hardware

The Unavoidable iPhone Nano

Try googling “iPhone Nano”, you’ll get 43.9 million hits. It seems a lot. A closer look at Google’s results shows them to be reasonably legit, no spamming. (Bing is less expansive with only 103,000 results, 400 times less than Google…)

The putative iPhone Nano appears to be in great demand. But is popularity a predictor? Are all these “hits” a sign of a product to come? Or is it merely what a critic calls the iPhone oNano, a fantasy?

The iPod story provides an inviting template: Over the years, what we now call the “Classic” begat a large family of Mini, Nano and Shuffle versions. And the iPod Touch, which I’d rather call an iPhone Minus for today’s purpose, meaning it’s not part of the iPod class. (Another wag calls it the iPhone Honest: the one that clearly labels itself as unable to make phone calls. How unfair.)
So, let History repeat itself. Let’s start a family of iPhones, beginning with the cuter iPhone Nano. Right?

Perhaps not.

Looking at the iPod again, one thing never changed: all versions played the same music. Other attributes were added and sometimes taken away: size, screen, physical and logical controls, video… But the core purpose never varied: playing iTunes digital music files. (As the iPod Wikipedia article makes somewhat clear, you can use an iPod without iTunes, but that’s not a statistically significant reality, it’s not relevant to the iPod ecosystem’s business model.) The iPod’s DNA evolved a few accessory strands here and there, but the core genes have been left unchanged. And, going back to the iPhone and the iPod Touch, we see iPod genes living inside a larger DNA sequence

Speaking of the iPhone, what is its main purpose?

Is it making calls, browsing the Web, doing email, synchronizing calendars and address books? It does seem that way: the iPhone provides such services with varying degrees of felicity. (In my sample of one, during the Summer of 2007, when I saw the amount of Web browsing time spent on my infant iPhone, I realized my treasured Blackberry was a goner.)

But these de rigueur, taken for granted functions are necessary but not sufficient to make an iPhone. What does make an iPhone an iPhone is its huge and still growing collection of applications served by the iTunes App Store.

The iPhone is an App Phone.

The App genre (the apps themselves, their distribution system, the development tools) is now fully embraced by the smartphone industry and by its customers. I realize we’ll keep saying “smartphones”, but “app phone’’ gets us closer to the genre’s core reality, to what drives enthusiastic user adoption — and close to triple-digit year-to-year revenue growth.

The apps are to the iPhone what digital music files are to the iPod.

Moving to the Nano suffix. What can we remove from today’s iPhone “Classic”?
Memory, processor speed, storage? Not really. Those permutations are available already. Either in current iPhone configurations, or in the previous generation pricing games: a 3GS iPhone for $49,

while the iPhone 4 trades for $199, both with a 2-year contract. And these variations do little or nothing to change the apps that run on them.

(Out of curiosity, I went and looked for an unlocked iPhone. On Amazon, the previous generation iPhone 3GS is offered at prices between $400 and $600. I’m not sure what to make of such factoid. Grey market? Paying for the ability to then freely switch SIMs and move from one carrier or one country to another?) More

Microsoft: Tablets are a passing fad

Once upon a time, IBM was The Company, computers had “spindles” and Big Blue salesmen (no females allowed) got fresh collars and cuffs delivered to their desks each morning.

When a pesky innovator came up with an interesting idea, The Company had a response at the ready: You Don’t Need This…We Know What’s Good For You. And when misguided customers were seduced by the heretical product, IBM moved to the next couplet in the hymn book: We’ve been working on this for six years and you’ll have it in six months.

First, deny. Then, embrace.

Microsoft, The Great Learner, sat at IBM’s knee and came up with a similar playbook, their own way to deal with annoying competitors. See, for example, the notorious Embrace, Extend and Extinguish.

Let’s skip forward a few decades.

In 2007, we have Steve Ballmer’s infamous “It’s a passing fad” reply when asked about the iPhone. Then he tells us Windows Mobile would own 40% of the smartphone market by 2012. Windows Mobile ended up being kicked to the curb.
We know what happens with rebounds, they don’t always lead to good decisions. Microsoft’s relationship with Danger (I’m not making up the company name) begat the remarkably short-lived Kin, a strangephone that disappeared from carriers’ shelves in a matter of weeks.

Microsoft sobered up in 2010 and finally announced a serious smartphone platform: Windows Phone 7. But while Google and Apple gathered momentum with their Android and iOS platforms, Microsoft had to buy developer and handset maker adoption. Nothing as untoward as free OS licenses to manufacturers, of course, nor did they pay developers to port/write apps…just big $$ marketing support, you see.

It quickly became obvious that Windows Phone 7 wasn’t a contender, so Microsoft bought Nokia. Sorry, wrong phrasing…they bought “Nokia’s full and sincere commitment” to Win Ph 7. The next chapters of that love story won’t be boring.

In parallel, the iPad happened.

Chef Jobs, in one stroke of his whisk, got the tablet mayonnaise to take, after three decades of clotted failures by the best and the brightest in the computer industry, Apple included.

For years, ever faithful to its Embrace and Extend credo, Microsoft has been going after the tablet market. In 2001, Bill Gates himself made a lofty prediction: “The tablet takes cutting-edge PC technology and makes it available whenever you want it…It’s a PC that is virtually without limits — and within five years I predict it will be the most popular form of PC sold in America.”

As we know, the Tablet PC never took of, it stayed within the narrow confines of highly specialized applications, but this didn’t quench Microsoft’s enthusiasm. In September 2009, Microsoft opened its kimono one more time, probably forgetting repetition kills titillation, and let the world know about its Courier “project”. In January 2010, at CES, Steve Ballmer was no longer touting the Courier tablet but praising the upcoming Slate from HP. More

RIM: The inmates have taken over the asylum

by Jean-Louis Gassée

Once upon a time, the Blackberry was the king of smartphones. After a succession of Psion PDAs and Palm devices, I loved my Blackberry, it was the perfect PIM (Personal Information Manager). Email, contacts and calendar functions worked well together — and Exchange integration was the killer Enterprise feature. It even made phone calls! On Verizon, that is.
Year after year, RIM kept improving its product and expanding its worldwide distribution. The Blackberry became de rigueur, addictive, justifiably earning its Crackberry nickname.
Shareholders weren’t disappointed either. Between February 1999 and June 2008, RIM stock gained $143/share, a rise of 7,793%:

But, on the same chart, we see RIM lost 11.23% of its value in one session, this past Friday March 25th.

Why?

As often, the answer is a combination: underlying trends + a trigger event.

The trigger event was RIM’s release of its latest quarterly numbers. On the surface, the results looked reasonable. 14.9 million units shipped versus 14.2 million in the spring, $5.5B in revenue and $934 million in net income, up 32%.
The bad news start with unit growth, it is out of sync with the rest of the industry where percentages are more in the 50% to 100% range. For reference, Apple’s iPhone unit sales grew by 93% from 2009 to 2010. More recent Android devices grew even faster.
Then, RIM’s guidance (Wall Street argot for forecasting games) for the following quarter is weak: revenue flat or dropping, between $5.2 and $5.6B. Rote explanations follow, from lower average prices, lower gross margins, to investment in the development and launch of new products, and supply-chain disruption stemming from the March 11th earthquake in Northeastern Japan.

Not a word of competition from Android-based handsets or iPhones.

Which gets us to the underlying trend: we now live in an App world.

RIM reigned at a time when your Blackberry came with everything you needed. Suitably placated, the IT gent configured your Exchange connection and off you went. I was one such user when I bought my first iPhone and kept carrying both devices. Remember 2007: Dear Leader telling us we didn’t need native apps, Web 2.0 software was perfectly adequate. But even then, browsing the Web on an iPhone was such a superior experience to what the Blackberry provided.
Then, in 2008, the App Store opened; iPhone Exchange integration became useable and I let go of my Blackberry.
Coincidentally, when you look at the stock chart comparing Apple, Google and RIM, 2008 is also the year when, after reaching its all-time peak, RIM started its descent:

If you look at the worlds of Android and iOS apps, RIM’s achievements look modest by comparison. By November 2010, the Blackberry App World offered about 15,000 apps. This isn’t much compared to the hundreds of thousands claimed by Android and iOS.
I won’t get into details such as which apps work on which Blackberries, how to pay for and how to install those. Suffice it to say, even if you put the number of apps aside, on the sole ease of use criterion, the Blackberry App World isn’t competitive.

