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HP’s Tortured WebOS Positioning

hardware By July 10, 2011 Tags: , 52 Comments

As an old HP fan, the rebirth of WebOS is painful to watch. Palm, after missing the ‘‘App Phone’’ transition was effectiv ely taken over by an investor group led by Elevation Partners. They promptly installed Jon Rubinstein as CEO, banking on his successful Apple experience to breathe new life into Palm. He did: In June 2009, Palm 2.0 launched the Palm Pre smartphone based on a new and very promising platform called WebOS. For reasons still in doubt (imperfect hardware, Sprint as the chosen carrier partner, young software, a perceived lack of applications, unusual ads…) customers didn’t vote with their wallets. Palm 2.0 investors got tired and the company was sold to HP in April 2010 for $1.2B. (At the time, I predicted no one would pick it up…)

HP immediately positioned WebOS for a broader role: it would also run on devices such as the company’s printers, improving their UI. On the surface of things, a good idea. And buying Palm was a declaration of independence from Microsoft: HP would control its smartphone (and tablet) future.

Back in September 2010, addressing the “Apple Problem”, Todd Bradley, the senior exec in charge of HP’s Personal Systems Group, took pains to dismiss ideas of direct competition with Apple: “… emulating Apple is not part of our strategy…”
When HP’s WebOS tablet, the TouchPad, was finally announced on February 9th, comparisons with Apple and Android couldn’t be avoided. (YouTube video here.)

In a BBC interview, HP’s new CEO, Leo Apotheker, kept the Apple comparison alive: “I hope one day people will say ‘this is as cool as HP’, not ‘as cool as Apple’.”
This is a worthy goal, one with the potential to motivate the troops. In principle, it can be done: some call Apple the new Sony; others see Samsung as having taken Sony’s place.

But… Isn’t this type of goal better kept quiet, working and working until the market says you have dethroned the incumbent?

We now go back to last month’s D9 conference and its proven formula: captains of industry softly interviewed by Walt Mossberg and Kara Swisher. The “softly” part is a bit misleading: these two journalists don’t do attack interviews, they might ask the occasional follow-up question, or let a pregnant pause signal BS detection and, on occasion, push the careless fabulist to dig deeper. But they mostly let their audience of industry insiders judge for themselves.
We, too, can do this.
For example, we can turn to Leo Apotheker’s on-stage performance at the conference. (See the video here.)

When asked about what took HP so long to come up with a tablet after Palm’s acquisition a year ago, the company’s CEO replied he wanted the TouchPad to be perfect when shipped. A friend sitting next to me in the audience turned and asked, sotto voce: ‘Why his he doing this to himself?’ And to his people, one might add. What is the benefit in setting up such a high bar?

Bill Walsh, the legendary football coach, used a better approach: before a game, he gave detailed praise to the adversary. Great quarterback, sharp throws, hard defense, and so on. If Bill’s team won, they did so against a worthy opponent. If they lost, well, this had been a hard fight against a clearly superior opponent. Safe and gracious.

Last week, after setting lofty expectations, HP launched its WebOS TouchPad.

None of the first reviews contained the word “perfect’’. Most praised WebOS features such as the Card UI, the Synergy integration of information sources and its unrestricted multitasking. But, too often, the praise was followed by criticism of poor execution.

Walt Mossberg, the Walt Street Journal “gadget guru” and arbiter of high-tech taste ended his detailed review saying: ‘I can’t recommend the TouchPad over the iPad 2’.

Gizmodo’s review is best summed up by its opening paragraph:

“I am so goddamned tired of the iPad. Which is why I was so excited for the TouchPad. And that’s why I feel so completely crushed right now.”

Last February, when the TouchPad was first announced, CNET UK gave it a very positive review:

“If you’ve been hankering for a credible alternative to Apple’s iPad, hanker no more. We’ve sat down with the HP TouchPad, a new contender to the tablet throne — and it is, for desperate want of a better word, amazeballs. It promises a host of advantages over the all-conquering iPad, including a dual-core CPU, no-nonsense media handling and, joy of all joys, Adobe Flash playback.”

This was then. Last week’s CNET’s review ends with this bottom line:

“The TouchPad would have made a great competitor for the original iPad, but its design, features, and speed put it behind today’s crop of tablet heavyweights.”

As for Flash performance, while Ars Technica gave the TouchPad a more “fair and balanced” hands-on, it nonetheless joined other review sites in noting flawed rendering:

“One big problem with browsing is Flash. Yes, it’s nice to avoid non-functional gray or black pages every time you visit a restaurant website, but we encountered far too many instances where some site’s Flashy goodness brought the entire TouchPad to its knees.”

(I just found out I’m not alone in pointing to the trouble with making promises of perfection. In a June 1st Market Watch interview (video here), Walt Mossberg opined the claim to a perfect-at-birth TouchPad “might come back to haunt Apotheker as HP tries to penetrate the market dominance of the iPad with the TouchPad.”)

This launched HP into damage control mode. First, a by-the-book response: The less-than-perfect features widely remarked upon by reviewers will be taken care Real Soon Now. According to Walt Mossberg’s TouchPad review, “H-P acknowledges most of these problems and says it is already working on a webOS update, to be delivered wirelessly in three to six weeks that will fix nearly all of them.”

But, wait a minute, if the bugs can be exterminated so quickly, why didn’t HP wait “three to six weeks” and execute the perfect launch promised by their CEO? Did Apotheker get to test the product himself and decide it met his standard for perfection, or did his staff tell him bedtime stories?

