About Jean-Louis Gassée

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Posts by Jean-Louis Gassée:

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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A second look at 3G

by Jean-Louis Gassée
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Revelation or revelator?  I’m referring to the iPhone, of course. We’ll quickly skip over the revelation part, enough praise (and some well-deserved barbs) already.  Instead, we’ll look at the light the iPhone sheds on the cellular infrastructure and on the culture of operators.
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The symptoms: spotty 3G coverage, bad reception, ‘bandwidth’ (meaning download speed) far from the “twice as fast” claims, poor battery performance.  To say nothing of software reliability complaints.  Add Apple’s lofty claims and relative inexperience in cellular telephony and you get a nice target.  As the French like to say, the higher the monkey climbs, the more people see his… mistakes.
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This being America, we now have three lawsuits broadly accusing Apple and AT&T of false claims. At the same time, the chattering classes, read the blogosphere and the aging MSM (Mainstream Media), promptly filled up with comments, explanations and accusations.  More confusion than light.
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Apple first clammed up in its usual imperious style but, soon, emails from Dear Leader himself leaked out.  Steve Jobs replied a couple of customers, acknowledged the contribution of software bugs to battery and connection issues and promised fixes in September.  All along, the company refrained from implicating carriers.
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However, as more facts emerged, we began to see a different picture.
The magazine Wired conducted a nationwide study that pointed the finger at the carrier, AT&T.  Then, a Swedish lab took it upon itself to test the iPhone reception (story on Cnet and in the Göteborg Posten), comparing it to leading 3G handsets.  The result?  With regards to radio performance, the 3G iPhone was indistinguishable from Nokia or Sony Ericsson handsets.
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Then, it transpired that Orange, in France, was ‘throttling’ the 3G iPhone. Throttling?  Here the word refers to Orange deliberately limiting the transfer speed, the bandwidth provided to iPhones to 384Kbps (Kilobits per second), which seems to be the ‘legal’ minimum of the ITU (International Telecommunications Union), not the 1Mbps or more ‘sold’ by the carriers.  [I went to the ITU site and entered 3G in the Search field.  The answer is: “The component required for this action is not available”.  This in both Simple and Advanced search.  Fortunately, Google provides the usual abundance of links and things become even less clear.  Regarding the 384Kbps number, some interpret it as the maximum rate for slowly moving devices, such as a handset carried by a walking user.  Others quote the IMT-2000 standard and ominously remind us: “The total max bandwidth of 2.4 Mbits are to be shared by all users within a single cell sector. One cell normally has 3 sectors to cover the full 360 degrees area around a cell antenna tower”.
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Confused?  Let’s step back a bit.
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When we look again at the Orange item, one implication becomes explicit: the network knows it is serving an iPhone.  A dialog, a protocol sets up the connection, identifies the phone/customer for billing, etc…  The “etc” part is very sophisticated as it allows the network to regulate the phone’s radio power, for example, no need to “shout” if the cell tower is near.  This, in turn, points to the ‘client’ side, to the iPhone’s role in the protocol.  Hence the acknowledgement by Apple of connection and power management bugs, hopefully corrected by this past Friday’s 2.1 update.  (I installed it and have nothing useful to report yet – which could be good news.)
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On the carrier side, a set of facts emerges. To begin with, carriers weren’t prepared for the iPhone, because it isn’t really a phone, it is an Internet device with a phone thrown in.  As noted here before, Google found that the iPhone provided 50 times more search traffic than the next smartphone down the list.  In the past, carriers touted smartphones as having browsing and multimedia messaging capabilities but these were hard enough to use to be hardly used.  The iPhone comes in with the first real smartphone browser and the naïve customers use it.  So much so that the network buckles under the load or, in Orange’s case, tries to survive by spreading the penury.  (In recent statements Orange appeared to promise to be back at 1.5Mbps “in September”.) See also how iTunes wireless download are only allowed with a WiFi connection, not 3G.
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So far, carriers have managed to maintain an oligopoly, a market with a very small number of suppliers. Economic theory holds an oligopoly suppresses real competition and leads to various forms of implicit or even active price fixing, as we’ve seen in France.  The lower level of competition allows carriers to delay investments and ‘milk’ their network (and their customers) just like the good old cable networks operators.  In downtown Palo Alto, the birthplace of Silicon Valley, there still are ‘white spots’, places where you have No Service.
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In keeping with the carriers’ culture, we see a combination of small print and outright misrepresentations of services.  Summarizing: your payment is mandatory, our performance is optional.  No wonder ‘trial lawyers’ are rising to this tempting occasion, this after courts started taking another look at the dreaded
mandatory arbitration clauses
carriers use to prevent disgruntled customers from seeking redress in court.
This is unfortunate.  Cellular networks are wonderful, when they work.  The voice and data services they strive to provide make our lives more productive, more fun and emotionally more connected.  (I know, there are also terribly annoying and dehumanizing uses too.)  For the technically curious, wireless networks are both admirable and ugly, an ever evolving patchwork of high-tech bits and pieces striving to appear seamless.
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We can only hope regulatory authorities will pay more attention to the gap between what carriers promise (and ruthlessly charge for) and what they deliver. As for the tall markitecture tales of 4G networks, today they’re just a way to move the debate away from today’s shortcomings by touting a bright future. –JLG
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Google Chrome: a new OS War

