The Changing of the Guard

Changing-of-the-Guard

 

IBM, Cisco, Intel, Microsoft, Dell, HP, and other large legacy hardware and software companies have something in common these days. A declining revenue stream. Big time.

IBM_logo     cisco      intel_logo

Its not just one or two companies, its most of the big ones. And the results will ultimately effect employees as each quarter passes and they are forced to reckon with Wall Street earnings and reports. The stock market takes no prisoners.

Online newcomers with ‘disruptive’ business models and software are flourishing. Box, Dropbox, Workday, Amazon, Salesforce, Facebook, LinkedIn, all have reported record quarters. Even Apple despite its recently declining stock price is still growing. Just about anything that has to do with mobile phones and tablets has the ‘Midas touch’.  Google Inc. said last Thursday that its revenue grew 31% in the first quarter, while profit rose 16%.

IBM last Thursday reported its revenue dropped.

Software giant Microsoft Corp., once known for rapid sales of PC software, reported that the business that includes its Windows operating system turned in essentially zero growth

Intel Corp., which has struggled to get its chips into mobile devices reported a first-quarter profit drop of 25% on revenue that declined 2.5%.

Oracle Corp., reported a 1% drop in its revenue in its most-recent quarter.

The disparities are the result of technology shifts—the rise of mobile devices and slowing growth in personal computers, conventional software replaced with online versions and cloud outsourcing by corporations. Companies want to rent software and computer systems. The deals are smaller and take less time to implement. Companies want to get out of the construction business—building and rolling out expensive software and hardware systems.

Web-based technology makes it easier for consumers and corporate employees to try new things and makes it harder for older technology suppliers to keep rolling out huge hardware and software deals month in and month out. Hardware, chips and hard drives get faster, smaller and cheaper now every 3-6 months making large purchases by corporations old before the equipment barely gets installed.

Workday Inc which was founded in 2005 and went public in October, reported that revenue for its fourth quarter ended in February rose 89%

Box Inc., founded in 2005 that lets customers store their data online and tap into it from mobile phones and PCs., revenue grew more than 150% in 2012 and it expects another doubling again this year.

“Their biggest challenge is they live in a world of legacy business models,” said Ed Anderson, an analyst with technology research firm Gartner Inc.

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Apps, Software and Video Games shortly will go the way of the DVD – they will live in a ‘cloud’.

Bandwidth is the key to the cloud. If you’ve got enough access to it, meaning if you’ve got a fast enough connection, then you don’t need any physical media or software to live in your PC, Mac or for that matter very soon your mobile phone and tablets.

We used to have giant ‘desktop’ computers that had to have HUGE hard drives in order for us to install many applications. For example, Photoshop, Dreamweaver, MS Office, CAD software, etc. all are very large installation packages. Couple this with your collection of MP3’s, photo’s, video’s and documents and most of us ran out of room on a PC that had 50-100 gigs of space for a hard drive.

The obvious to the consumer

Today, as a consumer we see convenient repositories for photo’s, music and videos and documents. Skydrive, GoogleDocs, Dropbox, Box, Amazon Cloud Drive. Now consumers are beginning to understand and use these places to store what they used to store on their home computers. Why? Several key reasons – first, once uploaded to a large mainstream cloud drive (and I mean to the likes of Google, MS or Amazon) your collection of ‘whatever’ is safe. How many of us have dropped or lost a laptop, had a hard drive fail, spilled coffee on our desks and then PC, etc. If you didn’t back it up to an external hard drive you lost it all. Worse yet, I’ve had friends who did and THAT and the hard drive failed shortly thereafter. Years of precious photos (and now videos more than ever thanks for our mobile phones) you can never get back or thousands of MP3’s gone (at $.99 each). Second, consumers now are getting familiar with storing their digital belongings off site and in a cloud. We hear about Amazon’s or Google’s cloud storage drive initiatives more and more everyday. They are fast becoming the new norm. And third – they are not expensive. Certainly not when compared to a 1.5 Terabyte hard drive that can fail without warning.

The not so obvious to us all

What’s not so obvious to consumers is what’s happening in the enterprise business realm. Years ago, you wanted to put up a business domain web site or had a business that required large databases, some required separate servers for clients that are uber security conscious, some needed to have their domain living on a separate server from others (especially the financial and health industries). Others needed production servers, staging servers and then after testing finally deployed an application or web service. Sometimes IT had to physically travel to the colo facility to apply a ‘patch’ to a newly deployed application and hoped that the patch worked as it was supposed to or else everything came to a screeching halt. Businesses lost money, time, and face sometimes. You’d pay Sun, Oracle, Cisco, EMC, etc. millions to deploy servers and DB’s for your environment. You’d spend money on hiring the right technical IT staff to deploy and sync and stitch all of this together. This WAS the norm.

Enterprise today is all moving into a cloud based environment – virtualization is the norm now.