Then, Richard Kerris, the exec in charge of Developer Relations re-assures us: “We think the world of Apple and have the utmost respect for their products,” said Kerris. “It would be ignorant for us to say that we are going to take it [the market] away from Apple.”

Next, we’re told the TouchPad isn’t an iPad killer, but an “enterprise play”. By the same Richard Kerris: “We think there’s a better opportunity for us to go after the enterprise space and those consumers that use PCs.”

In the meantime, another HP exec, Eric Cador, claims his company’s TouchPad will become better than number one: “… in the tablet world we’re going to become better than number one. We call it number one plus.”

Jon Rubinstein comes to the rescue and compares the TouchPad’s teething problems to Apple’s early versions of OS X. In his memo to the troops, Ruby, as he is affectionately known, shows leadership and reminds everyone of Apple tribulations when rebuilding the Macintosh software foundation after Jobs came back to power. True.

But… Apple had a following HP lacks today. The adversary was Windows, great market power and not especially respected for its technical prowess. And today’s competitors are of two kinds, the huge iOS monolith and the even larger and proliferating Android.

In his D9 interview, Apotheker argues WebOS gives HP the ability to control better control its destiny by making both hardware and software like, you know, Apple. A few weeks later, we’re told HP is looking for WebOS licensing partners — thus opening itself to competing on price and features with its licensees, something Google, Apple and Microsoft have studiously avoided. (In the mid-nineties, Apple briefly tried to have it both ways. Profits plunged, Jobs came back and put an end to the bleeding.)

Unfortunately, I’m not done with the complicated positioning message.

Earlier this year, HP’s CEO made the claim WebOS would run on “100 million” devices. To quote the ZDNet article: “Although that 100 million figure sounds crazy it should be noted that HP shipped more than 52 million printers in 2010 and 64 million PCs. Tablets and smartphones are gravy.”

On PCs, as discussed in the March 13th Monday Note, the idea, an old one, is to have a “mini-OS” that’ll boot much faster than Windows so you can quickly check your webmail or your Facebook page. Printers would get better a nicer touch-UI. All this leading to grand statements of a boon for application developers: 100 million devices! Write Once, Run Everywhere! Neat theory, unclean reality. Just take a look at applications written for smartphones when playing on a tablet. iPhone apps do run, technically, on an iPad. And developers prefer rewriting those to better use the full screen. And what about code written for a Pre smartphone running in a printer, or a PC laptop using WebOS in a “quick-boot” arrangement?

We even hear rumors HP might do a Windows 8 tablet after all. No warranties expressed or implied.

In any event, this is a sad display of a once and still mighty company badly messing up its WebOS and TouchPad messages.

The reality is simpler — and harder: HP decided to enter the smartphone/tablet fray. It thus competes with Android and iOS. The consumerization of IT renders the “enterprise-only” pivot null and void. In this new world, Google and Apple wage an ecosystem war: devices + apps + distribution. Add marketing, if you want, but Word Of Mouth is still more potent than ad dollars. Or merely reinforces it.

This is the war HP is in. Bragging, pivoting or denying will only hurt.


RIM: What Did You Know and When Did You Know It?

hardware By June 19, 2011 Tags: , 15 Comments

You’re under oath. The opposing attorney asks you: What did you know and when did you know it? Big Trouble. The legal eagle already knows the answer, that’s the basic rule: Only ask questions you know the answers to. You’re about to incriminate yourself.

This is what Mike Lazaridis and Jim Balsillie, RIM co-CEOs, are likely to face. They’ve been in legal jeopardy before: In 2009, they paid hefty penalties for backdating stock-options. But that’s nothing compared to what awaits them after RIM’s 21% share price drop on Friday, June 17th.

Far from new, shareholder lawsuits are becoming routine. Announce bad results and a specialized law firm files a class action suit on behalf of aggrieved shareholders. The savviest of these firms keep small-scale shareholders on retainer, ready to be proffered as representatives of the injured class.

Excessive — and sometimes downright unethical — class action suits are part of the cost of doing business as a publicly-traded company. Even the most frivolous claim eats up time and money. Better to settle, to make a deal between greedy but knowledgeable attorneys rather than expose yourself to the unpredictable reaction of a jury of your ‘‘peers’’, retirees barely making do on Social Security who see your millions as ill-gotten.

But for Lazaridis and Balsillie, the What and When Question is an exceptionally dangerous one.

On April 29th they issued a profit warning. They told shareholders that shipments for the current quarter would be “slightly below” the expected $5.2B to $5.6B, and that profit per share would take a 12% nosedive compared to the numbers they had forecast a mere four weeks before.

The RIMM ticker symbol lost 14% on the spot. All the while, RIM execs stuck to their yearly Earnings Per Share pronouncement (and I’m paraphrasing): “It’s a tough transition right now, but we’ll get through it. We have great products on the horizon and we stand by our $7.50 EPS number for the year!”

Six weeks later, that sunny analysis has became inoperative (“Not incorrect, not misinformed, not untrue—simply inoperative.”) Revenue has fallen to $4.9B and the outlook for the following quarter is even bleaker. Revenue will continue to fall for the year, no unit shipment forecast has been given, and the EPS estimate for the year was finally cut by 25%, to between $5.25 and $6.

This is nonsense, and it’s what makes the What and When question particularly dangerous for Mssrs. Lazaridis and Balsillie.

For the first half of the FY 2012 year, EPS will end up at about $2 ($1.33 for Q1 and somewhere between $.75 and $1.05 for Q2). How can anyone believe the sinking ship will suddenly right itself and produce an EPS between $3 and $4 for the second half as BlackBerry shipments continue to sink?