Not browser, OS.  More about that in a moment.
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But, first, our kind, venture capitalists, loves disruption. When the established companies take too much room on the Petri dish, there is no way for a new bacterium to prosper.  When a Microsoft dominates a market, to pick a random example, launching a competitor becomes prohibitively expensive.  We love to see the economy move to virgin territories or to watch technology (or the law) weaken dominant players.
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So, what’s not to like about Google’s new browser possibly weakening Microsoft’s position?  Possibly again, we could be trading one Microsoft for a new one, Google, for another black hole of a company sucking in all the business models coming into its orbit.

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With this out of the way, let’s take a closer look at Chrome.
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f you have the time and inclination, you might want to read Steven Levy’s story in Wired, or CNET’s shorter but insightful article, Why Google Chrome?  Fast browsing = $$$$.  I also like Niall Kennedy’s blog post: The story behind Google Chrome and, lastly, a refutation of the unavoidable conspiracy theories: When does Google Chrome talks to google.com? As I write this, a Google Chrome search returns close to 13 million results…
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Back to the OS question. As early as 1994, Marc Andreesen, of Netscape fame, said The browser is the OS.  Many, yours truly included, thought the statement was both technically flawed and self-serving: Marc was one of the authors of the Navigator browser.  In 2008, Sergey Brin repeats the mantra.  Like Marc, he’s technically wrong but existentially correct in the most important of ways, the ways of business wars.  Like Marc, Sergey knows the role, the power, the weight of the (now) underlying OS.  The operating system juggles tasks, manages hardware and software resources such as memory and input/output devices.  With processors executing one instruction at any given instant, the operating system manages the illusion of many concurrent activities, downloading videos, getting email, Instant Messaging, playing music and getting pictures out of a digital camera.  For the applications programmer, the OS is the genie right under the water’s surface.  Wherever the coder sets foot, the genie is right under there, making sure the techie walks on water.
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And, ask Microsoft, not if the OS matters, but what happens when OS trouble happens, when Vista misfires.
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But Mark and Sergey are right, we have entered a new era, Cloud Computing and yet, the lessons of the desktop age are not forgotten. Going back to the application programmer’s feet staying dry, Microsoft played and won the game of tying the OS and the applications.  Windows programmers make sure Microsoft Office programmers have what they need.  Sometimes, this happens at the expense of competitors who can’t always have access to the same technical information, either at all, or in a timely fashion.  At the very start of the Internet era, Microsoft sees what they need to do, again, tie the browser and the OS.  This gives Microsoft control of Internet applications because these need to comply with the dominant browser from the dominant OS and office applications supplier.  Internet Explorer, free and tied, kills Netscape Navigator.  Microsoft spends time and money in various courts around the world but appears to have won that battle.
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But, in September 1998, Google starts and quickly rises to its dominant position in search and advertising. In parallel, a non-profit foundation, Mozilla, resurrects Navigator as the Open Source Firefox browser.  Most of us like Firefox: free, good and getting better with every version, available on Windows, Linux and Macs.  Not tied to Microsoft or Apple.  In our happiness, we paid little attention to Mozilla’s ties to Google, financial ties, millions of dollars, $66.8 millions in 2006, to be exact.  A 26 percent increase over 2006, with little reason to think the progression stopped in 2007.  That revenue is mostly referral money generated each time we use the Google search box in Firefox.  In other words, Google cleverly financed a Microsoft (Explorer) and Apple (Safari) competitor.  A successful one: recent browser statistics credit Firefox with 43.7% share versus Explorer versions totaling 50.6%.  Too successful, perhaps.  Assuming more than $80 millions paid to Mozilla for “traffic acquisition costs”, a fraction of that easily pays for the engineers and parasites needed to write decent browser code.  That would be a make vs. buy argument.  And that would be the wrong one.
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Google’s decision to ‘roll its own’ is based on the strategic requirement to provide its Cloud Computing applications with their own, controlled, under the water genie. Cynics will say Google is playing the Microsoft game of exacting monopoly profits by tying the new OS, the browser, with the new era applications.  But, there are several twists to that analogy.
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First, Chrome is an Open Source browser. Anyone can inspect and use the code for their own work.  In the first place, Chrome is based on the Open Source Webkit also used by Apple’s Safari.  One significant improvement brought by Chrome is the V8 Javascript rendering engine.  Anyone can take the code and use it in their own work – as long as the Open Source licensing is enforced.  Will this cause Apple or Microsoft to Open Source their browsers?
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Second, focusing on Javascript, Google makes another strategic decision, a good one in my view. Over time, browsers have become more complex as they need to deliver richer, livelier applications ranging from spreadsheets to games, from video to music or PDF documents.  Adobe now promotes a platform called AIR, working ‘above’ all desktop OS and purporting to be the engine of choice to deliver ‘Rich Internet Applications’, their words for Cloud Computing.
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Not to be left behind, Microsoft comes up with their own ‘cross-platform platform’, Silverlight for the same new era target. There’s even a third-party Silverlight version for Linux being developed, with some difficulties, by a Linux advocate no less.  Why would Novell’s VP of Engineering, Miguel de Icaza help Microsoft?  I forgot, Microsoft just bought another $100 million of Linux ‘support vouchers’ from Novell.
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Now, if you are Google, will you let Adobe or Microsoft design and constantly modify the genie under the water for your Cloud Computing applications?  Not if you want to control your destiny, not if that destiny is to ‘lead’, to stay Number One.
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Javascript’s it is and we have our own V8 engine for it.
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Today’s beta version looks good to some, and is panned by others. As the new fashion of perpetual betas dictates, see Gmail, we can expect a steady stream of improvements.  More interesting will be watching if and how Google plays the tying game, how it uses Chrome to give its email or photo editing programs features not available on other browsers or speed they can’t match.  And if, how Google one day manages to make money with these applications, the old fashion way, by charging real money for their use.  We VC would like to see that.  For us, ‘free’ is a four-letter word. — JLG

