Windows RT Grows More Mysterious as Launch Nears

Microsoft Surface
Microsoft’s Surface Windows RT Tablet

I expected we would be seeing more clarity on the distinctions between Windows 8 and its Windows RT sibling (for ARM processor devices) as the expected late October launch grows closer. But the picture seems to be growing murkier instead.

I didn’t make it to the IFA show in Berlin where many Windows 8 and RT devices had their unveiling but read dozens of reports. I was particularly struck by this hands-on video from The Verge’s Tom Warren. When Microsoft first announced what was then called Windows on ARM in February, it said Windows RT would have very limited access to the traditional Windows Desktop:

WOA includes desktop versions of the new Microsoft Word, Excel, PowerPoint, and OneNote. These new Office applications, codenamed “Office 15”, have been significantly architected for both touch and minimized power/resource consumption, while also being fully-featured for consumers and providing complete document compatibility. WOA supports the Windows desktop experience including File Explorer, Internet Explorer 10 for the desktop, and most other intrinsic Windows desktop features—which have been significantly architected for both touch and minimized power/resource consumption.

It seems that the definition of “intrinsic Windows desktop features” is somewhat broader than most of us had expected. For example, Warren found versions of Notepad and Paint included.  Maybe RT will support all of the applications and utilities traditionally found in the \windows\system32 directory. (It would certainly be the most robust utility tool kit on an ARM tablet.)

Isn’t all this extra stuff a good thing? Not really. For one thing, these apps are not optimized for touch and Warren’s video shows how awkward they are when the on-screen keyboard is covering half the display. (This was a chronic problem on Windows Tablet PCs going back a decade. The keyboard was never smart enough to stay out of the way of the programs it was interacting with.)

The bigger problem is that this is going to be very confusing for consumers. If Windows 8 and Windows RT look alike and to a considerable extent act alike, how are consumers going to understand the difference? But the differences are large and important. Whatever classic desktop applications come on the RT versions, those are all you are going to get. Windows RT only allows installing of software downloaded through the Windows App Store. There will inevitably be a jailbreak that allows sideloading of apps, but even if you could load them, they won’t run: Code compiled for an x86 processor simply will not execute on an ARM system.

Microsoft’s Windows 8 strategy was always courting massive consumer confusion and the prospects  are getting worse. Manufacturers are showing keyboard-equipped Windows RT devices that pretty much look like notebooks, At a minimum, Microsoft faces a large-scale consumer education problem.

Not All Consumers Are Created Equal

The series John Kirk has been tackling this week as inspired me to add some needed perspective to the platform debate.

Fanatics of products or brands, for example, consistently assume that what they love or feel is superior should be true of everyone. There is a psychological element to all of this where too often people believe that what is true or good for them is true or good for everyone. Yet nothing can be farther from the truth.

When you study the history of nearly every product in consumer markets you see quite a bit of diversity. This is because not all consumers are created equal. The needs, wants, and desires of individuals can differ slightly and also drastically.

There is not a one size fits all model in consumer markets.

The markets for mobile phones, tablets, traditional PCs, etc, is segmenting and opening the door for many possibilities. To see this point all one needs to do is look at the vast variety in design around Windows 8 hardware we are seeing and will see over the next year.

The key to success for all consumer product companies who want to operate within the dynamics of this market is to understand your customer and seek to develop products that meet the needs of that customer. In this scenario you must understand that what you are creating will not appeal to everyone and this is perfectly OK.

We should encourage diversity rather than hope that one product or platform rules the industry. If we did this market would be very boring.

To quote Buddy / Syndrome from the Disney / Pixar’s The Incredibles.

“and when everyone is super, no one will be.”

Let’s hope we are not headed for a technological landscape of the sea of sameness.

Android v. iOS Part 5: Android Is A Two-Legged Stool

RECAP

This week we’ve been looking at the Android and iOS mobile operating systems. In part 1, we looked at how Android was dominating market share. In part 2, we looked at how iOS was dominating profit share. In part 3, we tried to reconcile that seeming paradox. Turns out that, with regard to platform, developer share – not market share – is what gives the platform its value and developer share is what makes a platform strong. In part 4, we showed that iOS was, by far, the stronger of the two platforms. Today we look at why iOS has an inherent advantage in platform, why Android has an inherent disadvantage in platform, and what that means for the futures of these two great mobile operating systems.

A PLATFORM IS MUCH MORE THAN JUST HARDWARE AND AN OPERATING SYSTEM

A computing platform is made up of (at least) three parts: hardware, operating system and an application ecosystem. An application ecosystem is also make up of three parts: well-paid developers, a high volume of quality applications (apps) and lots of happy customers buying those apps.

Android boasts some of the finest hardware in the world. And their operating system is arguably second to none. The Google team is world class. Their operating system is chock full of features and it iterates at an incredible pace.

But when it comes to application ecosystem, iOS rules and it isn’t even close. While Apple’s iOS leads the world in profits, apps, well-paid developers, paying customers, customer satisfaction and retention, Android leads the world in:

— Malware (Source)
— Piracy (Source)
— Cloning (Source)
— Confusing buying options (Source)
— Belated operating system updates (Source)
— Hardware fragmentation (Source)
— Underpaid developers (Source) and dwindling developer interest; (Source) and
— Customers who won’t pay for Apps (Source)

WHEN IT COMES TO PLATFORM, iOS HAS AN INHERENT ADVANTAGE

As Tim Bajarin previously wrote for Tech.pinion in “How Apple is Cornering the Market in Mobile Devices“:

“While all of (Apple’s competitors) think that they can compete with Apple when it comes to hardware, and maybe even software, what they all pretty much know is that the secret to Apple success is that they have built their hardware and software around an integrated ecosystem based on a very powerful platform. And it is here where their confidence level lags and the “iPodding” fears raise its head. And to be honest, this should really concern them.”

“Apple is in a most unique position in which they own the hardware, software and services and have built all of these around their eco-system platform. That means that when Apple engineers start designing a product, the center of its design is the platform . For most of Apple competitors, it is the reverse; the center of their design is the device itself, and then they look for apps and services that work with their device in hopes that this combination will attract new customers. In the end, this is Apple major advantage over their competitors and they can ride this platform in all kinds of directions.”

WHEN IT COMES TO PLATFORM, ANDROID HAS AN INHERENT DISADVANTAGE

Android is based on an “open” philosophy. In software and web-based architectures, an open platform:

“describes a software system which is based on open standards, such as published and fully documented external programming interfaces that allow using the software to function in other ways than the original programmer intended…” – Wikipedia

Open has many advantages – but it has many inherent disadvantages too. The very same open policies that make Android’s sales stronger are the very same open policies that make Android’s platform weaker.

An open policy towards carriers encourages rapid dissemination of devices but it also permits the carriers to take unwanted liberties with Android’s core services and allows them to shirk their responsibilities with regard to operating system updates. An open policy towards manufacturers allows for rapid hardware iteration but it also creates rapid hardware fragmentation. An open policy towards the sales of applications leads to a wide variety of apps but it also leads to a wide variety of piracy, cloning and malware too. An open policy towards the operating system allows for rapid feature iteration but it also allows competitors to split off a confusing variety of competing operating systems and App Stores too.

Open is not bad or good, it’s a tradeoff. But what open giveth Android in sales, it taketh away in application ecosystem. The very same things that makes Android sales strong are the very same things that makes Android’s platform weak. It’s inherent and intractable. The only way to make Android’s platform stronger is to make it less open. And the less open Android becomes, the fewer advantages in sales it has.

THE ANDROID PLATFORM RESTS UPON A TWO-LEGGED STOOL

A stool needs at least three legs to support it. A platform needs at least three legs to support it too. The first leg is hardware. The second leg is operating system. The third leg is application ecosystem. For the sake of argument, let’s assume that the Android hardware and the Android operating system are equivalent or superior to iOS.

Android’s third leg – its application ecosystem – is weak. Terribly weak. And just as two legs are insufficient to support a stool, the two legs of hardware and operating system – no matter how strong – are insufficient to support a computing platform.

The Android and iOS wars are not what they’ve been made out to be. The combination of great hardware, great operating system and an open architecture has made Android THE premiere smartphone of our times. The sales numbers prove it.

But the story doesn’t end there. The combination of great hardware, great operating system and a great application ecosystem makes iOS THE premier smartphone platform of our times. The profit numbers prove it.

Android aspires to be a great device. iOS aspires to be a great platform. Both have achieved their objectives – which will lead them down radically different paths with radically different futures.

Coming Next Week: Android v. iOS Part 6: The Future

Android v. iOS Part 1: Market Share
Android v. iOS Part 2: Profits
Android v. iOS Part 3: Network Effect
Android v. iOS Part 4: Developers

A Cautionary Tale About Market Share

TI Travelmate ad
via spaziodigitale.net

My colleague John Kirk’s series of posts about Android, iPhone, and the importance–or lack thereof–of market share brought back memories of some fights over share in the PC business. The moral  of all the stories is that companies that went after share at the expense of profit were either forced to reverse course quickly or get out of the business.

My favorite example was Texas Instruments, which decided to make a big splash in the laptop business in the mid-1990s. TI was making a nice line of TravelMate laptops (if the name sounds familiar, it’s because it lives on as an Acer sub-brand) but was lost in what was then a crowd of PC makers. It decided to cut prices sharply. This set off a 1996 price war in the industry, but had the desired effect of greatly boosting TI’s market share. It rocketed out of the pack to, I believe, a #3 rank in the market. Unfortunately, it lost TI a couple of billion dollars in the process and within less than a year, the company sold its PC assets to up-and-coming Acer and exited the business.

This was an extreme case, but HP, Dell, and Acer have all played the market share game. Each achieved dominance at the expense of profits. And none has fully recovered from the experience.

