About Jean-Louis Gassée

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Posts by Jean-Louis Gassée:

The (All Too) Convenient Invisible Hand

Remember Adam Smith, the man who coined The Market’s Invisible Hand phrase, the author of The Wealth of Nations? He gave rise or, rather, a voice to a philosophy of laissez-faire, of as little government intervention as possible.  In his view, the forces in presence, buyers and sellers, producers and consumers would always end up in balance benefiting everyone.  Prices too high? Competitors see an opportunity, customers go elsewhere, prices come down.  Consumers consume less?  Prices come down, demand restarts.  That, in an admittedly simplistic rendition, is what became known as the Invisible Hand keeping things in balance.  But there was/is another idea behind this: Government is inherently dangerous, once it acquires power, it won’t let go, it will oppress the very people its was supposed to serve.  America’s Founding Fathers remembered Pilgrims and their flight from an oppressive king.  And, in the 20th century, Friedrich von Hayek wrote the Road to Serfdom, describing and predicting (the book was written between 1940 and 1943) the ills of centrally planned economies. More

Venture Capital in Bad Times

Here, meaning in Silicon Valley, we’re not waiting for Obama – even if we look forward to his injecting physical and psychological stimuli in our economy. A week ago, our President-elect was politely spinning the “there’s only one President” line, meaning he didn’t want to interfere with Bush’s struggle to right the ship.  But, this Saturday, Obama took over, of sorts, the traditional weekly presidential radio address, also carried on YouTube. Full text here.  This is the new régime: 2.5 million jobs to be created, rebuilding the nation’s infrastructure, energy, ecology.  The works, the public works.  There is an obvious message here: the situation is so bad and the Bush administration so lame (as in “lame duck”) that, presidential transition niceties be damned, I, Obama, must grab the bully pulpit – right now.  Congress must get to work on my plan without waiting for my January 2009 Inauguration. This makes good sense as well as good PR, we’ll see if Congress brings itself to follow with effective – and clean, no pork barrel — legislation. More

What Now?

On November 4th, watching the election results at home in Palo Alto, I’ve seen tears in the eyes of reputedly and professionally cynical French people assembled for the momentous occasion.  We were proud of the country that hosts us and adopts us in its generous melting pot tradition.  Now, we are prouder, even, of its ability to stare at its old demons and to heed, instead, the invocation of its better angels.  One convincing, resounding vote ends eight years of appeal to fear, to mediocrity held up as virtue, of fake religiosity, of destroying liberties at home and lives abroad, of making the Statue of Liberty weep.  All this with a fittingly absurd coda: financial ruin and the socialization of the financial system by rigidly free-market ignoramuses.
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So, Barack Obama (see the unusually good) won the 2008 election.  He raised hopes to heights never seen since … I’m not sure when.  I don’t believe JFK rode into the White House on such a combination of despair and hope, of war and recession.  Now, Obama (Barack for “blessed”, if we are to believe dueling Semitic languages) is cursed with winning and having to run the US government, with answering the sky-high expectations his campaign and his person have raised.
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Can he deliver?
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From a Silicon Valley, VC perspective in my case, there are reasons to see a light at the end of the proverbial tunnel — the light one local wag said George W. Bush had turned off to save energy.  I’ll start with the return of meritocracy vs. the self-defeating, falsely populist mediocracy of the W years. Even the Republican columnist at the NY Times, David Brooks, ended up chastising his fellow conservatives for their low pandering.
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In practical, actionable terms, we’re likely to see an overt (and real, let’s not get confused) insistence on science education, high-tech investments in infrastructure, energy and, I’m not holding my breath, high-efficiency vehicles.  Of course, most of us in the Venture Investing biz will have to pay more taxes.  Personally, I want to pay more taxes my way: by making more money, that is by making investments in successful start-ups, that is young companies that sell a lot of their products. And, for this to happen, beyond good products, good entrepreneurs (and visionary but modest investors), we need customers with money to spend on our wonderful innovative products and services, we need a prosperous middle-class.
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We tried the trickle-down trick: taking middle-class money to give it to the top 2% of the population. The theory was, you will recall, the 2% would both invest wisely and spend a lot.  As a result, more consumption, more jobs for the middle class. There are no guaranties the new (old, actually) theory will work better. There are plenty of reasons to fear a recession will make the new administration impotent or, worse, that an overly powerful Democrat Congress will keep at its old corrupt games.  Remember, Democrats voted for the catastrophic deregulation of CDS (Collateral Debt Swaps), the most likely trigger, not necessarily powder, for the financial explosion.
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No, the real reason to hope was outlined to me at breakfast this last Thursday by an Apple insider. The individual gave money to Obama using the MyBarackObama social network.  Our Monday Note has already sung the praise of what is the most exemplary, most efficient, most grassroots Internet political campaign tool – so far.  What this person told me is the morning after the election, the network was already pinging him, sending him news, calling for action, asking for volunteers to help the Transition now and the new Administration later. Actually, if you want a job in the Obama White House or government, go to change.gov and fill a preliminary application.  I did.  I’m not holding out many hopes of being named Treasury Secretary or Internet Czar, but I’m curious to see what’s going on and if I could help.  Perhaps volunteering as a “good BS” teacher to high-school kids.
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Even more seriously, the real point: Obama has built a direct democracy machine second to none.  He’ll have to make real decisions soon.  In plain English: he’ll have to disappoint some people, he’ll have to fight entrenched interests, some very legitimate ones, some richly “lobbied”.  In many cases he’ll have to fight his very own Democrat Congress if he is to perform effective surgery on the tax system and on the country’s spending.  For this, he’s built a network to speak to his supporters over the heads of heavily lobbied, I’m being polite, I won’t write “corrupt” Congress.
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Let’s remember: according to Bloomberg, Obama raised the most money, $650M, from more than 3 million Web donors, with smallest average donation, around $200 per person.
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I can’t wait to see the Internet Obama machine in action again. –JLG
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The end of Motorola?

