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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…


WebOS Everywhere

hardware, Uncategorized By March 13, 2011 Tags: , 30 Comments

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.


iPad 2 Launch Notes

hardware By March 6, 2011 Tags: 4 Comments

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.]


What future for the Macintosh?

hardware By February 13, 2011 Tags: , 43 Comments

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.