About Jean-Louis Gassée

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Posts by Jean-Louis Gassée:

Kremlinology For Fun and Profit

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. More

The Healthcare debate

Before I jump into the topic, you might want to know: Why do we, venture investors, care about the debate? Is this another case of financially comfortable people getting in touch with their inner left-winger? I can’t answer for the deeper layers of my psyche, I’ve given up on such explorations. All I can say is: We The VCs don’t like the ever escalating portion of our GDP spent on healthcare, 17.6% in 2009 and expected to rise to 19.5% by 2017.
 More specifically, for our startups, the cost of employer-sponsored health insurance has risen by 119% (!) in the last decade. We’re in the business of financing the dreams of entrepreneurs, not lining the pockets of insurance companies.

(For more on the the GDP threat and other toxic issues see my January 11th, 2009 Monday Note here.) And, on the unproven assumption we have a heart and soul, how could we like the spectacle of close to 50 million (this is likely to be the 2009 number) uninsured people?

With this out of the way, on to the debate.

First, I see a terrible error in reasoning: we can’t keep treating healthcare like a business. We’re not dealing with the financials of Boeing, Walmart or Apple. Once upon a time, an aspiring executive, I wanted to be initiated into the brotherhood of executives. Knowing my pangs and playing on them, McGraw Hill,

 the publishing giant now trying to get rid of Business Week,
 sold me a subscription to management books series. Luckily, these were good books, I fondly remember Robert Townsend’s Up The Organization! and, to today’s point, Peter Drucker’s
 The Practice of Management.

 Take a look at the enthusiastic Amazon reviews. More than thirty-five years later, one idea from the book still sticks to my mind: the difference between businesses and institutions. The Army, Congress and, according to the great management sage, hospitals all are institutions; they shouldn’t be thought of, or managed like businesses. (I won’t get into the “business” of Congress with lobbyists.)
To our now costly regret, we’ve allowed medicine to be run like a business. When doctors mortgage themselves to buy expensive imaging equipment installed right into their office, guess what happens? Medicine leaving, rightly, much to the doctor’s judgement, a doctor now motivated to run expensive diagnostics, just in case.
If you have the time and stamina, read the great New Yorker article on a Texas town, McAllen, featuring the highest per capita medical costs in the entire country. Why? The equipment and a culture of treating medicine as a business, of milking/bilking patients and, in most cases, their insurance companies. The latter always have the solution of raising premiums on customers who can’t go elsewhere for fear of being denied coverage because of a pre-existing condition.
If you want an even more disheartening read on the state of healthcare in the US, versus the rest of the world, grab T.R. Reid’s The Healing of America. 
Again, take a look at the Amazon reviews. The subtitle reads: A Global Quest for Better, Cheaper, and Fairer Health Care; it foretells the awful story inside, not by a left-wing firebrand but by a moderate soft-spoken scholarly but readable writer.
In a nutshell: We, the US, are number one (we always like the sound of that) in per capita spending; but, depending on the way outcomes are measured, we rank something like thirty-seventh on the quality/efficiency of our healthcare.
To quote the author: “You don’t need an advanced degree in yajnopathy to recognize that the stars are aligned and the timing is propitious for the United States to establish a new national healthcare system.”

Yet, we’re mired in heated controversy and ugly lies. More

The Facebook Micropayment System

This week’s question: Will Facebook launch a so-called “PayPal killer”, a micropayment system for members to pay for goods real or virtual? To me, this is a Flat Earth debate, meaning there is no debate, Facebook is ideally placed to become a powerful payment system player.

First, a bit of history: the Minitel. Once upon a time, a rather statist country, France, decided to equip telephone subscribers with a home information terminal. Merchants of various persuasions were invited to connect their servers to Transpac, the backbone network. Sellers could tout physical, groceries, or logical, entertainment, information, goods and services. For the logical kind, the phone company graciously did the billing and the collecting for the merchant, taking a courtesy 25% fee for its pains. The buyer saw a new section at the end of the phone bill, everything automagically deducted from the subscriber’s bank account — after a legally mandated 10-day bill presentation delay.
Effective and efficient.
This reduced the overall cost of doing business for all, sellers, buyers, the phone company, that’s the efficiency part. And effectiveness manifested itself in a huge spurt in new enterprises. So much so the network, Transpac, initially underwent several major outages because buyers and sellers had much more fun than expected. For several years the French phone company would rather forget, it became the largest pornographer in the Western world.
I won’t dwell into the phone company’s initial resistance to the Yankee invention, the Internet, but all is well now: French netizens now enjoy very good broadband services, and the Minitel is largely forgotten.

