mobile internet

Lumia 800: Nokia’s Comeback?

Let’s go back to Spring 2010. Nokia friends invite me to their US headquarters in White Plains, NY, where we’ll discuss Apple with an audience of local management and remote viewers in Europe.
As the conversation proceeds, I’m struck not by what I hear but by what I don’t. They’re right to wonder about Apple, about what makes it tick…but they have an even bigger problem called Android.
I venture a few politically impolite suggestions:

1. Replace your CEO. Olli-Pekka Kallasvuo, a little too proud to be a lawyer and an accountant, is way past his “best if used by” date.
2. Drop all your aging software platforms, your Symbian S60, S^3 and S^4, your Maeemo/Moblin/Meego chimera (I didn’t say clusterf#^k). You’re doomed by pursuing so many projects…and you might want to consider that your competitors are a bit better than you are at writing system software.
3. Go Android right now. Join the winning OS team.
4. Focus on your strengths: Hardware, industrial design, manufacturing, worldwide distribution.
5. Move to Silicon Valley, that’s where the action is. The future of smartphones won’t be decided in White Plains, NY.

People don’t appear overly upset. Actually, quite a few heads nod when I mention kicking the mercurial OPK upstairs. Judging by audience reaction, the Go Android suggestion isn’t news, it’s been debated already, heatedly it seems.

I get two kinds of pushback: “We’ll lose control of our destiny!” and “How will we achieve differentiation?”

With the regard to the former, by 2010 Nokia is already past the point of controlling their destiny; sales are “gaining vertical speed”…in the wrong direction. And to the differentiation objection, I suggest that the audience share my faith in Nokia’s proven hardware strengths and in their Finnish tradition of sparse, elegant designs.
It becomes an open — if occasionally pained – exchange. My hosts are visibly as concerned as I am about Nokia’s current direction.

On my way back to the Valley, I try to put a humorous spin on the discussion: I pen a Science Fiction: Nokia goes Android piece that shows the great company waking up and turning itself around. But, inside, I know humor is the politeness of despair, and I can’t avoid a somber note at the end of the otherwise lighthearted article:

In a more plodding reality, Nokia is likely to continue on its current course, believing their problem is one of execution, of putting more faith in their sisu.
The king will be deposed, Google and Apple will divide the spoils.

A few months later, Nokia’s situation worsens, OPK is deposed and Stephen Elop, a former Microsoft executive, replaces him.

A year ago exactly, Nokia’s new CEO writes his infamous Burning Platforms memo. In it, Elop makes three crucial statements:

1. The smartphone war isn’t one of platforms any more, it is a war of ecosystems.
2. Our current system software won’t win.
3. To win the war, we’re joining the Windows Phone ecosystem via a special alliance with Microsoft.

The first point is beyond dispute. Two successful ecosystems, Google’s for Android and Apple’s for the iPhone, have settled that score.
To outsiders, Elop’s second statement is merely a frank assessment of Nokia’s failure to play in the same software league as its Californian competitors. A few insiders and fans take offense but…numbers are numbers.

Things take a turn for the worse with the jump to Windows Phone. In the abstract, the decision is defensible, but by announcing the switch ten to twelve months ahead of actual shipments, Elop has effectively osborned his current product. Who will buy Symbian-based smartphones when Nokia’s own CEO tells the world it’s a has-been platform with no future? Nokia’s fans are furious; so are the shareholders. (See Tomi Ahonen’s blog for a rich, vocal, well-argued compendium of everything wrong with Stephen Elop’s move.)

Nokia’s market share and profits drop precipitously. The December 2011 quarter shows a loss with little hope of a turnaround in the short term.

But the wait is finally over: Nokia now ships Lumia smartphones running on the latest Windows Phone 7.5 release. A Nokia friend asks if I want to try a Lumia 800, the top-of-the-line model in Europe. Having read good things about both hardware and software, I jump at the chance.

When the package lands on my desk, I ask myself The Question: Is this the phone that will put Nokia and Microsoft back in the race? By late 2011, Microsoft’s share of the smartphone market stood below 2%. Does the Lumia line of devices have what it takes to regain the ground lost to Samsung’s Android devices and to iPhones?

