interesting to see what state election officials have to say about this process, although, in general, parties are given great latitude in how they nominate candidates, and in the view of election boards, Americans Elect will be a party.

By the way, anyone thinking of clicking the Donate button on the American Elect web site should be careful to read the fine print. Contributions to the organization, like those to any party or candidate, are not tax deductible.

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UPDATE: I received the following unsigned reply to my question about measures to prevent multiple registrations:

Nothing, really. This is definitely at least something of a problem, but the way I see it, if we end up with with a meaningful number of delegates, the people with clone accounts will only be gaining minimal advantage to change things.

That said, if we can find a way to prevent this without causing significant usage/convenience problems, I’m all for it.

Sorry, but that drastically underestimates the web’s potential for mischief or malice. If Americans Elect want this process to be taken seriously, they’ll have to do a lot better.

A Librarian Looks at the JSTOR Download Case

A Tweet by Nilay Patel (@reckless) of Verge called my attention to an intelligent post giving a librarian’s perspective on the charges against Demand Progress’ Aaron Swartz. Swartz faces federal felony charges for allegedly using unauthorized access to the MIT network and the JSTOR academic journal archive to download millions of articles.

Nancy Sims, copyright librarian at the University of Minnesota Libraries, dispels what have become some common misconceptions about the case. First, she points out, there are no copyright charges involved. And she notes that all databases such as JSTOR have restrictions on downloads and that the violations alleged in this case are pretty straightforward.

One place where I disagree with Sims is that she, like many others, compares the case to that of Lori Drew, a woman who was prosecuted for computer fraud for bullying a young teen in violation of MySpace terms of service. Drew was convicted, but an appeals court later threw out the case.

A key difference (besides that fact that no individuals suffered direct or indirect harm in the JSTOR case while Drew’s actions may have contributed to the target’s suicide) is that the actions laid out in the indictment show a pattern of willful assault on the MIT network and the JSTOR database. It is by no means a simple case, as Swartz’ defenders have claimed, of “downloading too many articles” or even violating MIT or JSTOR terms of service.

One other point: Sims, along with many others, questions the proportionality of the government charging multiple felonies carrying a theoretical prison term of up to 35 years. Prosecutors customarily throw everything they have into an indictment. I’d be very surprised if this case does not end in a plea bargain with no jail time.

Did Android Tablet’s Gain on The iPad or Did The Market Grow?

Yesterday Strategy Analytics released some numbers showing the latest in the overall tablet shipments which included iPad and Android tablets. In that report Strategy Analytics reported”

Apple sold 9.3 million iPads in the second quarter of this year, giving it a commanding 61% share of the market
Android captured [a] 30% share of global tablet shipments in Q2 2011
Motorola, Samsung, Acer and Asus – shipped 4.6 million tablets running on the Android operating system in the three months to the end of June.
Microsoft managed to capture a 4.6% of the tablet market
PlayBook tablet, shipping half a million units in Q2 to give it a 3.3% share.

Now there are several things we need to bear in mind when we look at these numbers. First is that these numbers are only for Q3 2011. So Strategy Analytics is saying that during the third quarter Android tablets sold 30% of the total tablet sales just in this quarter. Strategy Analytics is not saying that Android tablets have 30% of the total tablet market share to date.

Second Apple’s tablet sales are sell through (actual sales to consumers), meaning those are actual numbers of consumers walking around with iPads in their hands. The Android tablet sales are shipped in to retail sales which is not necessarily indicative of how many consumer actually purchased them, only how many retailers purchased into the sales channel.

Now to look at the actual current market share numbers of tablets. According to sales figures to date Apple sold just over 29 million iPads. Sifting through as much public data I could find i’ve come up with total Android sales to date of just over 9 million, again sell into channel not sold through to consumers. If that is correct then Android tablet market share of total sales into channel to date is just over 25%.

I am keeping a close eye on these numbers and the next two quarters will be very telling. Since the most accurate tablet forecasts for 2011 are in the 40-55 million range, the next two quarters look like they could be huge. I believe Apple will easily sell in the double digit million range of iPads in each of the next two quarters. The true sell through numbers of Android will be key and i’ll update my market share figures when we get them.