Blackberry smartphones were great products, RIM’s management has achieved strong carrier distribution around the world. But competitors now have better devices and better app stores.

As this loss of competitive edge became more apparent, RIM’s management had to explain their plans to increasingly skeptical Wall Street analysts and media.

Things didn’t go well.

In RIM’s case, management consists of two CEOs and three COOs. I checked here, it’s true. Lately, neither CEO hasn’t made much sense when describing RIM’s future.

Interviewed by Bloomberg Businessweek in September 2010, Jim Balsillie says this:

“There’s tremendous turbulence in the ecosystem, of course, in mobility. And that’s sort of an obvious thing, but also there’s tremendous architectural contention at play. And so I’m going to really frame our mobile architectural distinction. We’ve taken two fundamentally different approaches in their causalness. It’s a causal difference, not just nuance. It’s not just a causal direction that I’m going to really articulate here—and feel free to go as deep as you want—it’s really as fundamental as causalness.”

The other CEO, Mike Lazaridis, isn’t doing much better. Last December, he was on stage at the D-Dive Into Mobile conference, interviewed by Walt Mossberg and Kara Swisher. See the video here, and an Endgadget liveblog here. The liveblog should be read from the bottom, as the format dictates: successive entries are pushed at the top. But you can read in any direction, it won’t matter as Lazaridis sounds quite free with logic.

Yes, there’s always the danger of quoting someone out of context, or of catching an individual at a bad time. I know these two executives have built RIM into a worldwide industry leader, they deserve respect for such an achievement. Look at RIM’s history, getting there wan’t easy — or spotless.

Still, last week, RIM’s other co-CEO kept going. See the earnings call transcript, edited by Business Insider, where Balsillie keeps speaking in tongues:

I’m just not interested in these sort of religious application tonnage issues. I really think we put that issue to bed. And if you think the whole world’s going to want to develop for Gingerbread, fine. Do I think that’s going to happen? Then why is there a different environment for a tablet? And you know about the performance issues and you know about the app volume issues, cause it’s tough. And that’s why QNX matters.

That’s why people are saying, Is this stuff going to go more in the browser and HTML 5 and more native? These are going to be strong trends. But if you want these app players for different VMs — and don’t forget we have 25,000 BlackBerry 6 apps. So, at the end of the day, we believe this is going to be about performance. It’s going to be about enterprise greatness. Things like multi-threaded capability, symmetric multiprocessing. We believe it’s about an uncompromised web. We believe it’s about enterprise security. True multitasking, not with suspension — and that matters because you’re going to want to run these things in the background.

But I’m out of the religious war on tonnage, which I’m delighted.

… (Lots of repetition.)

I think it’s very important to understand that this idea of “no compromise” matters. And this idea that you can pick whichever one you want.

RIM is scrambling to gate a tablet to market “before it’s too late’’.

First, for its tablet, the PlayBook, the company needs an OS. Luckily, RIM lives close to one of the great Canadian universities with strong Computer Science and Mathematics programs: the University of Waterloo. QNX was invented there, a very good operating system for embedded applications. Last year, RIM buys QNX from Harman Industries.
Next, hardware. Multi-core ARM SOCs are aplenty and Asian suppliers are at the ready to build hardware to your specs.
Now, we need apps. And for apps we need a development system, specifically one running on QNX.
This is where the madness really starts: the Native SDK, meaning the programming tools required to write high-performance QNX apps in C or C++, isn’t ready for the coming April 19th launch. According to Mobile Beat, “The company has a limited version of its BlackBerry Tablet OS Native Development Kit that will be in open beta by this summer.”

As an interim measure, RIM offers a number of other solutions, called ‘‘app players’’. These are emulators or, if you will, a kind of virtual machine. The app players run existing applications, and new ones can be developed using the tools from the emulated platforms.
So, you have app players for games, for HTML5 apps, Adobe Air and for Blackberry Java used on the company’s smartphones. This is complicated and not developer-friendly, leading Jamie Murai, an experienced app developer, to write RIM a strongly worded open letter. To the company’s credit, the head of Developer Relations, Tyler Lessard, responded quickly and honestly. But Lessard couldn’t really solve the basic problem: as Murai explained in great and vivid detail, developing for the PlayBook can’t compare favorably to the competition, to Android or iOS.

But wait, there’s more.

You’ve noted the curious “application tonnage” phrase in Balsillie’s utterance above. Justifiably, RIM is worried about getting enough applications on the PlayBook. No apps, no sale, as Robert Scoble succinctly explains.
Where do we turn to?
Apple is out of question, but Android is open. Let’s go Android and make their 200,000 apps run on the PlayBook. Problem solved, we have “tonnage”.
This is serious madness, in two ways.
If Android apps do run on the PlayBook, why bother writing for QNX? The PlayBook becomes an Android tablet and QNX no longer matters, right?
In response, Balsillie treats us to more contorted language:

And if you think the whole world’s going to want to develop for Gingerbread [a version of Android], fine. Do I think that’s going to happen? Then why is there a different environment for a tablet? And you know about the performance issues and you know about the app volume issues, cause it’s tough. And that’s why QNX matters.

Android apps will run slowly, [so far inexistent] QNX native apps will be faster.
Why?
Because the Android apps are running inside another app player, another emulator. As a result, performance will suffer. This could be a useful stopgap measure: you buy a PlayBook and go to the Android Market for your app needs. Killer QNX apps will arrive later — assuming developers are committing to the ecosystem.
But, no.
We now move to the second part of the madness: the “going to the Android Market” part is false. It is a deliberate attempt to mislead.
The Android apps won’t work directly into the app player. The developer, not the user, will need to “quickly and easily” port their apps to run on the tablet OS, according to RIM. The same developer will also need to repackage, code sign and submit their apps to the Blackberry App World for approval.
There is more: the PlayBook app player will only run Android 2.3 (Gingerbread) apps. These apps are designed for smartphones, not tablets. According to Google, for tablets you need Android 3.0 (Honeycomb).

RIM succeeded because word of mouth, not advertising, sold the Blackberry. Proud users begat more proud users. What will happen when users “share” the true value of the “running Android apps” claim?
No one could fault RIM for the “iPad surprise”. After decades of misbegotten tablets, no one was prepared for the rise of the new genre.
Reacting quickly, not wanting Apple to gain too much of a market stronghold makes business sense. But launching what is clearly an immature product and trying to compensate for a dearth of applications with a misleading claim of compatibility with the wrong version of Android is insane.

Those whom the gods would destroy, they first render mad…

JLG@mondaynote.com

WebOS Everywhere

by Jean-Louis Gassée

Where have we heard a similar mantra? Despite their apparent divorce from Microsoft, it sounds like HP’s brains have been infected with a mutation of the “Windows Everywhere” virus.

Let’s recap.

Late April 2010, HP acquires Palm for $1.2B. In July 2010, then-CEO Mark Hurd tells us he didn’t buy WebOS just for smartphones, but also for printers and tablets:

“We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP. The WebOS is one of the two ground-up pieces of software that is built as a web operating environment [...] We have tens of millions of HP small form factor web-connected devices [...] Now imagine that being a web-connected environment where now you can get a common look and feel and a common set of services laid against that environment. That is a very value proposition.”

This sends two messages:

- No more Windows Mobile or Windows Phone 7, we “go Apple’’. We’ll own the entire hardware/software combo. (Contrast this with Nokia which is heading in the opposite direction, abandoning Symbian to “go Microsoft”, literally this time.)

