Think Different

My favorite Apple marketing campaign by far was their “think different” campaign. I felt like that campaign profoundly spoke to me and I am a sucker for great marketing.

That slogan, I always believed, summed up Apple eloquently. Apple used the slogan powerfully by simply placing the phrase next to luminaries, visionaries and any other type of person who dared to think different. It was an amazing campaign.

Steve Jobs did not just create a culture of thinking differently; he also surrounded himself with people who also thought different, who saw the world with a different lens. The result is a passionate group of employees who believe they are working on some of the greatest products on the planet; that is why they make some of the greatest products on the planet.

Products created at Apple have the fingerprints of every single person who worked long hours to bring those products into reality. This is why, toward the end of many Steve Jobs speeches, he asked the audience to acknowledge the hard work of everyone who had a hand in Apple’s new creation. And it underscores that Apple is not just Steve Jobs. It is all of them devoted to Jobs’ vision of thinking different and working together to execute on that vision.

From what we have seen Steve Jobs do throughout his career it would be fair to assume that he has been playing on an entirely different level. He is the epitome of thinking different.

Regardless of whether Steve Jobs is at the helm of Apple as CEO or just its Chairman, I am in no way concerned about the future of Apple.

Steve Jobs hasn’t been deeply involved in Pixar for some time now and yet Pixar still is the leader in their feild.

He has done amazing things in and for this industry that employs many of us. I feel honored to have been in the industry, attending industry changing events, and some small part all of it. I look forward to being able to tell future generations that I saw Steve Jobs in action.

The right culture + the right people + the right vision + thinking different = Apple.

The NSA Wants Your Home Network To Be Safer

The National Security Agency is best known for its global communications snooping, but it is also responsible for helping to keep the nation’s computers safe from attack. Most of that effort is focused on government systems and large corporate networks, But the NSA has come out with a handy guide for improving the security of home (and small business) systems.

Most of the advice  in “Best Practices for Keeping Your Home Network Secure” will come as no surprise to anyone who has been paying attention, but it is still a useful checklist. And it generally is light on both jargon and scare-mongering. One weakness: Because the government avoids recommending commercial products, the advice to “Use a web browser with sandboxing capabilities” and “Update to a PDF reader with sandboxing capabilities” without offering some specific choices is likely to prove more confusing than helpful.

On the whole, though, the advice is sound and well-considered, with a good discussion of the pros and cons of choices, for example, “Disabling scripting can cause usability issues, but is an effective technique to reduce web bourne attacks.” I can’t explain that spelling of “bourne,” though. NSA’s close partnership with it’s UK counterpart, GCHQ, may be getting out of hand.

 

 

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.

How Will HP Hold webOS Talent

HP logoJoshua Topolsky at This IsMyNext has details on an all-hands meeting at which Stephen DeWitt, head of HP’s webOS business unit, declared that “we are not walking away from webOS” and promised an outline for the future within a couple of weeks.

In an earlier post, I outlined some of the difficulties that any webOS licensing strategy would face. By DeWitt inadvertently points out one I overlooked: How  on earth is HP going to hang on to any good talent in a market where Apple, Google, Microsoft, and a flock of handset makers are all competing fiercely? The webOS unit is a defunct operation within a division–HP’s Personal Systems Group–whose own future is highly uncertain. A first-rate engineer can sit around waiting to see how things turn out–or can have half a dozen job offers nearly immediately.

Richard Kerris, director of webOS developer relations, tried to put the best face on things in a tweet, but the effect and more sad than encouraging:

5 Reasons Why HP Would Spin Out the PC business

There are various reports out today that HP will announce at earnings that they will spin out their PSG unit or their PC business. If they do this it is for a couple of major strategic reasons.

1-Leo Apotheker, HP’s CEO, is a software guy.
He understands software and services and knows that this is the most profitable tech business on the planet. Software and services have margins of 50% to 80% on average. This is the direction he wants and needs to take the company and put all of its energy on this focus. IBM came to this conclusion in 2005 and sold off their PC business to Lenovo for the same reason. And now, if HP is to really compete against IBM, Dell, Oracle etc, in this business it needs to put all of its efforts in this space.