We must also remember that tablets are a growth category, this year they will have grown nearly 200%. Meaning that the overall size of the tablet pie is growing. In my opinion discussing market share is great but I’m not sure its entirely helpful until a market has reached its peak.

Why Apple’s Earnings Reports Matter

Today Apple released their earnings report for the third quarter of 2011. As was expected there was much anticipation regarding the earnings, not only from Wall St but also from media outlets. Apple did not disappoint having their best non-holiday quarter ever as well as selling more iPads and iPhones than any other quarter. Outside of continually delivering reports that shock people there is a more significant point about Apple and their earnings progress that i’d like to highlight.

Namely that Apple’s earnings are one of the biggest indicators that not only show the healthy life of the technology economy but they should also give other companies hope. That hope is that if a company truly delivers value to the market place it will be rewarded. They should find hope that consumers aren’t just after the cheapest thing on the market but that consumers truly desire products that add value to their lives and they are willing to pay for it.

It’s not a race to the bottom its a race to provide value. Apple’s earnings continually re-enforce this point.

Below are the key points from the earnings.

Apple® today announced financial results for its fiscal 2011 third quarter ended June 25, 2011. The Company posted record quarterly revenue of $28.57 billion and record quarterly net profit of $7.31 billion, or $7.79 per diluted share. These results compare to revenue of $15.70 billion and net quarterly profit of $3.25 billion, or $3.51 per diluted share, in the year-ago quarter. Gross margin was 41.7 percent compared to 39.1 percent in the year-ago quarter. International sales accounted for 62 percent of the quarter’s revenue.

– The Company sold 20.34 million iPhones in the quarter, representing 142 percent unit growth over the year-ago quarter.
– Apple sold 9.25 million iPads during the quarter, a 183 percent unit increase over the year-ago quarter.
– The Company sold 3.95 million Macs during the quarter, a 14 percent unit increase over the year-ago quarter.
– Apple sold 7.54 million iPods, a 20 percent unit decline from the year-ago quarter.

Overall:
– Apple reported quarterly revenue of $28.57 billion, and profit of $7.31 billion, representing year-over-year growth of 82% and 125%, respectively
– We’ve now sold 222 million iOS devices to date
– International sales made up 62% of the quarter’s revenue, compared with 59% in FYQ2
– Gross margin was 41.7%, above our guidance for the quarter
– Apple closed the quarter with $76.2 billion in cash, compared with $65.8 billion at the end of the previous quarter
Mac:
– 3.95 million Macs were sold, a record for the June quarter
– Mac sales grew 14% year-over-year, four times the global PC market growth, according to IDC
– The Mac has outgrown the PC market for 21 straight quarters – more than five years
– International Mac sales continue to be strong, growing 57% year-over-year in Asia Pacific
– Peter Oppenheimer shared that Lion, the new version of OS X, will be available tomorrow
iPhone:
– Apple sold an all-time record of 20.3 million iPhones during the quarter, compared with 8.4 million in the year-ago quarter, 2X IDC’s growth estimate for the smartphone market
– iPhone is being deployed or piloted by more than 95% of Fortune 500 companies, and by 57% of the Global 500
– iPhone is now available in 105 countries through 228 carriers, and year-over-year sales quadrupled in Asia Pacific
iPad:
– Apple sold 9.2 million iPads in the quarter, up from 3.3 million in the year-ago quarter
– Supply improved and we’re still selling every iPad we can make – iPad is now available in 64 countries
– iPad is now being deployed or piloted in 86% of Fortune 500 companies and 47% of the Global 500
– There are more than 100,000 apps designed for iPad in the App Store
Music:
– Apple sold 7.54 million iPods, with iPod touch continuing to make-up over half of the iPods sold
– iPod maintained over 70% marketshare in the US, according to NPD, and is the top-selling MP3 player in most countries for which we have data
– iTunes Store revenue was up 36% year-over-year, reaching $1.4 billion
– We have paid over $2.5 billion out to developers, as the 425,000+ apps in the App Store have been downloaded more than 15 billion times
Retail:
– Apple plans to open 30 new stores this quarter, for a total of 40 new stores this fiscal year
– Mac sales in our retail stores totaled 768,000, up 13% from the year ago quarter, and 50% were to people new to the Mac
– Apple’s retail stores brought in $3.5 billion in the quarter, up from $2.6 billion in the year ago quarter