- We’ll put WebOS everywhere: tens of millions of HP small form factor web-connected devices.

Mark Hurd steps on a mine, moves to Oracle and, in September 2010, HP gets a new CEO, Leo Apotheker.

Does he change strategy?

Not at all. On February 9th, HP announced its WebOS tablet, the TouchPad, and two smartphones, the Pre 3 and the neat-looking, diminutive Veer.

These products haven’t shipped yet. We’re told “Summer” for the TouchPad and Pre3, and “Spring” for the Veer. I hope to get my mitts on them as soon as I can. I’m intrigued: How will the HP devices fare in a market where Google/Android, RIM, and Apple keep strengthening their positions? To borrow from Stephen Elop’s “Burning Platforms” memo, this is no longer is a war of platforms, it’s a war of ecosystems:

“The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, e-commerce, advertising, search, social applications, location-based services, unified communications and many other things.”

Regarding product details and the agility of the UI, HP’s announcement is enticing…but little is said about the company’s plans to build a viable universe around these new devices. Perhaps the plan is to announce the products early so developers, content providers, and channels have enough time to evaluate the opportunity and, if committed, be ready when the products ship.

This week, Leo Apotheker went one step further. On page 2 of a meaty Bloomberg Businessweek article, we learn that “… starting next year, every one of the PCs shipped by HP will include the ability to run WebOS in addition to Microsoft Corp.’s Windows… The move is aimed at enticing software developers to create a wider range of applications that would differentiate HP PCs, printers, tablets and phones from those sold by rivals.

On the surface, WebOS developers will have the tens of millions of PCs and laptops HP sells every year as targets for their applications. More devices, bigger opportunity.

But the reality is much more complicated.

First, is this an either/or proposition, run Windows or run WebOS? Or is this a quickboot arrangement similar to Splashtop, a customized Linux software packages that boots in 5 seconds or so, versus the minute or more it takes with Windows. (I checked, after more than a minute no have apps have loaded on my Dell netbook.)

With Splashtop, you can quickly take a look at web pages or Gmail, but you still need to boot into Windows if you want to run Office applications. Splashtop doesn’t appear to be gaining much traction. Early adopters such as Asus (and HP) don’t seem eager to make it a standard offering on their products.

We also have virtual machine solutions such as Parallels and VMware Fusion. These products run Windows within a Mac — and they do a pretty good job of it in my experience. The dueling OSs now both use Intel chips and the virtual machine lets you use both without rebooting.

Rebooting annoys users. Very few use such a procedure — hence the popularity of virtual machines. If users won’t reboot, there’s no opportunity for developers. This leads me to believe that the WebOS “graft” on the HP PCs will be more like a quickboot proposition where you’d first boot into WebOS, and then into Windows. Or, as HP might discreetly hope, you’d boot into WebOS and stay there. If the user finds enough useful applications in the WebOS environment, why boot Windows?

Then we have the Intel chip problem: WebOS and its applications run on ARM hardware. This would force HP to develop and maintain two versions of its OS. It’s feasible, but it adds complexity, costs, and bugs. And for developers, it’s far from ideal: WebOS applications would have to run on two processors and on an indeterminate number of form factors: netbooks, laptops, tablets, printers. (Digressing again on Nokia: The number of target devices and form factors is what caused Nokia to buy TrollTech for Qt, its cross-device development tools and UI. With the MicroNokia deal, Qt is no longer strategic and will be sold to Digia.)

But wait, there’s more. At CES this year, Steve Ballmer announced that the next version of Windows (8?) will be ported to ARM. This is Microsoft’s likely path back into the tablet market it lost to Apple and the coming wave of Android tablets. If we are to believe Bloomberg, an ARM-based Microsoft tablet will be available for the 2012 back-to-school season.

Is this what Leo Apotheker had in mind when he mentioned WebOS on PCs?

If so, here is how the HP PC scene could look like “sometime” in 2012:

- Intel-based PCs and laptops running the “mature” Windows 7.
- ARM-based laptop and netbooks on Windows 8?
- Tablets using a version of Windows 8 with a touch interface?
- Some, but not all, “will include the ability to run WebOS in addition to Microsoft Corp.’s Windows”

Simple, easy to understand. Can you imagine what the sneers and the giggles, at Apple and Google, when looking at such a picture?

On Monday March 14th, HP’s CEO will outline his vision in greater detail.

Understandably, he wants to “decommoditize” HP’s PCS, he’s looking for a way out of the life as a Microsoft serf. PC makers are racing to the bottom, a race Leo Apotheker knows he can’t win. Hence “WebOS Everywhere”: a way for HP to better its destiny.

But another “everywhere’’ story won’t work.

Let’s hope he’ll explain instead where WebOS will focus and how it’ll make a difference for customers and app developers.

JLG@mondaynote.com

iPad 2 Launch Notes

A little over a year ago, on January 27th 2010, Jobs gave the first iPad keynote. (YouTube has many clips such as this one.) Back then, the tone was more searching than assertive. As a “third device” between a PC and a smartphone, between a MacBook and an iPhone, the iPad was looking for its place under the sun. The overwhelming success of the first iPad surprised everyone, including Apple. No one expected the company to ship close to 15 million units in just nine months.

This year, at the March 2nd launch of the iPad 2, the attitude was downright triumphant, aggressive even, with jabs at Samsung and Google. The Steve Jobs keynote, starting with a standing ovation, is here (Flash plug-in not required). John Gruber provides his always insightful take on his Daring Fireball blog. And Richard Gaywood’s report on TUAW is also worth a read.

The iPad 2 is already a popular product. If you search for “iPad 2” on Google you get 905 million results:

By comparison, the iPhone, a much older product, gets 1.2 billion hits.

Intrigued by the volume of iPad 2 hits, I doubled checked. I went to Microsoft’s Bing and all I got was a measly 791,000 results, roughly 1,000 times less than on Google:

Is Bing more specific, strictly searching for “iPad 2” while Google gives hits for both iPad and iPad 2? No, a Bing search for “iPad” barely increases the number to 869,000, while Google finds 956 million entries.

Strange. Jokes and manipulation theories aside, perhaps Microsoft strives to produce more refined results to better compete against Google’s “spammy” output. That must be it.

2010 did, indeed, turn out to be the year of the iPad. With forecasters throwing around numbers like 35 to 40 million iPads for 2011, plus millions of competing tablets from makers such as Asus, HP, RIM, and Motorola, it’s now official: We’ve entered the Post-PC era.

Yes, we still have mainframes but they’ve ceded center stage to smaller machines. Similarly, PCs are beginning to be displaced by smartphones and tablets. The very official Gartner research firm has lowered its forecast for PC sales. The 2011 vs. 2010 growth rate, initially pegged at 15.9 percent, is now downgraded to 10.5 percent. The unit numbers give a better illustration of the magnitude: The initial forecast was 407 million PCs for 2011; it’s now 351 million, a decrease of 56 million units — which happens to be close to the forecast for the number of tablets to be shipped this year.

Last year, Steve Ballmer dismissed the iPad as just a PC in another form factor

Speaking of “statements no longer operative’’, Asymco obligingly lists boneheaded, amusing, or downright lunatic iPad tidbits from the kommentariat. See his tongue-in-cheek revision of his “iPad deathwatch” here.

From the list, I can’t resist quoting one of the serial seers, Paul Thurrott:

“Mum, the iPad is not ‘amazing.’ It’s just marketed very well, both by Apple and its culpable partners in mainstream media.”

Ah, the MSM are at it again, exploiting the credulous, unwashed masses. To be fair, after he disses the maker, the product, and the fans, Thurrott nonetheless concludes:

“The iPad isn’t just the device, of course. It’s the device plus the ecosystem. And when you add this all up, the iPad 2 really does stand alone atop the nascent tablet device market. And that will be true for a long, long time.”