Once upon a time, Motorola was the king of cell phones. AT&T invented the cellular network, Motorola, already a leader in radio technology, designed the mobile devices and, in 1983, introduces the Dyna-Tac, the first of a long line of clearly superior products, all ending in Tac.  In the late eighties and nineties, MicroTacs and StarTacs were musts for Silicon Valley geeks and MBAs alike.  Motorola’s prowess was, in fact, much wider, ranging from NASA communication equipment to microprocessors (6800, 68000 and PowerPC families) and networking equipment.  The company even made yet another name for itself by inventing the Six Sigma quality improvement processes.  Motorola was a widely admired electronics giant.  Was. More

Software: how do you compete with free?

That’s the question Steve Ballmer, Microsoft’s CEO, is trying to answer every morning when he goes to work. On the server software side, Windows Server is doing well, especially with the Exchange e-mail server and the unheralded but very good collaboration server, SharePoint.  These products have matured, they’re relatively easy to set up and manage by IT organizations.  The Exchange component  is a spectacular success: it manages e-mail, contacts, calendars for hundreds of thousands of organizations all over the world.  Even Apple finally embraced Exchange: the iPhone now syncs well with Microsoft’s server and the next version of OS X promises “native” Exchange support.  In plainer English: Apple’s Mail, Address Book and iCal programs, for example, will sync with Exchange “out-of-the-box” just like the iPhone does.  (This will be a relief to suffering Entourage users.  Entourage is Microsoft’s own Outlook sibling on the Mac, but it is a poor relative and lacks Windows’ Outlook depth and polish.)  Seeing that Windows Server generated more than $20 billion last year, one is tempted to think everything is going swimmingly. More