What follows, here, is a highly impressionistic diary, with no pretense of objectivity, chronicling a week of abuse of the Lumia 800. (I’ll skip over the phone waking up speaking Finnish, or that it arrived with a European plug for the power adapter. Not a problem, we have Google Translate and I have my own stash of euro-gizmos.) For a dispassionate and professional discussion, please turn to AnandTech’s exhaustive review (12 pages).

At first glance (literally), very good: Elegant, sleek hardware with equally elegant type on the welcome screen, followed by the clean Metro UI (Nokia UK provides a nice tour here). All it takes to get a pre-paid month-to-month subscription and micro-SIM is a short walk to the T-Mobile store.

I encounter my first problem when looking for ways to take screenshots for today’s note. The documentation is mute on the subject, and all Google can offer is that I need software developer tools. Is there really nothing for normal humans? I email my friends, I tweet nokia-connects (as recommended in a nice handwritten note that came with the phone)…still nothing. A simple two-button procedure, followed by a no-hands Photo Stream upload – in other words, the iPhone method — seems to be the type of solution to aspire to.

Cognoscenti will argue over details, but I was impressed by Lumia’s email presentation and management. Setting up my Exchange, Google, and iCloud accounts is as simple and reliable as the best of what I’ve seen with Android and iOS devices. So is the polished use of type, the ease of linking and unlinking mailboxes, handling single messages, and bulk-editing an inbox loaded with spam. Office attachments read well, naturally — as they do on all leading smartphones. But while competitors read PDF docs natively, Windows Phone tells you There’s An App For That. It’s free and installs easily, as every other app I tried. But, for such a basic function, rendering PDF files, why not make it part of the device?

Surfing the Web proves less satisfying. Tabbed browsing isn’t as intuitive as on an iPhone 4S, and there’s no “Reading List” of pages you can save for later or sync with your PC. Worse, there appears to be a purplish tinge on the screen as I read Web pages and the type rendering is lackluster — I wish I had screenshots to better explain what I see. I don’t know enough about what’s under the hood to place the blame, but perhaps it’s the lower screen resolution (480 by 800 vs. 640 by 960).

Music, at least on the device I got, is also disappointing. Contrary to the claims of the Nokia Music support page, there’s no Nokia Music Streaming on my Lumia. Perhaps this is just a temporary or regional situation. Downloading music from iTunes is theoretically possible, although it seems one needs a DRM Removal Tool, followed by a batch conversion to Windows Phone music files. Spotify offers a Windows Phone application, or one can turn to the Microsoft’s Zune Unlimited Pass, both with a $9.99/month subscription. Opinion will differ as to the attractiveness of these music offerings. In any case, there’s no ‘‘iPod Inside”, as I hear an AT&T salesperson say.

The Lumia 800 features an 8 megapixel camera with a “Carl Zeiss Tessar” lens. As a test, I took side-by-side pictures using the Lumia and an iPhone 4S, both in idiot mode (auto white balance mode, auto everything else).

First, my two pigs. I found them 20 years ago in an antique shop in Arcachon, France, and christened them Victor and Charles, as in VC. This was in my early entrepreneurial days, when I thought VCs were…you know. Now that I’ve gone over to the Dark Side, I still keep them on my desk and show them to entrepreneurs who give me lip about my brotherhood.

The Lumia photo:

…and the iPhone:

To the inexperienced viewer, the iPhone 4S picture looks better

I tried another subject: Handwritten numbers on a piece of paper.

The Lumia:

…and iPhone:

Take a close look at these pictures and you’ll see that the iPhone images are marginaly sharper.

The rather dull tint of the Lumia pictures can be corrected using any decent photo processing program (I just did it in iPhoto, it works quite well). Of course, that means moving the pictures to a “real” machine.
Perhaps the dull tint is unique to the phone I got. If it isn’t, it needs to be fixed in order not to disappoint. The Autofix feature in the phone’s camera software didn’t fix the picture.

I used Microsoft’s SkyDrive, a free “drive in the Cloud” that appears as one of the sharing options in Windows Phone. It’s not as clever as DropBox, or as automated as parts of iCloud, but it works well (and reliably) on PCs, Macs, Windows Phone, Android, and iOS.

Still on the camera topic: unlike other leading smartphones, there is no front-facing camera. As a result, no video calls in Skype or FaceTime fashion.

Using Nokia-owned Navteq maps, navigation work as expected: very well.

Last item for this cursory review: battery life. The Lumia’s screen dims in a matter of seconds and shuts down soon thereafter. My unscientific impression is that the battery drains quickly if you do a lot of browsing and downloading on 3G or WiFi. A glance at AnandTech’s thorough numbers shows that this is indeed the case.