And that is why I believe apple’s profits-first strategy is a much better forumla for long-term success

.

Android v. iOS Part 4: Developers

RECAP

We’ve learned that Android dominates market share, but that it doesn’t seem to matter much. iOS has most of the profit share. And it turns out that developer share, not market share, is what makes a platform strong.

DEVELOPERS DEVELOP FOR IOS FIRST AND ANDROID SECOND, IF EVER

— Developers develop for iOS first. (Source and Source)

— There are seven iOS apps for every three Android apps. (Source)

— AppStoreHQ estimates there are over 43 thousand Apple iOS developers and 10 thousand Android developers. (Source)

— iOS has far greater developer mindshare: 89 per cent iPhone, iPad at 88 per cent, Android phones 78.6 per cent, Android tablets 65.9 per cent (Appcelerator). (Source)

— Android developer interest may be dwindling rather than growing. (Source)

ATTRACTING DEVELOPERS

Why does the iOS platform attract more developers than the Android platform? After looking at all of the evidence (below), the better question might be: “Why do developers develop for Android at all?” Android may have most of the market share, but that market share hasn’t translated into dollars for developers. The iOS platform is so far superior to the Android platform that it isn’t even close.

I can’t say it plainer than this. The reason Android’s massive market share numbers have not translated into mobile operating system domination is because Android is a terribly weak platform.

IOS DEVELOPERS GET PAID MORE. ANDROID DEVELOPERS GET PAID LESS

— 5.5 billion paid to iOS developers. (Source: Apple Q2 2012 earnings call.) Android? Not even a quarter as much. (Source)

— Asymco estimates that Android developers made $210M in all of 2011, compared to the $700M pocketed by Apple iOS developers in the Q4 2011. (Source)

— “Distimo, a mobile consulting firm, estimates that the Apple App store generates $5.4M/day for the 200 top-grossing apps while Google generates just $679K for their top-200 grossing apps. That is almost a 8:1 revenue ratio.” (Source)

— iOS overall developer revenue is six times greater than Android developer revenue (Distimo) (Source)

— More of Apple’s apps generate revenue, while most of Google apps are free: 67% of apps on Apple are paid for versus 34% on Google. (Source)

— For the very same app, Flurry Analytics estimates that a developer will earn $1.00 on the Apple iOS version compared to $0.24 for the Google Android version. (Source)

IOS CUSTOMERS BUY MORE AND PAY MORE. ANDROID CUSTOMERS PAY FOR LITTLE AND ARE WORTH LITTLE IN ADVERTISING REVENUE

— iOS has 30 billion downloads. (Source)

— iOS users vastly outspend Android users on apps, respond much better to adds. (Source)

— The Apple user demographic is more affluent, an earlier adopter and more loyal than other brands. (Source)

MOUNTAINS OF MISCELLANEOUS EVIDENCE

— iOS App retention crushing Android. (Source)

— iOS dominates mobile ad impressions. (Source)

— Apple iPhone gamers spend five times more than Android gamers. (Source) 84 per cent of mobile gaming revenue captured by iOS (NewZoo) (Source)

— Apple’s iOS takes 65% mobile browser share, Android at 20%. (Source)

— 90 per cent of e-commerce revenue comes from iOS devices (Rich Relevance). (Source)

— Android in enterprises ‘severely limited’ by weak management support from Google. (Source)

— iOS has six of top 10 enterprise mobile devices (Source)

— Android is failing to get into businesses as iPhone and iPad do. (Source)

— Apple nabs 70 percent of global tablet market. Android? Not so much. (Source)

— Apple iPad Accounts for 94.64% of all Tablet Web Traffic. (Source)

— 97.3 per cent of business tablet activations are iPad (Good Technologies) (Source)

SUMMING UP

Wow, ‘Nuff said? Apple has a strong platform. Android has a weak platform. And I haven’t even touched on the inherent weaknesses in Android’s platform yet. It’s not even debatable (although I’m sure that I’ll get some debates on it anyhow.)

Tomorrow we look at whether Android can fix its platform or whether its problems are inherent and intractable.

Coming Tomorrow: Android v. iOS Part 5: Android Is A Two-Legged Stool

Android v. iOS Part 1: Market Share
Android v. iOS Part 2: Profits
Android v. iOS Part 3: Network Effect

Pinch-to-Zoom and Rounded Rectangles: What the Jury Didn’t Say [Updated]

As the Apple v. Samsung trial neared completion last week, I worried about how a jury of nine ordinary folks were going to make sense of hours of highly technical testimony, more than a hundred pages of jury instructions, and a 20 page verdict form. I needn’t have worried. Whatever happens on appeal, I think the jury did an admirable job making sense of the case they were given. They certainly did better than much of the tech media, which have made a complete mess of the verdict.

Pinch and stretch drawing
Drawing: Microsoft Developer Network

For example, this by Craig Timberg and Haley Tsukayama in the August 29 Washington Post: “Friday’s $1 billion court ruling for Apple, which upheld patents for what manufacturers call ‘pinch to zoom,’ among other popular features, has clouded the future of the gesture for anyone inclined to buy mobile devices from other companies. Apple made clear its determination to press its advantage Monday, announcing plans to seek preliminary injunctions on eight phones made by Samsung, the loser in the case.”

There’s one serious problem with the first sentence, which was repeated dozens of times in stories in print and on the Web. Apple only has a limited patent (US 7,812,826) on the pinch to shrink, stretch to zoom gesture that is a core element of touch interfaces. And the ‘826 patent wasn’t in dispute in the Samsung case because Apple never asserted it. In fact, this particular patent does not seem to be in dispute in any litigation.

I wanted to make sure I wasn’t imagining this, so I checked with The Verge’s Nilay Patel, an intellectual property lawyer by training and a consistent source of solid reporting on patents and other IP issues:

Tweets

The actual issues in the Samsung case involved several  patents covering the overall design and “trade dress” of the iPhone and iPad and three Apple “utility” patents that cover specific software behaviors. One covers the bounceback behavior of screen objects when you try to scroll beyond the edge of the display. A second concerns how the device differentiates between a one-finger scroll gesture and a two-finger move gesture. The third covers tap-to-zoom, which expands objects in the display centered on the point of the tap (think Maps).

Equally strange was the treatment of the notorious “rounded rectangles” argument. Michael Hiltzik wrote for The Los Angeles Times: “The illogic of the patent system is what generates nonsensical verdicts like last week’s jury award. Apple’s allegation that Samsung copied the iPhone with its phones is virtually identical to its allegation that Samsung copied the iPad with its Galaxy tablet computer. In its briefs, Apple describes both of its devices as ‘a rectangular product with four evenly rounded corners, a flat clear face covering the front of the product, a large display screen under the clear surface … and a matrix of colorful square icons with evenly rounded corners,’ etc., and alleges that Samsung copied these ‘distinctive’ features.”

Samsung contributed greatly to this with a post-trial statement that said: ““It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.” It’s more unfortunate that the claim was a gross exaggeration that was swallowed whole by many writers.

Apple claimed that Samsung infringed on four design patents. The D’677 patent covers the overall design of the iPhone while D’305 covers the layout of icons. These claims were upheld. But the jury rejected infringement claims based on patent D’889, which covers the iPad, and rejected eight of 13 claims under D’087 and which deals specifically with the rectangles-with-rounded-corners design of the iPhone (see the relevant sections of the jury verdict form below.) Corrected–see note at end.

Apple verdict '087

Apple verdict '889

 

 

How did so many get this so wrong? I fear it betrays something ugly about the way tech reporting works–and doesn’t work–these days. Depth, expertise, and reflection are all lacking. So is serious research. If you are going to write about a patent case, it’s a good idea to read the patents in dispute. Reading patents is not a particularly pleasant business. The language is tedious, legalistic, and often deliberately obfuscatory; you want to give the Patent Office the required information while giving away as little as possible to your competitors. But reading the claims, the critical section of the patent, isn’t all that difficult. There are a total of  101 claims for the three patents and they fill about five printed pages. Yet I suspect very few of the people who wrote about the trial actually made the effort. If they had, they would have known that the range of gestures covered was much narrower than has generally been reported.

I’m not sure where the idea that pinch and stretch was at stake originated. It seems to have crept  into the trial coverage at some point and become part of the folklore of the case. And when the jury announced that it had found infringement by Samsung on all three utility patents, a large number of writers seemingly assumed that one of those covered the gesture. In the case of rounded rectangles, Samsung’s obfuscation certainly contributed. So did a general hostility toward the entire patent system in the tech community, including tech writers, which created a readiness to believe in the most absurd interpretation of the outcome.

I’m not minimizing the significance of Apple’s victory in the case (and again, we’ll have to wait for appeals, likely several years’ worth considering the languid pace of the Circuit Court of Appeals for the Federal Circuit, before the matter is settled once and for all.) But while the multitouch gestures covered by the Apple patents are important, there is nothing as critical as pinch-to-zoom and nothing that would prevent an innovative designer from coming up with non-infringing alternatives.

 Note: The original version of this post said the jury had rejected all claims regarding the rounded-corner design. The jury in fact rejected all claims only regarding willful infringement. On the simple question of infringement, the jury rejected a majority of claims, but did accept five regarding the iPhone. The corrected version appears above.

Android v. iOS Part 3: Network Effect

RECAP

We’ve looked at Android and iOS market share and profit share. Android is winning in market share and iOS is winning in profit share. In any other industry, the analysis would probably be over at this point. Profit is literally the bottom line in business and iOS has it in spades.

FIXATED ON MARKET SHARE

However, everyone in mobile is fixated on market share rather than on profit share. This is because mobile operating systems are software platforms and the lesson we learned from Microsoft Windows in the eighties and nineties was that the platform with the largest market share won. Period. This was due to the Network effect.