The Valley loves Obama

by Jean-Louis Gassée
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Well, not everyone, we have our contingent of Republican believers who still think Obama is a socialist.
Which reminds me of the way we, the French and the Americans, are on occasion equally knee-jerk bone-headed.  In my country of birth, painful reforms are tarred as “libéral”.  There, the label means right wing free-market ultra-conservative.  Here, in my adopted country, painful reforms are called “liberal”, meaning left wing, bleeding heart, big government tax and spend socialist.  Logomachy.  Why think when you can maim an idea with a label?
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We’ll see a lot more of that in the two months remaining before the November 4th vote, one many of us here think it will go Obama’s way.  Why?
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In the first place, we despise the Bush administration. Never in the Valley’s history have we seen an administration so anti-scientific, anti-liberties, xenophobic, intrusive, profligate, dishonest, harmful to America’s standing in the world and in many ways an obstacle to what we do, a counter-example of what we stand for.
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Yes, we’re capitalists, we like to make money. But, with few unfortunate exceptions, we do it because we help entrepreneurs realize their dreams, because we’re behind Google, Cisco, Yahoo!, Apple, Jupiter, BEA, Facebook and many, many others.  We don’t strip people from their home ownership with trick subprime loans, throwing the country’s financial system into a spin it hasn’t yet recovered from.  Yes, there was the Internet Bubble and, like the current crisis, it was aided and abetted by Wall Street con artists while Washington looked the other way, or took from the other hand.  To do what we do, to continue helping innovative companies start and grow, we need a stable financial system, not the biggest deficit this country ever dug itself in.
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This administration condones the re-invasion of religion into public education: some schools in the South now teach creationism, holding the Bible’s account as a factual description of the beginnings of the Universe.  Not poetry, symbolism or a meditation on the mystery of our origins, no, fact.  The same intellectual honesty presides over discussions of climate change.
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Here, we live in a nice oasis: the color of your passport, of your skin, the thickness of your accent, the way you pray or roll in the hay, none of that matters.  What can you do?  How can you help?  Those are the questions we ask.  As a result, entrepreneurs love to come here from all over the world, Russian programmers, Chinese Ph. D, even French Polytechniciens.  I remember the July 2001 day when I became a US citizen.  There were 996 of us in the San Jose Civic Auditorium.  The federal judge who administered the swearing in told us there were 80 nations in the room.  Tiny Chinese grandmothers, Hispanics, Slavs, Swedes, Indians, Iranians…  And, with tears in my eyes, tears that come back as I write this, I thought: This is how my dear Silicon Valley will continue to be this oasis of meritocracy and entrepreneurship.  The same judge kept telling us to use our new civic rights, to register to vote.  The ceremony came to an end and, as we exited the auditorium, we saw a big table and volunteers ready to help with the registration paperwork – for the Republican Party.  The Democrats were at the beach.  That’s how I became a registered Republican –  soon to re-register as an Independent and thus able to vote either way.