…or nearly the last item: I forgot to mention phone calls, we use smartphones for those, too. Nothing to report; voice, SMS…everything works as expected.

This is a well-made, elegantly designed, and capable phone. But let’s return to The Question: Is this the Killer Phone? Will the Lumia 800 and its siblings put Nokia and Microsoft back in contention? My answer is, regretfully, No.

The Lumia contains neither the revolutionary new features nor the fresh approach that any serious smartphone needs to compete with the two new giants, Samsung and Apple. The Korean company is very, very determined; it takes no prisoners — ask Sony. And Apple is no longer Little David fighting the Microsoft Goliath: Last quarter, the iPhone alone generated more revenue and profit than all of Microsoft.

I can’t help but retro-fantasize an alternate reality: In 2010, Nokia starts a secret project with Google and an Asian contract manufacturer. The industrial design is done in-house, the rest in collaboration. In February 2011, Elop announces a special relationship with Google — and starts shipping the device immediately. No osborning, no revenue gap.

This fantasy comes with a bonus: Google doesn’t have to buy Motorola and it gets Nokia’s patent portfolio – infringement of which Apple has paid more than $600M — as part of the “special relationship”.

Back to reality: Without a clearly superior product and a dominant ecosystem, Microsoft and Nokia are now forced to shell out big marketing dollars against richer adversaries. This isn’t going to be pretty: Microsoft can ill afford to be a bit player in the smartphone revolution and Nokia can’t keep bleeding money, squeezed between the new giants and the emerging Asian providers of entry-level devices.

JLG@mondaynote.com

Will Microsoft buy RIM or Nokia?

We continue along the lines of last week’s Monday Note kriegsspiel with the latest speculation Will Microsoft, at long last, buy RIM? The idea has been kicked around for at least five years: Days after the iPhone’s introduction in January 2007, Seeking Alpha suggested that the Xbox maker ought to buy RIM in order to build an XPhone. In retrospect, this would have saved both companies a lot of grief.

It’s early 2007 and the BlackBerry maker is riding high. With its Microsoft Exchange integration; a solid PIM (Personal Information Manager) that neatly combines mail, calendar, and contacts; and the secure BlackBerry Messenger network, the “CrackBerry” is rightly perceived as the best smartphone on the market. I love my Blackberry and once I manage to get a hosted Exchange account for the family, I show my un-geeky spouse the ease of over-the-air (OTA) synching between a PC and the BlackBerry. ‘No cable?’ No cable. She promptly ditches her Palm device. One by one, our adult children follow suit. For a brief time, we are a BlackBerry family.

But the Blackberry’s success blinds RIM executives. They don’t see – or refuse to believe – that the iPhone poses a threat to their dominance. A little later, Android comes on the scene. Apple and Google deploy technically superior software platforms that, by comparison, expose the Blackberry’s weaker underpinnings. In 2010, RIM acquires the QNX operating system in an effort to rebuild its software foundations, but it’s too late. The company has lost market share and shareholders see RIM squander 75% of its market cap.

Now, imagine: On the heels of the iPhone introduction in 2007, Microsoft acquires RIM and quickly proceeds to do what they’ve only now accomplished with Windows Phone 7: They ditch the past and build a modern system. This would have saved Microsoft a lot of time and RIM shareholders lots of money. Instead, Microsoft mocks the iPhone and brags that the venerable (to be polite) Windows Mobile will own 40% of the market by 2012.

Things don’t quite work as planned. Early 2010, Microsoft wisely abandons Windows Mobile for the more modern Windows Phone 7 (a moniker that combines the Windows Everywhere obsession with a shameless attempt to make us believe the new smartphone OS is a “version” of the desktop Windows 7).

And things still keep not working as planned. WP 7 doesn’t get traction because handset makers are much more interested in Android’s flexibility and, particularly, their price. Android’s Free and Open pitch works wonders; the technology is sound and improves rapidly; OEMs see Microsoft as the old guard, stagnant, while Google is on the rise, a winner.

All the while, Nokia experiences their own kind of “domination blindness”. In 2007 Nokia is the world’s largest mobile phone maker, but they can’t see the technical shortcomings of their aging Symbian platform, or the futility of their attempts to “mobilize” Linux. iOS and Android devices quickly eat into Nokia’s market share and market cap (down 80% from its 2007 high).