NETWORK EFFECT

The Network Effect is when “the value of a product or service is dependent on the number of others using it.”-Wikipedia.

The classic example is the telephone. In the early 1900’s, there were over 40 separate phone providers in the United States. This kind of fracturing of the service was inefficient in the extreme. If you joined network “A”, you could only speak to others who had also joined network “A”. You could not speak to anyone who had joined networks “B” through “Z”. It was only when Bell began to consolidate the phone services that the benefits of the Network Effect truly kicked in. The more subscribers Bell had, the more value – and the more lock-in – they obtained.

THE PC PLATFORM WARS

This is exactly what happened in the PC wars too. There were many competing platforms. Microsoft licensed so many copies of its Windows operating system to its hardware partners that they overwhelmed the competition. The more copies of Microsoft Windows they sold, the more valuable Windows compatible hardware and Windows compatible software became. The Network Effect that had propelled Bell to dominate phones, propelled Microsoft to dominate personal computers.

THE MOBILE PLATFORM WARS

The Network Effect dictates that market share matters and that it matters a lot. If Android has almost all of the market share, even if it makes little or no money, at some point Android’s Network Effect will kick in making iOS irrelevant just as Windows made the Mac irrelevant in the nineties. Then all those lovely Apple profits will disappear or, at least, they will shrink appreciably.

At least that’s the way it was supposed to work.

IF ANDROID HAS ALL OF THE MARKET SHARE, THEN WHY DOES iOS HAVE ALL OF THE BENEFITS FROM THE NETWORK EFFECT?

In addition to garnering most of the profits:

— iOS developers are much better paid. (Source)

— iOS developers develop for iOS first and Android second, if at all. (Source)

— iOS Customers buy more iOS Apps and pay more for them. (Source)

If Android has all the market share and market share triggers the Network Effect and the Network Effect guarantees platform victory, then how can this be?

ONE OF THESE IS NOT LIKE THE OTHER

The value in the phone network is the end user. The more customers there were – the more people you could call – the more powerful the Network Effect and the more valuable the platform.

The value in a software platform is the software, not the end user. The more developers there are, the more applications you can buy and the more powerful the Network Effect and the more valuable the platform.

The customer is everything to a phone network. The developer is everything to a software platform. The only value a customer brings to a computing network is the number of dollars they transfer to developers in exchange for the Apps, content or advertising they consume.

THIS EXPLAINS EVERYTHING

Now the Gordian knot is cut and the paradox unraveled. While we’ve been manically and obsessively focused on customer market share, we should have been focusing on developer market share. It is developers, not customers that bring value to the platform and trigger the Network Effect.

Apple knows this. Microsoft knew this. Google? Maybe not so much.

End users buy the platform that has the most software because it provides the most value. It’s the software that initiates the Network Effect and creates the famous virtuous cycle.

We think that developers chase customers, but they do not – they chase customer dollars. A customer who does not pay for Apps, content or advertising has no value to a platform. They are an empty cipher.

Coming Tomorrow: Android v. iOS Part 4: Platform

Android v. iOS Part 1: Market Share
Android v. iOS Part 2: Profits

What if Samsung Was a Band?

I’ve been reading a lot of articles the last few days all on the degree in which Apple’s success in a US court over Samsung is good or bad for the industry. In the midst of all of what I am reading I feel a significant point is being missed. There is already an industry that forces and rewards originality. The music industry.

If we were to put our thinking caps on and objectively look at the situation I would think that IP law, specifically around this case, is similar to copyright law.

If we started a band today and recorded a song using some degree of lyrics, beats, rhythm, etc., from the current number one hit on the radio we would be sued out of existence. We could of course cover the song or use parts of the copyrighted content but we would have to pay the original author.

The music industry forces original work and in fact rewards originality. This is not to say that artists can not be influenced by another band, artist, song writer, etc., but they must create their own original work.

This forcing of originality in the creative arts is what makes it exciting. Not everyone succeeds but if it was all the same it would be extremely boring. It is the emphasis on originality that makes the music industry diverse and exciting.

I’m sure there are flaws in this analogy, as there are in nearly every analogy, but the point remains that Copyright law exists to promote originality. We should look at IP and Patent law the same way.

Patents: Who Has a Portfolio With Clout

Apple patent drawingOne thing that put Samsung at a serious disadvantage in its patent fight with Apple was the weakness of its own portfolio of relevant patents. Conflicts between companies with roughly comparable portfolios almost always end in a cross-licensing agreement. A fight to the death only makes sense when one company thinks it has a clear advantage.

A look at Apple’s scroll-and-zoom patent (US 7,844,915), one of the software patents Samsung was found to have infringed, sheds some light on who had clout and who didn’t around the time the patent was filed in early 2007 (it was granted in 2010.) A total of 50 other patents are cited in the application.

Seventeen of these are apparently the work of individual inventors or researchers; they are not assigned to any corporation. Five others are Apple’s own, one going back to 1993. Microsoft accounted for the largest number, 10, including some patents clearly related to the Microsoft Research project that produced the Surface touch table. IBM came in with three and Philips two. The application cited single patents from Autodesk, Cygnus Systems, Design Intelligence, Elan Microelectronics, Ericsson, Hewlett-Packard, Laszlo Systems, Magnifi Group, Nokia, Picsel, Sony, Synaptics, and Tatung.

Who is missing from this list? Samsung, of course. And, Google, including its new Motorola subsidiary. Being there matters.

Android v. iOS Part 2: Profits

RECAP

Yesterday we looked at Android and iOS mobile operating system market share. Today we look at mobile operating system profit and profit share.

ANDROID HAS WON THE MARKET SHARE BATTLE BUT…

On the strength of market share alone, TechCrunch has (and many others have) declared Android the inevitable victor of the mobile operating system wars.

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

However, a funny thing happened on the way to the Android victory parade — they forgot to bring along the industry’s profits.

…IOS HAS WON THE PROFIT WAR

“However beautiful the strategy, you should occasionally look at the results.” – Winston Churchill

— Apple made 77% of the entire mobile industry’s profits in the second quarter of 2012. (Source) The Android operating system may be outselling the iPhone 4 to 1, but Apple’s iOS operating system is out profiting not just Android but the entire mobile industry 3 to 1.

— iOS second quarter 2012 revenue was approximately $28 billion.

— iPhone revenue in it’s five years of existence is over $150 billion. (Source)

— iPhone, by itself, is worth more than all of Microsoft. (Source)

— Apple’s stock has soared in comparison with Google’s stock since the launch of the iPhone. (Source) In fact, Apple is now worth one Exxon more than Google. (Source)

— Not only has iOS made Apple the most valuable publicly traded company in the world, (Source) but if the iPhone were split off as its own company, it is probable that it would be, all by itself, the most profitable public company in the world. (Source)

SOME QUESTIONS

— If Android has won, then why does Apple have all of the profits?

— If Android has won, then what exactly have they won?

— Which is more important, market share or profit share?

— Isn’t profit literally the bottom line in business?

MYOPIC MARKET-SHARE MADNESS

Market share is a means, not an end. Profit is the end for which market share was meant. Without profit, market share is meaningless.

Honestly, what is up with our fixation on market share? This simply isn’t that hard. Ask any business person whether they’d rather have market share or profit share – whether they’d rather sell more product or make more money – and they would, without hesitation, take the latter every single time.

Every CEO knows this. Every business owner knows this. Every entrepreneur knows this. Every mom working out of her home knows this. Every guy working out of his garage knows this. Every teen working out of his mom’s basement knows this. Heck, even the kid down at the corner selling Kool-Aid off of a folding table knows this. Ask that kid if they would rather sell more Kool-Aid or make more money and, “duh”, they’d say “make more money.”

But hire that kid to work for Google or write for TechCrunch or provide analysis of the tech industry and boom! They lose their minds. They reverse themselves and declare market share all important and profit share a mere side show. It’s as if these pundits were metaphorically drinking the market share Kool-Aid.

IS THERE MORE TO THE STORY?

If this were any other industry, the analysis end here. In no other industry does anyone seriously contend that market share is more important than profit share. However, this isn’t any other industry. This is computing and this isn’t just the sales of goods and services. Android and iOS are platforms and this is a platform war.

Clearly iOS is winning – in the short run. But in a platform war, is market share more important than profit share? Does market share lead to platform dominance, which eventually leads to industry wide dominance, which eventually leads to profits? Tomorrow, we’ll take a look at those questions and more.

Coming Tomorrow: Android v. iOS Part 3: Network Effect

Android v. iOS Part 1: Market Share
Android v. iOS Part 3: Network Effect

Apple vs. Samsung: What Doesn’t Compute

I’m not a lawyer, but I am an analyst who unfortunately has participated in some of the largest corporate legal battles, has two immediate family members who are IP lawyers, and has had to decide on industrial design for consumer electronics. None of this qualifies me to give legal advice, but I am able to spot some very interesting things in technology lawsuits.  The Apple-Samsung lawsuit was no different, as it was full of opportunity and oddities, and I wanted to share just a few observations.

The first thing I want to be clear on is that it is apparent to me that based upon the evidence and common sense, I believe Samsung infringed on at least few of Apple’s patents.  Just looking at the Samsung phones before and after and hearing about the need to be like Apple was enough for anyone would to arrive at that conclusion that some phones were made to look like Apple’s.  What I am not saying here is that I agree with everything that the jury came back with either; I don’t.  I am not a lawyer and I did not see every shred of evidence that the jurors saw.

With that off my chest, let’s dive into some of these things that I found unique or odd about the trial.