But, they’ll say, we have PlayBook shipments: 500,000 so far, with a 67% growth in International Revenues.

Do you smell “channel stuffing”?

To make your numbers at the end of the quarter, one is tempted to force-ship product into channels ahead of their actual needs, before the actual ‘‘sell-out’’ to real customers. Eventually, the channels barf and embarrassing numbers emerge.

For the PlayBook, RIM is spectacularly silent about units sold vs. units shipped. Given that the co-CEOs have never been shy about actual or fantasized feats, their caution on the number of PlayBooks actually sold is notable.

The same applies for the claimed 67% growth in international sales. Who knows how many of these have been shipped as a way to meet quarterly goals, but yet sit in carriers’ or distributors’ inventories?

Further, as we speak, low-end Android smartphones are coming to developing markets in very large numbers and are likely to further devastate RIM’s international business. See Amol Sarva’s piece on “Shanzai Blackberries’’. (Amol is the CEO of Peek, a mobile e-mail device company; his views on BlackBerry could be seen as biased, but the facts he cites are facts nonetheless.)

All this boils down to yet another possible profit warning as BlackBerry smartphones and PlayBook tablet sales fail to rise and restore earnings.

Back to the legal challenges: I think they’re serious. From March to late April to June, the numbers continued to fall. Shareholders–and their attornies–will demand emails and other documents, they’ll want to show that RIM execs “knew or should have known’’ that their public statements were incorrect. If the misstatements were deliberate, that’s fraud; even “good-faith” mistakes constitute reckless misconduct. Both are actionable, meaning expensive settlements and/or ejection.

How did we get there? Is this yet another example of the Incumbent’s Curse?:

“The Incumbent’s Curse works like a neurotransmitter disease: it starts slowly, there is no brutal onset of symptoms. The patient’s good health of the moment encourages denial; but when the malady becomes obvious it’s hard to combat, it’s often too late.”

RIM has much to proud of. They invented the smartphone. Not Palm with the Treo, a result of the Handspring acquisition; not Microsoft with Windows Mobile; not even Nokia with EPOC, the OS purchased from Psion via the Symbian clusterf#^k, the Nokia+Motorola+Sony Ericsson joint venture.

RIM started as a pager company and evolved into the best everyday device, offering unparalleled Exchange connectivity, seamlessly and wirelessly running the Holy Triad of email, contacts. and calendar services. For years, I’ve been a happy BlackBerry user and have wholeheartedly encouraged family members and friends to join the “CrackBerry” fold.

But then two modern platforms, Android and iOS, upended the status quo and caused deep trouble for RIM, Palm, Nokia, and Microsoft. Initial denials and sneers notwithstanding, the elders had to do something.

Palm was swept up by HP.

Microsoft and Nokia finally decided to get married.

RIM kept insisting its platform was best-of-breed and would continue to do great things. Last year, the company finally decided to switch horses. They acquired QNX and started the difficult, dangerous process of moving its smartphones to a new OS. Just as Nokia osborned its Symbian devices while waiting for the Windows Phone rescue, RIM kept bragging about future QNX-based “superphones” and a tablet, also running on QNX, that would be “three to four times faster than the iPad”.

But, as RIM execs just told us — again — the transition to the new superphones will take longer than expected. As for the killer tablet, it still misses a native email client and, because of a paucity of native apps, it will have to resort to an emulator running Android tablet apps on the QNX-based Playbook. (A clear message to would-be PlayBook developers: Go Android.)

In the optimistic scenario, QNX BlackBerries and PlayBooks will be ship-ready — really! — by September 2011. Carriers, distributors, developers, enterprise customers, and consumers who had deserted the platform will return in droves, and the RIM execs who have insisted that their achievements are underappreciated will finally be vindicated. See what Lazaridis said to the NY Times last April:

“Why is it that people don’t appreciate our profits? Why is it that people don’t appreciate our growth? Why is it that people don’t appreciate the fact that we spent the last four years going global? Why is it that people don’t appreciate that we have 500 carriers in 170 countries with products in almost 30 languages?”
He wrapped up with “
I don’t fully understand why there’s this negative sentiment, and I just don’t have the time to battle it.

The execs are partly right: RIM is an amazing success story. And the company is still profitable with about $3B in cash.

But, unfortunately, they’re also dangerously wrong. RIM has been an amazing story, but its leaders have been in denial for too long, they have failed to recognized how two from-stratch platforms were able to move much faster than the incumbent, with its need to preserve the past while trying to build an incompatible future at the same time.

Furthermore, there’s the company’s culture. Every software developer I know who’s either worked with RIM or has considered doing so, dismisses the company as not just arrogant but tone-deaf. RIM thinks they “get” software and applications developers, but their top management doesn’t. Ex-employees, with the usual caution for the opinions of departed workers, say similar things: ‘’Research In Motion’s collapse can be traced straight to the top of the company.’’

We’ll soon find out what shareholders decide to do — besides running away.


Transitions: The Nokia Way vs. The Microsoft Way

hardware By June 5, 2011 21 Comments

One false step and you’re dead. Or worse: You’re the walking dead. This is what awaits CEOs who mismanage a product transition and allow the existing revenue stream to run dry before the promising new product shows up.

This is known as the Osborne Effect, named after Adam Osborne, the prolific inventor, entrepreneur and writer, and founder of the eponymous Osborne Computer Corporation. In 1981, Osborne introduced a machine that was, in effect, the first commercially available portable computer, the Osborne 1:

Sales took off, reaching 10,000 units per month. This might not sound like much by our smartphone standards, but thirty years ago it was a truly phenomenal success.