But the micropayment lessons shouldn’t be discarded. And, in a way, they aren’t: Look at Amazon. More

The End of Megapixel Wars

Finally, reason is about to prevail over marketing machismo. Specifically, Canon and Sony are coming up with more advanced cameras featuring less pixels.
Why? In these new cameras, less pixels translates into better pictures in low light. (You might want to refer back to two Monday Notes on digital photography: Pixels Size vs. Number and More on Sensors Digital Photography.)

So far, the selling argument has been more pixels equals better pictures. A higher number conveys an image, so to speak, of higher quality. This is not entirely untrue: it’s nice to have lots of pixels when you need to “crop”, to throw out a large fraction of the original image in order to concentrate on a key detail, a face for example. If you have enough pixels left in the “crop”, it will print or display with good detail.
But there is an important downside: for a given sensor size, more pixels means smaller pixels. In turn, this means each pixels will receive less light energy, less photons to be converted into electrons. The smaller number of electrons will have to “fight” against the background electrical noise in the sensor. The lower signal-to-noise ratio means lower quality pictures. This is particularly true in low-light situations where, to begin with, the number of incoming photons is smaller. More

War in the Valley: Apple vs. Google

It was long overdue: Eric Schmidt (Google’s CEO) finally resigned from Apple’s Board of Directors. Usually, these resignations are handled in the smoothest of ways: Thanks for the distinguished service and the like. This time, Steve Jobs issued a pointed statement: “Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest.” Full officialese here.

This is the Valley and its cozy relationships. By which I mean executives and directors sitting on one another’s board, competitors enjoying the same directors, venture firms “sharing” their partners around portfolio companies. For example, besides Eric Schmidt sitting on both Apple’s and Google’s boards, we have Arthur Levinson, head of Genentech, a director of both companies. Or partners at Sequoia (a very successful venture capital firm)
 sitting on boards at YouTube and Google, which might have help a successful “exit”, that is the sale of YouTube to Google.
Back to Apple, there are also lingering allegations of a no-poach agreement, one by which the companies agreed no to hire each other’s workers.
Closer to home: Be, Inc., the operating system company I founded with a few friends from Apple and elsewhere. For a while, one of our investors (and director) also sat on Microsoft’s board. Microsoft executives were investors in his firm and we ended up with Bill Gates (indirectly) owning a piece of Be. Ah well… That was a decade ago, the statute of limitations ran out.
The SEC (Securities and Exchange Commission), the stock market regulator, has become more aggressive in watching out for companies engaging in collusive behavior through cross-directorships. See here .

Back to Dear Leader’s words: Google enters more of Apple’s core business. More

Apple’s Jesus Tablet: What For?

If you went on vacation and renounced Internet access for the duration, you might not have heard the latest rumors concerning the iTablet a.k.a. the Jesus Tablet, Apple’s eagerly awaited entry into the putative bigger than an iPhone but smaller than a MacBook segment. I’m avoiding the n-word: for Apple, this is the no-book category…
As for the religious nickname, let’s go back to MacWorld, in January 2007. Steve Jobs walks on stage and demonstrates the “iPod of phones”. The audience reacts with such religious fervor that, for a while, wags call Steve’s latest miracle the Jesus phone. (I could go on and call AT&T’s network the iPhone’s cross, but I won’t.)

Back to 2009, for the past week, we’ve had the strongest wave to date of rumors and speculation regarding Apple’s second coming (after the Newton, see below) into the tablet space. Putting such froth down would be ignoring the desire, the hope behind the agitation. The Greater We seems to want something bigger than and iPhone and smaller than a 13” MacBook, currently Apple’s smaller laptop.

Great, but what for? More

The Trojan Horse: Web Apps

Web Apps are the future: modern, light, run and updated in the Cloud, they will progressively replace the antiquated, bloated, expensive to buy and manage desktop “client” applications.
So says Google. And walking the talk, they put their Google Apps against the reigning champion of desktop applications: Microsoft Office.
Microsoft never gives up and, as expected, announced a Web-based, a Cloud version of their upcoming Office 2010 along with the classical desktop suite, more feature-rich than ever.

Google Apps are free? Office 2010 on the Web is free. With the advantage of a familiar UI, User Interface, their brand, the desktop version as a fall-back, it would seem Microsoft is staying on top. Google Apps might be free (in most cases) and somewhat fashionable, if only for being “not-Microsoft”, but with the combined desktop and Web versions, Microsoft covers all needs.