In 2010, Stephen Elop, formerly a Microsoft exec, takes the helm and promptly states two brutal truths: This isn’t about platforms, we are in an ecosystem war; technically, we’ve been kidding ourselves. Nokia’s new CEO sees that the company’s system software efforts – new and improved versions of Symbian or Maemo/Moblin/Meego – won’t save the company.

Having removed the blinders, Elop looks for a competitive mobile OS. Android is quickly discarded with the usual explanations: We’d lose control of our destiny… Not enough opportunities for differentiation… The threat of a race to the bottom might have entered the picture as well.

This leads Elop back into his former boss’ arms. Microsoft and Nokia embark on a “special relationship” that involves technical collaboration and lots of money. It’ll be needed: By the end of 2011, WP 7 has less than 2% market share. Nokia’s just-announced Lumia smartphone is well received by critics but will it demonstrate enough superior points to gain significant share against the Android-iOS duopoly? I’ll buy one as soon as possible in order to form an opinion.

The “MicroNokia” relationship isn’t without problems. Many Nokia fans are outraged: Elop sold out, Nokia’s MeeGo was unfairly maligned, the company has lost its independence… See Tomi Ahonen’s blog for more. (And “more” is the right word. Ahonen’s learned, analytical, and often rabid posts range between 4,000 and 10,000 words.)

The Nokia faithful have a point. In my venture investing profession, we call an arrangement such as the MicroNokia partnership “buying the company without paying the price.” Right now, Microsoft appears to control Nokia’s future since, at this stage, Nokia is as good as dead without WP 7.

But doesn’t that mean that Nokia also controls Microsoft’s smartphone future? “Statements of direction” aside, there are no notable WP 7 OEMs. (Samsung and HTC ship a few WP 7 phones, but their share is infinitesimal compared to their Android handsets.) With Android growing so fast, why would a smartphone maker commit to WP 7 while Nokia holds a privileged status on the platform?

Microsoft is making smart moves against Android by using their patent portfolio to force Android handset makers to pay (undisclosed) royalties. With LG as the latest licensee, Microsoft appears to have snared 70% of Android OEMs. The (serious) joke in the industry is that Microsoft makes more money from Android than from WP 7.

But success with patents doesn’t translate into more WP 7 OEMs, which leaves us to wonder: Will Microsoft consummate the relationship and acquire Nokia, whether the entire corpus or, at least, the fecund (smartphone) bits? For years, Microsoft has claimed they’re all about choice, and when it comes to the PC, that’s true: Businesses and consumers have a wide choice of PCs running Windows. But their customers have no real choice when it comes to WP 7: It’s Nokia or…Nokia. They might as well tie the knot and call it what it is: Microsoft or Microsoft. It works wonders for Xbox and Kinect.

Going back to RIM, we hear it’s ‘’in play’’, that they’ve hired investment bankers to “look at their strategic alternatives”. In English: They’re looking for a buyer.

But who? Microsoft is otherwise engaged. So is Motorola. And forget Samsung.

With RIM’s market share dropping precipitously, and no sign of a rebound with spanking new models until the second half of 2012, who would want to risk billions in a market that’s controlled by competitors who manage to be both huge and fast-growing? Sure, RIM is still in the black, but its cash reserves are dwindling: the Cash and cash equivalents line went from $2.7B last February to $1.1B in November 2011. What’s left will evaporate quickly if revenue and profits keep dropping, as they’re likely to do for the foreseeable future.

JLG@mondaynote.com

Samsung vs. Google

Android is a huge success. Google bought Andy Rubin’s company in 2005 and turned it into a smartphone operating system giant, with more than 50% of the global market and 700,000 activations a day this past December.

Perhaps, as Steve Jobs seemed to think, it was Eric Schmidt’s position on Apple’s Board of Directors that infected Google with an itch to enter the smartphone OS market. Or maybe Larry Page and Sergey Brin simply recognized the Next Big Thing when they saw it. (As Page points out, the company had begun Android development a year before Schmidt joined the Apple Board.)

Regardless of the “authenticity” of Google’s smartphone impulse, it’s the execution of the idea, the integration of Android into Google’s top-level strategy where the product really shines. Android improves quickly; the “free and open” platform is popular with developers and, perhaps even more so, with handset makers who no longer have to create their own software, a task they’re culturally ill-suited to perform. And everyone loves being associated with a technically competent winner. (I might be a little biased in my regard for the Android engineering team: Comrades from a previous OS war work there.)