I’ve Seen That “Aligned Grid” Before

Two of the patents under scrutiny dealt with the way iOS icons are set in a grid with a lower bar situated at the bottom for apps.  Specifically, these were patents USD604,305 and US 3,470,983.  It was funny, the first thing I thought of was my Windows desktop where I have icons aligned in a gird with my most used icons pinned to my taskbar.  I remember old versions of Windows where it would “Align to Grid”, too.  So really, what is so unique or special about this patent?  Is it the fact that I am using it on a PC and the patent is on a phone?  I find this one odd.

IMG_5926
iPhone Icons Aligned to Grid With Dock
image
Windows Icons Aligned to Grid With Dock

I’ve Seen That “Pinch and Zoom” Before

I remember getting an early preview of Microsoft’s original Surface table, now called PixelSense.  It could recognize over 50 simultaneous touch points as it was designed for more than one person and entire hands.  One of Surface’s special features was to pinch and zoom in on photographs…. almost exactly like the iPhone.  Apple’s two finger pinch and zoom is covered under US 7,844,915. I am certain that Microsoft and Apple are dealing with this in one way or another behind closed doors, and I speculate that based upon Microsoft Research budget and amount of years they had been working on Surface, they have the upper hand.  Remember, Apple was not the juggernaut it is today with more cash and market cap than anyone, therefore putting Microsoft in a better position to patent pinch and zoom.

surface picture
Microsoft Surface (2007)

I’ve Seen Those Curves Before

One of the other key patents Apple was fighting in court was related to the rounded corners. Apple had two design patents related to the corners.  The two patents, USD504,889 and USD593,087 were both patents related to many physical elements combined, including rounded corners.  Those curves are specifically 90 degree curves related to the same curvature in Apple’s legacy icons which date back over 20 years.  I ask, does it make sense that someone can patent a curve?  It does to the USPO, but in other designs like cars, you see related curves all the time, yes?  I mean, really, do curves seem like something that is patentable?  On the top is the Compaq T1100 sold in 2003 and on the bottom is Apple’s patent filed in 2004.

Compaq TC1100 (2003)
apple 504889
Apple USD504,889 (2004)
apple 504
Apple USD504,889 (2004)

 

Would You Confuse an Apple and Samsung Phone?

One very prominent scene inside the courtroom was when Apple icon designer Susan Kare testified even she confused the Galaxy for the iPhone.  I’ll give Mrs. Kare the benefit of the doubt, as maybe she was just looking at the icons, but I doubt anyone else on earth would confuse the two phones.  Every Galaxy S has a “SAMSUNG” and “AT&T” logo on the front of the phone and you certainly wouldn’t make the mistake of buying the wrong phone as the carton is clearly labeled Samsung.  So if consumers wouldn’t confuse the two and wouldn’t mistakenly buy the wrong phone, how damaging is the similarity, really?  Have you ever heard even a rumor of someone mistakenly buying a Samsung phone and thought it was an iPhone?  If you have, please let me know in the comments below.

 

s2 packaging    samsung s2

 

iphone 3gs packaging iphone 3gs

 

So What?

So I have brought up some possible inconsistencies or “horse sense” that may go against what the jury said and potentially even against patent law, so what?  I think if we cannot look at ourselves in the mirror, be honest with each other on what violates a patent or if there even is a patent to violate, the U.S. patent system itself will lose credibility and is doomed.  If reasonable intelligent people can’t even make sense of it, then what does that say about the problems we will face in a few years as companies become even more litigious as they file patent after patent just so they don’t get burned down the road?  I hope more good than harm comes out of this patent spat.  The big picture is really about continued innovation.  We should all pay heed to what Ben said so well yesterday“The key to the future will be to seek out new opportunities with fresh thinking and innovative ideas. To those that think innovation is dead I pose this question: Have all the problems of the present and the future been solved? Until the answer is yes, there will always be room for innovation.” Let’s not let the patent system stifle that innovation and let’s use some common sense as we approach it.

Android v. iOS Part 1: Market Share

INTRODUCTION

This is the first article in a multi-part look at the Android and iOS operating Systems. An operating system (OS) is the software that manages computer hardware resources and provides common services for computer programs. Applications (or Apps) require an operating system in order to function. The most famous and prevalent operating system in the world is Microsoft Windows. However, Google’s Android and Apple’s iOS operating systems are the two prevailing operating systems in the world of mobile devices, and since mobile appears to the future of computing, one or both of these two operating systems may well be the future of computing too.

There has been much confusion and even more debate surrounding the Android and iOS operating systems. Some see Android v. iOS as a repeat of the Windows v. Mac wars in the nineties with Google’s Android playing the role of Windows and Apple’s iOS playing the role of the Mac. Others think that, this time, Apple’s iOS is the operating system destined to rise to the top. Still others think that the entire debate is moot – that the new OS wars are already over and that Android should be declared the de facto winner. Their argument rests on Android’s staggeringly rapid growth and massive market share numbers:

“According to research firm IDC, Android devices made up a whopping 68.1% of all smartphone shipments in Q2 2012. That calculates to 104.8 million of the 154 million smartphones that left manufacturers plants in the quarter. By comparison, Apple shipped 26 million iPhones in the quarter, good for 16.9% of the market. – As reported in ReadWriteWeb

TechCrunch takes these numbers and sums up the thoughts of many:

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

AN HONEST COMPARISON

When making comparisons, we should always be careful to compare like with like. Android is an operating system. The iPhone is a single device within an operating system. Comparing Android to the iPhone is an unfair and incomplete analysis. A better comparison – in fact the only accurate comparison – is to compare the Android operating system to the iOS operating system. When you do that, the market share numbers take on a whole new look.

QUARTERLY MARKET SHARE

The iOS operating system includes not only iPhones but iPod Touches and iPads as well.

We know that over half of the iPod’s sold are iPod Touches and we know that Apple sold 6.8 million iPods last quarter. That means there were at least 3.4. million iPod Touches sold last quarter and perhaps many more as well. While it’s true that Samsung has an iPod Touch-like device on the market, their sales numbers for this device appear to be nominal.

Turning from the iPod Touch to tablets, we know that Apple sold 17 million iPads last quarter or about 70% of the total tablets shipped. That number includes all tablets, including those by Amazon and others, but just to be conservative, let’s assume the the entire remaining 30% of tablet shipments can be attributed to Android devices.

Add the iPod Touch, the iPad, and the additional Android tablet numbers back into IDC’s figures and Android’s market share numbers, while still impressive, don’t look nearly so intimidating.

TOTAL MARKET SHARE

We also know that if one combines iPod Touch, iPhone and iPad sales numbers all together, that Apple surpassed 410 million cumulative iOS devices by the end of June 2012. It’s almost certain that total Android sales now exceed those of iOS (it’s hard to know for sure since virtually no Android manufacturer announces numbers) but even if they do, they exceed iOS’ numbers by a couple of percentage points, at most.

MEASURING WHAT MATTERS

Experts often possess more data than judgment. – Colin Powell

If market share is the measure by which one determines who is “winning”, then we need to measure again. And while we’re at it, maybe we should be asking ourselves whether market share is the be all and end all of metrics. Tomorrow, we do exactly that – we explore whether market share is the only way, just one of many ways, or just a component of the way to measure who’s really “winning” the mobile OS wars.

Coming Tomorrow: Android v. iOS Part 2: Profits

Android v. iOS Part 2: Profits
Android v. iOS Part 3: Network Effect

Of Apple, Samsung, and Obviousness (Updated)

Calimni's patentent drawing
Calimani’s patent drawings (Galla Coffee)

In 1929, an Italian named Attillo Calimani received a patent for a French press coffee maker. The French press is an extremely simple design: a glass beaker, a metal mesh filter attached to a push rod, and a gasket to form a seal between the filter and the glass. Calimani’s coffeepot looks remarkably like the Bodum press I use every morning. Its design follows its function so elegantly that it doesn’t seem like something that needed inventing. Yet it wasn’t until coffee had been around for hundreds of years that the imagination and manufacturing technology combined to make the French press a practical device.

This, in fact, is a characteristic of the very best in design and invention. Once you see it, it seems inevitable, as though it should always have existed. But that simplicity often takes a a tremendous amount of effort to achieve.

And that is what is wrong with the arguments of Samsung and its supporters that Apple’s iPhone patents were invalid because the key design features were obvious. U.S. patent law imposes a threefold test for patentability: An invention must be novel, useful, and non-obvious. The much-maligned U.S. Patent & Trademark Office found that Apple met that test for various features of the iPhone and the jury, the the extent it could consider the validity of the patents, agreed.

Now it’s true that there is nothing completely new under the sun. According to the history of the French press on the Galla Coffee web site, two French inventors came up with the French press idea nearly a century before Calimani. But their design lacked the gasket around the filter, leaving a lot of coffee grounds behind when the plunger was pushed, In other words, they had the right idea but it it didn’t quite work. Success requires that you both have an idea and find a way to make it practical.

It’s useful to reflect on just what Apple invented with the iPhone that did not exist in 2007. Apple did not invent the multitouch capacitive display, but was the first to use it in a phone. (Microsoft, by contrast released a version of its  Windows Mobile software in late 2009 with no support for multitouch displays.) Apple designers realized that a multitouch screen made both an on-screen keyboard and the elimination of virtually all physical buttons practical. (Large-screen Symbian phones existed before the iPhone, but they lacked multitouch and designers felt compelled to add physical keyboards or at least dialpads.) Despite the handicap of slow network connections–the original iPhone did not offer 3G wireless–Apple realized there was real value in web browsing on a phone and even originally thought that the web was a viable alternative to native apps.