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Back to the Bush administration, what does it do to help Silicon Valley continue to attract entrepreneurs from all over the world? Getting work visas becomes much harder.  This in a country where 25% of high-school “students” quit before graduation, when graduating is so easy all you have to do, in some of the worse schools, is fog the proverbial mirror.  In all fairness, that very problem, the state of high school education, the resulting lack of qualified “intellectual manpower”, pardon the oxymoron, and the ensuing need to import it, that situation is not Bush’s fault.  We blame his cavalier indifference to it.  But it predated him and secondary schools are but an example of a more general case of systems so entrenched, so powerful they can’t be reformed with politics as usual.
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Let’s face it, it’s our problem.  We keep electing solons who, once in Washington, run into the arms and wallets of lobbyists and sell us down the river to telecom, Big Pharma, healthcare and Wall Street interests.  The executive, Bush, McCain or Obama can’t win against Congress and lobbyists.
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Unless…
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Obama, once elected, displays the charisma and willpower to connect with the electorate over the heads of Congress. In other words, we need a President who gets our support, channels our willpower.  Then, together, we put legislators into a vise and squeeze them into working for us instead of being on the payroll of lobbyists and their clients.
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In his column, Frédéric explains how Obama used the lessons and the people from Howard Dean’s successful Internet operation.  Obama has shown the will and skill to use technology to empower voters like no one before him.  That’s how he won against the “inevitable” Hillary.  Too bad for her supporters if they stay angry at Obama for beating their champion, they should be furious at her for her entitled behavior and for not paying attention to what the “inexperienced” competitor was building.
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This is dangerous, of course.  Political scientists will rightly remind us of the dangers of direct democracy. It can lead to dictatorship, to a rump parliament, to the disappearance of checks and balances.  But this is a democratic 50-50 country and I don’t see a dictatorship happening here.  Unless, of course, we look at the Stalinist labeling of human beings as “enemy combatants” in order to torture them, to deprive them from the right to habeas corpus and to a fair trial.  A French communist once lectured me on the constitution of the Soviet Union, it guaranteed civil rights, personal liberties.  Unless, of course, you were an “Enemy of the People”.  No rights for you, then.  Off to the gulag.
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With this in mind, for many of us here, Obama looks safer than playing the same Washington game with barely different players. We could be naïve, we know there is the “small matter of implementation”, of the ugly reality of governing once you’ve won the contest.  Still, we hope this mestizo of John Kennedy and Martin Luther King (minus the women and the pharmacy) will restore faith in our government. — JLG

DIS: a view from the Valley

Modest and proud of it, that’s us. Our perch at a center of innovation gives us the “right” to opine about almost anything, from biotech to movies, Net politics, wireless carriers and operating systems. So, why not mull over the future of newspapers?


L
et’s deal quickly with the formula: I agree with Frédéric’s prescription for the DIS. As described in last week’s Monday Note, new newspaper, laptop, smartphone, each medium, each prong of the integrated DIS has its features, its “rules of the genre”, its specific use and business model. Business model is a little abstract for me, let’s say money pump, the pockets we pick, advertisers, readers, and how.