So what does Ballmer say now? Last week we got this strange bit of news/rumor/trial ballon:

‘Microsoft Corp., the world’s largest software maker, won’t release a competitor to Apple Inc. and Google Inc.’s tablet operating systems until the 2012 back-to-school season, people with knowledge of the plans said.’

It’s hard to know what to make of this story. If true, it would confirm that Microsoft is betting the company on a) moving Windows to ARM and, b) making in-depth modifications to create a true — or true-ish — touch operating system as opposed to the superficial and unsuccessful modifications we saw in the first Tablet PC version. The scope of such a project would explain the “2012 back-to-school’’ schedule.

By fall of 2012, Android tablets from Motorola, Samsung, and others will have been shipping for more than a year. We’ll have RIM’s Playbook and devices from HP. And, of course, the iPad 3 will be a few months old, running iOS 6.1.

We anticipate that Microsoft will stick to its PC-era mantra: Windows Everywhere. But with a different Windows in each flavor of device: servers, smartphones, tablets, conventional PCs…very difficult.

Amid all the fracas, the chest-pounding, and the jibes, we witness a refreshing note of honesty. In light of the iPad 2 announcement, a Samsung executive, Lee Don-joo, called its upcoming Galaxy Tab 10.1 tablet ‘‘inadequate’’ and vowed to go back and think things over.
Never mind.

It now appears we need a new category: Samsung statements. First, we hear Samsung sold 2 million Galaxy Tab tablets. Then we hear the number needs interpretation: these 2 million units haven’t exactly been sold to users, they’ve been shipped to distributors. In industry parlance, this is referred to as sell-in vs. sell-out. Others have a clearer description: Stuffing the channel. Then, the Wall Street Journal quotes a Samsung exec, Lee Young-Hee, saying “actual sales were actually quite small”. And retracts itself, saying a “translation problem” got in the way of Truth: Sales were “quite smooth”, not “quite small”.
Bak to the “inadequate” statement above, it is now contradicted: Samsung now says its newer 10.1 tablet will ship unchanged — but priced differently, perhaps.
Samsung gave Jobs an opportunity to make fun of the “2 million number”. Which, in turn gave an opening to critics to point out to Steve own ways with factoids. Business as usual.

Let’s end with a smile.

It’s the day after the iPad announcement. I’m having breakfast with a French executive whose company is, shall we say, in Apple’s way. He no longer dismisses Apple as The Fruit Company and worries about its growing influence on his playground — but he’s a good sport. After elevating the conversation to the right temperature by taking turns at disparaging one another’s mental acuity, he declares Steve Jobs a [redacted] genius: “Once again, your Steve outsmarted his competitors. How? Look at the new iPad cover. Faster, lighter, thinner is great. But that cover alone will swing a lot of tablet sales in Apple’s direction. It’s the same concept as the MagSafe power adapter connector. Competitors had years [five, in fact; I checked] to think about it. And now we have these MagSafe cover hinges that auto-align with magnets inside the iPad’s case. Other tablet makers must be kicking themselves for not seeing something so simple, so retroactively obvious and yet so appealing.”

My friend is right about the appeal of the Smart Cover. It’s featured in the top Google hit, an Apple ad:

Still, I’ll wait a few days to form my own opinion on the Smart Cover and its effect on sales.  I hope to “score” an iPad 2 next Friday, just in time to hop on a plane to Vietnam and Cambodia. (I’ll file a trip report if anything interesting happens.) In the meantime, you can test drive the cover in this interactive demo and see it in action in a short video…Jobs calls it Pixar-like.

——————

[Last week, I mentioned a problem with my Mac Developer subscription. It was fixed promptly and graciously.] [If you have the time and inclination, take a look at this great MobileBeat interview where Jen-Hsun Huang, Nvidia’s CEO, explains his strategy to win in the mobile space after achieving success in PC graphics. More than a few choice moments.]

JLG@mondaynote.com

What future for the Macintosh?

With Apple’s smartphones and tablets making so much money and taking up so much media bandwidth, one has to wonder: Is there a future for the Macintosh?

We’ll first take a look at broad trend numbers and try not to molest them too much. As we saw last week, they’ll confess to anything when under torture. After that, we’ll explore the significance of recent changes in the Mac ecosystem: the new MacBook Air and the Mac App Store. Finally, we’ll extrapolate a bit and attempt to answer the question in this note’s title.

Mary Meeker, the Wall Street analyst who recently left her Morgan Stanley pulpit for a Kleiner Perkins perch, just updated her highly-regarded Mobile Internet Trends presentation. From her 56 slides I extract this one:

2011 is the year when PCs will cede the market momentum lead to smartphones and tablets. The disparity between the old guard and the new Really Personal Computers become huge in 2012 and 2013.

This comes sooner than expected: Only four months ago, while she was still at Morgan Stanley, Meeker had this forecast:

The takeover wasn’t supposed to happen until 2012, but, as this review of Gartner and IDC numbers shows, the growth of mobile devices far outpaced the PC in 2010.

For Apple, the smartphone/tablet takeover happened even earlier. I just looked at the Q1 2010 numbers (for the September to December 2009 period):

And this was before the iPad.

For the same quarter this fiscal 2011 year, the iPhone and iPad brought in $15B vs. a “mere” $5.4B for the Macintosh line:

Let’s not forget the iPod Touch. It represents about 50% of the iPod’s $3.4B, with the total for all iOS devices representing 65% of Apple’s revenue. (I have no Apple TV numbers.)

This past year, the Mac business went down percentage-wise, from 28.4% of Apple’s total to 20.3% this past quarter, and operating margins are certain to be smaller than the almost obscene 60%+ Apple gets for its iPhone ($620 ASP against an estimated $180 BOM).

With these numbers, why bother with the Mac? Last October, Apple held a Back to the Mac event whose purpose was to answer that one question: Why bother?

In the first place, the Mac is a $22B business, #110 on the Fortune 500 list. Second, it’s growing nicely. See the numbers above: +23% in dollars (and 22% in units), with a stable ASP of $1313. That last number is the envy of the PC industry. Because of netbook sales, the industry-wide ASP hovers slightly above $530. (This is the net revenue to the manufacturer, not the retail price.) That’s why the largest PC maker, HP, makes only 5% in operating profit on their $10B quarterly sales. For HP, the Why Bother question applies. I’m curious to see what the new CEO, Leo Apotheker, will do about the low-margin commodity parts of HP’s lines of business.

Macintosh products, on the other hand, have avoided the ‘‘race to the bottomthat plagues  PC clones. The business is big, it’s growing faster than the rest of the industry, and it makes more money.

Then, last quarter, something changed:

Desktop unit sales were flat (-1%) while laptops took off (+37%). Compare this to the 2009 vs. 2010 units numbers in Apple’s 10-K (the yearly filing):

Back then, desktops were growing faster than laptops. So what happened last quarter? The answer appears to be the new MacBook Air.

To confirm this, let’s transport ourselves to a typical Apple Store. We’ll start in September 2010. The older MacBook Air is relegated to a low-traffic area of the store. It’s not “moving.”

Now look at the same store today. The Science of Shopping says the ‘‘high-value” area must be the first table on the left, because, statistically, that’s how we navigate stores. There we see six MacBook Airs: four 11” models and two 13” configurations.

Why the change?

The attractive price is part of the answer: The base 11” model sells for $999, low by Apple standards. But performance is the more important factor. The older generation Air was considered neat but sluggish. For the new machines, the slow hard drive was replaced with an SSD (Solid State Drive), and the word of mouth quickly spread: The new MacBook Air is fast! It boots up (and wakes up) quickly, plus it has a longer battery life, improved display… The former also-ran was transformed into a best-seller, especially the smaller 11” model (I’ll call it a neatbook in reference but not deference to Apple’s edict against using the n-word: netbook.)