Sun servers were all the rage in the 90’s. But they were VERY expensive. Robust, great customer service, but very costly. Today, you can run a linux box for a fraction of the cost. No more hard drives or servers (blades or otherwise). You can fire up an ‘instance’ and server through AWS in a few minutes. No going into a colo facility. Start-up’s can get to market almost instantaneously and for far less of a cost. You pay for what you use. No more buying a million dollar license for ATG, Vignette or Broadvision and installing 15 discs in a cage. You rent it now. Patches get uploaded by the cloud vendor in a virtual environment and tested before they are deployed to you.

With the rise of this ‘virtualization’, more and more apps or processes now get built into the browser. Java script was written just for this purpose and has allowed for far more sophisticated applications to run in a network environment and now on browsers. Other software will be embedded in browsers as time goes on that will mimic the functionality and hardware on your PC. You can bet on it.

Platform as a Service (PaaS)

Whereas IaaS (infrastructure as a service) providers offer bare compute cycles and SaaS (software as a service) providers offeraccess to such apps as CRM online, PaaS offerings provide turnkey services for developers to get their apps up and running quickly, no infrastructure concerns needed.

Offered as a service, PaaS runs the gamut from development tools to middleware to database software to any “application platform” functionality that developers might require to construct applications. None of these above services come without their problems. But so did everything else before them.

IaaS focuses on managing virtual machines, and the risks are little different than with other cloud types — here, the main risk is rogue or unwarranted commandeering of services. IaaS requires governance and usage monitoring. But with this comes a good degree of convenience and business ROI.

Some of the most popular cloud services running virtually are; Microsoft Windows Azure, Googles App Engine (which offer a nonSQL relational SQL database service), VMware cloud foundry, Force.com ( from salesforce.com), Heroku (also from SF), Amazon Elastic Beanstalk, Engine Ysrd Cloud (for Ruby on Rails enthusiasts), Engine Yard Orchestra (for PHP enthusiasts) and CumuLogic (for Java developers). Consumers never see or hear any of this but use web services that live on these services day in and day out.

What will be obvious to consumers in about 10 years or less

All of this bring me back around to bandwidth and apps. Once we have enough consumers that have access to real fast broadband (100mbps or more down and ideally 200mbps down), then the Apple and Android app store will disappear. Software discs will become obsolete. Video game installation discs – gone. Why, because once you have enough speed, apps can be loaded and accessed wirelessly via the web. The calls to databases, functionality and such can all be received instantly online. Its already happening, slowly. Examples of this in the entertainment space is Ultraviolet, bring your DVD’s to Wal-Mart and upload them to your digital locker – no more disc. Onlive, Livestream, Gaikai all stream video games without the need for a disc, Netflix (you know about them). Consumers are aware of these, but then you’ve also got GoogleDocs and Skydrive for documents and the creation of word and excel docs. We don’t need an install disc anymore.

Last week, it took me 4 days to upload 12,934 MP3’s to my cloud locker at Amazon Music drive. Less time than I ever thought. Available anytime for me to download if need be. That’s nearly $ 13,000 worth of music, stored for as little as $ 20.00 a year.

Mobile apps, software suites, video game discs, movies, music photos and more will still be here but will not physically be in your home forever. It’s inevitable.

Look Ma, No Wires: Browsing at the Speed of Sound

Imagine opening your laptop or your hand-held anywhere you happen to be and instantly showing five full bars of muscular Wi-Fi service? Nirvana.

There would be no need to find a Starbucks, or a McDonalds, or any other place with a Wi-Fi hotspot. You’d be in a Wi-Fi hot-zone.

Current Wi-Fi technology is designed for very short-range use such as in your home, office or at the local coffee shop. Signals at the lower-end of the “white space” spectrum, or 700 megahertz, can travel long distances, muscle their way through walls and create a much larger Wi-Fi-type hot spot. It’s like bringing Wi-Fi over an entire community or city. You can skip the expensive cabling and go wireless.

A proposed Order implementing open access to the vacant TV channels in every media market nationwide will be voted on at the Federal Communication Commission’s September 23 Open Meeting. It will address the next step in its plans for unlicensed use of the TV whitespace (the portions of the TV band that are not used in a particular location to carry TV signals). It has been called ‘wi-fi on steroids’.

The regulatory move, generally supported by all five commissioners, could help alleviate pressure on mobile networks that have frustrated some smartphone users who deal with dropped calls and slow Web connections. Think AT & T in NYC.

Ironically, it was the switch from analog to digital signals by television that freed up the extra “white space.”

“TV white spaces“– the radio spectrum vacated when analog television broadcasting ceased last year operates at lower frequencies and higher power than Wi-Fi, so the signals reach much wider areas than your typical wireless Internet router.
  New devices would be capable of transmitting the Wi-Fi signal over a potential range of several miles, rather than just hundreds of feet, would not be interrupted by walls and other obstructions, and would be as fast as today’s broadband and DSL connections.