Case closed, it’s a mere matter of implementation, right?
In the Valley, “a mere matter of implementation” is a code phrase, a tongue-in-cheek way to say we think we know the What but not the How. As in: to lose weight, all you need to do is eat les and exercise more – for ever. With the DIS, I see the question morphing into Who will do it? Fresh new money for an ab ovo entrant, an existing newspaper empire such as the New York Times or Rupert’s, or an existing enterprise outside of the newspaper world, Google, Tata or the Quandt family (they control BMW), for examples, realistic or not.


Let’s pause for a detour in the past: Exxon Information Systems.
In the seventies, the Big Oil company chartered the hypnotists at the Boston Consulting Group with designing a diversification strategy. Oil is running out, the OPEC is out of control, Exxon needs an alternative future. Information is the oil of the 21st century, chanted the Boston marabouts. (The Robber Baron from Redmond hadn’t emerged yet, but the BCG sees into the future.) So, Exxon started collecting little or no so little information systems companies, ranging from Intecom to Qwix, Qwip, Vydec and Zilog. The kommentariat bought it, Fortune Magazine sagely praised the diversification, the cover of Business Week asked: Exxon’s Next Pray, IBM or Xerox?

It all ended up in a $4 billion dollars hole. I know: I, too, bought the story and briefly ran their French subsidiary. And less than six months into the job decided I needed out. Right idea, wrong culture. We forgot Culture Eats Strategy For Breakfast. This was evident at Exxon, a well-managed company with no cultural clue (and no clue about lacking a clue) about the alien ways of computer people and technology.


Back to the DIS, fear someone with the right idea, armed with the right strategy but clueless about the people and the technology.
In the Valley, experienced, successful executives and entrepreneurs open a winery or buy a restaurant. You see, we know restaurants, we’re wine connoisseurs, we’ve been to the best ones around the world, we’ve swilled the grandest vintages. Wags call these pursuits buying oneself a phallic extender – these deluded individuals are all male, women are more sensible. These guys truly know how to be diners and wine tasters, but they know worse than nothing about the tough, thankless restaurateur trade or the bottomless vintner métier.

We need not look further than my country of birth to see other examples of Gallic phallic pride, of talented industrialists buying themselves an “organe de presse”. The malady is widespread and tells us big enterprises with big wallets probably won’t succeed in bringing a DIS to the world, try as they might.


In the Valley, we have this known, sunny view of entrepreneurs.
As a result, we could be tempted to think a totally fresh start will do it for the DIS. An experienced team of media and technology entrepreneurs with gobs of patient money from the likes of Kleiner Perkins, Sequoia or NEA, to names the firms ready to place big bets.


There is a small problem with the big idea: the business model doesn’t work like a venture investment, the rewards are too small for the risk.
As previous Monday Notes have pointed out, advertising revenue sharply declines when moving from paper to the Web. And there is Google whose riches come from pimping, sorry, selling advertising on, other media, not from being itself a new medium. So, we’re left with existing media groups. One gives us hope: Rupert Murdoch’s News Corp. He’s not exactly a kid fresh out of college who doesn’t know the word impossible. In an apparent paradox, his age, 77, is an advantage. He is, so to speak, not afraid to die, he’s repeatedly succeeded against the advice of the wise. Murdoch managed to take over choice properties such as the Times of London and, damned the Cassandras, improved them. Too early to say for the WSJ and no such luck for MySpace yet. The latter could be a case of cultural deafness. Still, my hope lies with a media group finding the will or the enlightened dictator to “cannibalize” its existing business rather than silently capitulating to its fate. This excludes most publicly traded groups, Wall Street hates cannibalism. As a result, the first step in the conversion to the DIS is a leverage buyout, the group becomes private so the surgery takes place behind the curtain. –JLG

Fiction: How Steve Jobs Cuckolds AT&T

Steve shimmers into a bar, materializes next to Dan Hesse, Sprint’s CEO, crying in his mojito and whispers: I can fulfill your fondest dream. You’re the Devil, go away! No, I’m merely Steve Jobs and I want nothing to do with your soul or your chiseled body. Relax, it’s just about money.

A little bit of context before we move to the How of Steve’s bargain.