2-They needed to get PSG off of their books.
Although PSG is still profitable, its profits are very small compared to HP’s other businesses. If they kept PSG on the books, even if their other businesses were doing well, it would continue to impact their total earnings numbers and threaten their overall earnings growth. This would be an important strategic move to keep their operating margins up and make sure they are more profitable in the future.

3-PSG would now have its own P&L.
This would allow them freedom to create other types of PC products as well as be more aggressive with the WebOS licensing. And they would still be the key supplier to HP for PC’s in any HP IT bids. But they would be free to sell their PC’s to IBM and others who need PC’s for their own IT projects as well. The PC business is a low margin cutthroat business and if PSG is to stay viable, it needed to be free to sell even to HP competitors.

4-The PC market is going through a great transition now.
PC’s are still viable for use as productivity tools. And we think that we still will sell between 350 and 400 million PC’s a year for a while. But they are commodity products now. They are almost all the same. HP’s PSG may need a lot of partners and different products that would not be in HP’s overall corporate thinking and this gives them more flexibility if they are unshackled from PC’s

5-Tablets will continue to dominate as consumer consumption devices.
While PC’s can still be used for consumption, they are not ideal for a lot of media consumption, especially since people are increasingly mobile these days. At the moment, there is an iPad market and we are not sure when a tablet market that will pan out. HP is already struggling with their TouchPad and they may need to focus on their webOS software as a key market product and as an alternative to iOS and Android, especially in light of Google buying Motorola as the Android vendors may start looking for an alternative. On their own, they could be much more aggressive with webOS, even if it meant not being in the hardware business.

It will be interesting to see what the details of the spin-out will be if it is announced later today. But there are a lot of good reasons HP’s board might have decided to let it go off on its on.

Once the formal news is out and we have reflected on the details we will publish a more formal analysis including the details of the announcement.

Google+Moto: “Like a Python That Swallowed a Minivan”

Michael Mace, who knows more about mobile computing than just about anyone around, is deeply skeptical about Google’s purchase of Motorola Mobility. “Either Google’s worldview will dominate and ruin Motorola, or worse yet the Motorola worldview will infect Google,” he writes in an insightful post on his MobileOpportunity blog. “Google with Motorola inside it is like a python that swallowed a minivan.”

Mace, now CEO of Cera Technologies, knows whereof he speaks, having held executive posts at Apple, Palm, and Palm’s ill-fated OS licensing spin-off, PalmSource.

One big problem he sees is Google’s lack of experience in  hardware: “Speaking as someone who worked at PalmSource for its whole independent history, an OS company always believes that it could do a better job of making hardware than its licensees.  It’s incredibly frustrating to have a vision for what people should do with your software, and then see them screw it up over and over.  The temptation is to build some hardware yourself, just to show those idiots how to do it right. I think maybe Google just gave in to that temptation.”

The full post is well worth reading.

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

Also Read:

Google: Set Top Box King?

Celebrating the IBM PC’s 30th Birthday

I joined Creative Strategies the year that the IBM PC was introduced. In those days Business International owned Creative Strategies and IBM was one of their major clients. Business International is a WW global econometric consulting firm and IBM used them often to help them open new IBM offices around the world. And Creative Strategies was their technology-consulting arm so we were often drawn into these types of projects to help on technology related issues.

Image Credit: IBM

A side note to this is that the first time I had to visit the Business International Offices in NYC, not far from the UN, I met a black intern who was working there during the summer while he was in law school. I did not know it at the time, but the intern was Barack Obama who, as you know, has gone on to become the most powerful man in the world.

But I joined Creative Strategies at a most interesting and fortuitous time in my career as well as history. In those days, the world of computing was dominated by mainframes and mini-computers and at the time, that was the focus of Creative Strategies research and consulting. But with the introduction of the Apple II and release of the IBM PC in 1981, the company had decided to add PC’s to their research focus. And although I was working in the company’s marketing group at the time, with my background in semiconductors, I was asked to lead their first PC analysis group and in a sense and by default, became Creative Strategies first PC analyst.

And in a wonderful quirk of fate, my first outside project was with IBM’s PC group. Not long after the PC was launched IBM asked us to help them with their retail and consumer strategy. As a result, I got to work with Don Estridge’s team as they charted their future strategy for the IBM PC and got to see the evolution of the IBM PC from the inside.