The Real Issue Behind the Android Lawsuits

In case you haven’t been following the lawsuit news closely, three major companies have been suing companies using Google’s Android operating system. The three companies behind the bulk of these suits are Apple, Microsoft and Oracle. The latest in the saga came down Friday when the International Trade Community ruled in Apple’s favor in its suit against HTC and several of their Android devices. The ITC ruled that HTC had indeed infringed on two patents that were specifically granted to Apple.

For a highly detailed analysis of the ITC’s decision I will point you to Florian Mueller’s Foss Patents blog and his post – ITC judge finds HTC in infringement of two Apple patents.

Also take a look at Fortune’s tech writer Phillip Elmer Dewitt’s story where he points out a tangible example of one of the patents use cases: Apple vs. Google: Inside an Android patent violation.

I’ve read at least a dozen articles on this subject over the weekend and many great articles have covered this from every angle imaginable. There is however one point i’d like to make that I feel is at the heart of the issue.

I have heard from a number of very sharp analysts and experts in our circles that these lawsuits against those who ship Android products are extremely serious. Everyone generally agrees that even though the lawsuits themselves are targeting those who ship Android devices, it is really Android which is the issue. Everyone also generally agrees that given the nature of the lawsuits from the current big three you would have to conclude that Android certainly does step on its fair share of patent infringements. In fact its hard to create a product in today’s times that doesn’t infringe on someones patents. This is why having a robust patent portfolio is key to so many companies since it allows them either patent protection or cross license opportunities when the inevitable patent infringement comes.

That being said what I feel the real issue behind the lawsuits is that Android is free. It’s obviously one thing to infringe on a companies inventions or innovations and then sell them but its another entirely to infringe on someones inventions and innovations and give them away for free. It sends the message that those innovations aren’t even worth enough to ask someone to pay for them.

Whether or not this was Google’s intention with Android will most likely never be known. Whatever the case my opinion is that the de-valuing of others inventions or innovations is at the heart of the intense lawsuits we are seeing come down with Android as the target.

This is not to say that these lawsuits would not have occurred anyway only that there is an intensity behind them that I feel is being fueled at least in part by the liberally giving freely of other people’s IP.

Should the Media be Proclaiming RIM’s Death?

Over the past few weeks i’ve been reading a number of articles from the big media outlets all proclaiming the death of RIM. Most of these articles are pretty grim and their headlines say it all. I have nothing against a good or controversial headline its more the content of the article i’m interested in. What i’ve noticed is the content of these articles being fairly negative on RIM don’t really offer much helpful insight for either the consumer or RIM itself.

Two articles in particular this week are examples of what I mean.

BGR: Inside RIM: An exclusive look at the rise and fall of the company that made smartphones smart

All Things D: Bring Out Your Dead: Is Research In Motion The Next DEC?

So what I am wondering is what the role of the media should be in a situation like this where a company is struggling. Given that the media is extremely influential and actually does affect the mind share of consumers, it seems that if all the outlets go around saying RIM is dead, consumers will believe it and write them off no matter how good any future products may be.

Perhaps it would be more helpful if these articles contained a balance and point out what has gone wrong but offer helpful suggestions on what RIM could do to remain competitive. The result would be that the market may not write RIM off entirely and instead look to see if RIM responds to the helpful insights to the media, using the media to their advantage, and still have a shot at competing.

Too often it seems like the media is powerful enough to claim a companies death, thus affecting the mind share of investors and consumers and in return create a self fulfilling prophecy where the company actually does disappear.

Now i’m not saying the media does not always write negatively. In fact a number of good articles have come out that do offer helpful suggestions. I simply believe they are more rare than the norm. A few examples:

In BGR’s Open letter to BlackBerry bosses: Senior RIM exec tells all as company crumbles around him the letter itself contains helpful insights and suggestions.

Even though we are analysts not journalists Tim and I have also covered the topic.

Tim Bajarin wrote one for PC Magazine called What RIM Needs To Do To Survive that offered a number of suggestions for RIM.