For the past three years, Android has experienced a kind of free space expansion: The platform has grown without hitting obstacles. I’m not ignoring the IP wars, they’re real and the outcome(s) are still unclear, but these fights haven’t slowed Android’s triumphant march.

As we enter 2012, however, it seems the game may be changing. Looking at last week’s numbers for Motorola, HTC, and Samsung, we see a different picture. Instead of the old “there’s more than enough room for every Android handset maker to be a winner”, we have a three-horse’s-length leader, Samsung, while Motorola and HTC lag behind.

From October to December of last year, a.k.a. Q4CY11, Samsung is said to have shipped 35 million smartphones, taking it to the number one spot worldwide. Citing “competitive reasons”, Samsung no longer makes its sales/shipment numbers public, so we have to rely on ‘‘independent” observers to tally up the score. Having worked in the high-tech industry for decades, I’ve seen how this information game is played: firm XYZ sells its “research” to manufacturer W…and ends up as its mouthpiece. I’d love to follow the money, but these private firms don’t have to reveal who their clients are and how much they pay for their services. (For a more detailed discussion of these shenanigans, read an excellent piece by The Guardian’s Charles Arthur: Dear Samsung: could we have some clarity on your phone sales figures now? Another possible bias: The Guardian re-publishes the Monday Note on its site.)

But even if we “de-propagandize” the numbers, Samsung is clearly the number one Android handset maker, and, just as clearly, it’s taking large chunks of market share from the other two leading players: Motorola and HTC both announced lower than expected Q4CY11 numbers. HTC’s unit volume was 10 million units, down from 13.2 million in Q3; Motorola got 10.5 million units in Q4, down from 11.6 million in Q3.

This leaves us with the potential for an interesting face-off. Not Samsung vs Motorola/HTC, but…Samsung vs. Google. As Erik Sherman observes in his CBS MoneyWatch post, since Samsung ships close to 55% of all Android phones, the company could be in a position to twist Google’s arm. If last quarter’s trend continues — if Motorola and HTC lose even more ground — Samsung’s bargaining position will become even stronger.

But what is Samsung’s ‘‘bargaining position’’? What could they want? Perhaps more search referral money (the $$ flowing when Google’s search engine is used on a smartphone), earlier access to Android releases, a share of advertising revenue…

Will Google let Samsung gain the upper hand? Not likely, or at least not for long. There’s Motorola, about to become a fully-owned but “independent” Google subsidiary. A Googorola vertically-integrated smartphone line could counterbalance Samsung’s influence.

And so it would be Samsung’s move…and they wouldn’t be defenseless. Consider the Kindle Fire example: Just like Amazon picked the Android lock, Samsung could grab the Android Open Source code and create its own unlicensed but fully legal smartphone OS and still benefit from a portion of Android apps, or it could build its own app store the way Amazon did. Samsung is already showing related inclinations with its Music Hub and its iMessage competitor.

Samsung is a tough, determined fighter and won’t let Google dictate its future. The same can be said of Google.

This is going to be interesting.

JLG@mondaynote.com

The Apple Wireless Carrier (Part 2)

Spurred by years of frustration with AT&T, Verizon, Orange and the like, I wrote a half-serious Monday Note a few months ago (Steve, Please Buy Us A Carrier!) that imagined an Apple wireless universe. Simple pricing, no-surprise phone bills, no-tricks agreements. There would be dancing in the streets…

Unfortunately (I concluded), if Apple were to acquire a carrier — T-Mobile, say, to keep it out of AT&T’s clutches — they’d be saddled with a legacy business, its infrastructure, its people, its culture. That’s not the Apple way. They didn’t get into retail by buying up and remodeling Circuit City stores; the company builds from the ground up.

There are other problems. A single carrier – any carrier — would have limited geographic impact; the potential billions in service revenue is attractive, but it doesn’t serve Apple’s #1 business: selling hardware; wrestling with the FCC over regulatory issues would be intolerable.

Give us a carrier…It’s a nice fantasy but Apple isn’t going to spend tens of billions to buy a headache.