It’s interesting that the most successful competitor to the iPhone is the one that has stuck most closely to the Apple formula, Android. Research in Motion, which thrived for a long time partly because of another obvious, non-obvious invention–a practical miniature keyboard–lost its way by ignoring the Apple assault until too late. Palm offered a real alternative with webOS, but lacked the financial resources to give it a fair chance (I’m not going to go into the Hewlett-Packard fiasco again.) And Microsoft has had a very tough time gaining traction for its distinctive approach, but it’s way to early too count them out.

There are legitimate fears that the decision in Apple v. Samsung will stifle innovation, but I am optimistic that the result will be the opposite: Forced to compete rather than copy, Apple’s competitors will find their way to true competition.

And as for the claim that Apple really didn’t come up with anything strikingly original in the iPhone design, that anyone could have done it, I’ll paraphrase what Aaron Sorkin’s “Mark Zuckerberg” famously said in The Social Network: If you guys were the inventors of the iPhone, you would have invented the iPhone.

UPDATED: At TechCrunch, Leonid Kravets, an actual patent lawyer, weighs in on the issue of obviousness and the Apple-Samsung verdict. The conclusions are similar, but I bet he had less fun writing it.

The Apple Verdict and the Challenge of Innovation

I spent some time on the weekend digesting the results and implications of the verdict between the Apple and Samsung patent trial. I watched my Twitter stream flow continuously with many remarking on the negatives of the verdict and many remarking on the positives. I am yet to see a convincing analysis one way or another as to whether the win for Apple is good or bad, which leaves me thinking that only time will reveal the answer.

So rather than dive too deep on whether the verdict is good or bad for the industry, I would rather make a different observation.

It is Easier to Follow Than Lead

The one thing that I think is interesting about Apple as a company is that under the vision of Steve Jobs in particular, their culture and their products have ALWAYS had a unique identity. Even if a particular concept or idea was “borrowed” it was done so in a way uniquely and freshly with a specific vision in mind.

Historically, in fact, Apple sacrificed success to stick with a unique approach to personal computing. Steve Jobs and Apple as a company had a vision for the best way to make computing products and that determination to not compromise that vision cost them success in key markets in the past. One example of many would be the decision to not license out the operating system at a key junction in the adoption cycle. The fear of losing the quality of hardware in which their software ran is a key reason why I believe this decision was made. None the less it was not popular and probably cost Apple market share in the early days of computing.

Although, that is not the case today where Apple is the market leader in several key categories; the above observation uncovers a key truth and it relates to the challenge of innovation.

Creating something new or unique is not terribly difficult. I’ve got great ideas for all kinds of unique products that no one wants but me. Creating something new, unique, different, and innovative that garners mass market success is EXTREMELY difficult and more interestingly EXTREMELY rare. The fundamental challenge and to a degree fear around innovation is that you create something the market does not want. This at its core is the reason why it is easier to follow the leader than blaze a new trail.

As a wise sage once said:

“Trying is the first step toward failure” – Homer Simpson

A little longer than five years after the iPhone and we already entirely take for granted things that were not common place in the market before the first iPhone. All touch screens and virtual keyboards, screens that know when we are looking at them or by our ear, a full home screen of glossy icons, app stores, etc. We can argue the degree of these in terms of innovation but the bottom line is Apple made many features the industry standard.

Of course many of the things which became the standard in terms of look and design were not patentable and were simply the result of a new standard emerging. But this case was more about setting a presidence more than it was about money. The message has been sent loud and clear that following the leader too closely is not a good idea. Some degree of trailblazing will be necessary in the future. Although, this is difficult and risky, I strongly believe that in the long run those who do invest and take risk and blaze their own trails will be rewarded.

There are some very cool FEATURES Samsung, HTC, Nokia and others have added to their smart devices that are distinct. That is without question; but the bottom line is a template for success has been established by Apple.

In this regard I must give Microsoft a tremendous amount of credit. Microsoft, rightly or wrongly, blazed a new trail and we are on the cusp of seeing whether or not the market accepts what they developed or not. Microsoft is blazing a new trail with their new UI and emphasis on touch for all hardware. We will see if this trail leads to success or failure. Regardless, Microsoft deserves credit for taking the risk, and giving their best effort to do something fresh.

Blazing new trails on the frontier of personal computing may take its toll on many companies. I stand by a conviction I have shared many times publicly. I fully expect the landscape for personal computing to look very different in the future. The personal computing companies of today, particularly those in hardware, may not be the personal computing companies of the future.

When I think about the things that led to Apple’s success in many key categories, as well as what may be the underlying theme for success for many in the future, I think about a quote that I am rather fond of–which is:

“The real act of discovery consists not in finding new lands but in seeing with new eyes.” – Marcel Proust

The key to the future will be to seek out new opportunities with fresh thinking and innovative ideas. To those that think innovation is dead I pose this question:

Have all the problems of the present and the future been solved? Until the answer is yes, there will always be room for innovation.

What Does Microsoft Have Against Email?

Windows 8 Mail iconEmail in Windows 8 is a catastrophe.

I know the cool kids think email is last decade’s technology, but the fact is that it remains a vitally important communications tool for both businesses and consumers. But it gets no respect from Windows 8, and this could be a huge problem on Windows RT tablets.

When I first started playing with the Mail app in the first preview of Windows 8, I didn’t pay too much attention to its glaring deficiencies, figuring it was a placeholder for the real application that would come along later. The version of Mail that’s included in the RTM version of Windows 8 Pro is better, but not by much. Support for IMAP accounts has been added, though POP3 is weirdly still missing. And the list of missing features is longer than the roster of present ones: multiple accounts are supported but there is no unified inbox, there’s no way to search,* thread, sort, or arrange messages in anything but newest on top. I haven’t seen anything this bad since AOL Mail, circa 1995.

At first, I thought this was a clever plot to drive users to the new Outlook.com mail service. Outlook.com’s browser user interface is a lot more capable than the Win 8 Mail app. But it’s account support is sadly deficient. It supports only Outlook.com web mail (the replacement for Hotmail) and POP3 accounts. (Do the Outlook.com and Windows 8 Mail teams talk to each other? I doubt it.)

The lack of a decent built-in mail client is not a crushing defect for a operating system.  Windows 7 shipped with no mail client at all, though you could easily download the confusingly named Windows Live Essentials Mail, a latter-day Outlook Express. If you had Office, you could use Outlook, and almost certainly did if your mail system was Exchange-based. Or you could download any of a number of free or paid mail clients.

The same is true for the x86 version of Windows 8. But Windows RT, the vers. ion for ARM-based tablets, is much more problematical. The version of Office included with RT does not include Outlook and Microsoft has not said whether there will be an Outlook for RT. Unless some developer comes up with a good mail client for RT (which would have to meet with Microsoft approval for distribution through the Windows Store), consumer users of RT tablets are going to be annoyed and business users will be in deep trouble. The Mail app does support Exchange accounts, but only the most basic features are available. Outlook Web Access is an alternative, but it has the significant disadvantage of only working on a live internet connection, along with the lack of a unified inbox that will combine messages from other accounts.

Much about Windows RT is still speculative, because we have yet to see systems in the wild. But if Microsoft is going to win back ground lost to the iPad, it will have to do a whole lot better on email support.

—–

*–Commenter Bam! pointed out to me that you can indeed search through messagers using the standard Search charm. It’s a bit crude–there seems to be no way to limit search to a specific folder, though you can use specifiers such as from: and to:. I still find the idea of the Search charm as a sort of  do-anything tool somewhat confusing. And considering the amount of space the full-screen Mail app wastes, there was plenty of room for a conventional search box.

 

A 7-inch iPad Presents Challenges to Apple’s Competition

A 7-inch iPad will put Apple in some very unfamiliar territory in the tablet market — it’s an area currently dominated by Android-based devices. However, Apple’s entry into that segment will also present some seemingly insurmountable challenges to those same companies.

iPad screen imageWhen Apple first released the iPad, it was the only player in that market, so it stands to reason that it completely dominated the tablet scene. Some companies tried to compete with Apple, but quickly realized their foothold was just too strong.

What the competition did to combat that was move to a smaller form factor, a place where Apple didn’t make a product. That made a lot of sense, and it worked. The other tablet-makers quickly gained their own foothold in the market.

With a 7-inch iPad, Apple will, for the first time, take on its competition on their turf. This will be a real test for Apple and the iPad brand, but one I’m convinced they will easily win.

This isn’t the first time Apple has taken on its competitors using this strategy. I’ve mentioned before that in the MP3 player market, Apple released an iPod and then came back later to release new iPods of varying sizes. Essentially what they did was keep squeezing its competitors out of the markets it entered.

I see the exact same thing happening to the tablet market. Apple released the iPad and dominated that market. Once its dominance was complete and its competitors had moved on, it will release a product in that segment as well.

Apple is not entering the 7-inch tablet market to take a few market share points away from the incumbents, it wants to totally control that space with the iPad.

Let’s face it, the iPad is a huge brand, so consumers recognize and identify with it. But there’s more to the story than that. Apple also has the infrastructure of iTunes and iCloud on its side.

The ability for Apple to offer its customers music, television shows, movies and educational content, synced across all devices and computers is unique and powerful.

Here’s how I see the tablet market playing out after a 7-inch iPad release:

  • Apple will continue to dominate the 10-inch market that it does now.
  • Apple will take a massive chunk of the 7-inch market
  • Amazon will continue on as it has been. Not much change
  • The rest of the market will see diminished share of the tablet market

The problem for Apple’s competitors is that there is no where else to go. If they go down much more in size, the tablet becomes a smartphone. If they go up beyond the size of the current iPad, it becomes too big to be useful.

Apple is in a position to decimate its competitors. All it needs to do is release the 7-inch iPad.