This wasn’t enough for our fearless entrepreneur. In 1983, he told anyone who’d listen: Just you wait! I have two superior models in the works, the Executive and the Vixen.

Customers took his advice. They stopped buying the current model and waited…and waited… In 1985, the company ran out of cash and went bankrupt.

Hence the verb: To osborne one’s product is to kill the current model, and its revenue, by prematurely announcing a more attractive replacement.

(Some, such as the redoubtable Robert X. Cringely, contend Osborne wasn’t osborned, but merely outcompeted. I was at Apple in Cupertino at the time, and have a clear recollection of our collective gasp of surprise when Adam Osborne started touting the unavailable products that killed the Osborne 1 revenue.)

With this in mind, let’s turn to Nokia’s latest wave of troubles: the transition from its old Symbian smartphone OS to Windows Phone 7. (We’ll also look at Microsoft’s very cautious approach to its own perilous transition to the next generation of Windows and to another attempt at securing a position in the tablet market.)

Last Monday, Nokia issued yet another profit warning. Blaming “competitive dynamics” and “pricing tactics,” the company declared its previous revenue forecast invalid and shed doubt on its ability to generate a profit in its Devices business. It also flatly told Wall Street it would no longer “provide annual targets for 2011.”

Translated into plainer English: We expected Android and Apple to take the high-end business while we’re working with Microsoft on our Windows Phone 7 devices, but we were surprised by a the swarm of low-cost Android phones. We don’t know how bad it will get, but…Just you wait!…we have “increased confidence” in our ability to deliver Microsoft-powered Nokia smartphones sometime “beyond October.” And we might be working on a MeeGo device as a “research project”.

Investors were not convinced and the stock plummeted, -20% in a week:

But that’s only half the story or, if you prefer, half of the drop in share price.

Consider the 40.7% drop since February:

The stock peaked on February 8th, just days before the Feb 11th announcement of the MicroNokia “strategic partnership”. Summarizing the corpospeak:

– Nokia adopts Windows Phone 7 as its smartphone OS
– Nokia gets unspecified customization and financial advantages
– Microsoft gets the world’s largest cell phone maker as an OEM

And with the announcement, CEO Stephen Elop osborned Nokia. Customers and, more important, carriers were told the legacy OS was dead and a Nokia Windows Phone 7 device was ten months (or more) away.

No one on the Street believed Nokia’s assurances that the company’s “traditionally strong carrier relationships” would guarantee continued sales of Symbian devices. The May 31st profit warning confirmed investors’ fears. Nokia had run straight into an army of handset makers who offer a wide range of devices powered by Android, a platform with a virile present and an exciting future.

In the now famous February 8th Burning Platforms memo, Elop tipped his hand. Yes, he makes a valid point: This isn’t a platform war, it’s an ecosystem war. But he also makes two crucial mistakes: He blames Nokia employees (“we have lacked accountability and leadership”), and then he implies that Nokia is open to all possibilities as they enter a domain that is forced upon them by the competition (“Our competitors…are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyze or join an ecosystem”).

A mere three days later, Elop stands on stage with his former MS boss and tells the world that Nokia has joined the Microsoft ecosystem. Elop’s puzzling and undiplomatic behavior doesn’t sit well with observers and drives some to conspiracy theories.

How about another approach? Make the Microsoft deal, work on a couple of devices, and keep it a secret. Even, perish the thought, subcontract development to an enterprising Asian OEM in order to ship the next generation devices ASAP. From the memo:

“Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us.”

When everything is ready, announce it and ship it with appropriate bombast.

In the meantime, rumors would have swirled: What are they up to? A new version of Symbian? A MeeGo tablet? We all expect a new CEO to kickstart new and exciting projects.

So what really happened?

I think the explanation is simple: Microsoft demanded an immediate announcement. They needed a PR coup. With no Phone 7 OS sales to speak of, Microsoft had no revenue to lose and the perception of adoption by the biggest cell phone maker to gain. (After the NokiaSoft announcement, Microsoft got an instant boost of phone credibility.)

How did Ballmer convince Elop to expose Nokia to the Osborne Effect? Was it the “worth billions” concessions? Given the depth of the hole Nokia now finds itself in, the number must have been a large one.

Contrast this with Microsoft’s careful previews of Windows 8. You can see a “canned” demo here, and, from last week’s D9 Conference, a “live” version here. Very nice UI, clearly drawing inspiration from the innovative Windows Phone 7 work.
I also encourage you to watch Steven Sinofsky interviewed on stage by Walt Mossberg and Kara Swisher (video here).

Beyond the slick demo, what do we hear? Continuity.

Sinofsky, the Windows Division President, repeatedly reassures us: Underneath Microsoft’s new touch-enabled tablets, we give you the tried and trusted Windows that hundreds of millions of customers rely upon: Office apps, networking, an approachable file system (a subtle dig at the iPad), a mouse and keyboard if desired. Everything.

This gets roundly criticized by MacWorld’s Jason Snell and Daring FIreball’s John Gruber. They see Windows 8 as fundamentally flawed because it hasn’t learned the from-scratch lesson of the iPad. Windows 8 brings old baggage into a new world. It’ll be complicated, slow, and eat batteries while the “fresh” iPad is simple, pristine, fast, fluid and offers great battery life.

As expected, our two critics are taken to task by Jared Newman:

“Microsoft doesn’t have to copy Apple’s strategy for Windows 8 to succeed. In fact, copying Apple would be a fatal mistake. Instead, Microsoft should be charting new territory with Windows 8, and that’s exactly what’s happening.