And in my article last week for the tech section of Time.com I wrote about The Tragic Decline of BlackBerry and offer some insights as well on how to turn it around.

The bottom line is I would like to see more competition and consumer choice than less. I know negative news drives traffic but what i’m hoping is that there is a balance. I’d love to see the media also use its influence to do all they can to help struggling companies better compete going forward.

Again it comes back to my original question. What should the role of the media be when a company is down?

Does Google+ Target Facebook or Twitter?

After spending some time using Google+ and reading many of the articles and opinions on the service, I came across two pieces that I thought were worth pointing out. I am still in the process of forming my own opinion on Google+ and what the benefit is of the service so in the meantime I want to highlight two thoughtful commentaries.

The first is from Tristan Louis from Business Insider who brings up the question and explores whether Google+ is targeting Twitter or Facebook. This is a great question although it’s much to early to have clarity on Google’s strategy other then they are a services company so investing in services is what they do. From my own time using the service I can see elements of both Twitter and Facebook.

Google obviously feels that services which fill a social need are a key component of how we will use and interact on the web. Hopefully Google+ continues to innovate in this direction. However as of now its not clear what the key value proposition is for mainstream consumers.

To address that question Joshua Gans who holds the Skoll Chair in Innovation and Entrepreneurship at the Rotman School of Management (University of Toronto) wrote an interesting commentary for the Harvard Business Review blog. He focuses on addressing the question of what problem Google+ solves in the market place. The thing I love about HBR authors is how their commentary highlights fundamental business principles. This one being that in order to have a successful product or service it needs to add value by solving a problem.

His point is primarily that its unclear which problem Google+ is solving. For consumers to switch or even start using one service over another there needs to be a compelling differentiating benefit for the new service. Regarding Google+ that element is still unclear.

Keep in mind any commentary or opinion on Google+ at this point is purely that a commentary or opinion. Google, for obvious reasons, is highly vested to flesh this out. They want to own Internet eyeballs for as long as possible on any given day or time.

Social is a key part of how we will use the web in the future and Google wants a part of that. Google moves extremely fast and in six month’s what Google+ is could be completely different than it is currently.

Week In Review: Tech.pinions on the Key News of the Week

This week news came out revealing a clearer picture of how Microsoft is profiting from Android. Many large handset manufacturers are not having to pay Microsoft technology licenses due to patents owned by Microsoft Android infringes upon. This is important because it is only the beginning of the types of fees makes of Android devices could pay to not only Microsoft but also potentially Oracle. We are watching this closely because if the technology license cost surrounding Android becomes to high, it will likely impact the decision to go with Android on new devices.

Why Microsoft’s Android Ransom Matters

Facebook also announced this week that they have added video chatting as a communication option within the Facebook platform. They announcement also detailed that Skype (now owned by Microsoft) was the underlying technology making video chat within Facebook possible. It will be interesting to see where Facebook takes this and if and how they deploy it to mobile devices, thus enabling video chatting on mobile devices through Facebook. On that point, given that Microsoft and Facebook are so close, I would not be surprised if we see this technology first available on Windows Phone.

Should the Facebook-Microsoft Alliance Worry Google?

Apple also announced this week that their app store has crossed the 15 billion download mark. They also announced that in total they have paid out $2.5 billion dollars to developers who have distributed apps through Apple iTunes App Store. The significance of the volume of apps downloaded and the monetary benefits to developers, demonstrate Apple’s lead in both categories.

Apple’s App Store Tops 15 Billion Downloads: Eat Your Heart Out Google!

Netflix also made a significant announcement this week. They announced they are bringing instant streaming to Latin America and that their plans for later this year to add 43 countries in Central and South America, and the Caribbean to its list of supported locales is still on track. Netflix’s global streaming strategy is the key to them becoming the largest global streaming video service.

Netflix bringing instant streaming to Latin America, global domination plan on track

Are Mobile Platforms Sticky

Asymco is a blog I frequent and enjoy. The blog’s author Horace Deidu recently wrote a very interesting article titled: The Android (in)adequacy: How to tell if a platform is good enough. In this article he highlighted some observations about a consumers tendency to switch mobile platforms.