The Twitter Kerfluffle: You Gets No Bread With One Meatball

twitter logoThe world of Twitter has been a-twitter for the last few days over changes the microblogging service is making in the third-party access to Twitter APIs. In general, the rules restrict or outright block the access of many third parties. Reaction ranged from apocalyptic (Buzzfeed’s Matt Buchanan: “Twitter is in effect holding a pillow over Twitter apps as you know them, smothering the ecosystem over time.”) to the relatively sanguine (Tweetbot’s Paul Haddad: “Don’t panic.”)

Others have said more than enough about the merits, or lack of them, of the Twitter changes. I want to talk about their inevitability. I am an active Twitter user and find it hard to imagine how I got by without this relatively young service. But those of us who love and depend on Twitter have to realize that since we have never given it a penny, it doesn’t owe us anything. The same is true in spades for developers who have built their own apps and services on APIs that Twitter has provided without charge–and without any guarantees about their future availability.

There comes a time in the life of any startup when it has to think about its sustainability of itself as a business, and Twitter is reaching that point. Managing the tradition from unmonetized success to sustainable business is one of the toughest challenges for any startup that has grown as a free service and many fail. MySpace never pulled it off, and the jury is still out on Facebook.

Twitter has chosen that advertising is its primary route to monetization. Given that, it is going to have very little tolerance for third-party apps that fail to display Twitter’s ads. It also will become increasingly reluctant to letting third parties help themselves to information on Twitter users, hence the blocking of “find my friend” features on Instagram, Tumblr, and other services.

Perhaps Twitter had an alternative course available, but it would have required charging for what has been a free service for more than five years. A startup called app.net is trying to build an ad-free, more open Twitter-like service by charging $50 a year. I wish them well, but I suspect they’ll have a very tough time achieving critical mass.

For better or worse, the internet has created a culture where we are used to getting valuable services without paying to them, at least in cash. But sooner or later, the piper must be paid. That’s when we learn that the service belongs to its investors and managers, not to us.

 

 

 

Why We Hate Carriers (AT&T Edition)

AT&T logo

Watching folks try to untangle themselves from messes of their own making is often painful. No, I’m not talking about Missouri Senate candidate Todd Akin, but AT&T and the trouble it has made for itself by restricting the use of Apple’s FaceTime on its wireless network.  AT&T’s latest effort, a posting by its top regulatory official, Bob Quinn on the AT&T Public Policy Blog, only makes things worse.

AT&T had prohibited FaceTime on its network since Apple introduced the app, allowing its use from AT&T iPhones and iPads only over Wi-Fi. It recently announced that it would allow FaceTime use for customers of its new Mobile Share plans, but not others. Presumably, the intention is to drive customers toward the Mobile Share plans. Or something. It makes no sense from any technical perspective since all the customers are using the same network.

The blog post, a nice piece of sophistry, is dedicated to explaining why the policy does not violate the Federal communications Commission’s network neutrality guidelines. The crux of the argument is that FaceTimes is a “preloaded” app and “the rules do not require that providers make available any preloaded apps.” Meanwhile, Quinn notes, customers are free to download and use other video chat apps. If this makes sense to you, you are living on a different planet than I am.

The question of whether the AT&T rules violate FCC guidelines isn’t very important. For one thing, there’s a better than even chance the guidelines won’t survive a legal challenge. The bigger issue is that the AT&T policy is a badly conceived, anti-customer business practice.

AT&T meters customers’ wireless broadband use, effectively charging by the byte. If customers choose to use up their monthly allotment in FaceTime chats, what business is it of AT&T? It’s their data, to use as they please. In fact, the company ought to be happy because the use of a bandwidth-gobbling app like FaceTime is likely to push customers into overages, producing more revenue.

Another weirdness about the post is that it suggests that after five years of selling iPhones, AT&T still has no idea of how this business works. There are no preloaded apps on iPhones, not in the sense of the often junky applications carriers used to pile onto their phones (and still do on some Android models.) The software load of the iPhone is completely controlled by Apple and FaceTime is a core feature of iOS. The statement, “Although the rules don’t require it, some preloaded apps are available without charge on phones sold by AT&T, including FaceTime, but subject to some reasonable restrictions” comes off as nonsense when applied to the iPhone.

Tech Journalists Need To Learn Something About Business

Microsoft 10-KA week ago, Engadget published a thinly sourced report that Microsoft would sell its new Surface tablet for an improbable $199. Despite a lack of any further confirmation, the report was endlessly repeated, commented upon, and used as the basis for endless speculation. My colleague Tim Bajarin did a very effective job of puncturing the rumor, based on supply chain reporting and his extensive knowledge of the industry. What very few others did was to look at the report with a jaundiced eye and ask whether such an action made any business sense for Microsoft.

This is a rampant problem in technology journalism today, whether in print, online, or broadcast. Many technology writers appear to have little interest in the business side of their industry and little background or training in the intricacies of operations or finance. If they ever read financial reports, it doesn’t show in their work. I doubt that most of them know an S-2 from a 10-K. And this is unfortunate because it often produces shallow and uninformed reporting.

Let’s go back to that $199 Surface. The Surface is the most interesting product announcement from Microsoft in many years because it represents an important break with the company’s core business model of  licensing software while leaving the hardware business to its OEM customers (Yes, Xbox is an exception, but a very limited one. We’ll get to that in a bit.)

Microsoft makes nearly all of its money from three roughly equal revenue streams: Windows and Windows Live, Servers and Tools, and Microsoft Business. The first is the core Windows business, the second all the back-office software Microsoft sells to enterprises, the third is mostly Office. Recent trends in the industry, especially the rise in tablets and the accompanying collapse of consumer software prices threaten the first and third streams.

Microsoft is getting into the hardware business because it wants to shake things up–a bit. But its position is not so threatened that it wants to destroy the ecosystem that it has spent the last 30 years creating. A $199 high-quality tablet would have two drastic effects on Microsoft’s business. It would produce enormous losses of perhaps $150-200 per unit; modestly successful sales of 5 million units–about the number of iPads Apple sells in a month–could knock a billion dollar hole in Microsoft’s earnings. And it could make it impossible for OEMs such as HP, Lenovo, Dell, and Acer to enter the market. With the traditional PC market beginning to shrink,  a Microsoft loss-leader tablet would be an existential threat to these OEMs–with no guarantee that Microsoft rather than Apple or Google and its partners would pick up the pieces.

Some speculation (for example) focused on the possibility of typing that $199 price to a subscription to–something. But again, this reporting failed to do any real business analysis. Wireless carriers provide up-front subsidies for phones, so why not Microsoft for Surface. For one thing, contracts for smartphones bring in around $100 a month, leaving lots of room to pay for the service and recoup the subsidy. A similar model was tried for both some notebooks, especially netbooks, and Android tablets, but it has been a dismal failure to the point where carriers are abandoning it. And the availability of free services is so great that it is hard to see what would get Surface buyers to pay a monthly fee.

The Xbox has also inspired a lot of bad business analysis. It’s true that that the Xbox was introduced at a price well below its cost in the hopes that game licensing feeds and outright sale of Microsoft games would make it profitable. Fortunately, the Xbox has never been a huge part of Microsoft’s business because this strategy took years to pay off. It’s true that today you can buy a $99 Xbox if you agree to pay $15 a month for two years for an Xbox Live subscription. But this is really a financing alternative rather than true subscription, since you will pay $359 for a subscription that could be bought on its own for $120. The Xbox is simply a very different kind of business than Windows, aimed at a very different audience.

The big problem here is the fact that too many tech writers don’t look at the numbers or don’t know what to make of them if they do. In an earlier generation, it was common for tech writers to have put in some time on the business beat, and the most of the best still have that experience. The quality of tech writing would improve immeasurably if such skills were more widespread.

Observations and Opinions About Apple Retail

Credit: Apple
As Tim pointed out earlier in the week, Apple competitors have many things to be worried about. Strategically, however, Apple’s retail presence would be one of the biggest things keeping me up at night if I was competing with Apple.

Unlike most companies, Apple sells directly to the end customer who will be using their products. Apple has and owns a clear and distinct relationship with their customers. Many other companies sell to retailers, or the channel, and therefore have a more hands off relationship with their customers. In fact, for many non Apple customers, if a relationship exists it is with a retailer and it is weak at best.

Looking forward to the next decade, and perhaps longer, Apple’s retail strategy and presence will be one of the driving forces helping set them apart from the competition and engaging in an ongoing relationship with their loyal customers.

Steady, Healthy Growth

Earlier this week Apple inevitably became the most valuable company in history. I firmly believe that their retail strategy played a key role in making this happen. I also firmly believe that their retail strategy will continue to play a key role in continuing their value growth.

To get a better picture of what is happening with Apple retail I made a chart looking at retail store visitors per quarter going back to 2009. On top of the retail visits data, I layered on key milestones of product sales for specific quarters. I also added at the bottom how many stores were open at key points in the growth cycle.

As you look at the above slide, the following observations stand out. It is obvious that Apple is on a steady growth trend. Apple’s growing retail store presence globally, as well as their growing number of visitors per quarter, remains on a steady upward trend along with nearly every other part of their business.

Notice also that with each growth trend, a new baseline was established. With each growth cycle a new normal was established with the exception of the last holiday quarter. The same is true with key product sales like Macs, iPads, and iPhones. They may dip slightly but not below past year-over-year growth. My chart shows that this is true since 2009 and my guess it goes back even farther.

Therefore, there is no reason to assume Apple’s steady growth trend will not continue going forward. In fact, Apple’s growth is following closely the growth of key segments of the market. Year after year as the total addressable market for smartphones and tablets grows. As it does so do all areas of Apple’s business. Interestingly Apple’s Mac business is also growing even as the market for traditional PCs stays relatively flat. I believe Apple retail has something to do with that. Since key markets still have a massive amount of headroom (particularly in China) to grow we can be assured that Apple’s ability to capture share of that growth is more than likely.