What Microsoft demonstrated on Wednesday is exactly what I want in a computer — a lightweight tablet UI that’s meant for casual computing and a powerful, classic Windows that allows me to work. I’m tired of carrying around my iPad and laptop together. I want one device that does everything.”

This is exactly the Microsoft party line: The best of the PC and the tablet in one device.

I have sympathy for both sides. Yes, Microsoft could do well by following the iPad lead…but there’s no way Microsoft can take the plunge into a really different platform. (They did it for Windows Phone where there’s no legacy business to protect, but they can’t with the “real” Windows.)

Microsoft knows better than to osborne itself. The company has consistently stuck to its “Windows Everywhere” mantra and, no less consistently, has made sure that every new version of Windows offers strong backwards compatibility. It hasn’t always work perfectly — see Windows Me or Vista — but the Windows + Office business has been Microsoft’s Golden Goose for decades.

For Microsoft, there is no Post-PC market. As Ballmer insisted when asked about the iPad: It’s a PC — minus the mouse and keyboard!

Grand strategic considerations aside, there is, of course, the small matter of implementation — and what Android and iOS will do next. Sinofsky has promised more details at Microsoft’s Developer Conference this coming September, we’ll have to wait until then.

And while we wait, we’ll watch how Elop gets Nokia out of its self-inflicted osborning.

Asymco’s Horace Dediu isn’t optimistic about Nokia’s prospects. In a recent post titled “Does the phone market forgive failure?”, he lists the handset makers who “hit the rocks”, in terms of profitability. None seem to have recovered. Let’s hope Nokia is the exception.


Google Wallet: Big Deal or another Buzz?

hardware By May 29, 2011 31 Comments

After weeks of rumors, Google finally announced its near field communication payment system, christened Google Wallet. It must be big because PayPal sued, but how big?

Let’s start with the basics.

First, the ostensible goal is to get rid of the antiquated multiplicity of insecure credit cards and replace them with your smartphone…your smartphone is your wallet.

Second, “near field” really is just that: Short-range (4cm, 1.5”) wireless communication between the Point Of Sale (POS) terminal (calling it a “cash register” no longer seems fitting) — and the smartphone.

The use scenario is obvious: In line at Safeway, after all the articles for the Memorial Day BBQ have been scanned, I wave my smartphone and off we go. Quick and simple.

The prospect of contactless debit/credit transactions has been around for a long time. Decades ago, GSM phones, which contained a reasonably secure SIM module using SmartCard technology, were seen as a replacement for plastic payment cards.  A bit later, I remember a Northern Europe vending machine demo: Each item was associated with a phone number; dial the number and the beer can falls. Next month, the transaction appears on your phone bill, as the carrier agreement dictates…just like with Minitel transactions. (Note the carrier role, to be revisited.)

These old examples don’t involve near-field communication, but they point to an old desire: We can do better than cash and cards. Other companies — Vivotech, Verifone — have tried to either replace or supplement the debit/credit card.

The basic idea is unchanged: The card is a token, a unique number encoded in a magnetic stripe. The latest notion is to store the number on another medium, one that can be read without contact, through a short-range wireless connection

It sounds simple, logical, fast, and safe.

But, so far, contactless replacements for debit/credit cards have failed to take the market by storm.

One reason for the modest success of NFC payment systems is the consumer’s entrenched habits and cognitive obstacles. “Plastic” is well understood, it works, it’s accepted everywhere around the world — and each card is a totem of a distinct account. Well-meaning experts saw that the “magstripe” had more than enough room to store the information for a dozen credit cards and tried to promote multi-account cards. It didn’t work. Merchants and customers found the invisible abstraction of a “multi-card” difficult to manage. By the same token, pardon the pun, consumers today see little benefit in making their familiar, physical cards disappear into a contactless device, whether it’s a dongle or a cell phone.

Nonetheless, the desire to do better than the old, dumb, insecure plastic refuses to die.

Enter the smartphone. As Brian Hall, the Smartphone Bard, likes to say: The smartphone destroys everything. Particularly business models.

Smartphones have taught us the benefits of a multi-use device: Multiple accounts for email, Facebook, iTunes, Amazon, in addition to the phone, camera, and mp3 player. Further training is provided by uses such as smartphone boarding passes that are displayed and scanned at the gate: A nice example of a reasonably secure method of authenticating a transaction.

(Speaking of transactions, smartphones play an ever larger role in commerce. AdMob, Google’s mobile advertising arm, receives 3.5 times more requests than a year ago.)

In November 2010, AT&T, T-Mobile, and Verizon — the usual suspects — formed a smartphone contactless payment alliance called Isis. American Express jumped in the fray, and Visa followed with its own contactless payment proposal. Other smaller but more agile players such as Mopay and Boku, to name but a few, will make the fight between incumbents and newcomers interesting to watch — and perplexing for merchants and consumers.

Perhaps the big carriers were reacting to rumors that Google and Apple were getting into the NFC payments game, or maybe they authentically sensed the possibilities, the torrents of money, a chance to increase the sacred ARPU by getting a cut of contactless payments. In any case, they had a concept. As for the implementation… Visit the news section of the Isis website and you’ll see how far these carriers are from an actual solution.