Some benefits will provide dynamic management of the air interface, adaptations for vehicular use, computing mesh operation, inter-working with cellular systems, and peer-to-peer link establishment.

Calling the communications technology “super WiFi,” FCC Chairman Julius Genachowski said that private carriers are increasingly relying on WiFi hot spots in urban areas to pick up data traffic where their own networks are overburdened.

Genachowski’s proposal would reserve two television channels in each local market for wireless microphones. This is not sitting well with some high-tech companies that argue that priority for wireless microphones subtracts from precious airwaves that could be used for a new wave of mobile broadband devices and uses.

And the new the move faces some opposition from broadcasters, Broadway performers and ministers. Huh? What did you say?? Those critics, who have filed suit against the FCC to prevent the release of white spaces, say users of that spectrum could interfere with television channels and would throw off wireless microphones that operate on those frequencies. News and sports broadcasters, church ministers and singer Dolly Parton have argued to the FCC that they need some spectrum reserved for their wireless microphones. (Dolly, say it ain’t so?)

Operators are likely to experiment with different pricing models as they try to better manage the use of their networks. And some are doing that already with AT&T — often criticized for struggling to keep up with the demands of iPhone users — were one of the first to do away with an unlimited data plan.

“Bandwidth as an end-user service is hard to sell; it’s hard to monetize,” said Wim Sweldens, president of Alcatel-Lucent‘s wireless division. “If you go to a person and say, ‘I’ll sell you a megabyte of mobile bandwidth, how much are you willing to pay?’ nobody can answer that.”

Instead, if users are asked to buy a book or game or sporting experience on their mobile phone or an app for the iPhone or android, they understand the value, he said.

Google, Microsoft and Dell have long lobbied to use white spaces. They want to use the waves to connect entire universities to the Web with wireless links that use fewer bay stations.  And my hunch is that Google would love to have use of this for when they release the Chrome OS licensed to many builders of a portable tablet, due up shortly to compete with the iPad.

Dell envisions that white spaces will spawn innovations for the home. Consumers could rely on refrigerators that automatically signal the home tablet computer when food is running low, and place an order with the neighborhood grocery. Microsoft hopes to connect more of its devices to information stored on its clusters of data centers – known as cloud computing – to allow access from anywhere to applications such as its Office suite of software.

Currently,  we have over 1 billion WiFi chips in every laptop in circulation, chipmakers need to develop chips that are compatible with the spectrum qualities. Then, device makers have to update their iPhones and Kindles to allow users to switch to white-space networks.

I simply want faster wireless speeds anywhere I go. I am tired of being ‘tethered’ to a broadband cable. I say, let it happen.

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Is Pandora’s Box About to be Opened? TV of The Present and Near Future – 4 Possible Scenarios

1.  Slingbox + iPad or gPad (this is the quickest way to get your TV experience at home with ALL your channels – a ‘bridge’ solution at best as it omits the web

2.  gPad or PC Tablets running android (and Googles upcoming OS, Chrome) with a receiver chip built in for wireless broadcasts (including youtube for movies , via PPV) – this can be any number of announced tablets ( Dell, etc.)

3. AppleTV + iPads with special chips + iTunes for movies and TV shows (this assumes an updated iPad version).

4.  3rd party hardware/software boxes: Logitechs Revue box (coming soon), Roku (here now), Boxee Box (coming soon), and others require you to connect these to your TV (and whatever else is there, like a DVR, cable TV box, etc). The average person will have some reluctance to doing this. And that’s most of us. They don’t call TV BROADcast for nothing – its for the masses, not just the technophiles.

All of the above solutions or alternatives will give you ABC, CBS, NBC and Fox + movies on an on-demand basis. Some will let you access Netflix or Hulu if you have an account and subscribe (read: an additional cost).

WHAT’S MISSING: your very own DVR Cloud for shows you watch and want to keep which you have purchased.

Despite Steve Jobs stating that consumers “don’t want a computer on their TV,” consumers DO want TV on their computers or more specifically on their mobile and wireless connected devices (iPads,  tablets, etc.) and especially on the go.  Business customers, more than consumers, especially need any of their purchases to do double-duty to make fiscal sense.

Some GPad TV reasons to exist:

Google has released an informational guide for would-be developers to create more applications specifically for Google TV. While many apps will probably be useless or purely for entertainment, there will likely be some useful programs for business consumers in the near future.

Some things worth noting are Google’s forthcoming Chrome OS: Android will be picking up Street View services in Google Maps, as well as voice-powered search so users can speak search queries rather than typing them into a keyboard or using a mouse.

Google TV will be built right in to new TVs from Sony, available on separate set-top boxes from Logitech (Revue), and those are just launch partners, with many more to come. Google has announced plans to roll out Google TV in the United States this fall, with a worldwide launch following in 2011. Google TV aims to fuse traditional television programming with Internet browsing and interactive capabilities.