The key in this scenario in my opinion is that consumers have a premium shopping experience with Apple retail. Apple’s latest quarterly retail revenue came in at $4.1 billion which is admirable in itself but Apple still does more sales from the channel than they do from their own retail presence. But these retail outlets exist for more than just driving sales.

The Best Place to Experience Apple Products

The nearly 400 Apple retail establishments exist to support at a fundamental level that I highlighted at the beginning of this column, which is to manage and actively engage an ongoing relationship with their customers. Part of that relationship is the freedom to discover. This is why Apple stores are constantly packed. Consumers are going in and looking at products and experiencing new ones. Apple has intentionally designed their stores to maximize and showcase the best experiences with all their products. This is something that is void in all other retail establishments where electronics are sold. These stores don’t just carry Apple products but also a highly selective and curated selection of third party products that help maximize the value of Apple’s ecosystem.

Other parts of the relationship that are key to Apple retail is training through free workshops and support through the Genius bar. I am continually shocked at how many people I see taking the free workshops and learning how best to use the new Apple products they bought. Every time I go into Apple retail stores their training centers are packed. Consumers we interviewed who took the time to get trained on their products overwhelmingly were glad they did it and felt empowered to use their products to their full potential. You are hard pressed to find anything remotely similar with other personal computing platforms.

Lastly, I firmly believe that Apple retail plays one last role holistically with consumers. They create loyalty. Apple has had no problem growing a large loyal base of customers but the trick is to attract new customers and keep them loyal. The data continues to show that Apple is continuing to bring upwards of 50% new customers to Apple products within key product segments. Keeping new customers loyal is key. Apple doesn’t struggle with a tremendous amount of churn and Apple’s retail will continue to play a role in that reality. There are many fundamentals on why Apple’s platform establishes loyalty but retail remains a key part of this strategy for many of the reasons I outlined above.

Apple retail, in my opinion, is one component of the many fundamentals to their strategic and competitive advantage. I continue to keep a watchful eye on all information and quarterly reports related to Apple’s retail because the health of their retail will tell us a lot about their overall health and growth opportunities as a company going forward.

And keep in mind, Apple has barely scratched the surface in China.

How Significant is the Synaptics ThinTouch, ForcePad and ClearPad Technology?

As I have cited previously, human computer interface (HCI) changes have defined the winners of the last decade in the phone, tablet, and premium PC and game console markets. I believe this will continue into the future. As important as the singular technologies are the way that different kinds of controls come together as a system to deliver multi-modal input methods. This is why I am so excited about Synaptics three new technologies, ThinTouch, ForcePad and ClearPad. They have the chance to revolutionize the way notebooks, convertibles and tablets will be used in the future. Over the last few months, I got an insider’s view of the technologies, talked with the designers and HCI experts, and of course, got my hands on the technologies. I’d like to share some insights I’ve gained on the technologies.

Multi-Modal is the Future of HCI

The future of all device interaction will not be governed by a single way of interaction, but via multi-modal interactions. Essentially, devices will take inputs in a myriad of ways, whether they are via keyboard, direct touch, voice, and even through machine vision. To not confuse the user, they will all need to work as a cohesive “system” and therefore need extensive systems integration and software work. In the next few years, this will be especially true on notebooks, convertibles and tablets. Synaptics has some incredible smartphone technologies with its InCell and TDDI (touch display integration), but I want to focus on HCI for notebooks and tablets. Let’s dive into the technologies.

ForcePad Technology

Over the last ten years, Synaptics and Apple have driven the biggest advancements in touchpads. Just look at how theforcepad touchpad has morphed from a small, three button touchpad to a large, button-less touchpad seen today’s premium Ultrabooks and Apple Macbooks.

ForcePad technology removes all moving parts, is pressure sensitive, and at less than 2.8mm, is thinner than a slice of cheese. ForcePad has the ability to perform all the functions users can perform with a ClickPad, even without knowing there is pressure sensitivity, thus reducing any adjustment period or learning curve. Synaptics usability research scientists (with whom I met) have tested this and observed that on average a user with a ForcePad easily adapts to this hingeless touchpad and quickly prefers this experience over the majority of hinged PC designs on the market today. The “gesture continuation” capabilities that the ForcePad pressure sensitivity offers, provides a smoother and easier method to perform the core functions from pointing to scrolling and zooming.

By adding pressure sensing, this enables consistent interactions on any part of the touchpad and it never wears out, making it much more reliable. There’s even an auto-calibration feature that has several benefits. For the OEM it enables a consistent OEM branded feel & behavior across models, that is something that is not in PC notebooks today as the hinge mechanism in today’s ClickPad is developed by the OEM’s choice of ODM, using several ODMs, and OEM may have different feels for the ClickPad even if using the same supplier because the ODM designs the hinge. Next the auto-calibration feature has the ability to compensate for chassis-flex, with thin and light notebooks, some can flex and activate a click just by picking the notebook up with one hand, ForcePad can detect this behavior and reduce accidental clicks. Lastly, while the OEM can pre-select the desired feel, this auto-calibration feature can enable a user to personalize their response, adjusting if for how firm or light they may want.

Its ability to “feel the force” also opens up new usage models where by adding a third, relative dimension, a user could conceivably replace a joystick to play a game, eliminate the need to choose new brush sizes in a paint program, or even eliminate annoying, slow scrolling on long web pages or documents.

The ForcePad, codenamed “Jedeye” in the a User Interface Software and Technology conference (UIST) competition was selected for the student software development and is expected to look at innovative methods to provide innovative methods to HCI through the addition of pressure sensitivity.

The benefits of making the touchpad 40% thinner by eliminating the hinge are straight forward. By making the touchpad thinner, the PC maker has the ability to use that volume to make the device notebook chassis thinner or even use that space for extra battery.

Users will need to get used to the lack of a clicking sound and feel, but as the entire industry learned, clicking is optional. As we learned from Apple and BlackBerry phones, what many thought would be an issue wasn’t at all, and those who sat in the past learned to regret it. Now on to the keyboard.

ThinTouch Technology

There hasn’t been a whole lot of innovation on keyboards over the last 20 years. Even while some of the best OEMthintouch-edge companies like Lenovo and their customers pride themselves with the ThinkPad keyboard performance, it is open to the same issues as all scissor-based mechanisms. That is to say, they are more open to break and become full of gunk. Have you ever had a key pop off and have to replace the entire keyboard due to a scissor mechanism?

ThinTouch removes the entire mechanism and replaces it with a capacitive touch enabled mechanism that is 40% thinner and brings several benefits. First, by removing the scissor mechanism, they keyboard should be lighter, thinner, and backlit keyboards should be more effective, brighter and require less battery draw due to the design without a scissor mechanism and also more reliable and manufacturable according to Synaptics. Secondly, keys are capacitive, there is the potential to enable personalization and turn on pressure based controls and even near-field “air gestures” into the mix. Imagine if you had a gesture to “fling” an image from your laptop to the TV by gesturing a certain way without even touching the keys. Reading a book, air swipe to turn the page. Once you make the keyboard, capacitive, the sky is the limit. Now onto the touchscreen.

ClearPad Technology

Synaptics got a bit of a late start in the touch display controller market but they are making up for it by expanding their controller line that supports windows 8 touch specifications from 12” now up to include the13.3, 14.1, 15 and 17” displays. And, in the future, but evidenced today in the smartphones up to 5”, tablets and convertibles could move to InCell, which removes and entire discrete sensor, thinning the product, improving the optical qualities and increasing performance. The ClearPad Series 4, TDDI smartphone technology, shrinks the number of controller from two to one; integrating Touch with the actual Display Driver IC this will significantly improve responsiveness while lowering cost.

For now, Synaptics biggest advantage in tablet and convertible touch display controllers as it marries up perfectly with ForcePad and ThinTouch. And that happens to be one of Synaptics’ biggest advantage, which is they don’t stop at the hardware. Their offering is the system and total HCI experience that is the blend of hardware, firmware, software, and the test tools to deliver this multi-modal interface solution.

Will PC Manufacturers Spend an Extra Dollar?

Unfortunately for PC makers over the last few years, Apple has run away with the premium-priced notebook and premium-priced all in one market. Ultrabooks could change this, but we won’t know until after the holiday selling season. Ironically, some Ultrabooks still come with cheap touchpads and uninteresting keyboards.

I believe that many PC makers will quickly adopt these Synaptics technologies to differentiate themselves from Apple and from each other, and some will even drive them across mid-range product lines, too. Unfortunately, some OEMs will continue to count pennies as they lose dollars, as the price between high quality touchpads and mediocre quality is around one dollar. When Apple comes out with their next generation of HCI, they will wish they had invested that dollar.

What Really Scares Apple’s Competitors

I was recently talking with some of Apple’s competitors and they gave me some interesting feedback on how they feel about Apple. The first thing they told me is that they really respect Apple and find them to be very important to the industry in general. And to a company, they feel an exceptional team of leaders runs Apple and they fully expect Apple to have a leadership role in PCs, tablets and smartphones for many years, even with Steve Jobs out of the picture.

But when I asked them what they actually fear about Apple, their answer was interesting. I had expected them to say things like Apple has great industrial design. Or their $117 billion cash position gives them a huge advantage over all competitors. Or even that since Apple owns their hardware, software and services, they can make them work together seamlessly, which also gives them a huge advantage over competitors.

But the consensus from those I talked to about what really scares them about Apple is the fact that Apple sees the future and then creates products that people want even if people do not know they want them. This has befuddled them for 15 years or since Steve Jobs came back in 1997 to rescue Apple. Most of the OEMs create their products along a more evolutionary timeline. They create new desktops, laptops, smartphones and even tablets with the idea of just making them faster and better looking.