Thinking of the Mac’s future, we don’t risk much when we assume SSDs will replace hard drives on laptops. Apple is on a drive to drive the drives out — at least in the mobile segment of the Mac line. (We’ll see how this manifests itself when the “Pro” configurations get refreshed later this year.) SSDs are still expensive but for how long? And how will Apple’s billions ($3.9B at last count) in advance purchase agreements with its suppliers impact prices?

We now move to the Mac App Store.

The Mac App Store was launched on January 6th and, but for a few bugs, appears to be a success. My first impression: Nice…it helps the small-scale developer who otherwise can’t get shelf space.

True, the App Store is a boon to developers — the creators of Pixelmator, a well-crafted, easy-to-use Photoshop subset, made one million dollars in revenue in three weeks. But that’s not the Store’s only — or even most important — benefit.

Let’s start with the convenience for the user. As with iTunes tracks and iOS apps, the Mac App Store circumvents the usual e-commerce obstacles. The site, the download, the payment system, the installation and updates…the workflow is smooth. No serial numbers, no DVDs, no waiting. And you can install the same applications on more than one machine by simply confirming your Apple ID, no further payment required.

And let’s talk price… Mac software prices are coming down. A sharp-tongued friend of mine “hopes” Adobe opens a 24/7 War Room. Why? “Because the market price for Mac software just got divided by three.” Nuance and exaggeration aside, he’s right. When Pixelmator was launched in the second half of 2007, it was priced at $59. Now, much improved, it sells for $29 on the App Store (albeit “for a limited time”) with a free upgrade to an upcoming 2.0 version.

Apple sells its own productivity apps (word processor, presentation, and spreadsheet) for $19.99 each. It’ll be interesting to see if, how, and when Microsoft or even Adobe use the App Store and how they’ll price their products.

Now, an IQ test. This…

…or this…

Both are available today. Which do your prefer? The $199 DVD (protected by a serial number) that you buy at the physical store and install on a single machine, or the $79 product you download and install as you see fit on any of your machines?

The difference in price is, of course, the main attraction, but freedom from serial numbers is also important. When I switched machines using the Migration Assistant, everything moved over without a hitch, files, applications, settings, even the desktop background…or so I thought. A few weeks later, I fired up Aperture and, unlike the rest of my applications — even Microsoft Office — it demanded a serial number. A foraging expedition produced the Aperture 3 DVD, but that didn’t placate the cerberus because that was an upgrade DVD. I needed to come up with the SN for Aperture 2. I erased the program and bought Serial Number Freedom — and legal multi-machine installs — for $79.

All of this leads one to wonder if Apple will rid its stores of “boxed” software, thus fulfilling another of their goals: fewer SKUs, a simpler store.

So, what’s the future for the Mac?

There’s the promise of “regularity,” apps that only use published APIs. This is both a controversial topic and a way for Apple to redeem past sins. Restricting hacks could mean less room for developer creativity, but it will also mean a more reliable system and, for Apple, more freedom to make changes “under” the applications once enough of them are “regularized.”

This takes us to a more speculative train of thought: Moving to the ARM architecture.

When you experience the 11” MacBook Air on a relatively slow 1.4 GHz Intel processor, you can’t help but wonder how it would feel on multi-core ARM hardware. Porting an OS to a new processor is no longer rocket science, but moving third-party applications is much harder — unless they’ve been distributed and regularized in such a way that makes the transition smooth and transparent.

Then we have the next OS X version, dubbed Lion. Last October, Steve Jobs emphasized the point that Lion’s simplified UI borrows the “magic” of the iPad. We’ll have to wait for the product, slated for a Summer ’11 launch, but that didn’t stop my friend Peter Yared, a serial entrepreneur and sharp blogger, to offer a suggestion: “Take that iPad-ified MacBook Air one step further. Look at the Toshiba Tablet PC; there’s a pivot inside the display’s hinge:

Twist the display and it becomes a tablet:

Imagine what Apple could do with this!”

As I was writing this note, I found Andy Ihnatko, a respected technology journalist, appears to be thinking closely related thoughts in this MacWorld piece.

I worry about the complications: OS + UI + mechanical challenges but…Apple might have the people and guts to pull it off. We’ll see.

End notes:

No MicroNokia kremlinology today. I’ll write about it in a few weeks, after the dust settles. In the meantime, you can look back at past Monday Notes such as last September’s Nokia’s New CEO: Challenges or last February’s Mobile World Clusterf#^k. And, of course, Elop’s Burning Platform memo, highly unusual in its brutal frankness.

As always, look for penetrating analysis on Horace Dediu’s Asymco. And for another type of “penetrating” commentary and BS detection, see Brian Hall’s The Smartphone Wars — they both rose to this week’s challenge.

JLG@mondaynote.com

Inside Apple’s numbers

On Monday last week we hear Steve Jobs is taking another medical leave of absence and, on Tuesday, we get a look at Apple’s numbers for Q1 2011 (which is actually the last quarter of 2010).

Brian Hall provides this crisp summary:

• Sales: $26.74 billion, up 70.5% year over year
• Profits: $6 billion, up 77.7%
• EPS: $6.43, up 75.2%
• iPhone: 16.24 million units, up 85.8%
• iPad: 7.33 million units, compared with Wall St. consensus of 6.15 million
• Mac: 4.13 million units, up 23%
• iPod: 19.45 million units, down 7.3%
• iPod touch: More than 50% of total iPod sales
• Gross margin: 38.5%, compared with guidance of 36%
• Revenue guidance for Q2: $22 billion
• EPS guidance for Q2: $4.90
• Gross margin guidance: 38.5%
• Apple stores: $12 million average revenue per store, up 69% from Q4
• Cash and marketable securities: $59.7 billion, up from $51 billion in Q4.

MacWorld put together a more detailed but still digestible review that includes a history of quarterly profits since 2007, as well as units and revenue numbers by product line. Very well done.

For the official word from the mother ship, we have Seeking Alpha’s transcript of the earnings call where Tim Cook, Apple’s COO, and Peter Oppenheimer, CFO, read prepared remarks and answer carefully choreographed questions from analysts.

And if you’re ready for some long form reading, we have SEC filings. For the quarter just ended, there’s the Form 10-Q (55 pages). For the entire fiscal year 2010 ending last September, Form 10-K (116 pages…).

You don’t have to read them all–or at all, it’s an acquired taste–but if you decide to indulge, take a moment to feast your legal eyes on the faux handwringing in the Risk Factors section (a.k.a CYA Central). Then head for the good stuff, the Management’s Discussion and Analysis section starting on page 28 in the 10-K, and page 20 in the 10-Q. Company execs use the MD&A to walk us through the key elements of the business.

From that sea of words and numbers, I’ll extract three trains of thoughts.

First, the significance of the iPad business.

14.8M iPads were shipped in just nine months. This in a previously marginalized or verticalized category: Tablets. By comparison, the first iPhone didn’t reach 10M until it was a year old.

Looking at quarterly iPad unit sales:

• 3.3M units for the launch quarter ending in June
• 4.3M for the following three months
• 7.3M units for the period just reported.

At last year’s D9 conference Steve Ballmer dismissed the iPad as “just another PC”. (This is standard Microsoft decorum. In 2007, he scoffed at the iPhone.) Well, then, if the iPad must be counted as a PC, it just captured 7% of the global PC market last quarter.

This explains why Acer and Asus, leading netbook makers, are rushing tablets to the market and why Lenovo, another PC titan, is starting a mobile division. All in all, 80 tablets were announced at CES a few weeks ago. The iPad is about to get some serious competition but, based on the 7.3 million units shipped last quarter, most forecasters feel confident in predicting 30 million iPads or more for the year.

Deloitte, the large accounting and consulting firm, now calls 2011 The Year Of The Tablet. They, and other market research firms, don’t agree with Ballmer. They put the iPad in a new category: Media tablets, and they see Apple’s share as somewhere between 87.5% (where do they find that .5%?) and 90% of the market. (I’m not sure the media tablet moniker will stick. These devices already let you do much more than “consume” media.)