Google TV will run on Intel’s Atom processor – the same chip powering virtually every netbook on the market. This enables it the additional horsepower to pump up full 1080p video, rather than 720p as the Apple TV maxes out at, it should leave room for additional upgrades, and maybe even the possibility of hacking the software to run other desktop apps (umm, now we shall see ‘jailbreaking your Google TV or gPads, I can virtually guarantee that one).

Google, meanwhile, has said nothing of opening a store for content. Every source will either come for free through the Web, from a cable box, or third-party providers. This might make the selection of popular shows smaller out of the box, but providers like Amazon on Demand, Vudu and Hulu Plus will line up to jump aboard Google TV, and it means that Google TV will be providing more content than what Apple alone can deliver- although it doesn’t mean that those same providers won’t want into the iTunes storefront as well.

To Googles point and possible advantage, Movies and TV isn’t everything.  Sometimes, you want to see photos from Picasa. Sometimes, you want to give directions to a friend using Google Maps. Maybe you want to want to read your favorite site without squinting on a mobile device or watch a YouTube video.  Google TV will integrate a browser based on Chrome to do all the above.

Google claims that existing Android apps should eventually be able to run on Google TV, as long as they don’t use smartphone-only features. Meaning it will be damn difficult to tilt your TV to play skillball or bowling using an app.

Dell is releasing later this year a Dell ‘Looking Glass tablet’. With larger screen Android phones and tablets coming to market in the second half of the year it only makes sense that content services will be supplying the increasing demand to watch content on these new screens and devices.

The Looking Glass is actually the big brother of the Dell Streak 5 and it comes with a 7 inch WVGA display. The tablet will run Android 2.1 on a 1 GHz nVidia T20 processor. The nVidia Tegra 2 is impressive because it is based on an ARM Cortex-A9 multicore processor design. Other spec highlights include 1.3 megapixel front-facing camera, 512 MB ROM and 512 MB RAM, and 802.11n WiFi. Optional accessories for the Looking Glass include a 3G modem (mini card type) and a digital TV module. Expect the Looking Glass to launch in Q4 2010 on AT&T. Early renders for the device show U-Verse integration, which is AT&T’s fiber optic network.

Apple TV Reasons:

Apple recently redesigned the Apple TV to run on the same A4 processor powering the iPhone and iPad. Essentially, it’s a smartphone, without a screen, in a box.

Apple TV conveniently puts its storefront for iTunes in the middle of your living room, allowing you to buy Apple content from Apple. And hey, you can watch Netflix this year, too, YouTube and Flickr.  Apple has proven to make this closed shopping experience feel cozy and convenient as in the past it has done with all of its devices and media offerings. Being a proven solution is a BIG advantage here.  And Apple is so far the only ones that can say this.

Apple has got it down and has sold millions of iPhones, iTouch’s, iPads and other connected devices AND content for years now. This is not an easy trick – as it not only requires the hardware to be stupidly simple and easy to use for the masses, but its software must be self-healing and not require the ‘patches’ and the many problems we have all had with things like syncing your Outlook to a Palm or Crackberry and maintaining ALL of your information. How many of us have had problems doing this because we were running one of the many Microsoft operating system versions or incompatible updates for our MS Outlook or office.

Apple is also easing restrictions on the use of third-party development tools to create iOS app—a move that might clear the way for developers to create apps for the iPhone using Adobe Flash CS5. (Note this is not the same as letting Flash run on the iPhone.)

When Apple debuted iOS4 back in April (then called iPhone OS 4), it unveiled restrictive terms in its developer program license that prohibited developers from using third-party application development tools or middleware to create iOS applications. In an open letter later that month, Apple CEO Steve Jobs said Apple did not want the iOS platform to be “at the mercy” of third party development tools. Apple has not changed those provisions to permit the use of third-party development tools, so long as the applications do not download code to iOS devices. “This should give developers the flexibility they want, while preserving the security we need,” Apple wrote.

Slingbox Reasons:

For the uninitiated, Slingbox is a “places shifting device.” Connect it to a video source (cable or satellite box, DVR, TV antenna, and so forth), and the Slingbox digitizes the video output for access on a wide variety of PCs and smartphones and iPhones–essentially allowing access to your home TV anywhere you can access the Internet. People prefer the benefit of mobility and they will accept just about anything – even frequently dropped calls – for the ability to have a media session (voice call, video chat, whatever) while they are wherever they are.

If you can watch whatever is on your home DVR, TV or better yet live HDTV on your iPad, wherever you are, then the broadcasting companies have lost total control of advertising as it relates to geography. This is an interesting notion (Nielsen please take note).  This has huge implications. One example is sports blackouts. Often local TV stations will not carry a local team game to force local people to go to the game to see it, or a particular company owns the rights to the broadcasting and will not allow it to be shown in that area. The entire concept of locality is gone.