This is a question I have been interesting in doing a deeper analysis of myself. I am interested in how sticky certain mobile platforms are over others. From a strategy and competitive advantage standpoint understanding the stickiness of a mobile platform is a key issue.

The premise of Horace’s article points out a theory on if a technology is good enough consumers are less likely to switch to something new. The example from the quote he used was of deodorant.

“Most people never change their deodorant,” I remember him saying. “They pick one brand when they are young, and stick with it for a long, long time. If it works, why switch?”

It was an interesting quote but i’m not sure the consumer packaged goods industry exactly parallels the personal technology industry.

Given how many people each quarter are switching from Windows to Mac’s there is something deeper happening in the personal technology sector.

The real question, that only watching the industry for the next two years will tell us, is how stickily mobile platforms truly are. This holiday quarter should be a indicator of how loyal consumers are to one platform vs. their interest in other platforms.

The mobile industry is unique and different than the PC sector because hardware churn is and will be higher. Consumer may hold on to their phones for two years at a maximum which means they are free to shop more frequently and evaluate all their choices more often than with other products.

My gut is that certain mobile platforms have an opportunity to be more sticky than others. This is certainly worth a deeper analysis but the news that Android sales are flattening is an indicator that not only was its explosive growth unsustainable but that as consumers shop for new devices this holiday they may truly evaluate each platform and figure out which is the best for them.

RIAA: One Bad Idea Deserves Another

You can always count on the folks at the Recording Industry Association of America to take a bad situation and make it worse.

For the past few weeks, the juvenile delinquents at LulzSec and Anonymous have been breaking into networks and web sites and bragging about their exploits to prove–we’ll it’s not clear just what they are trying to prove other than that they can do it. For the most part, the damage has not been terribly serious. It’s a bit like the heyday of graffiti, when the inability or unwillingness of authorities to stop spray-painting vandals created a pervasive sense of disorder in big cities.

Now the RIAA has come forward, arguing that the proper response to the outbreak of network vandalism is the passage of a truly bad law called the Protect IP Act. In a blog post, RIAA Executive Vice President Neil Turkewitz argues that the way to restore order is to give the government broad powers to block access to web sites that are accused of distributing pirated works. “And in a world where hackers set their sights on new targets every day – most recently the official United States Senate website, allegedly the CIA’s public website and Arizona’s law enforcement database – do we think a lawless Internet defended to the extreme is a good thing?,” he writes.

The real problem with the LulzSec and Anonymous is that they are making the FBI, Secret Service, and other agencies charged with enforcing order on the internet look silly. Back in the 1970s, law enforcement tended to ignore graffiti because officials felt they had more important things to worry about. This was a mistake because the garish spray painting told the public the police could not do their job. A crackdown on internet vandals is in order, but we shouldn’t use this as an excuse for another bad law to save an industry from a failed business model.

A Sure Sign of Real Trouble at RIM

The senior Research In Motion executive who chose to vent his (or her) frustration in a open letter to Boy Genius Report may not have chosen the most graceful way to make those views known. But the writer may well have exhausted other means of communications. Certainly, RIM’s response suggests strongly that the increasingly troubled company’s leadership still isn’t hearing what it needs to hear.

The fact is that the open letter was an accurate analysis of the challenges facing RIM and was full of generally very good advice. The response is dismissive and described RIM’s current situation as a time when it is “necessary for the company to streamline its operations in order to allow it to grow its business profitably while pursuing newer strategic opportunities” after “a period of hyper growth.”

Streamlining and, above all, focus is exactly what the letter writer argued for. Mike Lazaridis and Jim Balsillie should give it another read with more open minds.

The iPhone 4 Dominates Flickr – What This Says About The Future

News broke yesterday highlighting the fact that the iPhone 4 has become the most popular camera in the Flickr community. There are many ways to look at this information. We could point out that in April the iPhone 4 was slightly below the champ at the time in the Nikon D90 and simply two month’s later it is the current king. We could also look at how in another two month’s the iPhone 4 will have a commanding lead in terms of Flickr camera popularity.

I however am more interested about what this information tells us about the future. Continue reading The iPhone 4 Dominates Flickr – What This Says About The Future