Google Wallet takes the concept much further. They’ve looked at the problem through the lens of their one and only business: advertising. With Google Wallet (I don’t know if they’ll claim ownership of the latter word) on your smartphone, you’ll get much more than a contactless credit card replacement. You’ll see ads and receive promotional emails, store coupons for this weekend’s deals — from pizza to electronics — and be able to use payment alternatives such as Google Checkout. Compare this with the “old” process: see an ad in the Sunday supplement, clip the coupon, make sure you stuff it in your wallet, go shopping, whip out the coupon at the cash register, pay with your card. For merchants, Google’s NFC is the link to a seamless marketing campaign: Lure customers with special offers and then offer a smooth transition from promotion to “e-coupon” to purchase and payment.

This could be big…if Google can get it to work. They have the means to do it, to make it a standard, and they could reap massive amounts of payment processing revenue and additional advertising as a result.

But…matters of implementation are likely to interfere.

Even if consumers continue to accept the concept of a unified account device, there’s still the problem of the “physical plant”, the infrastructure of tens of millions of credit card terminals around the world. Going NFC means replacing these well-debugged and cheap magstripe readers with hybrid contactless + magstripe machines — a hugely expensive proposition. Who’s going to pay for the hardware upgrade: the merchant, the payment processor, or the customer?

And the (big) carriers might get in the way if they perceive (as they should) that Google is trying to disintermediate them. Currently, Google Wallet is only available through the Sprint Nexus S phone. Visa/AT&T/Verizon are conspicuously absent in the announcement. For Google Wallet to succeed, carriers will have to distribute Wallet-enabled Android phones, or perhaps Google will “openly” force every Android licensee to carry the Wallet (hardware + software).

Google is right: Replacing credit cards with smartphones is a great idea. Further, Android being Google’s way to break into the new business models created by the smartphone revolution, Google Wallet is a logical outgrowth, an unavoidable tentacle.

(On Google’s overall disintermediation strategy, read Bill Gurley’s terrific and, for some, terrorizing piece: The Freight Train That Is Android.)

But, as we’ve seen with social networking — ad with Google’s older payment system, Checkout — simply being a logical component of Google’s arsenal doesn’t always mean success.


Intel 3-D Transistors: Why and When?

hardware By May 8, 2011 Tags: , 44 Comments

A few days ago, Intel teased: On May 4th, the company would make “its most significant technology announcement of the year.”

Tongues wagged. Will Intel make ARM chips for Apple? The speculation has roots in reality.

We’ll start with the public breakup of the Wintel marriage. At this year’s CES in January, Steve Ballmer made it clear that x86 exclusivity was done for. With an eye on reentering the tablet market, the next release of Microsoft’s legacy OS, Windows 8, would also run on ARM SOCs. This will “fork” Windows: There’ll be two versions, one on x86 processors, another on ARM chips. Tablets, which introduce UI differences, add a couple more tines to the fork. The impact on application development isn’t clear yet (food for a future Monday Note). Surprisingly, there’s been little talk of Intel “going ARM” to repair the Wintel relationship.

Now let’s consider Intel’s complete absence from the mobile scene. Not a single smartphone contains an x86 processor. Not a single tablet, no GPS device, nothing.

For the past four years Intel has told us we’d see x86 mobile devices Real Soon Now. The company developed its own mobile version of Linux, MobLin, and they made a big deal of joining forces with Nokia’s Maemo to create MeeGo. But Nokia’s new CEO, Stephen Elop, kicked Meego to the kerb, wisely deciding to focus on one software platform, his ex-employer’s Windows Phone 7.

(We’ll see how wise this decision turns out to be. Perhaps Elop should have put his money on the front-running Android horse. Perhaps Microsoft should have “gone Apple” — pardon, “vertical.” They could have acquired Nokia, controlled the hardware and the software. They did so, successfully, with the Xbox and Kinect. Again, more food for future Monday Notes.)

The x86 mobile devices never materialized. Each new low-power processor promise from Intel was matched by ever more attractive ARM development. Now that the PC market is in its twilight, with mobile devices proliferating and stealing growth from the PC, surely Intel has to get into the race.

Then there’s the long-standing relationship between Steve Jobs and Intel — or, more specifically, with Intel co-founder Andy Grove. The relationship flourished at NeXT when Jobs moved the platform to Intel processors. After Jobs returned to Apple, efforts got under way to move the Macintosh away from the PowerPC, which was deemed poorly supported by IBM and Motorola, to the more robust x86 line.

It isn’t hard to imagine Intel offering Apple its advanced 22nanometer fabs, along with some kind of exclusivity and price advantage. And there’s a bonus: They’d be kicking Samsung, an annoying combination of supplier, competitor, and adversary in IP lawsuits. In return, Apple would give Intel the kind of volume the company likes, 100 million ARM chips in 2012.

From there, the train of thought continues to the terminus: the Macintosh line switches wholly to ARM, and Intel supplies the processors. It’s not impossible. Intel hedges its bets, secures an inexpensive ARM license and uses its technology and marketing prowess to grab their share of the explosive growth.

As the rumor site says: “This is going to cause meetings.”

Now, the reality.

What Intel announced last week is a new “3-D” transistor technology. 3-D here doesn’t refer to images but to a design and manufacturing technique: Making transistors in three dimensions, as opposed to today’s “planar” technology where the microscopic silicon circuitry is laid out on a flat surface. Just as you can store more cars in a multi-storey garage than in a flat parking lot, more circuitry can be packed in three dimensions.

The new 22nm semiconductor manufacturing process also helps. The circuitry building blocks are smaller, they waste less electrical power through heat dissipation. All of this — cue the cymbals — is ideal for mobile applications. In plain English: This is Intel’s ARM killer. (Cruelly, Google tells us we heard the same story three years ago. And two years ago. And last year.)