But Apple takes a very different line of attack. They approach their future products in two ways. The first thing they do is to look at an existing product and find its flaws. Then they redesign it around what they believe consumers want and then tie it to advanced software and services to eventually create complete solutions. This is the cause of Apple’s competitor’s first fears about Apple and having to compete with them.

For example, first thing they did this with was the iPod. Apple did not invent MP3 players. But they looked at the early versions and realized its flaws. The first generations of MP3 player designs were less than interesting and the process of getting music on to them was difficult. So they figured that they could add their industrial design magic to it and build an ecosystem of software and services that made buying and playing music and eventually video simple to do so that today they still own 70% of the MP3 player market. After 11 years on the market they still don’t have a serious competitor in this space.

They did something similar with the iPhone. They did not invent smartphones, but they reinvented them with the iPhone and have made this smartphone one of the most popular in the world today. Of course, this market is so big that competitors came in very quickly and thanks to Android, the competition for smartphones is fierce. But Apple led the way and continues to be a most important competitor.  I fully expect their new iPhone 5 to set sales records when it comes out in Sept.

The iPad followed a similar path. They did not invent tablets. In fact, Microsoft was the lead player in this space until Apple reinvented the tablet with the iPad in 2010. But here again, Apple applied great industrial design to their tablet, tied it to their ecosystem of hardware and software and currently maintain a 70% market share in tablets.

But there is a second way Apple approaches the market that really strikes fear in them. Steve Jobs had what has often been called a “gut feel” for what consumers wanted in a tech product and would envision them years before the products would even come out. When I met with Steve Jobs the second day he came back to Apple in 1997, Apple was in deep financial trouble and we now know they were about two months away from going bankrupt. I asked him how he would save Apple and he told me that he would focus meeting the needs of their core customers and then added that he would focus on industrial design.

The idea of industrial design being important to saving Apple was foreign to me and I really could not see how that would work. But two years later he brought out the candy colored iMacs and reset peoples thinking about what a computer could or should look like. Then he focused in creating all-in-one Mac’s and made sleek design key to this and all of his next generation laptops.

Apple also saw the future of laptops well before the competitors and added their industrial design magic to the MacBook Air. Now, five years after the MacBook Air first shipped, the PC competitors are just now bringing out similar types of ultra thin and light laptops called Ultrabooks.

It is this anticipation of what people will want in a tech product and Apple’s ability to not only see the future and then create the products people want even if they don’t know they want or need them that makes life difficult for those who compete with them. Even while the rumors fly about Apple’s next major reinvention, which most likely will be the interactive TV experience, it would not surprise me if the folks at Apple have peered into their crystal ball and are working on something really cool in some area of technology none of us have even thought of today. Having to live with this type of threat from Apple is what keeps their competitors up at night and always looking over their shoulder as Apple leads and they are forced to follow.

Microsoft’s Surface Tablet for $199 –Think Again

There were various reports about Microsoft pricing their Surface Tablet for $199 this week and it caused a lot of media and even consumers to hyperventilate about this possibility. Sure, many with wishful thinking would like it if the Surface is priced this low, but the chances that this will happen are slim to none.

I spoke with my contacts in Taipei and they pointed out that the bill of material cost of the Surface is at least $250 and could be as high as $300 depending on the configuration. For Microsoft to sell this at $199 they would have to take a serious loss on this product, something that in all my years of covering Microsoft, they have never done.

Indeed, their pricing goes in the opposite direction, especially in software where their mark-up could be as high as 70-80% depending on the product. And while the margins on the XBOX are much lower, the idea that they would sell this game console under cost is ridiculous.

The only companies that can afford to sell hardware under cost are Amazon and Google. In these cases, the hardware is almost a loss leader so that they can offer products and services through the device. In Amazon’s case, they amortize anything that is bought through the Kindle tablet for a period of time so that in the end, they actually book a small profit. However, the real goal is for consumers to continue to buy eBooks, music, movies and products through this portable tablet that is at people’s fingertips and makes buying these products very easy.

And Google’s model is similar although we believe they sell their Nexus 7 close to cost and then amortize money made through advertising related searches as well as Google Play to bring in any profit tied to their tablet itself.

But Microsoft does not really have enough successful services that they can count on to bring sufficient additional revenue to the Surface if they price it at $199 in order to make up the actual BOM cost as well as make any profit on the device itself.

The pricing of Surface will most likely start at $499 for the 16 gig model and move up from there based on additional memory or accessories. And these prices are more in line with business products like the Surface anyway.

Now I heard one theory that circulated that Microsoft is so far behind in tablets that they might price it at $199 just to buy into the market for tablets and gain a foothold through aggressive pricing. While that is a possibility, Microsoft’s history does not suggest that they do these types of things just to buy market share.

While this first version is coming from Microsoft, their hardware partners have been reaming them for doing this and have been lobbying hard to get licenses from Microsoft to do their own versions of Surface as well. We believe Microsoft may consider this at some point but if they priced it at $199 and well under cost, this would set the pricing for future models from partners and none of these partners are in a place to sell any hardware at a loss.

The most likely scenario that will play out is that the first generation of their Surface tablet will be around $499-$599 and if they have problems moving big numbers, they can always reduce pricing to move them. But if they priced it at $199, it would be impossible for them to up the price at anytime in the future since pricing a product higher then when it came out most often spells the death of that product.

While Microsoft’s Surface tablet does seem to have potential and serious interest at least from business customers, I highly doubt that Microsoft will enter this market just to lose money. That is why the idea of selling this way below cost does not make a lot of sense.

Musings on Apple v. Samsung

As you may well know, the tech industry is currently enthralled with the Apple v. Samsung, Samsung v. Apple patent and trade dress trial. I’ve been reluctant to talk about the trial. As a wise man recently told me, the trial is bringing out a whole new level of stupid in people. No matter what I say, no matter how carefully I craft my words, I’m sure to offend somebody – and perhaps a whole lot of somebodys – and subject myself to emotion laden attacks and irrational rants springing from that newly tapped fount of stupid.

Still, I’m going to risk it. Because it’s not just Apple and Samsung who have to live with the results of this case. We all will. And there’s a few things that we should try to get straight in our minds before the trial comes to an end.

Question: If Apple or Samsung wins, will it forever alter the tech industry?

In a word,”No”.

If Apple loses this case…life goes on. Apple will have lost virtually nothing. There will be a legal precedent making it even harder for Apple or anyone else to protect their patents and trade dress. But Apple’s been living with the real or imagined consequences of that reality for years and years already. Losing the case will not change how the parties act, it will simply reinforce the status quo. A Samsung victory might even increase innovation as Apple, and everyone else, realizes that patent law is a poor form of protection and that the only real way to compete is to outrace your competitors in the marketplace. And that’s not such a bad thing.

If Apple wins the case…life goes on. Samsung pays the damages or appeals the case or whatever. Samsung is not a broken company – not nearly, not by a long shot. Samsung makes a few tweaks to their existing phones and tablets, makes them look a little different, act a little different, and their devices continue to sell and sell very well. An Apple victory might even increase innovation as Samsung, and everyone else, realizes that they have to create unique new varieties of products in order to compete. And that’s not such a bad thing.

Question: Then why is Apple Suing Samsung?

Well, it’s not for the money. Apple is asking for $2.5 billion in damages. Apple makes more than $2.5 billion in profit every 30 days. And they have $118 billion in the bank. It would be senseless for them to have devoted as many resources to this case as they have simply to pick up the monthly rent check.

And it’s not for the injunctions. Most of the disputed phones are already off the market. Some of the rest soon will be. And for those that remain, most can be “cured” of patent infringement merely by making some minor tweaks in their existing software.

And it’s not to drive Samsung out of the mobile computing business. $2.5 billion is a lot of money and Samsung doesn’t sport the hundred billion dollar checking account that Apple does. But Samsung could literally write a check for that amount and then go their merry way. The potential damages – which will be delayed for years and possibly be mitigated by an appeals court – may be substantial but they’re not going to significantly alter Samsung’s prospects or change the balance of power in the tech world.

Question: So why? Why is Apple doing this? What is this all about?

This is a warning shot fired across the bow of the entire computing industry. “Violate our patents,” Apple is saying, “and there is no amount of time, effort and expense that we will not expend to take you to court in order to rectify the matter. “Mess with us,” Apple is saying, “and we will come after you with everything we’ve got. And we are relentless.”

Apple’s purpose, in other words, is to put a stop to FUTURE infringements of their intellectual property.

Question: Will Apple’s strategy work?

Maybe so.

Even if Apple loses this case, they’ve made the point that if your product drifts too close to theirs, they can tie you up in court for years and years. And if Apple wins the case, well, they’ve turned that warning shot I mentioned, above, into a 2.5 billion dollar fusillade.

Question: Is Apple’s strategy wise?

Maybe not.

I see what Apple is trying to accomplish here but, – and this is going to sound strange coming form an attorney – personally, I wish they hadn’t tried to use the courts to solve their patent problems. Seems like an awful lot of trouble for very little return. Feel free to disagree. I’m quite sure that Apple does.

If, in some fantasy world, Apple CEO, Tim Cook, came to me for advice on this matter, I’d tell him this:

“Patents and trade dress don’t much matter. You may have a legal right to enforce your patents, but as a practical matter, they are virtually unenforceable.”

“Apple is a leader. Act like one. Other companies are always going to copy you. Get over it. Out innovate them. That’s what you’re good at. Do what you do best and do it faster than the rest. As a company, Apple will always be a lot more successful in the open market than they’ll ever be in open court.”