“Cloud Computing is bad for you”…

So says Richard Stallman the father of the Free Software Foundation. He makes a simple argument: By using Cloud Computing applications you surrender your life (data) to some big company you can’t trust.  You’re no longer in control.  Conversely, if you keep everything on your (Linux) desktop, you’re the master of your own destiny.
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This is, to say the least, countercultural. The new and improved wisdom is “everything”, every application, every service will be delivered from the Cloud, a “server farm” somewhere in the world.  To be a little more precise, yesterday’s difference between the e-mail client application and the e-mail service is going away.  The browser becomes your OS (Operating System) through which the e-mail service (Gmail or Outlook Web Access) is delivered.  Even Photoshop will go this way: you store the original image in the Cloud and, through your browser, you navigate the universe of editing features.  You give an order, say crop a part of the picture, Gaussian blur, twist a color.  Then, the order is executed on the server, in the Cloud.  This uses much faster computers than your laptop and your browser gets the rendered result.
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This is exactly what Photoshop Express does. The old way local processed the image locally because you couldn’t count on the network bandwidth (speed) to ship back an updated image from the server each time you made a modification.  The local processor had fast access to local memory, performed the image rotation and the screen had similar fast access to the modified image residing in memory.  The ‘everything local’ (storage, processor, display) advantage hasn’t disappeared, but networks are faster, servers have more muscle (in most cases) than my laptop and we use smarter ways to pick which part of the image we want to send from the server to the browser.  Put another way, Photoshop in the Cloud isn’t a universal solution: graphics professionals will want a 30”screen, eight processors and 16 gigabytes of local storage.  But ‘the rest of us’ will find the Cloud solution satisfactory, especially if we can walk to any computer in the world, upload, edit and e-mail polished pictures without a local application, using Photoshop (or its competitors) as a service, not a desktop application.
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This is both an actual example and a valid metaphor for the new genre of application software delivered as a service (SaaS) from enterprise servers or from a Cloud Computing provider such as Google or Microsoft Live. Stallman will have none of this.  Interviewed by The Guardian, he counters: “It’s just as bad as using a proprietary program. Do your own computing on your own computer with your copy of a freedom-respecting program. If you use a proprietary program or somebody else’s web server, you’re defenseless. You’re putty in the hands of whoever developed that software.”
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The gentleman is opinionated, to say the least. A Google search on his name will produce a rich trove of strongly worded rants revolving around one idea: software ought to be free.  This hasn’t made him friends in companies such as Microsoft but Linux and its cousin FreeBSD, all related to AT&T’s Unix, have become indispensable components of modern computing.  Richard Stallman knows very well that, without the free software movement, there would be no Cloud Computing.  Amazon, Yahoo!, Google and most others run on free Unix relatives.
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Going back to the argument Stallman just made against Cloud Computing, it’s hard not to find parts of his statement either naïve or disingenuous. If you use proprietary software, he says, “You’re putty in the hands of whoever developed that software.”  The idea is that free, Open Source software, protects people against dirty deeds, manipulations from the authors of proprietary software.  Sounds ominous but, regrettably, Stallman forgets to offer examples of such bad actions.  Higher price, perhaps?  But the cost of ownership, that is training, maintenance and the like, dwarfs the initial price tag of software, be it on the desktop or on servers. Unlike an extraordinarily gifted programmer such as Stallman, most users cannot inspect the source code of their word processor or e-mail program.  As a result, the ‘protection’ afforded by ‘freedom-respecting’ programs isn’t as good for me as it is for him.
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There is more.  We no longer live in a disconnected computing world: we get e-mail, we look up Richard Stallman on Wikipedia. So, even if we sagely run spreadsheets or photo-editing programs on our desktops (the Cloud Computing giant Google offers a neat desktop Picasa 3 on Linux…), we have to communicate and we have no way to inspect the software that runs on the network.  Like it or not, we have no choice, we trust others with our data.  Bad things happen from time to time, but not to the point of killing the system.  Cloud Computing may or may not be The Future but doing everything on the desktop is definitely passé.
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Richard Stallman forgets a statistical truth: Trusting people get screwed sometimes.  Paranoid people get screwed all the time. –JLG
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The Big Meltdown: an unauthorized view