Now, 30 years later, all of the people who were part of those early days of the PC and have watched the impact of the PC on business, education and consumers are marveling at the impact this product has had. It has changed the way we work, learn and play and has democratized information. And while we are entering the Post PC era, it is important to remember that the PC is not going away. It will continue to be an important tool in business and education and be at the heart of productivity based computing. In fact, we will continue to sell around 400 million PC’s a year for at least the next 5-7 years and while it may not be as sexy as tablets and smartphones, it will continue to be the workhorse for serious productivity.

For me, the PC has been at the center of my personal and business life for three decades now and I can’t imagine what life would be like without it. It has helped shape and define my career as well serve as an important tool for my own personal productivity, education and entertainment. And it has provided the livelihood and fortunes for millions of people who are involved with the PC industry and continues to be an important source for innovation in the Internet age.

There have been some wonderful retrospectives on the PC written by many colleagues and I list some of the one’s worth sharing below..

From Mashable- IBM PC History

From PC Magazine- a timeline- PC History Timeline

Tech icons reflect on the 30th anniversary of the PC

Ten Ways to Celebrate the IBM PC

IBM Marks PC’s Anniversary

Time for a Smartphone Patent Pool

Most of the creative energy in the smartphone industry seems to be going into lawsuits, with just about everyone claiming that everyone else is violating their patents. In addition to keeping a lot of lawyers in work, the disputes are having real world consequences, with, for example, Apple blocking the sale of Samsung Galaxy Tab 10.1 in the European Union. It’s time to stop the madness, but any solution is going to have to come from the industry itself, not from Congress or the courts.

A patent shingleIf you are seriously interested in the issue, however, stop right now and read “The patent system isn’t broken, we are,” Nilay Patel’s detailed and incisive analysis of the issues surrounding software patents. In addition to analyzing where we are and how we got here, Patel offers some helpful suggestions for reform.

The problem is that serious changes in the patent system require legislation, a tall order from a Congress that would probably have to break a filibuster to pass a Mother’s Day resolution. (a useful but relatively minor reform bill may pass this fall, but it does not address the fundamental issues.) Courts can impose some sanity, but they are slow moving and constrained by existing legislation.

It seems to me that the best way out of the smartphone mess would be for all the the folks now beating each other up in court and before the International Trade Commission to get together and form a patent pool. Everyone owning relevant patents contributes their intellectual property. Members and others wishing to use the patents pay a reasonable fee for a license and the proceeds are divided among the contributors.

This is hardly a novel idea. Philips and Sony, which each owned key technology behind the compact disk, set up a patent pool that helped launch the enormous success of the CD format. Six companies that owned key DVD technology (later joined by three others) created the DVD6C Licensing Group. The numerous patents behind MPEG video compression technology are pooled into MPEG LA, which licenses their use.

A pooling of smartphone patents would make life a lot simpler for everyone in the business. There are so many patents covering so many aspects of the hardware and software that it appears to be all but impossible to build a phone that doesn’t infringe on something. And right now, it looks like the big long-term winners will be the lawyers. In theory, the issues could be resolved by a series of pair-by-pair patent cross-licensing agreements, but a single patent pool seems simpler and more efficient.

Not that creating such a pool is going to be simple. First, any arrangement would probably need the blessing of U.S. and European antitrust regulators, who tend to see such cooperation as potential collusion. The other pools I referred to were easier because they were created at the onset, before an industry existed to be divvied up. A tremendously difficult issue would be determining how to share the license fees among the contributors, a problem that would probably call for a complex arbitration. The position of Google, a major smartphone player with a relatively puny patent portfolio is particularly difficult, although in fairness, Google also stands to be the big loser if the industry proceeds down its present litigious path.

A key step any patent pool would have to take to be successful is to indemnify its licensees against attacks by non-member patent holders. In effect, the pool would have to say: “A license from us gives you access to all the intellectual property needed to build a modern smartphone. If a third party claims otherwise, we will defend you.” This sort of insurance can be expensive, but certainly within the means of a pool that included Apple, Microsoft, HP, Samsung, and other giants.

One serious concern is that the existence of a pool could cripple innovation. If inventors have to share their creations with competitors. will they have any incentive to innovate? One solution would be to limit the pool to current patents–often the most troublesome because their existence and extent is unknown–and leave companies free to claim exclusive rights to future inventions.  That might set up more problems for the future, but could still deal with the difficulties of today.