Last quarter’s iPad revenue, $4.6B, is almost as large as the Mac’s $5.4B… and this is after only nine months while the Mac will soon be 27 years old. (For another Monday Note: the Mac business, growing by 22% last year, versus 14% for the entire PC industry, with a closer look at the MacBook Air’s impact, present and future.)

The 10-Q also gives us revenue-per-unit:

• $629 for each iPad
• $649 per iPhone

(Company execs quote ASPs of $600 and $625 in the call transcript but they’re probably excluding ancillary services and accessories.)

The iPad’s lower ASP may seem counterintuitive, but recall the iPad’s introduction last January when the $499 base price took everyone by surprise. Pre-launch speculation pegged it somewhere between $800 and $1,000. It felt like a turning point, it looked like Apple wanted to remove price as an excuse for not buying, that they wanted to occupy as much terrain as quickly as possible. And they did, with a barrage of ads that started soon after the launch and are still going on.

This was followed by two more aggressive price moves, the $99 Apple TV and, more important, the $999 MacBook Air.

Apple’s overall Gross Margin has declined from 39.4% last year to 38.5% last quarter, but that’s better than the 36% level the company had predicted in October. In other words, the more assertive prices seem to have worked: Revenue grew 70% year-to-year without harming profits, which grew by 77%.

(Again, we’ll leave the iPhone’s $649 ASP for another Monday Note, probably around the time of the Mobile World Congress, next month in Barcelona. If we are to believe Apple Insider, Apple has become the world’s largest mobile phone manufacturer — by revenue. As Apple execs “neglected” to brag about beating the incumbent, we’ll wait for Nokia’s quarterly numbers coming out in a few days, January 27th.)

The second point: The Apple Stores.

In FY 2010, revenue across all Apple Stores was $9.8B. This is 15% of Apple’s total sales, with 317 stores open at the end of the reporting period, 44 more than the year before.

But I want to know the revenue per employee. Obligingly, the 10-K mentions 26,500 “full-time equivalent” employees by the end of FY 2010. A simple division yields $370K per employee. There were significantly fewer employees at the beginning of the year so we can safely assume a full-time employee brings in about $400K/year, a ratio that must be the envy of the entire retail industry.

While I’m at it, I also want to get an idea of the Gross Margin for Apple’s retail business. I have a French peasant view of the world: Forget the revenue numbers, its the Gross Margin that really matters, those are the dollars that feed you. We know the operating profit–the 10-K says it was $2.4B, 24%–but what about the Gross Margin?

It’s moderately complicated. If this isn’t your cup of numbers, please skip to the result.

We know Apple’s overall Gross Margin, 39.4% last year; we have numbers for indirect sales and retail, $55.4B and $9.8B respectively. How do we extract retail’s GM? We’re facing one linear equation with two unknowns: the GM for indirect (non-retail) sales and the GM for retail sales. Weighted by their respective sales volumes, they compound to the known 39.4% total Gross Margin number.

I use a simple trick: I assume two components for the retail GM. First I apply a “standard” retail discount. For this exercise, I use 30%. Once I’ve done that, the discounted number becomes of the same nature as indirect sales. The second margin component of the retail GM is therefore equal to the (unknown) indirect GM.
Having “fixed” one variable, the retail discount, we now have one linear equation with one unknown, the indirect Gross Margin, x:

Retail Sales * (30% + 70% * x) + Indirect Sales * x = Total Sales * 39.4%

or, with actual sales numbers, in billions:

9.8 * (30% + 70% * x) + 55.4 * x = 65.2 * 39.4%

Now, copy the line above and paste it into WolframAlpha:

and you’re done:


Isn’t this fun?

The result: 36.5% GM for Apple’s indirect $55.4B sales and, after compounding the assumed 30% retail discount, we arrive at an approximate 56% GM for Apple’s retail stores.
(No warranties expressed or implied.)

Thus, each Apple Store employee can dine on 56% of $400K. That’s $224K. Probably enough to pay salaries, rent and HVAC…and leave change for the shareholders.

That was last year. In the quarter just reported, Apple’s retail business grew 95% year-to-year to $3.9B. Using Apple’s historic seasonality (4xQ1 for the full year; 5xQ4 for the following year) we can project at least $16B for Apple retail in FY 2011.

That’s 16% of the $100B revenue number Apple could approach this year…

Much has been said about the Apple Store as a sterling example of everything that can go right in retail: record sales volume per square foot, traffic numbers, profitability, aesthetics (more at Apple’s architecture firm: Bohlin Cywinski Jackson), and customer service.

Most important, the Apple Store proves Apple’s ability to execute on a global scale.

Which leads me to my last point: The Silence of the Lambs. Wall Street Analysts.

If you go back to the earnings call transcript, there’s a conspicuous absence. There’s no mention of Steve Jobs.

The supposedly aggressive Wall Street analysts didn’t ask a single question about Steve’s medical leave of absence, its nature, duration, Apple’s contingency plans. How come?

The answer in a single word: Access.

A few years ago I asked a journalist friend about a sycophantically fellatious piece that a colleague of his had written for a respected business daily. The writer had followed a key software executive as he toured the company’s R&D offices around the world. In dulcet, reverent tones, the journalist reported how the missus dominicus spread the gospel, blessed projects, and occasionally, but rightfully, disciplined errant local chieftains.

‘How come?’, I asked. ‘This isn’t reporting, this is simply disgorging the party line!’

His response: ‘It’s all about access. This is a huge company that’s an important source of news, great fodder for the paper and its journos. It’s a quid pro quo. In order to get access to the top execs, to get the juicy tidbits, sometimes you have to strap the kneepads on…’

Before its earnings call, a company decides which analysts will be allowed to ask questions. The opportunity comes with an understanding. If you don’t do your part, your conference call line will never open again, you’ll have lost access.

And we can’t blame Apple: All companies do it. At least the ones that bestow enough prestige.

Nonetheless, I don’t buy the criticism of Apple’s decision to keep a tight lid on Jobs’ medical condition. In the first place, no less than ex-SEC commissioner Arthur Levitt believes Apple has met its legal disclosure obligations.

Further, Apple’s behavior is consistent. Critics might find it unpleasant, but they shouldn’t be surprised. Fault-finders would lead a happier and more productive life if they recognized that this is the way it was, is, and always will be.

Speaking of which, of modus operandi, one of Steve’s signal achievements is the management team and culture he’s installed since he took the reins in 1997 and engineered Apple 2.0. The vision, the panache, the demanding aesthetics, the (more than) occasional swish of his rhetoric rapier could obscure the fact that he’s built one of the best–perhaps the best–business machines this industry has ever seen, run by a uniquely competent and cohesive management team.

But yes, there is only one Steve. We all hope to see him soon on stage or driving around Palo Alto. (Don’t ask about the license plate.)

JLG@mondaynote.com

PS: Thanks to John Gruber, I found this advertising executive’s insightful homage to Jobs and Apple, saying things like:

‘Yeah, it’s just some metal, plastic and silicon. And, yes, Apple makes a lot of money. But those two observations miss completely the point of Apple. It’s about inspiration, hope and an embrace of the future and humanity’s place within it.’

The full text is here.

—-

Wintel: Le Divorce

The eponymous flick is mildly interesting, but we’re gathered here today to examine the Wintel breakup. After years of monogamy with the x86 architecture, Windows will soon run on ARM processors.

As in any divorce, Microsoft and Intel point fingers at one another.

Intel complains about Microsoft’s failure to make a real tablet OS. They say MS has tried to shoehorn “Windows Everywhere” onto a device that has an incompatible user interface, power management, and connectivity requirements while the competition has created device-focused software platforms.

Microsoft rebuts: It’s Intel’s fault. Windows CE works perfectly well on ARM-based devices, as do Windows Mobile and now Windows Phone 7. Intel keeps telling us they’re “on track”, that they’ll eventually shrink x86 processors to the point where the power dissipation will be compatible with smartphones and tablets. But…when?