I’m good at predicting yesterday’s weather, or impersonating the 6 pm TV announcer solemnly attributing today’s fall in airline stocks to the rise in oil prices. As for future events, I need a little more time.  You sense where I’m going: Where were the sages who tell us, today, why the financial markets collapsed?  The rearview explanations abound: CDS (Credit Debt Swaps), regulators looking the other way, subprime mortgages seducing homeowners into using their house as ATMs and, above all, the obligatory, populist and escapist: Wall Street Greed.
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I beg to differ, not by 180 degrees, more like 60 or 90. And I’ll hasten to say I don’t propose to really explain (as opposed to describe), let alone propose remedies to the crisis.
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Why?  Because we’re dealing with mysteries, not secrets.
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A secret is like a combination lock. With time, accomplices who procure the blueprint to the safe, harder tools, faster computers, the lock can be picked, the secret revealed.
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A mystery, on the other hand, is just that, a mystery, there is no combination, no code to be broken. Who created the Universe?  God, some will say .  Fine, but who created  God?  The Meaning of Life?  42 — according to Douglas Adams.  Mysteries do not lend themselves to syllogism, to deduction, only to metaphors for their contemplation.
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For example: Wall Street Greed.
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Consider mutating bacteria such as E. Coli or clostidrium difficilis. Why blame them for nosocomial (contracted in hospitals) diseases, for the weakening arsenal of antibiotics?  They multiply, they evolve, they adapt, they survive.  And, consider their last name, Coli, because they live in our colon.  It’s not a given we’ll ever eradicate them and, if we did, that their disappearance would benefit our species.  Instead, we evolve tools, chemicals and practices, to keep them under control.
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The metaphor is a little obvious. Wall Street is an ever-evolving life form of practices, deals, dealers and their inventions, their financial instruments.  They can’t, they mustn’t be eradicated.  We can’t live without credit, leverage, currencies and insurance.  Just like we need to use antibiotics judiciously, to invent new ones and to worry about prophylaxis, we have no choice but continuously evolve financial regulations and policing organizations.
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Contrary to what easy-thinking ideologues claim, we don’t need less regulations. Societies cannot be ruled by the Law of The Jungle.  Try deregulating traffic intersections.  Yes, too much regulation leads to old style central planning, gosplan, to a Soviet economy, even more corrupt in the end.  The real difficulty is evolving regulations and police as Wall Street evolves.
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I realize saying this is just about as helpful as the famous weight-loss regiment: Eat less and exercise more, for ever.  Another kind of mystery.
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But wait, it gets worse, the metaphor is incomplete, full despair in a moment. There is another ever-evolving life form at work: the three branches of our government with its stubborn resistance to change, to accounting prophylaxis,  transparency.  To say nothing of a sickeningly complex, always growing, smellier and smellier tax code.  If our government can’t be cleaner than Wall Street, how will this life form control the other?
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More black to this bleak picture.  Another mystery: models.
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In this context model means a set of equations.  Models are used by economists, businesses, Wall Street traders or governments, they have become both devilishly complicated, thousands of equations — and immensely valuable.  If Southwest Airlines makes good predictions for passenger traffic and oil prices, they can buy insurance for their fuel purchases and price tickets correctly and generate profits and make shareholders happy and, as a result, help pension funds pay benefits to retirees who, in turn, buy goods and services from businesses who…  And this is a laughingly oversimplified example.  Fine, but we have the finest math PhDs and the biggest computers in the world.  Probably true for a few more years.  The mystery lies deep inside the models.  They cannot deliver because their equations are, in layperson’s parlance, non linear.  Put another way, they are unstable.  The smallest error in the input data quickly results in gross deviations.  If this sounds crazy, please turn to weather forecasting.  An immensely valuable activity for agriculture, travel, insurance, war…  In the past twenty years we’ve made no substantial progress.  We always knew winters were colder than summers but we can’t predict next week’s weather with any accuracy.  And we won’t.  Counterintuitive as the statement might sounds, it results from properties of what some call Dynamical Systems or Chaos Theory, I prefer non-linear systems because the name addresses the nature of the mystery.  (A good read on the topic is James Gleick’s Chaos: making a new science.)  This has nothing to do with basic randomness found in quantum physics.  The mystery of real-life complex systems is they’re both deterministic and unpredictable. [I’ll skip over the competition between models trying to outguess one another.  Mathematically inclined readers will subsume those into an even more unstable meta-model.] .
We like to believe we can influence the course of events; this is how we’re built.
But, more often than we’d like, we have no say.  It’s a Law of Nature: financial markets will defy prediction and will explode from time to time.
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Is this nihilistic or defeatist?  Not in the least. Even if we know we can’t guarantee stability, we can make the system less dangerous, the bacteria less lethal.  And we can listen more serenely to the charlatans. -JLG
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That word again: Open