Why Google Should Buy Motorola

Article Disclaimer: This is all theory and purely speculative. This is simply a thought exercise.

Motorola has been an interesting company to watch over the past 10 years. They have been a driving force in bringing the cellular industry into fruition and recently Motorola spun out their mobile business and created Motorola Mobility. I find an intruiguing scenario to play out to be one where Google buys Motorola Mobility.

One particular reason this is interetsing is because Motorola Mobility is deeply committed to Android. In fact as of now it appears that the company is solely basing its future on Android. Recent reports indicate an interest in Windows Phone 7 and possibly 8 by Motorola but it doesn’t appear actual product plans exist.

Motorola’s challenge is that they are attempting something that is becoming increasingly difficult in the industry today, namely to make money on hardware alone. To make matters even more challenging they have decided to bet their future on a company who is less interested in helping companies make money on hardware and more interested in free.

In fact I am convinced that Google and the Android team in particular would prefer that Android handsets cost less rather than more.

All of that leads to the first major reason I think Google would benefit greatly from buying Motorola Mobility.

Google Could Practically Give The Hardware Away
Google has already demonstrated an interesting model regarding Chrome that basically presents a hardware as a service model. In this model Google is offering Chrome OS hardware to the business and IT community for $28 a month and to educational institutions for $20 a month. There we have it, a hardware as a service model and Google is already going down this path.

So why not consider this same approach with Android handsets? This is not feasible currently because a company like Motorola needs to make money on the hardware since they don’t get to participate on the services financial upside like a carrier and Google. However if Google bought Motorola they could sell the hardware at a loss and make it up with their backend services.

A strategy very similar to what we think Amazon intends to do with their tablet.

Google needs as many Android devices on the market as possible. And yes they aren’t faring to poorly currently but if they subsidized the cost of the handset with their own longer term services revenue, which Google could do, I believe the market would accelerate even faster. Making the point again, Google cares about the services revenue not the hardware revenue. It behooves them to seed as much of the market with Android devices as possible.

Imagine if you could get one of the latest Android smart phones fully featured for less than $99. The price barrier to high end smart phones would be gone and Google would have even more demand for Android.

The second major reason is patents.

Google Needs Patents
Patent lawsuit frenzy is sweeping the technology industry. The media, analysts, pundits and more have now made it glaringly clear that Google is on the weaker end of the spectrum when it comes to patents.

It is for this reason they attempted to purchase the Nortel patents. Based on recent actions it can be concluded that Google knows they need to secure a more robust patent portfolio. More specifically they need a patent portfolio around mobile devices to help protect Android.

Motorola has an incredibly robust patent portfolio. In fact they have nearly three times as many patents as Nortel. Some have alluded that Motorola’s patent portfolio is possibly the strongest in the mobile field. It could be debated but its possible that Motorola has the best patent defense against Apple’s in this field.

One interesting point from Morgan Stanley analyst Ehud Gelblum who wrote in a research note last month:

“It is interesting to note that Motorola asserted 18 patents against Apple, and sued Apple first, whereas Apple has asserted just six patents against Motorola.”

Scott Moritz from the street remarks:

“Not only does Motorola have far more patents than its nearest competitors, it appears to have more of the key patents that may help the Android camp in a battle against Apple.”

The Big Picture
Although this is interesting to think about I doubt it will happen. A result of Google buying Motorola would be that their other partners like HTC, Samsung, LG and more would become competitors. I doubt Google’s partners would appreciate that and could potentially dump Android in the process. Also as far as I know Motorola Mobility is not for sale.

This patent issue however is a real one and one that if not dealt with tactfully by Google and the Android partners could prove fatal.

What’s more likely to happen, which The Street article points out, is that those in the Android camp band more closely together and leverage each others patent portfolios to protect Android.

Motorola however needs to continue to post solid financial results as they did for the most part last quarter. As I stated earlier making money on hardware alone is going to prove very difficult but Moto can and should continue to invest in innovations that differentiate their hardware allowing them a chance to profit from hardware. It would be wise of them to get more into the services game but not much is being shown there yet.

The iPad Does What No Other Tablet Does

There actually may be a number of things that can be pointed out that truly differentiate the iPad. I however would like to focus on just one – battery life.