Intel’s press release is firmly planted in hyperbole:

Intel’s scientists and engineers have once again reinvented the transistor, this time utilizing the third dimension,” said Intel President and CEO Paul Otellini. “Amazing, world-shaping devices will be created from this capability as we advance Moore’s Law into new realms.”

The part about “once again” reinventing the transistor is a bit far-fetched. On Intel’s website, you’ll find the company’s own timeline, replete with innovations, and bowdlerization…but nothing about reinventing the transistor. There’s some dispute as to the transistor’s actual invention: when, where, by whom. Most history books credit William Shockley at Bell Labs Research with the first silicon transistor, which was produced in 1954 by Texas Instruments. (At my Breton Roman Catholic boarding school, the Prefect of Discipline was a certified geek. In 1955, instead of looking at religious pictures, we were in his office drooling at this incredible Philips OC 71 germanium transistor…)

We’re meant to be impressed by the promised performance and power dissipation improvements:

The 22nm 3-D Tri-Gate transistors provide up to 37 percent performance increase at low voltage versus Intel’s 32nm planar transistors. This incredible gain means that they are ideal for use in small handheld devices, which operate using less energy to “switch” back and forth. Alternatively, the new transistors consume less than half the power when at the same performance as 2-D planar transistors on 32nm chips.

Note the Alternatively: it’s either more performance or less power dissipation.

We’ll have to wait a year to see how this markitecture translates into actual devices.

Will this be enough to unseat ARM? Most observers doubt it. The big news was received with an equally big yawn. Wall Street didn’t pay much attention. We’ve been here before: The “product” of the announcement is the announcement. (And there’s the suspicion that “breakthrough” revelations are an attempt to mask a lack of spanking new products.)

But let’s return to the rumor, from SemiAccurate, that the Mac and Intel will soon be “arm-in-ARM.” (That bad pun isn’t mine.)

First, let’s consider the name of the website.

Second, what will Apple do at the high-end, for media creation and editing? What about Photoshop, FinalCut, and other applications, including CAD where the Mac is getting back in the game? There’s no roadmap for ARM chips to beat Intel in these computationally intensive areas.

Today, going ARM is technically feasible on entry-level Macs. Tomorrow, newer multicore ARM chips might work for middle-of-the-line Macintosh products. But will Apple abandon the faster x86 processors at the high end just to avoid the kind of forking that awaits Windows in its own move to ARM? If not, we’ll again see Universal applications (a.k.a. fat binaries–two versions inside the same container), just as we did with the PowerPC to x86 transition. Microsoft is doing it because it must; Apple did it because the PowerPC didn’t have a future. But now?


On a related note…and more food for thought: I’d love to know how the iPad line will evolve. For example: will pressure-sensitive stylus input ever happen? Eschewing stylus input in the early days was a thoughtful move. Perhaps it’s time to relax the restriction and thus enable richer media creation applications.

The next iOS and OS X releases will shed more light on the relative roles of Apple’s tablet and PC product lines, how they will coexist, what they’ll have in common and what will keep them apart. We should know in about a month.


Carnival Barker Edition: Show me your iOS licensing certificate!

hardware By May 1, 2011 Tags: , , 108 Comments

Apple is doing it wrong, Apple is living on borrowed time! Apple will Fail Again!

This idea, this meme, isn’t new. For more than 30 years we’ve heard a number of versions of the “Apple is doomed” requiem.

December 12th 1980 — the day of Apple’s IPO, coincidentally — I’m in Geneva, signing my employment agreement with Apple. My mission: start Apple France. Back in Paris I meet a chorus of naysayers: You’re deranged. Look at the respectable companies you’ve worked for: HP, Data General, Exxon Office Systems. (They don’t know that I can’t wait to leave the latter.) And now you’re going to work for these California hippies? They don’t have CP/M; the Apple ][ has a 40-column screen and lacks standard 8” floppies…and Fortune Systems is coming up with a Wang emulator that will wipe Apple off the planet’s surface!

The latest Dies Irae comes from a trio of highly skilled artists: Henry Blodget of Wall Street and Business Insider fame; Fred Wilson, co-founder of the VC firm Union Square Ventures and an eloquent and insightful blogger (AVC blog); and Dan Lyons, the sharp and eerily hilarious author of the Fake Steve Jobs parody blog (currently on hiatus), now writing for the Daily Beast and Newsweek. (See here, here and here but a few examples of their refrain. Google will oblige with more.)

I’ll start by intoning their cantus firmus.

In 1984, Apple comes out with a superior personal computer, the Macintosh. And then they lost the market to an inferior genus: the IBM PC clone.


Ignoring universal advice — including Billl Gates’ — Apple arrogantly refused to license the Mac operating system, leaving the field to Microsoft’s technically inferior product. DOS and Windows clones proliferated and almost exterminated the Mac, relegating it to a minuscule, irrelevant market share.

With the iPhone — and out of the same deeply ingrained arrogance — Apple is making the same mistake. Apple won’t license its iOS software platform. As a result, Android-powered smartphones and tablets will do to the iPhone and the iPad what Windows did to the Mac.

The story ends with Andy Rubin at the wheel of the Android steamroller. Behind him we see Henry, Fred, and Dan throwing rose petals on themselves and singing I Told You So.

(I have personal reasons to like Android. Several of my Be associates moved on to Google where they were instrumental in the creation of the platform. I admire what the engineering team accomplished in a very short time. There’s little wonder that Nokia and RIM have lost their footing. One of my two smartphones is an Android device, from Motorola; I see everyday why the platform is so successful. And as an iPhone user, I’m glad Google is fueling Apple’s competitive fires.)