Intel: We constantly improve our geometry. Year after year we shrink the size of the basic semiconductor building block. Our newest fabs run 22nm processes!

MS: Yes, but why does ARM continue to win the battery game? Not to mention ARM’s flexible licensing which has created a thriving ecosystem of third-party processor extensions. Graphics, radios, networking functions…they all end up on the same low-power hardware, an entire system-on-a-chip (SOC) customized for each application, from navigation systems to tablets.

Intel: We’ve had this talk before. You’re a software company, why can’t you create a “mobilized” OS? At least we tried with Moblin.

MS: …and then you mated it with Nokia’s Maemo and spawned Meego. Ask any credentialed engineer what they think of corpocrats who condone such unnatural acts.

Let’s mediate.

Throughout the PC era, the Redmond company has cleaved to Intel. Intel insiders may dislike their second billing in the Wintel monicker and insist that the company is more than a junior partner, but the numbers tell a different story: Microsoft makes $62.5B in yearly revenue with a market cap of $242B; Intel? $44B/ $118B.

A thought experiment to illustrate Intel’s dependence on Windows: Take two PC processors, same size, computing output, power dissipation, and manufacturing cost. They differ in only one regard: Processor A doesn’t run Windows, processor I does.

Which chip will fetch the better market price?

The I chip, of course, the x86 processor.

Intel executives have chafed under the Microsoft yoke, they want to monetize their semiconductor design and manufacturing might in ways that don’t rely on Gates & Co. They even started their own venture portfolio, Intel Capital, to find and fund young companies that have the potential to open new sea lanes for the mother ship. They’ve gotten into all sorts of businesses, from toys to server farms, from modems to memory, and, lately, Wind River, Infineon and McAfee, none of which has done much to change Intel’s subordinate role in the PC market.

(This isn’t the case in the server sector where the dominant life form is x86 running Linux variants. Indeed, Intel’s strong Q4 2010 results show a 15% growth in the “data center group” while PC-related sales were flat.)

While the PC reigned, Wintel put on a happy face. But really personal computers–smartphones and tablets–broke up the marriage.

All smartphones run on ARM processors. (A handful of tablets use x86 hardware, but without much success.) The modern generation of mobile computing employs an array of operating systems, from Android to Bada, QNX, Meego, WebOS, iOS, but when you scratch down to the metal, you’ll find an ARM-based SOC. All of the subsystems that were cradled on a PC motherboard are now integrated on a single piece of silicon, ARM processor included.

Microsoft got tired of waiting for Intel to step up to the plate and, at the January 2011 CES in Las Vegas, Steve Ballmer announced that the next version of Windows would also run on ARM (transcript here).

But what is Microsoft’s CEO really saying?

I think Ballmer intends to bring the full market power of the franchise to tablets. Microsoft will step back and take the time–target 2012?–to make a “WinTablet” OS (WinTab? Wablet? Winblet? Register the domain names now) that includes a tablet version of Office. Third-party developers will follow.

The Wintel breakup causes profound and welcome changes in the industry, best summarized by Horace Dediu, in a recent Asymco blog post:

“At this year’s CES two unthinkable things happened:
• The abandonment of Windows exclusivity by practically all of Microsoft’s OEM customers.
• The abandonment of Intel exclusivity by Microsoft for the next generation of Windows.”

Intel professes to be unconcerned by the ARM flirtation, but below the calm surface the company’s executive must have their doubts. The low-end Atom business for netbooks hasn’t been doing well lately and will do even worse if tablets continue to eat into that category. Yes, there isn’t an enormous amount of money at stake in the low-end, but tablets and, more generally, ARM-based devices could seriously upset the x86 PC cart.

For Intel, getting back into the ARM business (they sold the previous one to Marvell in 2006) seems like a straight shot: A bit of paperwork, some money, a team of engineers and they’re in business. Intel could very well decide to follow Microsoft’s lead–once again– and make ARM processors for the new Windows + Office combo.

In reality, however, it won’t be that easy.

PC OEMs have little choice: x86 processors are available from Intel and AMD, and, in a limited form, from TSMC. They can’t design an application-specific x86 device and send it to be manufactured in Taiwan or Korea.

Tablets and smartphone manufacturers, on the other hand, have the benefit of design flexibility, the choice of sources that come with the ARM ecosystem. Intel can’t take advantage of the quasi-monopoly it enjoys today in the PC world. Plus, the new ARM world means lower profits, so the company may decide against getting into the fray and, instead, focus on the servers. And even there ARM could become a threat: x86-based server farms run huge electricity bills and cause operators to look anew at ARM’s power-saving advantages for data centers.

None of these changes will happen overnight, but they won’t take long. A year ago, tablets were nonexistent. The PC market has been irreversibly changed. The George and Martha Wintel bickering makes for an interesting story, but…there are businesses to be run.

JLG@mondaynote.com

Navigation’s Destination

by Jean-Louis Gassée

The frustrations began with the (many) limitations of the Pioneer after-market navigation system in the Toyota I use while in France. I can deal with the inscrutable UI and the belligerent touch screen—“resistive technology”, indeed–but I need up-to-date maps (which are clearly antiquated on this device) and a precise reading of my speed. European roads combine baffling speed limit changes and an aggressive deployment of automated radar cameras. You don’t want to rely on your car’s imprecise speedometer if you want to drive just at—or maybe just over—the speed limit.

I need a second opinion.

A quick walk to the Louvre Apple Store and I have my prize, the TomTom GPS adapter for my iPhone, 99€. I download maps of Western Europe—including speed limits—from the App Store for $74.99 and, while I’m at it, I spend another $5.99 for one month of real-time, over-the-air traffic updates. The download is horribly slow and fails at first, even with a reliable WiFi connection, but I finally get it running. Onto the windshield. The suction cup performs its appointed function; the tilt and swivel is commendably ergonomic; there’s even a Bluetooth pairing feature for handsfree calls, indispensible in France where the gendarmes are touchy about touching a cell phone while driving. Sound quality is below par, but it’ll do. I’m in business.

(As an aside, I would have liked to have used Google’s free turn-by-turn app on my Droid X, but the Verizon network is incompatible with the European “GSM” standard.)

We head to the Basque country. The TomTom displays clean speed readings and warns me about impending speed traps. Yes, it occasionally gets confused and suggests a slower pace even as the road signs disagree, but…close enough. The Pioneer…forget it.

Things take a turn for the worse when we drive from France into Spain towards Bilbao—we want to take a look at the Guggenheim museum.

(Photo courtesy of Gaspar Serrano;

It’s a 100 km (60 mi.) drive from the no-stopping border (a pleasant affect of the EU) on the smooth E70. But just past San Sebastiàn both GPS units go crazy. They don’t know this freeway. I expect as much from the aging Pioneer unit, but what about the TomTom map I just downloaded? Not knowing about some rarely used back-country lane is one thing, getting lost around a major new European freeway? It’s not as if this is a state secret.

Approaching Bilbao, I try to get detailed directions to the Guggenheim. The TomTom app’s POIs (Points of Interest) finds it immediately. The Pioneer unit has never heard of the museum. Maybe it’s too new: After all, it did just open…13 years ago.

So the standalone TomTom wins? Unfortunately, there are problems.

On our way back to Paris, the iPhone GPS adapter starts acting up. It won’t charge the phone and the “This accessory is not made to work with iPhone” message blinks on and off at random times. I re-mate the Bluetooth and it disappears for an hour or so, but then it comes back on for good. I apply the official suggestions, no joy. It’s not the iPhone—I have a spare car charger lying around and verify that the iPhone isn’t on the fritz.

I call the TomTom Support number. They’re closed from Christmas until the New Year. “Try us again later.”