There are buckets of content that come through cable still unavailable from the Web. Google TV and third party hardware/software boxes connecting to cable boxes and other hardware can and does cause setup nightmares that negate all of its potential capabilities and benefits. After all – a home theater PC can already do pretty much everything Google TV will – but how many people do you know with computers under their TV sets?

All in all, its going to get very interesting in the very near future. For now, I’ll take my simple basic cable set-up, throw a slingbox in my house, download the iPhone app on my iPhone or iPad and I’m good to go anywhere. Keep it simple.



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Apple and the War for the Mobile Market..its all about the carriers who hold the distribution key.

The short history of the computer industry is dominated by two well-known stories of business triumph and defeat. The first is the story of how mainframe makers failed to take the personal computer seriously until it was too late. Most of them faded away, and those that didn’t still failed to dominate the PC industry.

The second is the story of how Apple Computer refused to license its innovative new operating system to other hardware makers in the early days of the PC revolution and ended up ceding the market to Microsoft, which licensed its operating system far and wide.

The temptation to fit every new computer industry business conflict into one of these two molds is strong, and frequently surrendered to. For a modern example, look no further than the current battle for the mobile market between Apple, Google, RIM, and others. The first story may end up applying in the case of RIM, which might have waited a bit too long to recognize the primacy of the touchscreen and the mobile application marketplace. Or perhaps it applies to Microsoft, which refused to let go of the idea of shoehorning Windows onto a phone until very recently (or not).

But I want to talk about the second story, the one about the company deciding not to license its operating system to third-party hardware makers. In the mobile-market version of this story, Google is Microsoft, Android is Windows, iOS is the Macintosh operating system, and Apple is, well, Apple. The pieces match up so well, it’s barely even an analogy. The lesson seems clear: unless Apple learns from its past mistakes and opens up its mobile platform, it’s going to end up with a Macintosh-like minority market share while Google licenses its mobile OS to all comers and the Android phone becomes the Windows PC of the new mobile computing era.

Maybe you’ve heard this sentiment expressed before, and maybe you’ve read the inevitable reactions to it from ardent Apple supporters explaining why the current situation is very different and how Apple will succeed this time around—or perhaps how it has already succeeded. I’m on board with the first part; I think the mobile market is very different from the PC market of old. On the second part, Apple’s prospects for success, I’m less sure.

But first things first.

To understand the differences between the war for the PC market and today’s mobile battlefront, consider the specifics of Apple’s historic failure against Microsoft. According to the story, Apple’s refusal to license its OS led to several insurmountable disadvantages.

First and foremost, Apple had to make and sell all the hardware that would run its OS. Microsoft, meanwhile, had an entire industry working to make hardware for its OS. PC makers fought for every last scrap of the market, building hardware to suit all sorts of customers: PCs for home use, education, gaming, point-of-sale, data centers, businesses, industrial use, you name it. In the heat of this competition, PC hardware prices were driven down and margins were cut to the bone; PC hardware was commoditized.

Even when its catalog of Mac products was at its most sprawling, Apple made a comparatively narrow range of products, with just a few half-hearted excursions into less-mainstream niches. It was clear that a single company couldn’t make and support enough different kinds of hardware to serve the entire PC market.

Since the margins on hardware are a lot lower than the margins on software, Apple was at a distinct profit disadvantage versus a software vendor like Microsoft. To compensate for this, Apple tried to stick to the sweet spot of profitability in the hardware market, avoiding the tiny margins of the very low end and the low volumes of the very high end. This further lowered the glass ceiling of Apple’s maximum potential PC market share.

To add insult to injury, Apple wasn’t even on equal footing when it came to hardware costs. While the IBM PC and its eventual clones used Intel CPUs, Apple chose Motorola—twice. The battle between x86-compatible CPU vendors pushed performance higher and prices lower, but Apple was left out of that virtuous cycle, making its Mac hardware more expensive and often slower than its PC competition.

The result was that Microsoft dominated the PC industry, achieving a bona fide monopoly and reaping huge profits, while Apple nearly went out of business.

Pattern recognition gone awry

Now let’s compare this to the contemporary mobile world, starting with the idea that a single company can’t profitably produce a wide enough range of hardware to serve an entire market. While that may have been true for the PC, I don’t think it’s true in the mobile space.

Consider the iPod. Apple started with just one, Mac-only iPod model, refined it for a while, expanded beyond the Mac market by making a Windows version, re-calibrated its aim for the mainstream and released the smaller iPod mini, then iterated confidently while also branching out into less profitable segments. The end result: Apple completely dominated the digital music player market.