For the past week I have been camping in Lake Tahoe for vacation. All though i’m on vacation and not “working” I still like to check in from time to time as well as post new things on our site.

I brought a slew of electronics on this trip knowing that I would need multiple ways to get online and have very limited options and time to charge my gear.

So here it is Thursday and the only thing with juice left is my iPad. My Macbook Air, several other Android tablets, my iPhone, and several of the latest Android phones all dead. The only thing left standing is the iPad.

20110804-085913.jpg

There are many reasons why this is the case but the biggest reason I believe this is possible is because Apple made the hardware (including designing the processor) and the software. When you can “tune” all the elements of your hardware and software together you can accomplish optimal efficiency in the areas you purpose to. One of the many areas Apple had accomplished and continues to strive for in all their products is battery life.

This is not always easy and some devices like phones simply can’t have as large of batteries as others like computers and tablets. But it is still a goal.

It is of course the goal of the industry as well. I don’t believe companies launch products with poor battery life as a goal. Only there are so many factors for other vendors who don’t control the critical parts of the supply chain like software and hardware, so it becomes a greater challenge.

Battery life is still perhaps in my mind one of the biggest things the industry still needs to progress with. Several years ago I would have never thought that I would have a device that I could use to do work and a slew of other tasks with that would last well over a week on single charge. I’m blown away the iPad is still going.

It is Thursday and i’ve been using the iPad normally since Saturday and it sill has 34% battery life left. In fact i’ve been using the iPad more than any other piece of electronics I brought since Saturday and they all still died.

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.

Consolidating Federal Data Centers Won’t Be Easy

Map of planned data center closings
Planned data center closings (from CIO.gov)

Derrick Harris at GigaOm offers an enlightening look at why the Office of Management & Budget’s plan to close 800 of the federal government’s 2,094 data centers (map) isn’t likely to happen. The problem: Federal agencies run tons of legacy apps that are going to resist the push for consolidation and virtualization.

Federal IT is a mess. Much of the software ranges from old to ancient. On workstations, Windows XP and Office 2003 is often still the rule. May agencies run multiple, tiny data centers.

The budget situation is not making things any easier. Data center consolidation, done right, could save a lot of money in the long run. But it will cost up front and the squeeze on agency funding makes that sort of investment difficult.

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.

Apple and its Non-Acquisitions

Over at Technologizer, Harry McCracken has an excellent rundown on the long history of rumored acquisitions by Apple that never came to pass. Some of these hypothetical deals made at least superficial sense, most didn’t.

Here’s one test to apply to any talk of an Apple deal: Margin dilution. When financial analysts talk of dilution, they are referring to how the costs of an acquisition will reduce the equity of existing shareholders. Apple’s enormous market cap means that is rarely going to be a huge problem, but a company like Apple is going to be very wary of any acquisition that would seriously erode its very healthy profit margins.

That’s one overwhelming reason why Apple would be very unlikely to give more than about 10 second’s’ consideration to the rumored purchase of  Barnes & Noble. On the roughest sort of pro forma calculation, an Apple-Barnes & Noble merger would have reduced Apple’s profit margin in the most recent fiscal year from 23.5% to 21.9%. At most companies, a point and a half of margin is something to kill for. Since B&N offers no technology that Apple wants (strategic investments can be viewed through a different lens than purely financial ones) and  would saddle Apple with a great deal of real estate that it has no use for, the deal makes no sense on any level.

Can a New Approach to Wireless Beat Shannon’s Law?

For the past 60 years, electrical engineers have understood the hard limits that physics imposes on the data capacity of any channel. The law, formulated by Claude Shannon of Bell Telephone Labs, says that the data capacity, in bits per second, is a function of the bandwidth, the signal strength, and the noise in the channel.

Shannon's law formula
Shannon's Law (Wikipedia)

No one has yet found a way to break Shannon’s law, but Rearden Companies, the brainchild of Steve Perlman, who is behind the bandwidth-bending OnLive online games service, claims to have found a way to cheat significantly. A paper by Perlman and Rearden Principal Scientist Antonio Forenza, describes a technology called Distributed-Input-Distributed-Output (DIDO).