Inside Apple’s Q2 Numbers

hardware By April 24, 2011 Tags: , 6 Comments

This last week, Apple announced their 2011 Q2 numbers. Philip Elmer-DeWitt, whose Fortune Tech Apple 2.0 blog I enjoy and recommend, provides a crisp summary:

• Sales: $24.67 billion, up 82.8% year over year
• Profits: $5.99 billion, up 95%
• EPS: $6.40, up 92%
• iPhone: 18.65 million units, up 113% (!)
• iPhone sales up 155% in the U.S., thanks in part to Verizon, and up 250% in greater China
• iPad: 4.69 million units, compared with 7.33 million in Q1.
• iPad sell-through was 5.1 million units, given the decline in inventory
• Mac: 3.76 million units, up 28%. Asia-Pacific Mac sales up 76%.
• iPod: 9.02 million units, down 17%. More than 50% iPod touch
• iTunes store: Sales of $1.4 billion
• Gross margin: 41.4%, compared with guidance of 38.5%
• Apple stores: 71.1 million visitors, up 50%
• Store sales: $3.19 billion, up 90%
• Cash and marketable securities: $65.8 billion, up from 59.7 in Q1
• Revenue guidance for Q3: $23 billion
• EPS guidance for Q3: $5.03
• Gross margin guidance for Q3: 38%

For a more discursive and animated survey, Brian Hall’s News Wrap on $AAPL quarterly earnings is sprinkled with salty comments about other bloggers and media outlets. You needn’t agree with everything Brian writes, form or substance, but if you want to follow what he rightly calls The Destruction of Everything by the smartphone wave, his postings at The Smartphone Wars Community are required reading. Often insightful, never boring.

Another favorite with a wide readership and great comment threads: Horace Dediu’s Asymco. After Apple’s earnings release, Horace evaluated his own performance and gave himself a sober B. (He usually deserves an A, but chose to downgrade himself for his 10% overestimate of iPod shipments and for whiffing the iPad number–more on that later.)

Such honesty is remarkable. Philip Elmer-DeWitt gives Horace a tip of his hat while savaging Wall Street pros’ forecasting performance: “Most professional analysts blew it in Q2, but you wouldn’t know it from their postmortems.” Fun reading, especially if you hold cynical views of Wall Street earnings forecasts and whisper numbers games. (More exhaustively cruel and graphic details of the pros’ rout can be found in this additional Apple 2.0 post.)

Speaking of misses, Business Insider looked at preliminary comScore numbers in early April and proclaimed the iPhone Dead In Water. Even with iPod Touches thrown in, ‘‘Apple share has actually fallen.” Less than three weeks later we get fresh comScore numbers for the US:

Initial research indicates that Apple’s iOS platform, which resides on iPhones, iPads and iPod Touches, has a combined platform reach of 37.9 million among all mobile phones, tablets and other such connected media devices, outreaching the Android platform by 59 percent.

(These are the numbers Apple’s COO Tim Cook referred to in the April 20th conference call covering the company’s Q2 earnings. Seeking Alpha provides a transcript of the call as well as the animated Q&A.)

comScore has equally interesting numbers for Europe:

Initial research indicates that Apple’s iOS platform, which resides on iPhones, iPads and iPod Touches, has a combined platform reach of 28.9 million users in the five European markets, outreaching the Android platform by 116 percent.

The link above yields interesting demographics, parsing Mobile, Smartphone and iPad users by gender and six age classes:

… the heaviest skew toward 25-34 year olds (23.4 percent) in relation to the total mobile audience (17.3 percent). iPads also exhibited an above average skew in the 18-24 year old age segment.

Regard Asia. In China the iPhone is +250% year-to-year (vs. +155% in the US). The number is especially interesting because this ought to be where iOS goes to die, snuffed out by a swarm of locally produced cheap handsets running Android or its mutant cousins Tapas and Ophone. You’ll recall Stephen Elop, currently Nokia’s CEO, cautioning against aggressively priced MediaTek based Android devices in his Burning Platform memo.

Instead, Chinese customers appear to insist on The Real Thing. We now hear that the Shanghai Apple Store does more volume than the historic 5th Avenue location, with a new store, China’s largest, in the works.

(Let’s pause a moment to pay tribute to Bernard Cywinski, of Bohlin Cywinski Jackson, who recently passed away. Among his firm’s portfolio: Apple Stores and Pixar’s HQ.)

The Mac numbers are smaller but no less interesting. Sure, more than half of Apple’s revenue — and certainly more than half of its profits — come from iOS devices, but the Mac keeps growing faster than the rest of the PC industry…for the 20th quarter in a row. See this Apple Insider piece from which I extract the following tables:

A couple of observations. First, IDC and Gartner have substantial disagreements, such as – 42% vs. – 25% for Acer. Second, Mac unit sales grew by 28%, not 9.6% (IDC) or 18.9% (Gartner). Admittedly, the + 28% number is Apple’s worldwide number, but the US, which includes a majority of retail sales, represents more than 40% of total revenue. Mac sales growth in the US isn’t likely to deviate much from the overall + 28% figure. Caveat IDC vel Gartner emptor.


The Unavoidable iPhone Nano

hardware By April 10, 2011 Tags: 20 Comments

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?)


Microsoft: Tablets are a passing fad

hardware By April 3, 2011 Tags: , 20 Comments

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.


RIM: The inmates have taken over the asylum

hardware By March 27, 2011 Tags: , 84 Comments

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.


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.
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…