Case closed? Not quite. More

Google OS: Chrome-Plated Linux or Microsoft 2.0?

Here’s what I think its taking place:

Microsoft executives and Board members are no dummies: they know Cloud Computing threatens the Windows + Office + Exchange gold mine, the biggest in our industry’s history. They know the future is Office + Exchange running in dual-mode. From the Cloud when a Net connection is available; locally when the Cloud is out of reach. Everything synched back when the connection is restored.
 Imagine Outlook in Cache Mode, just with a browser, without a local client, generalized to all Office applications.
 Their delicate mission, should they choose to accept it, is to move Office and Exchange into the Cloud, into dual-mode applications. The challenge is to get there before Google Apps gain acceptance but without prematurely cannibalizing the existing Office + Exchange profit stream.

On its side, Google wants to protect the search-based advertising gold mine. To do so, they need to hurt Microsoft’s ability to finance a broad-front attack against Google’s core business. That’s why Google wants to offer an alternative to “Office in the Cloud”: with Microsoft no longer able to dictate prices, the Office profit stream would dry up and so would Microsoft’s ability to finance an attack against Google’s core business.

This, I surmise, is the context for last week’s Google Chrome OS announcement — and for a rumored Microsoft event this coming week.

With this in mind, let’s look at Google’s pronunciamento. More

Cars, computers and politicians

Last time we had a big, big problem with cars, computers came to the rescue. This was after the second embargo, in 1979. The long gas lines scared us and we thought this was the end of an era, the end of the car as fun. Time to repent and mend our profligate ways, time to rid ourselves of our addiction to Foreign Oil. The dour Jimmy Carter was right for these penitent times.

We know what happened: the car flourished as never before. More models, more brands, faster, safer, bigger, smaller (not too often), more fun. The main culprit for this break with our vows? The computer.
First, computers made design faster, totally virtual. Then, databases, network and more software integrated the heretofore separated, if not adversarial, design and manufacturing processes. Then, computer struck again and invaded the cars themselves, sneaking into engine management systems, steering, braking, suspensions, climate control, entertainment, displays, navigation, correcting drivers’ mistakes, protecting them with restraints and airbags. Recently, the tech servicing my car proudly told me he’d loaded a new revision of software in my (car’s) transmission.
Many mistakes were made on the way, we had splendid failures, but, in the end, cars did get more reliable, safer and more fun than they were thirty years ago.

But computers had help. With contrition came penance in the shape of CAFE, the Corporate Average Fuel Economy number. In order to foreswear our dependence of Foreign Oil, our cars had to use less gas. Gas guzzlers got taxed with the tax of the same name, and our government told car manufacturers they’d have to pay huge fines if their output didn’t meet the mandated fuel economy number.
Begotten by lobbyists and raised by our elected officials, the CAFE regulation was true to its genes and nurturing: it featured a loophole big enough to drive the proverbial truck through it. Pun intended: light trucks got exempted from CAFE. You see, we can’t punish our farmers, our country needs them and they need their trucks.
This exemption gave rise to our addiction to SUVs. Arguing they were light trucks, using the same chassis, Detroit made tons of money building CAFE-exempt vehicles with big engines, four-wheel drives, all manners of creature comforts, seating 5 to 9 people, with trunks to match. More

Web video: Microsoft, Adobe or HTML 5?

We have yet another standards battle on our hands — you might say screens, as it concerns Web video. Or we might watch our wallets, as the fight is about who gets the biggest share of the money spent delivering multimedia on our computers, smartphones and, soon, TVs.

My money is on HTML 5, co-opted and promoted by Google and Apple.

First, do we really care about standards? Does it matter that YouTube uses Flash or H.264, that Microsoft is trying to promote Silverlight or that Apple, more prominently, and Google, less vocally, are pushing an open standard called HTML 5?

The answer comes in two parts: we need standards like trains need a single track width across the network, first, and, second, standards are often abused, made into a way to pick pockets.
There is no charge for a train track width standard, but a license fee is required for building cell phones using the CDMA standard. (I won’t go again over well-covered ground, over the history of Windows, Office and Wintel.) The secret, there, is to create critical mass for a way to do something, for said manner to become a standard. Then, you charge for the right to use the method itself or, less directly, for something needed to benefit from it.
For example, if Microsoft manages to make Silverlight a or the Web video/multimedia standard, good things will happen and bad ones will be avoided – from Microsoft’s perspective, that is. More