Still, it was a good trip, the Basque know how to live, the roads were clear, and I didn’t get flashed. But…

This got me thinking about the state and future of Navigation. Integrated navigation systems amount to a nice racket, an expensive option on most cars. We don’t have to have one, but we willingly pay $1,000 or more for the integration— no dangling wires, no unseemly windshield or dashboard protuberances to sully our pristine conveyances—and that’s probably enough to push a car sale into the black all by itself. A year or so later, we get a letter in the mail offering software/map updates ranging from $185 (Japanese) to $295 (Wehrmacht staff cars). They must have been watching Microsoft peddling Office updates.

During the Basque trip, I compared the TomTom (and, with flagging enthusiasm, the Pioneer), to Google Maps on my iPhone. You can guess what I saw: The E70 extension that mystified TomTom and Pioneer wasn’t a problem for Google. If you want turn-by-turn navigation with up-to-date maps—and you don’t want to get fleeced—get an Android phone with Google’s application.

Maintaining maps is a Sisyphean task. You need a lot of money, a lot of data, and a lot of people. How many companies can compete with Google on these three fronts?

Once upon a time, Nokia bought a mapping company called Navteq and TomTom bought TeleAtlas. Neither company has Google’s money or data or culture, and, above all, its goals. Google hires a battalion of contractors to minutely edit map legends and their translations. We’ve seen their odd-looking mapping vehicles that carry high-precision cameras, GPS, and the controversial but ultimately helpful WiFi SSID mapping units. (WiFi triangulation helps when a GPS signal isn’t available.)

We know Google’s strategy: They want to be everything to everyone, everywhere, all the time. This is the means to their advertising money pump (a.k.a. their business model). Google’s definition of “openness” is they want us to be always open to their stream of ads. Google Maps, a splendid product, full of clever nuances and constantly improved, is a strong component of that overall strategy.

What does this mean for the future of navigation devices?

Carmakers will continue to get an integration premium. Some, like BMW, already “sell” Google Maps. If you’re connected to the Google Cloud, the update problem disappears…the only button you have to press is “Refresh”. It’ll be interesting to see what Apple, Nokia, RIM, and Microsoft will do to up this ante.

One last anecdote.

On the way back to the airport, we’re in luck. We’re in the audience of a geeky cab driver. In addition to the cab company terminal, he has an iPhone, a TomTom, and a Coyote device. We exchange stories. He complains about the TomTom update process. Once a month, he has to connect it to his computer, a chancy, clunky experience. The Coyote unit is more sophisticated, it combines a GPS locator and a 3G link to the Cloud. (Apparently, there is some new combination between TomTom and Coyote. And I realize, too late, there is a Coyote iPhone app…) Pay a monthly fee and you get speed trap updates in real time. But the kicker is this: These updates are crowdsourced. Drivers notify the Coyote Systems of new traps and the updates spread instantly.

Cloud + Crowd = might.

We happen upon an accident. The driver punches a button on his cab’s terminal, sending time and location to the company’s servers and, as a side-effect, to other drivers.

Soon to be a Google Maps service?

JLG@mondaynote.com

iPhone = Mac 2.0

by Jean-Louis Gassée

There are two ways to interpret the equation above.

Doomsayers will sing the licensing blues. By refusing to license the operating system—iOS, in this case—the iPhone will drown in a sea of Android smartphones. We’ve seen it before: Apple is repeating the mistake that allowed Windows clones to scuttle the Mac.

Others, such as yours truly, see the iPhone—or, more properly, its pole position in the smartphone race—as a perfect illustration of lessons learned from the Mac’s struggle to find breathing room in the PC industry.

We know how the first reading of the equation continues. The Mac had immense promise, a much better personal computer than the 16-bit clone of the Apple ][ called the IBM PC. But Apple’s arrogance beleaguered the platform. Instead of following the Microsoft model—focusing on software and letting licensees create a prosperous ecosystem—Apple repeatedly nixed Mac clones and was marginalized, with the Mac market share sinking as low as 2%.

The iPhone is equally promising and, the argument goes, just as equally destined to a marginal role. Like the original Mac, the iPhone has inaugurated a new era, and will ultimately see others dominate the market.

This is a resilient meme, one that gives rise to regular kommentariat pieces predicting trouble for Jobs and his company. Last October, a New York Times piece asked: Will Apple’s Culture Hurt the iPhone? Just last week, a Fortune columnist joined the herd and declared ‘2011 will be the year Android explodes’.

Unsurprisingly, others tore the “closed = marginalization” formula apart. The new smartphone world isn’t a replica of the PC industry, the analogy doesn’t apply. John Gruber argues here that the real race is in reducing the cost of monthly agreements: A “free” Android smartphone versus a $99 or $199 iPhone won’t make much of a difference if the monthly plan costs $80 to $100. Another observer, whose nom de plume is Kontra, thinks we’ll reach a different kind of duopoly where Android will get the volume and Apple will make all the money. See “The Unbearable Inevitability of Being Android, 1995”. And take a look at this great piece felicitously titled “Fragmandroid: Google’s mad dash to Microsoftdom”.

I have my own set of questions about the Mac’s “failure”.

First, shall we agree that Microsoft “open” model is the exception rather than the rule? How many other examples of the Microsoft platform licensing model, with its caveats, prohibitions, and insistence on fealty, do we see? Have we forgotten that Microsoft’s methods led to a conviction of being a monopolist?

Second, there is the Mac’s rebirth. Last year, its US market share approached 10%, with a 90% unit share in the $1k-and-greater segment. For the past five years, Mac unit sales have grown faster than the PC industry.

Even more important: profits. HP is the leading PC manufacturer, with quarterly revenues in the $10B range and 5% operating income. Apple makes only a third of HP’s PC dollar volume per quarter—but with an operating income in the 30% to 35% range. (More details in this May 2nd, 2010 Monday Note.) We’ll have numbers for the October-December quarter in a few days. We’re likely to see a continuation of the dual rise of Mac market share and profits. In the meantime, Apple, for its sins, has been punished with the highest market cap of all high-tech companies, close to $300B.

This could be a blueprint for the iPhone’s future: smaller market share, bigger profits.

Back to the equation and my own interpretation: Applying the lessons from the Mac’s troubled beginnings.

When the Mac came out, it showed immense promise. The execution wasn’t flawless and it suffered from several important shortcomings—the lack of a hard disk, next to nothing in the way of application software compared to the PC. Steve Jobs tried—and tried hard—to get Lotus, Microsoft, and Software Publishing (of PFS: fame) to write apps for the Mac. In a pre-introduction Sales Conference in Honolulu in 1983, we were treated to a mock Dating Game where Mitch Kapor, Bill Gates and Fred Gibbons pledged to date the Mac, to write applications for the new wonder-PC. Ironically, the only “date” that produced anything helpful was Gates with Excel and Word. This was in exchange for a UI licensing agreement that produced no end of trouble.

“Never again.” This must have been Steve Jobs’ motto when, in 1997, he finally assumed undisputed leadership of the company he had co-founded. From then on, Apple was going to control its own future.

Fast-forward to the iPhone: It has the polish the early Mac lacked, it has the support of Apple’s own retail network, it has rid itself of the carriers’ mucking around with handsets and content distribution and, thanks to the iTunes infrastructure, it has its App Store, giving it a huge lead in the breadth and depth of available applications. Not everything works flawlessly but it has been an amazingly well organized campaign that has taken the establishment by surprise.

The result? A fundamentally different situation: While the Mac struggled from day one, the iPhone immediately took the prize.

So, will Android ultimately win, just as Windows prevailed?

My own guess is we’ll get to today’s version of the Mac vs. Windows wars, only faster and better. Faster meaning the iPhone skipped over the Mac’s early struggles. Better means profits. While Android clones proliferate and race to the bottom, iOS devices are likely to retain a substantial share of consumer dollars. Today, Apple reaps close to half of all smartphone profits, (see this Asymco post). That dominance probably won’t last, but in a sea of Android clones, Apple is likely to remain the most profitable smartphone maker. And this is without considering the other devices the iOS platform will power: tablets, iPods, Apple TV…

JLG@mondaynote.com