Next up is pricing. By allowing hardware vendors to slit each other’s throats, Microsoft ensured that customers would have access to cheap PC hardware while not hurting Microsoft’s own (software-based) profits. At the height of the war for the desktop, PCs weren’t cheaper than Macs by a few dollars; they were cheaper by hundreds, sometimes thousands of dollars. That was a crushing blow to Apple’s sales prospects, and one that a company that made its profits from hardware sales had no way to retaliate against.

iPhone X-Wing

What does mobile phone pricing look like today? Well, the iPhone isn’t much more expensive than comparable phones. And since phones cost a lot less today than PCs did in the ’80s and ’90s, both adjusted for inflation and in absolute values, the differences are even smaller: tens of dollars, not hundreds or thousands. That kind of pricing differential is eminently surmountable with product features and design—an advantage Apple definitely enjoyed back in 2007 and arguably still has some of today.

A big reason for this price parity is that most of the cost of a phone isn’t in the phone itself, but in the contract with the carrier. An iPhone 4 may cost you $200 to buy, but the contract will cost you thousands of dollars.

This doesn’t mean that there’s no room for handset pricing to affect sales, but it does mean that those price wars will take place at a scale and in a realm where Apple has already proven itself able to win: portable consumer electronics that cost a few hundred dollars at most, dropping down to two-digit prices at the low end.

As for hardware costs and performance, Apple’s component suppliers are the market leaders. Even its “unique” ARM-based CPU uses the same instruction set as the CPUs in its competitor’s phones. For now, at least, Apple is on the right hardware train. And if the time ever comes to make a change, Apple is uniquely experienced in switching CPU architectures in a way that’s mostly transparent to customers.

All of this is to say that the situation in the mobile space today is not analogous in a straightforward way to last millennium’s battle for the PC desktop. Now, without using history as a crutch, let’s reconsider Apple’s mobile prospects. Is the iPhone destined to be a minority player in this market, or will it come to dominate? If, as I propose, a single vendor can provide enough hardware diversity to cover most of the market, and if every player has similar hardware costs and roadmaps, what does it take to win this war for our palms? Where’s the edge, and who’s got it?

An idealist might say that having the better product will make the difference. As much as I’d like that to be true, I don’t think any company has a product that is so much better than its competition in the eyes of so many people that quality alone will decide things.

Critical mass is another factor. Are customers buying iPhones because their friends and relatives have iPhones and they want to video chat with them, use some of the applications they’ve seen, or just be part of the in-crowd? In other words, has Apple’s 2007 launch of the iPhone given it insurmountable lead? Again, I have to say no. Apple had a head start, for sure, but Google has closed the gap quickly with Android in terms of both product quality and sales.

Speaking of which, what explains Android’s recent rapid sales growth? Android is a good OS, but then, so was webOS, and look what happened to Palm. Quality is not enough. Android is available on a wide variety of hardware, but a menagerie of form factors has not stopped RIM’s market share slide. Handset variety also poses challenges to application developers who must target a fragmented platform. Hardware is not going to make the difference. So what will?

Carriers, carriers, carriers

Let’s revisit the Mac/PC analogy, with a twist. In the desktop era, distribution wasn’t much of a factor. Everyone had access to the same retailers, and, eventually, the same Internet. Retail margins were all very similar, and exclusive distribution deals were rare and usually inconsequential. Product features and pricing were the most important differentiators, and both were controlled by the hardware manufacturers.

Today’s mobile market is the polar opposite. Distribution is almost completely controlled by the carriers—albeit sometimes indirectly. A lack of decent coverage in a particular geographic area can eliminate a phone from consideration, regardless of how great the hardware is or how much it costs.

Carriers are also running the show on pricing. Carrying the vast majority of the cost of the phone in their contracts means that the carriers have the most leeway to move the market by, for example, lowering monthly bills, lowering or eliminating bandwidth caps, increasing subsidies (thus making phones appear “cheaper” to consumers), and negotiating how much of this money will be shared with phone manufacturers.

And, of course, the carriers decide whether to allow a phone on their network at all.

Distribution isn’t important when all competitors have the same access, but it’s incredibly important when the market is fenced-off into independent kingdoms, the choice of which can make or break a sale before the merits of the actual product are even considered. The way customers have been buying cell phones for the past few decades further minimizes the importance of the phone itself. Most (non-geek) people take a trip down to “the cell phone store,” choose a contract that fits in the budget and maybe includes some discount plan for friends and family, and then pick the handset that looks the best (or the one that’s suggested by the store clerk). Maybe things like ease of use and application availability are considered in that final step, but at that point, they’re not going to make or break the (contract) sale; the customer is walking out of that store with one of the phones that it sells.

Android sales are surging because there’s a pretty good Android phone—probably several, in fact—for sale in nearly every place that sells mobile phones. And as hard as it may be for some of the people reading this to believe, the Apple store is not where most people go to buy a new cell phone. All those Verizon, AT&T, and T-Mobile kiosks in the mall exist for a reason. Apple has 229 retail stores and a big marketing budget, but both are dwarfed by the combined retail presence and advertising spending of the carriers. And yes, I’m including AT&T in all this; AT&T sells Android phones too! It’s Apple on one side and an entire industry on the other…starting to sound familiar?