The Other Steve, Microsoft’s Ballmer, just treated us to another paean to open systems. This was last week at the Churchill Club, a Silicon Valley schmoozing institution.  There, we meet, gossip, drink, dine and watch a never ending and never boring parade of industry figures submitting themselves to soft-ball interviews by local notables of suitable rank.  (Next week, it’ll be Nokia’s CEO, coincidence, just on the eve of launching a new touch-screen music smartphone. Olli-Pekka Kallasvuo will be grilled by Walt Mossberg, the Wall Street Journal’s gadgetmeister.)
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For Ballmer, the interviewer was Ann Winblad, a respected venture investor who once dated Bill Gates, co-founder of Hummer-Winblad, one of the best Valley firms. Her genuinely inspiring life story is here, not in the surprisingly sterile Wikipedia piece.  The edited text of Steve’s remarks can be found on Microsoft’s site and if you search for “Ballmer Churchill Club” on YouTube, you’ll see bits of the Q&A session, often the more interesting part of such event.
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One the themes Microsoft’s CEO harped on was open systems, not open source, he’s not crazy about that kind of openness. Also referred to as “choice”, it is Microsoft’s mantra: With us you have a choice of  manufacturers, processors, peripherals, software.  We’re so used to the PC we tend to forget its industry has achieved the most remarkable ascent to the top of economics and culture the world has ever seen.  In three short decades it has become a trillion dollar ecosystem worldwide with Microsoft alone featuring an enterprise value of about $220 billion and operating margins in the high 30 percents.  (We thought we’d never see anything like this again and we now have Google…)
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Ballmer correctly opposes Apple’s closed control of hardware, software (and distribution) layers of its computers to the more open PC model where manufacturers offer a choice of hardware and software components thus covering a wider range of configurations, applications and prices.  Still, there is little choice outside of Microsoft Office and, for manufacturers, a PC open to both Windows and Linux installed at the factory is still verboten.  Jesuits once used what they called Holy Effrontery in defending their faith (or their power).  Never mind the contradictions, the Microsoft PC model is alive and well.  Which leads Ballmer to extend its open/closed discourse to smartphones where both Windows Mobile and Google’s Android, a nod from Steve, incarnate open choice and Apple behaves in its usual closed ways.  True again.
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But…
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There is a tricky combination of reality and perception, one that resists Ballmer’s forceful (and often very intelligent) assertions. First, for more than five years now, Microsoft’s stock has been essentially flat, a little below $30 a share most of the time.  Then we have Google.  Some call it the next Microsoft, all see its dominance of the search and advertising markets as well as its leadership in Cloud Computing developments.  This can explain the flatlining stock: for investors, even if today’s numbers are very healthy, Microsoft is no longer the king with the attendant ability to “tax” the market, to translate dominance into ever-rising profit streams.
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And we have Vista.  Never before in Microsoft’s history have we seen customers balking at the new version, Vista, and downgrading back to the older one, Xp. Today, if the effect on Microsoft’s profits isn’t clear, the impact on its credibility is inescapable.  Most of Vista’s ills are attributed to driver problems.  In plainer English, drivers are software modules that graft the many different hardware choices onto the core of the operating system.  But don’t think simple graft on a tree, connecting hundreds of delicate synapses is more like it, with many surgeons, hardware manufacturers, operating simultaneously.  Operating systems, all of them, end up with layers upon layers of additions and corrections.  The extensions and patches are needed for new versions to stay compatible with past ones and also to fix old and new bugs.  They look like Babylonian archeological digs with strata of debris marking each generation.  What Ballmer won’t say is this: the open model adds choices and opportunities; the price is higher complexity, fragility.  For Windows, the cost/reward ratio isn’t as good as it used to be when Windows 95 succeeded Windows 3.11 thirteen years ago.
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But, wait, there is more!  For all the preaching of the open/choice Gospel, Microsoft actually uses the closed model as well. I’m a man of principles, tell me the ones that the market doesn’t like and I’ll change them.  Microsoft’s game console, the Xbox?  A closed system, just like Nintendo and Sony.  The first iterations of the company’s open music players platform won’t sell against the closed iPod?  Never mind, Microsoft’s Zune is now an Apple-like platform.  Microsoft bought Danger, a closed smartphone company.  For its hardware, the Sidekick?   For its non-Windows Mobile software platform?  To build a ZunePhone?
Microsoft’s clarity of mind is admirable: it does not confuse what to say and what to do. — JLG
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Android Week