In the US, we have three main carriers (sorry, T-Mobile), AT&T, Verizon and Sprint. Verizon appears to have the better, more modern (EVDO) network.
AT&T is rapidly upgrading to what is known as 3G, a world standard, competitive but not compatible with EVDO. Sprint, the smaller one, has EVDO, almost identical to Verizon, it is losing ground to the two big ones. The Sprint-Nextel merger is a disaster, to the point where Sprint wants to get rid of the company it acquired for $35 billions in 2005. Sprint’s revenue is falling: -11% when compared to the same second quarter last year, this in spite of introducing a $99 Everything plan, unlimited voice, data, music, video. “Some restrictions apply”: look at the minuscule print here, at the bottom of the screen, tiny white characters on a black background. In the almost illegible but instructive gibberish, they have the nerve to add: “Other restrictions apply. See store or sprint.com for details”. But I am on the Details Page on sprint.com!
(Intrigued, I checked: Verizon does a better job of spelling out its conditions and AT&T has the best organized one of all three.)

And, for the first six months of 2008, Sprint has lost 2 million subscribers, nothing to do with the reality and the perception of Apple smartphone sales: probably more than 10 million units in 2008, a majority of in the US.
Now we understand why the CEO is in his cups.

Steve whispers: Dan, look at the iPod Touch here. We’ve added a microphone, already available from third parties, and we grafted a Sprint radio, liberated from Jeff’s Kindle. It’s not a telephone. No, we have this exclusivity agreement with Ma Bell. In 2007, we let them say it was for five years. Now, with our 3G product, it’s been “extended” to 2010. Who knows, next year we’ll extend it to 2009.

Offer this iPod Touch with one of your All You Can Packetize plans. I’m sure the iPhone developers will put one or more Skype-like applications on it, VoIP software. You won’t mind, right? You’re not as uptight as AT&T outlawyering the use of an iPhone as a 3G laptop modem. This iPod is not a phone, it’s an Internet device, you’ll sell millions of them, your errant subscribers will return to Sprint’s fold. And you’ll keep your job. What do you say?

Awright, stop drinking that stuff and sign here. –JLG

Launchpad Chicken: MobileMe and Sync Trouble

by Jean-Louis Gassée

Simple is hard. Easy is harder. Invisible is hardest. So goes one of the many proverbs of our computer lore. As Apple found out last month with the MobileMe launch misfires, the lofty promise of “Exchange for the rest of us” translated into a user experience that was neither simple nor easy — in a highly visible way. Four weeks later, the service appears stable but doubts linger: Is Apple able to run a worldwide wireless data synchronization service for tens of millions of users.


What happened and what does it mean for MobileMe’s future?


Let’s start by decoding the “Launchpad Chicken” phrase. The game of Chicken is one by which two young males test their virility in the following way: from opposite directions, two cars speed towards each other on the same lane of a country road. The one who steers away first obviously lacks cojones and is derisively called chicken. You might ask about brains versus testes but here we are, the chicken is the one who “blinks first”. Now, let’s turn to the launchpad. Picture the NASA control room before the launch of an expedition to the Moon. Hundreds of (mostly) men in white short-sleeves shirts, pocket protectors and eyeglasses, hunched before screens, keyboards and telephones. Each one monitors a subsystem: left liquid hydrogen tank, backup gyroscopes, main engine telemetry… In the huge air-conditioned control room, five of these men are sweating, something’s not quite right with their baby. The temperature keeps rising, the pressure is falling, the telemetry link is weakening. Almost but not quite in the red zone. If the parameters keep drifting like this, they’ll have to pick up the red phone. But who wants to be the one who aborts the launch? So, they sweat some more and hope someone else blinks first. There you have it: Launchpad Chicken.


Now, move the imagery to projects with complicated subsystems. You see how the NASA metaphor made its way to Silicon Valley. There is always hope some other engineer will raise a hand and spare me the embarrassment of admitting my part of the project could crash the launch. This is what happened for MobileMe, with a twist on the cojones, so to speak. No one had enough brains and guts to risk humiliation, to raise a hand and say: Chief, we’re not ready here, let’s stop everything. As a result, MobileMe badly crashed on launch. A couple of weeks later, we have a leak: an “internal” memo from Steve Jobs. The email states the retroactively obvious, the project should have been delayed or at least launched in stages. No less obviously, a new leader is appointed, Eddy Cue, he’ll continue to run the iTunes systems as well. Charitably, the deposed MobileMe boss is granted anonymity, he might have been misinformed by his charges, or he might not have asked the right questions at the right times, it doesn’t matter anymore.