Leveling the playing field

Apple doesn’t need to license iOS to other handset makers. Yes, Android is starting to look a lot like the Windows of the mobile era, but not because it’s licensed to third parties. The contexts and uses for handheld devices like music players and cell phones are far more limited than for PCs; hardware diversity is not driving Android sales. The magic formula is simple: quality + availability. Android is ascending in the market because it’s good, it’s available where people want to buy it, and it runs on the networks people want to use.

Droid TIEs

The current carrier situation may end up being a transient aberration in the long run, an inefficient market created by the huge fixed costs of building and running a wireless data network. But if the comparatively more mature (wired) telephone, cable television, and Internet service provider markets have taught us anything, it’s that the road to a more competitive marketplace for infrastructure services is a long and hard one. Carrier segmentation will be a fact of life for Apple for the foreseeable future.

There’s only one thing for it. Apple needs to get the iPhone on more carriers as soon as possible. Nowhere is this more important than in the US, where the iPhone is available on just a single carrier—one that’s decidedly not the market leader. The only way for Apple to eliminate the distribution and marketing advantage currently enjoyed by Android is to make sure that everywhere an Android phone is for sale, there’s an iPhone sitting right next to it that will work on the same network. Only then will Apple get a fair shot at selling based on the things it can actually control: the hardware and software of the phone itself. At that point, it can—and should—diversify its iPhone product line just like it did with the iPod in the last decade.

Epilogue: market share matters

On a recent podcast, John Gruber spent some time musing about the inherent worth and actual relevance of market share, noting that “you can’t cash checks with it” and suggesting that it might just be a convenient way for industry observers to “keep score.” It’s true that Apple only needs some reasonable share of the market to sustain its platform. The Mac has had a market share well below 10 percent for decades, and that’s been enough to ensure that developers will still write Mac applications and customers will pay enough for Mac hardware to fund the development of future models.

Furthermore, in the mobile market as in the PC market, Apple’s share of the profits is considerably ahead of its share of the revenues. Analogies to luxury car makers inevitably follow. “Hey, BMW has only 7 percent market share, right?” The idea is that Apple either can be or should be happy with just “the most profitable portion of the market.”

Well, rest assured, BMW is not content with its current share of the automotive market, and Steve Jobs’ Apple will not be satisfied with anything less than the biggest piece of the pie that it can possibly take, in terms of profits, revenues, and unit sales. With the iPod, Apple has proven that all of those numbers can be well above 50 percent—without compromising product quality.

In the mobile market, the goal is the same. Apple is playing to win

Guest Post by John Siracusa. Thanks John!

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What’s to come in 2010

Some thoughts and predictions for 2010:

Computers/OS:

Google’s OS and Google’s Browser Chrome will further erode Microsoft’s OS dominance.

Phones:

Google’s Nexus One is not an iPhone killer but what would be much more powerful and meaningful would be for Google to offer a ‘subsidized’ cell phone service through a carrier in exchange for watching ads – no more cell bills. That MIGHT make me give-up my iPhone habit.

TV/Cable:

TV Everywhere will dominate as cable subscribers will WANT to get what they see at home on their PC’s, phones, etc. They will want this because its only a matter of time before Hulu (and other online content aggregators) lose their premium content or require a subscription fee. (Smell Comcast here?). Boxee, Roku, Sezmi and Zillion TV will have tough sledding IF Apple TV hopefully syncs a (rumored) TV subscription service with their upcoming iTablet/iSlate.  Apple MIGHT offer consumers an a-la-carte menu of the best of cable and network TV on their televisions through the AppleTV box, iphones and the iTablet  (along with several newspaper/magazine subscriptions) for a single monthly fee. Their version of  a cable ‘triple-play’ subscription. Do you remember when cable TV was “sold” as a way to escape the ads on free, OTA broadcast TV? Those were the days…

Movies/Music/Web:

iTunes will announce an iTunes web service, thanks to the Lala acquisition. Disney will move forward with their Keychest initiative and so will the Digital Entertainment Content Ecosystem, or DECE. However, only one system will survive this year to avoid consumer confusion.

‘Live’ streaming video and UGV will replace the jpg /gif as the dominant content format of visual sharing online.

Facebook, Hulu, YouTube , Twitter, and other ‘weapons of mass distraction’ these days will be increasingly ‘filtered’ out from the workplace due to too much time by employees during work hours spent on ‘social media’ causing a huge traffic shift in several social networks most notably, Facebook.

Facebook will go public and the IPO will be a huge financial success until Facebook becomes the Borg unless it allows data portability. Its number of users will continue to climb until the network is as large as Google and people will confuse Facebook with “the Internet” like days of old when the internet was ‘AOL’ to many people.