A few weeks later, I was politely but firmly admonished by my daughter’s significant other: Yes, buying a carrier – or a string of carriers – probably isn’t in Apple’s playbook, but let’s not be so quick to kick them out of the game. There is, he said, a better, simpler way for Apple to indulge their iPhone customers.

Today, Apple uses its cash to buy capacity from parts suppliers and manufacturing contractors. Why not do something similar with wireless carriers? The Cupertino company could buy “capacity” (minutes and gigabytes) from Verizon, AT&T, Sprint, or even China Mobile, Vodafone, and the intriguingly-named Tata Teleservices. Apple would become a Mobile Virtual Network Operator, a company that provides cell phone services that ride on someone else’s infrastructure.

There are dozens of MVNOs operating in the US: Virgin Mobile, Firefly, Straight Talk… Even 7-Eleven, the convenience store giant, offers its “own” cellular network: 7-Eleven Speak Out Wireless. I found one MVNO, H2O Wireless, that claims to “work” with iPhones and Android devices, although keep in mind the (in)famous “Some Restrictions Apply”.

This is a much livelier scene than I imagined. In 2006, according to the felicitously named mobileisgood.com, there were only 330 MVNOs. Wiki the term today and you’ll read that “there are 645 active MVNO operations in the world.” (For the modest sum of $1,125, you can buy a PDF copy of the MVNO Directory 2011 which lists all 645 companies. One free detail: 205 new companies in one year!)

Add Apple’s new “worldphone”, the iPhone 4S straddling GSM and CDMA networks, and you have the ingredients for a virtuous virtual Apple carrier

Insiders tell me this is easier said than done. They’re right. Wireless networks are complicated. Picture the attempt to superimpose Apple-style simplicity on top of layers upon layers of old hardware and patchwork software that span several “somewhat compatible” networks. Once again, an idea that sounds good is, in practice, unfeasible. Worse, the beautiful theory might lead to the sorriest kind of mediocrity: The product that’s impossible to fix and can’t be killed.

Still, I’m optimistic. I find the froth, the growth of MNVO companies exciting, encouraging. Whether they admit it or not, the incumbents know their culture isn’t going to foster innovation, only incrementation. For them, MVNOs might be a way to wage a proxy war against the competition by attracting innovators to their side — until the unruly mercenaries kill the overlord that engaged them.

Back to Apple, they could buy, rather cheaply, a number of MVNOs or even build their own. If 7-Eleven can do it…

Now we find out that as far back as 2005, “Jobs initially hoped to create his own network with the unlicensed spectrum that Wi-Fi uses rather than work with the mobile operators…” This came out in a talk given last week by John Stanton, a cellular industry pioneer, at a Law Seminars conference in Seattle. No real surprise: Jobs wasn’t fond of carriers. He considered them to be obstacles rather than instruments of progress and was naturally inclined to look for ways around them. We know what happened. Jobs ended up working with carriers — but only if they accepted Apple’s control over the handset features and iTunes and App Store content sales.

End of story? Not quite.

Take a look at the recently-announced Republic Wireless, a hybrid carrier that rides on a combination of WiFi networks and cellular infrastructure. The phone, a LG Optimus Android device, costs $199 upfront and the service goes for $19/month, with unlimited minutes, data, and text. No hidden fees, just sales tax. Free roaming in the US over Sprint’s network. Free WiFi calls to the US from anywhere in the world. No contract, no termination fee, cancel when you want. This is far from the $100+/month, two-year indentureship that AT&T offers its iPhone users.

Reactions to the new service, one of a broad array offered by Bandwidth.com (a Carolina company that presents itself as a “Complete BUSINESS Communications Provider”) range from guarded to enthusiastic. As Ina Fried of All Things D points out, Some Restrictions (Still) Apply:

“…the company wants to deliver most of its service over Wi-Fi, using cellular more as a backup for when Wi-Fi isn’t available. Customers who…gobble up too much cellular data or wireless minutes will be asked to find another carrier.”

The company buys 3G network capacity from Sprint. Return too often to the “all you can eat” network buffet and management will escort you out.

We’ll have to wait a few months to see what happens next. Will Republic Wireless grow into a viable, disruptive business, proving Jobs was right to look for a way to build a hybrid carrier? Will its business model fail because $19/month won’t be enough to pay the Sprint bill? Or will Republic Wireless end up as a beta for Apple’s own hybrid network?

———–
An afterthought before we close.

