I’m quite fond of kremlinology, the metaphorical one, not the literal sort. For me, it started as a hobby and ended up making me decades of fun and money. Allow me to explain before we proceed with an attempted decryption of recent Apple events and statements.

Working in Paris in the seventies, I struck an acquaintance with a Gideon Gartner analyst called Aaron Orlhansky. He came to lunch with a bunch of markitecture papers from IBM and I had fun untwisting the real meaning behind sonorous statements coming from “The Company”. That was my amateur kremlinology stint. One day, he casually mentioned his acquaintance with Tom Lawrence, Apple’s top gun in Europe. And he added: ‘Tom’s looking for someone to start Apple France’. I said I was that man, an introduction was made, Tom and I “clicked” immediately and I was hired on December 12th 1980.
Almost three decades later, I’m in the Valley, a kid let out in the candy store, watching wave after wave of exciting entrepreneurs, ideas, technology, products, cultural changes…

On to a bit of Apple kremlinology.

The biggest news was Steve’s appearance at the iPod event last week: ‘I’m vertical’, he said and proceeded to acknowledge his gratitude to the liver donor who allowed him to be there. He also thanked the Apple teams who kept the ship going while he wasn’t so even-keeled. And he encouraged us to become donors. In California, you do that with a code on your driver's license. Nothing to decode here, everyone is happy to see Dear Leader back in the saddle. He was met with a heartfelt standing ovation.
Now, we hear complaints he’s back lording over details, putting people under tremedous pressure. Good.

Let’s turn to the iPod announcements and to the howls of disappointment over the lack of camera in the new and improved iPod Touch. How could He do this to us, His faithful followers? When questioned, the spinmeister lets its be known the absent camera makes a lower entry price possible, $199. The iPod Touch has emerged as a major game console, you see, and you don’t need a camera on such a device.
I’d say two out of three.
Yes, the games on the 20 million iPod Touches (and 30 million iPhones) shipped so far surprised everyone, Apple first. Games aren’t a side show on the platform, they’ve become a big money maker for developers and a threat to the likes of Nintendo’s DS and Sony’s PSP. Commenting this graph, from Apple’s presentation, Business Insider says ‘the iPhone platform has almost five times the number of game and entertainment titles that Sony and Nintendo's portable systems have combined.’
Removing the camera to get to a price point? Not convincing, camera modules cost very little, they’re everywhere on cheap cell phones.
No camera on game devices? The $169 (on Amazon) DSi sports a camera.
Further, iFixit, one of the usual i-pathologists, promptly dissected a new iPod Touch and found room for a camera. They also found a few networking goodies such as 802.11n hardware, not activated.
For the missing camera, there is a simpler explanation: money. For $299 you can get a 32Gb iPhone 3GS or a 32Gb iPodTouch. Same price, very different function set. The iPhone is a phone, the networking function (Web, email) works on AT&T’s 3G network, and it sports a camera, stills and video, all functions missing on the iPod Touch.
The answer simply lies in Apple’s per device revenue. The posted $299 price for the iPod Touch is it, no carrier revenue sharing. For the iPhone, the actual revenue, with carriers’ subsidies or revenue sharing, is more like $850, as discussed in an earlier Monday Note.
Now, there is talk of an accounting rule change that would stop the practice of spreading iPhone revenue over two years. The new rule would make it easier to assess how much money Apple really makes with its smartphones; it would make a clearer connection between Apple’s declared profits, growing nicely, and its cash balance, growing much faster.
We’ll assume there isn’t a large difference between the respective manufacturing costs of the iPhone and iPod Touch, the delta being the camera and the phone chips, both inexpensive commodities. Then, for Apple, the iPhone generates about $500 more than an iPod Touch does. Q.E.D.: no iPod Touch camera, this will drive more customers to the iPhone.
This isn’t the end of that story. Let’s assume for a moment Apple renegotiates its loving AT&T relationship; what could they get in exchange for not straying? Something like no questions asked voice and video over IP, perhaps? In practical terms, this means Skype video, with a second camera on the next iPhone, facing the caller this time. For such fun-ction, one easily sees iPhone fans springing more $$, or renewing their carrier contracts. If  something like this happens, then the iPod Touch gets an iPhone hand-me-down single camera.