Normally, when a wireless channel, such as a connection to a Wi-Fi access point, is shared by two or more users, each user can only get a fraction of the channel’s capacity. But DIDO allows each user to communicate, in theory, up to the full Shannon limit of the channel.

The explanation for just how this works is complicated, but the technology uses array of antennas to create a non-interfering path between an access point and a user. Shannon’s law applies not to a particular piece of bandwidth but to each channel. Traditionally, we have thought of the two as the same, but DIDO spearates the concept and allows the link between the access point and each user to function as an independent channel within the dame physical bandwidth.

Normally, I am deeply skeptical about claims of fundamental scientific breakthroughs. My skepticism is mitigated by what Perlman has already accomplished with OnLive, which moves gaming data across internet connections with an efficiency that no one thought possible. Clearly, this guy knows how to move bits.

Don’t expect to see DIDO deployed anytime in the very near future. It requires significant changes to network design.. including interposing a DIDO data center between an internet source and an access point to encode data as well as sophisticated new antennas.  But it does hold real promise to to reduce the growing crunch on our wireless airspace.

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.

Why Apple Can’t Chase the Low End

In a post here earlier today, Ban Bajarin dismissed the frequent criticism of Apple for failing to serve the low end of the computer market. Ben focused on consumers’ willingness to perceive, and pay for, value in Apple’s relatively expensive products.

But in wondering why otherwise knowledgable people keep hammering Apple on this point, it’s worth considering just how the company’s business model is working. Everyone else in the PC business depends on selling enormous volumes of product at razor-thin margins. This has steadily driven the average selling price of PCs downward, though NPD data show that the average retail ASP in the U.S. has stabilized a bit at around $600. Apple has exactly one product close to that price point, the $599 bottom-of-the-line Mac mini. In a world of $500 to $700 notebooks, the entry point for a Mac is $999 and goes up quickly from there.

And what has the refusal to chase the mass market done to Apple? It absolutely owns the market for computers selling for more than $1,000. As a result, with about 10% of the U.S. market and less worldwide, it is grabbing the lion’s share of industry profits. Apple’s operating margin from all products in the most recent quarter was 32.8% compared to 5.7% for Hewlett-Packard’s Personal Systems Group. HP, with total revenues of $127 billion a year, has a market capitalization of $76 billion. Apple, with just over $100 billion in revenue, is valued by the market at $362 billion.

With numbers like that, it’s just silly to argue that Apple should be chasing the profitless low end of the market (or, for that matter, offering low-cost, lower-margin versions of the iPhone and iPad.) The history of the tech business is full of companies that won large market share by cutting margins to the bone, or sometimes further. Apple is in the sweetest of all possible spots, and it would be lunacy to change the business plan.

 

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”

  1. Apple sold 9.3 million iPads in the second quarter of this year, giving it a commanding 61% share of the market
  2. Android captured [a] 30% share of global tablet shipments in Q2 2011
  3. 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.
  4. Microsoft managed to capture a 4.6% of the tablet market
  5. 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.

Apple Doesn’t Want To Sell Corollas

On Wednesday Apple announced that they were dropping the Macbook from their PC lineup and making the MacBook Air the new entry level Mac. To most this move made sense and personally I feel that now entry level Mac customers are getting a premium experience at an entry level price. I did however notice some in the analyst and media community who complained that the price was still too high and that Apple was pricing themselves out of the low end of the market.

This is a point that I just don’t understand. Apple has never tried to compete in the low end of the PC space so why would they start now? There is a market for the bottom end of the PC segment with products priced between $399 and $599 but Apple wants nothing to do with it and in my opinion they have no reason to.

Our research with consumers in the PC buying process indicate that a healthy percentage are looking for the value + quality segment and have a target price point of $799 to $999. These consumers are associating price with value and quality and the result is that they are willing to pay more. Although some specs of the MacBook Air go above $999 for the 11″ and 13″ consumer studies are continuing to show a high consideration for Macs. This is obviously why Apple continues to see Mac sales draw nearly half of purchasers being new to the Mac platform.

Apple is clearly in the value + quality segment of the market and they are perfectly happy there, as we see from their latest earnings. Those who claim Apple’s Mac products still need to get cheaper don’t realize that Apple doesn’t want to sell Corollas they have no intention to compete with those on the bottom of the market.

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?