Last week, we heard a titillating rumor: an Amazon smartphone would come out late next year. At first, I dismissed it as unrealistic. Then, I looked at my brand new Kindle Fire and marveled again at the way Amazon “picked Android’s lock”. The company took the Android Open Source code, added its own UI, applications, services and app store. The result is an ‘‘unofficial” Android device without any Google control on it, without the Trojan Horse apps. Further, by slotting its own browser between the Amazon customer and the Google search engine, Bezos & Co. keep accumulating user data without sharing any of it with their Mountain View frenemies. Why not apply this newly developed arrangement to an Amazon smartphone?
I also realized that, in order to feed data to its Kindles, Amazon developed Whispernet, a 3G network riding other carriers‘ infrastructure — which sounds like an MVNO of sorts.
We know the Kindle Fire model of being sold at cost or at a small loss because it boosts the company’s real business: selling things and content. The hypothetical Amazon smartphone (hardware + MVNO contract) would be priced in the same spirit.

More disruption on the way?

JLG@mondaynote.com

Mobile + Cloud + Social

These are the three interdependent forces that power the biggest wave of growth, change, and destruction I’ve seen since I have been allowed to take part in the high-tech industry.

In the beginning (or mine, anyway), back in 1968 when I was, miraculously, offered a salary to be part of HP France there was the mainframe. IBM – “The Company” — reigned supreme, a dynasty that seemed unassailable. The IBMer wore a suit and tie when approaching the punch card feeder. Big Blue’s competitors, the BUNCH, were also called the Seven Dwarfs because their combined market share couldn’t compare to IBM’s dominance.

A few years later, the dress code relaxed a bit and Digital Equipment Corporation’s minicomputer displaced mainframes. IBM still exists, of course, although under a different guise, but DEC is no more. They were acquired by Compaq in 1998, killed by the Personal Computer.

The PC era lasted longest of all, more than 30 years, partly due to Moore’s Law: “The microprocessor shall double its power every 18 months”, and then repurposed as a transmission medium with the advent of the Internet. Thanks to the standardization enforced by the Wintel duopoly, the industry manufactured hundreds of millions of PCs, giving rise to an inexpensive clone organ bank that largely displaced higher lifeforms such as Sun servers (the company that once claimed to ‘put the dot in dot.com’). As an example, the five million servers deployed by Google use a combination of such parts — and private versions of Linux.

Referring to the PC era in the past tense is contentious. In a now famous post, Frank Shaw, the literate head of Microsoft’s Corporate Communications, contends that  ‘the 30-year-old PC isn’t even middle aged yet, and about to take up snowboarding’. I’m writing this on an Intel-powered personal computer and don’t feel particularly necrophiliac. But the marketplace has spoken: The PC is, at best, stalled. Looking at last quarter’s Microsoft numbers, shipments to business customers are still growing, about 5% year-to-year, while the consumer market is flat. (From Gartner, more details on the PC sales slowdown here.)

Contrast this with the rise of Google’s Android smartphones, Facebook, Twitter, Apple’s iOS devices (iPhone, iPad, iPod Touch), Zynga, LinkedIn… And the fate of the incumbents, Nokia, Palm, RIM, Microsoft… They’ve all been displaced, ‘‘flummoxed” in Steve Jobs’ words.

We just got the latest Mary Meeker presentation, now on the Kleiner Perkins web site as she joined the grand Valley venture capital firm, a great combination of PR and talent acquisition. Mary Meeker’s opus is 66 slides long and covers so much ground it could become overwhelming, but it’s worth your time. The range of topics is impressive: e-commerce, the global race to adopt mobile devices and apps, on-line payments, social networking as a pervasive wave of opportunity spanning the online experience. She ‘posits that the mobile revolution is still in its infancy and poised for tremendous growth’.
Regarding the changing of the guard:

She then points to the new entrants clobbering the smartphone incumbents:

But, there’s more than clobbering, there’s location. When it comes to operating systems, ‘Made in USA’ – and, more specifically, Silicon Valley, the Detroit of computing – still means something:

As much as I like and admire her presentations, I’d take a slightly different angle.