When it comes to the iPod Nano, there is no such internal competition. Throw everything in and help the iPod Nano keep its best-seller status: FM radio, a previous no-no, a clever video camera, a pedometer, a surprisingly good (for the size) speaker, neat tweaks all over, but no more than 16Gb of storage, that would compete with the iPod Touch. This said, it’s yet another well-executed product, I bought one and feel the video camera alone will “make the sale” for the Christmas season. What Cisco gets out of its $590M purchase of the Flip camera remains a mystery. The video on the iPhone 3GS had started the trouble, the iPod Nano could finish it: smaller, strong integration with iTunes, multi- versus mono-function. $129 vs. $149.

There is more. For the first time, Apple’s propagandastaffel used the term pocket computer  affixed to the iPod Touch. And, from there, Phil Schiller, Apple’s Marketing VP, proceeded to diss netbooks again, showing a picture of a Dell Mini tearing open a jeans back pocket. This is certainly a way to address the iTablet rumors without using the T-word. ‘We have a nice pocket computer, thanks, and we won’t make a device that tears your pockets.’
To this, I’ll start by saying there is room in my jeans back pocket for a larger device, not a Dell Mini netbook, but, still, something with a bigger screen than what iPhone users enjoy today. The current iPhone measures something like 2.5” by 4.5” (6.35 x 11.43cm). Does this leave room for a viable form factor between today’s size and the Dell Mini’s approx. 9.25” by 6.75” (23.5 x 17 cm) ?
My jeans back pocket are wider than they’re deep, approx. 6” by 5” (15 x12.7). On men’s jackets, side pockets are about 5.5” (14cm) wide…

Speaking of size, I just flew from Boston in the back of the bus, that wasn’t too hard, I’m “economy-size”, but using my 15” MacBook Pro was a problem. So, I got myself a Dell Mini and, pardon the sacrilegious intent, planned to make it run Apple’s OS X. The end result is known as a hackintosh, a relevant moniker, as I found out.
Such a project breaks Apple’s licensing agreement and cannot be recommended. So, what follows is purely hypothetical, science-fiction, if you will.
Should you Google “hackintosh”, you’ll find the Dell Mini 9 is the more amenable netbook, the more likely to run Apple’s OS. Ironic when you think Michael Dell once, in 1997, said Apple should shut down and distribute the money to the shareholders.
Once you get your netbook, you need to add SSD storage, the Dell machine comes with 16Gb, a little too little. That’ll set you back about $100, plus $20 for an additional 1Gb of RAM, not absolutely required, and $35 for a 16 Gb thumb drive, a must, much better than an external DVD-ROM drive. And a Philips 0 screwdriver, preferably with a magnetic tip to keep errant screws from lodging in the wrong, inaccessible places.
Then the fun starts. See directions here or here. Either way, it’s a long, complicated, klutz-entrapping sequence of operations.
How did I do? Not so well. My first hypothetical attempt used an external DVD-ROM drive, my next two used a USB thumb drive. But I always ended up with a message mentioning a missing mach kernel. The only way for my fictional hackintosh to work is to keep the USB thumb drive attached.
If there was a need to be reminded of the benefits of hardware/software integration, such an expedition would serve it.
This said, it’s nice to have a tiny Mac. To me, I was a happy Toshiba Libretto user, size matters. Big size on my 24” display on my desk at home and at the office, small size when I travel.
I respect the need for touch-typists to get a proper keyboard. But others, the three fingers halfwits, might be willing to trade down a couple of sizes for the convenience of a tiny but functional machine.
How about a MacBook Mini “For The Rest of Us”?
The entry level, white plastic 13” MacBook is now $999, $849 “refurbished”, it’s an IQ test, the sexier aluminum model costs $50 more, still “refurbished”. With this in mind, would I pay the same price for a 9” MacBook Mini? Yes. Would I be alone? That’s for market researchers to ask the right question, to the right audience. The good news is smartphones have introduced a new permission in the culture: you’re no longer a lesser man for using a small keyboard. And many consumers understand miniaturization comes at a premium. —JLG

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