And then one day…

A new social network will rise to join the big ones. It may offer the privacy that Facebook is moving away from; it may be mobile and location-centric; it may focus on personal content recommendations, but it will come and the minnows will swim like fishes to the next ‘big’ new network to be seen and heard on.

We are all ‘Paparazzi’s’ and ‘Jimmy Olsen’s’ now…with the Advent of ‘live’ broadcasting apps on the iphone and android makes paparazzi’s and Jimmy Olsen’s (instant news ‘scoops’) out of us all further diluting the worth of major news org’s that can’t be expected to be everywhere at all times.

Cloud computing heats up. AWS, Google, Microsoft and others begin price wars to compete for customers.

MySpace will try to become as important to online viewers as MTV was to cable subscribers in the 80’s.

MOG and Spotify will invade the US and give iTunes(lala) and MySpace a run for their money.

And hopefully:

Data portability will become more real, standard, expected and viable. Why isnt’ there a way for me to make 1 Avatar, use 1 password and login to store all this info in a central location that my ‘social networks’ and other internet related service use and fetch each time I access these services?  Here is where I’d place all my photos and videos and then simply choose which services get access to which photos and videos. So, when I leave a social network, my ID and photos and videos LEAVE too.  Go ahead and just try moving or populating another social network again with all of your pictures, comments and videos that you’ve uploaded at one time or another. Hard to do and time consuming beyond belief. It would be nice to able to take MY STUFF (and data preferences) with ME with 1 click.

Comments welcome.

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The Death of the retail DVD. Now you see them, soon you won’t.

A lot has been written about online video and its bright the future. One thing is for certain, online video has got some maturing to do, but it is here online today. Right now you can watch nearly everything you can see on cable, online in one format for free or for a fee. For the studios that ship thousands of DVD’s of first run films to the stores (and there are less of them) they are shipping less. For the independents, they are shipping even less and to add insult to injury, must take returns back of unsold plastic with DVD’s. And then you’ve got shelf space where less is being devoted and therefore more studio titles occupy that space rather than independent titles. But overall, online is slowly nibbling into these sales. How do we know? Look at the music CD business.

When we moved from cassettes to CD, the music industry reaped those dollars. Finally now, musicians are beginning to understand how to use online to actually make more money with their music than the traditional ways. Ian Rogers, ex-head of Yahoo Music has got it right. He’s dead-on. Using Topspin, he recently pointed out two examples of how this works with two artists at Topspin.

The first example is David Byrne and Brian Eno’s new album Everything That Happens Will Happen Today. By distributing digitally and keeping most of the profits themselves, the gross revenues of the album matched what they could have expected to get as an advance from a music label within the first 50 days. The second example is a lesser-known artist in his twenties, Joe Purdy, who has sold 650,000 tracks on iTunes and was able to buy a house from the proceeds.

Ian says:  “Digital sales don’t make up for physical? From the artist perspective they certainly can, and quickly. David and Brian keep the majority of the profits, and (via Topspin at least) are paid within sixty days of the fan purchasing (no wait for recoupment and complex royalty accounting). When your costs are low your royalty rate high and your channel direct, the marginal profitability from the artist perspective can be far different than in the old model, to be sure.”

Look at Radiohead and Nine Inch Nails.

So, ultimately DVD’s will go the way of the dinosaur. Just as CD’s have. Where’s the economics of sending these in a truck across the country, including packaging and shipping costs and returns? So how will an independent movies producer/company and or studio survive?  It has to be online. The writing is clearly on the wall. DVD’s simply will not continue to be sold in stores. Take a look at ESD (electronic software disrtibution).

msft-store

Example: Microsoft. They just moved all of their software online, into a MS ‘store’. What’s this mean? The days of buying packaged software loaded onto CD’s are numbered. The online store sells all Microsoft software from Office to Xbox 360 games. Instead of shipping the software in the mail, you download it over the Web. Just like you can download apps directly to your iPhone from the iTunes App Store, the Microsoft Store takes the same approach for its own PC and server software. (It does not distribute mobile apps or software made by other companies).

The obvious fear for most users buying ESD products is not having the software on physical media to re-install the product at a later time. Microsoft Store solves this by letting you re-download the product until mainstream support for the product ends. Typically this is 5 years after the product is released. You always have the option of copying the downloaded products to physical media if you want to have it available longer than the mainstream support lifetime.

And this can also be solved with movies and TV shows. Especially when you allow consumers to ‘own’ a digital copy to watch anytime, on their TV without actually having the digital file. How is this done? That’s my next post. There is a secret stealth company coming in early 2009 that will allow consumers to ‘stream’ anything they want (new or old), with or with out commercials (you can pay for it w/o commercial or watch for free with them) and keep the tv or film forever locked away in their own media vault (not on thier own PC, but remotely).

Its the future. Stay tuned. And its real. Using this, why in the world would anyone have to buy or rent a physical DVD again?