But, you’ll ask, that doesn’t tell us what went wrong, which liquid hydrogen tank sprung a leak. This now gets us into two more topics: sync and size. Sync here means keeping information identical, consistent over two or more devices. Less abstractly, for a simple example, I have a phone and a computer, I want their address books to identical or, at least, consistent. On simple cell phones, I use a cable (or a Bluetooth wireless connection) plus software to copy (parts of) my computer address book to the phone. But, wait a minute, I entered numbers on the phone that are not on my computer; I don’t want the copy from the computer to wipe out those new numbers. Trouble starts, as if connecting the cell phone to the computer and running the program wasn’t buggy enough. Tou want the software to compare the two address books, the phone’s and the laptop’s and decide what to keep and what to change, on both devices. But what about homonyms, or different numbers for the same person’s home? The program, hopefully, raises those “exceptions” and lets a human arbitrate.


We’re just warming up. Now picture a more real-life situation. One traveling consultant with one laptop, one smartphone, both carrying mail, address books and calendars and one assistant in the office with a desktop computer. In Microsoft Exchange’s lingo, the assistant is a “delegate”, has access, including modifications and new entries, to the traveling consultant’s data. Everything must be kept identical, consistent, in sync. How is this done?


Using the Exchange server as an example, it keeps the “true” data. And the “clients”, meaning the smartphone, the laptop, the assistant’s PC submit changes, new mail, an updated appointment, a new contact home phone to the Exchange server. In turn, the server propagates changes to the clients. We say the updates are “pushed” to the smartphone or the laptop, just as they “push” new mail or a new calendar item to the server. You can easily imagine conflict situations: the same appointment changed by the consultant and the assistant, address updates and the like. By now, at least on Exchange, these “exceptions” are well understood and generally well-handled. But it took years of practice. Just as it has taken years for RIM (founded in 1984), the Blackberry (launched in 1999) creators to polish what is the best-selling synchronized smartphone. Details, details and more subtle mistakes and special cases found and fixed. The Blackberry got its stardom from truly delivering the Simple, Easy, Invisible proposition referred to in the beginning of this essay.


MobileMe aspires to deliver a similarly invisible level of synchronization for people who don’t have an Exchange server, hence the “Exchange for the rest if us” slogan. But seeing the launch glitches, I wonder how many people at Apple stooped to using a Blackberry with an Exchange account. Doing this would have sobered them a little in advance of the launch, or delayed the whole thing, or tempered the boasts. Shortly after MobileMe’s first missteps, Apple publicly and smartly retracted its use of “Push” to describe MobileMe’s synchronization and the “Exchange for the rest of us” motto is no longer seen on the company’s Web site.


Moving to size: quantity begets nature. At some (often mysterious) point, more of the same becomes something different. One server, ten servers, more of the same. One thousand servers or, in Google’s case, running one million servers is of a different nature. Meaning different people with different knowledge and appetites than the ones needed to run a company’s email server. If every other iPhone customer wants to sync a PC or Mac with the newly (or old, with the 2.0 software update) purchased iPhone, MobileMe will soon serve millions and, in a not too distant future, tens of millions of iPhones. Besides knowing or not knowing the Buddha of sync, did the MobileMe team have the experience, the knowledge, the appreciation of the “size” problem before them? Very few people in our industry do. Ask Google’s rivals why they were trounced by someone coming late to the game but with a better handle on the “size” or “scale” problem. (See this paper from UC Berkeley, where ultra-large scale computing is actively researched, with private industry subsidies.)
In passing, 10 million MobileMe subscriptions at $100/year is a nice piece of change, one billion dollars, worth the trouble.


Let’s step back a little. Apple “pushes” somewhere between 100 and 200 megabytes of updates per month to each Mac user. Last week, the iPhone 2.0.1 update was announced, I connected two iPhones within minutes, the 200Mb files were downloaded and installed without a hitch and I haven’t heard any blogosphere complaints on the matter. iTunes has sold billions of songs, serves tens of millions of customers everyday and everything works with very few exceptions. In other words, some very large scale Apple systems do work. As discussed above, the iTunes boss (some say slave driver, a meliorative term in context) in now also in charge of MobileMe.


And, last week, parts of the Gmail service were down for 15 hours or so. Last month, Amazon’s respected Web Services went down. And, last year, RIM’s servers went down for about half a day in the Western Hemisphere, freaking out Wall Street investment bankers and management consultants. Even the best players must endure their share of false notes.


