Monday Note

This is going to be a busy week. Monday we have Apple’s earnings and, later in the week, Windows 7’s release. The deafening noise will make it hard to understand the real, lasting consequences of these events. Fortunately, deep into the bowels of a server, a smaller happening, a bit flipping from 0 to 1 portends more fun, more intelligible things to come.

The Apple Q4 (fourth quarter) 2009 numbers matter less than the volume of comments will make it appear. If the numbers are good, fans will sing ‘I told you so’ and naysayers will object the good times won’t last. If the revenue and profit indicators are less than stellar, the ‘I told you so’ and ‘it won’t last’ will switch sides.

A similar pattern applies to Windows 7’s launch: this is the greatest thing since Vista, just kidding; this is disappointing; this works; this doesn’t; this threatens Apple; this is very good for Apple. (Apparently, Apple is intent on channeling the Windows 7 noise to its own uses with an aggressive campaign, likely targeting the pain Xp users who, supposedly, will endure a particularly arduous upgrading experience. We’ll keep this for later: I’ll upgrade a few computers from Xp, Linux, Vista Ultimate and Vista Home Premium and report back.)

Sages have already offered their obligatory contributions to each part of the libretto. And, things on the Web being immortal, wags have dug up equally authoritative 2 1/2 years-old claims from the same business and tech gurus when Vista was launched. Said wags invented a term, “claim chowder”, for such an amusing or embarrassing confrontation between past and present pronouncements. If you google the phrase, you won’t get much because the ever-obliging search engine thinks you mean New England’s “clam chowder”. Fortunately, Google Reader, the blog-reading engine, is more forthcoming and offers a bevy of examples such as this one, or this one.

The confusion and contradictions are understandable: I believe the computer industry is in a transition that makes divining the future by reading today’s tea leaves more difficult than usual. For example, how and how much will Cloud Computing really change the landscape? Or, what about netbooks, a fad or a lasting trend encouraged by a bad economy pushing consumers and business towards the bottom of the price range? Will smartphones continue to eat into PC “face-time”, into out use of desktop and laptop computers and, if so, how quickly?

Let’s turn to the bit.

This is about iTunes’ App Store. We know the bragging statements: 85,000 applications, 2 billion downloads. We’ll get even higher numbers by tomorrow. After just over two years for the iPhone — and a little more than one year for the App Store, such numbers can’t be viewed as “normal”, even for an “abnormal”, convention-defying company such as Apple.

But… For many of us, the apps cornucopia has turned into a frustrating maze: with so many applications, how do we find the really good ones? Ostensibly, there is a review system where users share their “honest” opinion of an app. But the user review arrangement is deeply flawed: with the low price of apps, $.99, $2.99 or so, what prevents an author from using shills to boost the app rating? And, if you’re not happy with your purchase, good luck trying to get reimbursed. Confusion and suspicion aren’t good for business.
A few months ago, with the advent of the 3.0 (which I called the real 1.0) version of the iPhone OS, “in-app” purchases made a little-noticed appearance. This feature enables transactions from within the app. For example, you’re playing a shoot’em up game, you desperately need more weapons, click, enter your iTunes password and you just acquired the latest laser phaser. Or, as I had the experience in Paris, after you bought an Augmented Reality application, the seller will get you to cough up a few more €€ in order to get additional maps. (In that very case, I think I got royally screwed, the app name is Bionic Eye France, this is my user review.)
Strangely, Apple prevented free apps from offering “in-app” purchases. There must have been a mellifluous explanation, I guess I missed it. Developers who wanted to offer a tryout had to provide the App Store with two separate apps, a free, “lite” one and the full-fledged paid version.
Never mind, somewhere inside iTunes, one bit just flipped from 0 to 1: free apps can now offer in-app purchases. As a result, in the App Store, users see a free app with an easy paid-for upgrade path from within the tryout version.
Nice, sensible; we should never take common sense for granted. But momentous?
If limited to the smooth tryout to paid-for upgrade path, probably not, even if this removes clutter from the hard-to-comprehend App Store. On this very matter, there are more than a few iPhone apps review sites such as Appolicious, iPhone App Reviews, or these four suggested by ReadWriteWeb.

To be fair, I think the App Store does as good a job as possible with its main page. Now, if iTunes starts publishing stats of conversions from free to paid-for, such numbers might have more integrity than somewhat suspect user reviews.

There is more. For the sake of argument, let’s say newspapers and magazines are in dire straits because they have trouble getting readers to pay for their Web version. With a regularity that betrays lack of real will, they threaten to erect pay-walls, to prevent Google News from indexing their content and so on.
One big problem with the pay-wall is the subscription, its combination of amount, duration and renewal ruses. For example, The Wall Street Journal, carbon-based edition, offers a “teaser” rate of about $120/year. Then, once you’re “in”, the renewal rate is than $480/year. A similar trick applies to the on-line edition. Consumers find the joke tiresome and balk.
Now, a thought experiment: a new version of the free WSJ application: headlines, summaries of stories, some free content such as red-meat red-state righteous opinion pieces. If you find a paid-for story interesting, click, a little drop of blood, a few cents, a good parasite doesn’t kill the host and you get the juicy report of the latest hedge-fund Ponzi scheme. Instead of a “bulk” subscription to every issue, every article, you only pay, a little, but that’s better than zero, for what you actually read.
Other newspapers offer a full PDF version of the “real thing”, but by subscription. With a free app showing off the appetizing stories, they’ll be able to sell the full PDF on an impulse, one-issue-at-a-time basis.

But, you’ll object, this thought experiment is ridiculous. Yes, iPhones render PDF files, but what’s the use on such a tiny screen? True, and that’s where the larger screen of the hypothetical Jesus Tablet comes in. Newspapers and magazines could be sold piecemeal, story by story, or whole, not by subscription but by using a low, carbon-free newsstand price. In passing, the larger screen (unlike the iPhone’s) re-opens the door to some advertising revenue.

In other words, flipping the in-app purchase bit for the free iPhone apps could prepare the ground for an iTunes newsstand. Or, if you write a book, you could package reviews (independent ones, of course) with choice morsels of your Magnum Opus, give it away as free app, with the in-app option to buy the whole thing. Or… I’ll let you dream up your own example, from textbooks to movies, to games, to how-to text + video, to your daily crossword or sudoku.

Nice little bit. It’ll make it easier for us VC to fund iPhone apps, and more generally, smartphone ones, once competitors catch up and offer similar arrangements.

—jlg@mondaynote.com

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