Something to keep our mind off the Wall Street catastrophe. Who knows, we might be on the verge of a “nuclear winter” as the Bush administration wakes up to another consequence of its intellectual shallowness, of its inability to understand that for markets to be really free they need to be regulated with an effective, uncorrupted police to enforce regulations.
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So, turning to saner pursuits, this coming Tuesday September 23rd, T-Mobile is slated to announce their first Android phone. What does this mean, how will this impact the smartphone market and the cellular carriers?
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Android is the name of the Open Source smartphone OS developed by Google’s engineers. What we think T-Mobile will introduce is a set built by HTC, running the Android OS and applications.  In advance of the launch, T-Mobile appears to be upgrading its network, or parts of it, to 3G connectivity.  In addition, T-Mobile plans an on-line store for Android applications, the rumor being it won’t impose the kind of restrictions Apple is known for.  In other words, T-Mobile welcomes Android developers with open arms.  Predictably, prices, handset and service, will be iPhone-like.  What appears to be not at all iPhone-like is a slide-out keyboard to be used with the screen in landscape mode.
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If all of the above is close enough to the upcoming facts, this will add a considerable amount of energy to the already lively smartphone market. Many, yours truly included, are happy to see more competition for the iPhone and his imperious maker.  As I was documenting my iPhone’s numerous crashes, one Apple individual expressed happiness: There was only one “real” OS crash, you see, the rest being processed “killed because they started to use up too much memory.” It’s a relief to know my rudely interrupted Safari browser connections or Maps searches are not real crashes.
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But, more competition is a vague phrase. Nokia has been around a long time, Windows Mobile is about 10 years old, RIM (Blackberry) too, to say nothing of Palm, Sony Ericsson and Motorola.  The iPhone has had competition for more than a year, what changes now?
Not the operator situation.  T-Mobile is a good company, with good customer service, they’re part of the big Deutsche Telekom konzern, arguably smaller but more solid than Sprint.  Curiously, neither Verizon nor AT&T, nor Sprint appear to be interested in Android.  Is it because they fear Google will have too much power on them because of the openness of the platform, because it could lead to Android VoIP applications bypassing their network billing system?  T-Mobile, in a challenger position, has no such fear.  On Blackberries, they offer what is known as WiFi Mobile Calling, that is VoIP over WiFi at home or at the office.  In other words, carriers don’t like Google pushing them towards their pre-ordained destiny: becoming wireless ISP.  Verizon talks the Open (that word again) Network talk but doesn’t really walk the walk, that is allowing anyone to bring their handset to their network.  They and Motorola got sued, and had to settle, for removing Bluetooth features allowing too much data exchange between a laptop and a phone.  Such exchange was bad: it reduced billable network traffic.  A bigger threat to the iPhone would be Verizon embracing the Android platform.
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What about the product itself?  I’ll get one as soon as possible, I already have a T-Mobile subscription. I suspect the keyboard-based UI will be well received and I’m sure we’ll see good applications on the handset, if only native Google apps, games and utilities.  The technophile is excited, and so is the venture capitalist as Android will help more applications developers make more money, resulting in new opportunities to finance interesting companies.
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And there is Google. Not the Android team, some members are ex-accomplices of mine, I admire what they do, but Google the search and advertising and Cloud Computing company.  Will Google help the still very timid smartphone advertising market?  Will a better keyboard enable more mobile applications?  For example, even as a long-time Blackberry user, I would not write this column on it.  And I won’t do it on my iPhone either.  But, will I use Google Docs on the T-Mobile handset because of its (rumored) horizontal keyboard?
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Moving to content, will the T-Mobile Android phone run all YouTube videos, will it run a version of Flash?  The iPhone doesn’t, a topic of muddled technical and industry politics debate, Apple and Adobe aren’t working too well together of late.
Still on content, imagine this: Google makes a deal with Amazon and all the Kindle content becomes available on Android phones.  Or, not at first but in a future iteration, the video downloads Amazon sells become available on Android.  And why not start sooner with the music (MP3) files Amazon sells.
You see why I’m curious.  I’m lucky, the T-Mobile office in Palo Alto is about 100 yards away from my office.  –JLG
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