Back to MobileMe today:if you ask subscribers who’ve never experienced a Blackberry’s smooth delivery of sync, they love MobileMe. It works, it’s easy to set up and in the simple (most frequent) case of a PC/Mac with an iPhone, it does the wireless (OTA, Off The Air) sync job as now advertised. We’ll see how this scales once iPhones are sold in 21 more countries, 43 total starting August 22nd.


–JLG


iPhone 3G — One Week Later

Contrary to what I expected, the dust hasn’t settled yet. A week later, people still queue, 2h30 Friday morning before being admitted to the sanctum sanctorum in San Francisco. Besides the long lines, there were glitches: activation problems, trouble with the new MobileMe service, with getting access to software updates for the “old” iPhones. Apple claims 1 million phones sold worldwide for the first weekend, probably 400,000 in the US alone. The latter number could explain the activation servers overload: in more normal times, AT&T must activate “only” 25,000 phones a day. Apple apologized for MobileMe problems and even conceded they should suspend some of the verbiage used to promote the service. Calling “Push” the way email and other information is coordinated between computers and the iPhone was found a little “anticipatory”, meaning promises made couldn’t yet be fulfilled. ["Push" means your phone or your computer will receive information without asking for it, without "Pulling". The Blackberry is still the king of "Push".]

But this is mostly folklore, fun but transitory. Something more important is taking place: the advent of the App Store. On iTunes, the App Store is a section where you find new applications for the iPhone. On the iPhone, the App Store is an icon that enables the one-click purchase and wireless download of new applications, just like a song and often costing the same, 99 cents, or less. In about the same time it took Apple to sell 1 million phones, users (this includes the updated first generation iPhones) downloaded 10 million applications. Half of these were free. For the paid for ones, about half were games, the rest range from software for general aviation pilots, medical students, bloggers, to light sabers, yes, you read it right, translation with voicing of phrases, nice when you go to China, subway maps, newsreaders, CRM, social networking, instant messaging and music streaming. Apple signed in with a nice, free, flourish: a program transforms your iPhone into a remote control for iTunes or AppleTV, works anywhere in the house through your WiFi network. And on and on… I was going to forget the Chanel Haute Couture Show. Free. Highest Karl Lagerfeld quality. How did this get in? Let me guess, friends in a common advertising agency? Is this one the new business models discussed below?

When the App Store opened a week ago, the catalog featured 27 pages, we’re now at 42. It’s fair to say some applications are silly, useless or unstable. The user review system in the App Store is merciless and deals harshly with stupidity, bad code or dysfunctional UI (User Interface). Also, there is an automatic update mechanism and applications such as Facebook have already been improved. The bad ones will die quickly.

The BFD, as in Big Fundable (or other F words) Deal here is the Great American Instant Gratification. The mental transaction cost of getting an application is very low: lots of choices, small price, one-click transaction. This is the magic of using the existing iTunes infrastructure and exisiting customer behavior. I can’t help but wonder whem Apple (or its competitors) will also use the model for desktop applications, Cloud Computing notwithstanding. I buy iTunes music for my personal computer, why not buy applications for my Mac or my PC from the same store?

Wait, as we say in America, there is more: business models. We’re beginning to see ads on the iPhone, with photos, music or the New York Times. We, VC, will be watching carefully as we wonder if advertising on such small screens will work, will generate real money. Another form of advertising looks more promising: free music channels on the Pandora application. You first set “channels” on Pandora.com from your PC, say Mozart, Bach, Miles Davis and Dave Brubeck. On your iPhone, you click Miles Davis and you either get Miles Davis works or music deemed to belong to the same genre, with a nice note explaining why the piece was put on this channel. And…, if you like it, one click buys it form iTunes. Clever and clever a second time because not convoluted.

Lastly, content presented as, wrapped in applications. For 99 cents you buy and load an application called The Art of War. You’ve recognized Sun Tzu’s book. But, instead of having a separate book reader and content purchased for it, with the risk of “unwanted duplication”, content and reader are now budled as one application for each book. When I pitch my next book to the publisher, I’ll make sur to mention the 45 million iPhones to be sold next year. This number is an admittedly wildly optimistic (and widely criticized) forecast by Gene Munster from Piper Jaffray. Unless RIM (Blackberry), Nokia and Google fight back, which is very likely, they don’t like Steve Jobs wiping his Birkenstocks on their back. —JLG