Apple and its Non-Acquisitions

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

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

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

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

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

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

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

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

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

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

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

Do Students Hate Textbooks More than They Like Sex?

It’s no secret that students hate both buying bloated, overpriced textbooks and lugging those bricks around in their backpacks. But we didn’t know how much.

A new survey sponsored by Kno, Inc.–which, not coincidentally, is in the business of e-textbook software–found that 73% of college students would do something they otherwise wouldn’t consider, including giving up sex, if they never had to shlep another textbook.

You can take that finding with a grain of salt, but there’s little doubt that the movement to e-texts is hitting an inflection point. The Kno study, conducted by Kelton Research, also found, more believably, that 71% of students want their texts to go digital.

A big driver, of course, is the rapid adoption of tablets, particularly the iPad, which make excellent textbook readers. An early attempt by Amazon to promote the jumbo Kindle DX as a textbook reader fizzled, mostly because of the limitations of the monochrome, video-free device. But the iPad is so natural for the job that Kno abandoned plans to come out with its own hardware to focus on iPad software.

The most recent big development in electronic textbooks was the announcement by Amazon that to would be renting texts for as little as 30 days and for up to 80% less than the print edition price. The books will be available on all devices that support the Kindle reader,  though I suspect that reading a typical textbook on a phone screen will not be a happy experience.

Amazon has initial partnerships with John Wiley & Sons, Elsevier, and Taylor & Francis. That will limit the selection of text available this fall, though other big players such as McGraw-Hill and Pearson will certainly join if the initial efforts shows legs.

That calculus text pictured above? Single Variable Calculus by James Stewart (Brooks Cole) is one variant of a widely used introductory text that is not available in digital form. A hardcover copy is still going to set a student back more than $100 and create a 2 1/2 lb. lump in a backpack.



A Sure Sign of Real Trouble at RIM

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

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

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

The Case For (and Against) a Cheap iPhone

There’s been a fair amount of buzz in the last few days about Apple introducing a cheaper iPhone this fall and in “The iPhone Is Too Expensive” at Slate, Farhad Manjoo makes a good case for Apple doing just that. But I seriously doubt that Apple will do so because, while the arguments for going downmarket make sense for any other manufacturer, that just isn’t how Apple works.

It seems to me that the surest way to go wrong in anticipating an Apple move, and I have done this often enough myself, is to assume that the company  gives a damn about market share. Apple is driven by margin and total profits, not by share, and this strategy has made it by far the most successful consumer electronics company in the world.

Yes, Apple could do a de-featured iPhone that could sell for $200-$250 without a contract and compete with a horde of generic Android handsets. It would undoubtedly increase Apple’s market share, especially if it was sold with prepaid service. All Apple would have to do is accept tiny margins and sell a product that the company knows isn’t as good as it could be. That just isn’t in Apple’s makeup.

Instead, I expect they will bring out a new iPhone in September (I’m guessing about the date, like everyone else) and keep the iPhone 4 in the lineup at a sharply reduced price. (A year after the introduction of the iPhone 4, you can buy an iPhone 3GS from the Apple store for $49. How much cheaper do you want it?)


Tech Patent Fights: What’s at Stake

Recent days have been filled with news about patent disputes. Lodsys, a company that claims fundamental patents on in-application purchases, fired off another batch of suits against alleged infringers. Apple and Nokia resolved a complex legal fight over smartphone patents. Dolby Labs sued Research In Motion. And the U.S. Supreme Court told Microsoft to pay up on a judgment that technology in Office infringed on a patent held by tiny i4i LP. Continue reading Tech Patent Fights: What’s at Stake