First, as Horace Dediu meticulously points out in his Asymco blog, I’d emphasize the startling creation and destruction of value that has taken place in the past four years, since Apple and Google have entered the field. (For a slightly less analytical and more animated take, there is also Brian Hall’s Smartphone Wars, occasionally NSFW, never dull.)
Calling what’s taking place “the biggest wave of growth, change and destruction” is no hyperbole: One company, Apple, went from zero to $70B in mobile revenue in 4 years; another, Google, propelled its Android platform to the top of the smartphone class; Samsung ships more phones than anyone else; Nokia lost its crown, it sales went down 13% year-to-year last quarter; Palm is no more; and Microsoft Windows Mobile sales are so small the company omits them in its latest quarter release, merely mentioning ‘favorable reviews’, confirming Ballmer’s earlier statement: “In a year, we’ve gone from very small to … very small.” This from the man who once predicted Windows Phone would get a 40% market share in 2012. When Nokia finally starts shipping Windows Phone 7 devices, we’ll see how Microsoft manages in the unusual role of being number three in a race.

Second, the combination. While both mobile revenue displacement and growth are impressive, the real revolution is in the Mobile + Cloud + Social explosion.
Why does Google ‘‘give away’’ Android, both the OS and applications? Android is a Trojan Horse that protects Google’s one and only business model, advertising, on mobile devices: Cloud + Mobile.

Facebook, an interesting challenge to Google, isn’t just a Social company, it could only reach its current 800 million registered users by deploying a scalable Cloud infrastructure.

Apple, rightly described as focused on great devices (read “hardware”), could only succeed with the iPod because of its iTunes service in the Cloud. This is the same iTunes that gave birth to the iPhone App Store, the great game changer, the Cloud service that morphed smartphones into app phones. Apple’s Cloud maneuvers haven’t always been felicitous — the company struggled with MobileMe — but they never gave up. We’ll soon see if the newly available iCloud, with its original approach to local caching and synchronization finally ‘‘Just Works”.

Lastly, emphasizing Meeker’s point about geography, inside a tiny circle, ten miles in diameter, we have three cities: Mountain View, Palo Alto and Cupertino. Google, Facebook, and Apple. Three companies redefining the future of computing, the new Mobile + Cloud + Social wave.
In the history of computing, there’s never been so much power concentrated in such a small area.

JLG@mondaynote.com

Steve, Please Buy Us A Carrier!

We’re at the end of the 2011 iPhone 5 launch. The demos went well; Steve Jobs has come back on stage to thank everyone and conclude the proceedings, “…but before you go, just One More Thing. I’d like you to meet someone.” And the CEO of Deutsche Telekom walks onstage. “Deutsche Telekom owns a company you know as T-Mobile USA, but let’s start calling it by its new name: Apple Wireless.”

An audible gasp — louder than the one when Jobs announced the $499 price for the iPad – and then the room erupts in applause. At long last, iPhone users will enjoy the level of carrier service and support that is their birthright.

This is fiction, of course, wishful thinking. But bear with me…

The idea came up during a “what if” conversation with my wife Brigitte, while walking along University Avenue in Palo Alto. What should Apple do with its almost beyond comprehension $76B in cash? The COO of the Gassée family is creative and practical, an abstract painter turned “lumber VAR”–she builds or rebuilds houses in Palo Alto. She’s not enthralled by technology and takes a utilitarian view of computers, phones, navigation systems, tablets…an attitude that provides a useful counterpoint to my sometimes overly-enthusiastic embrace of anything that computes.

She immediately nixes a big acquisition that could dilute Apple’s culture, an aspect of the company that’s integrally important to Steve. She has no interest in financial engineering and concludes that Apple will continue to make small acquisitions that pose few cultural challenges–but small buyouts won’t solve the cash “problem”. What to do with all that money?

As we chat, we walk by the wireless carrier stores: T-Mobile, a couple AT&T retailers (one is shutting down), Verizon and, next to the Apple Store, Sprint, a big store with a bored sales staff that easily outnumbers the customers. “Why doesn’t Jobs buy a carrier?” she asks, “He’d easily do a better job than these people….”

As befits our well-debugged relationship, I immediately launch into a critique of her suggestion: “This is a terrible idea, on so many counts!”.

First, there are regulatory problems. Getting FCC approval for a new iPhone is one thing; wrestling with Washington bureaucrats for spectrum allocation is another.  Apple’s maverick culture, its blatant spite for government bureaucrats and Congress windbags won’t do well there.

Second, carriers are capital intensive: Their return on equity (the profit-per-dollar invested in the business) is way below what Apple enjoys, in spite of its having “way too much cash for its own good.” For example, last quarter, AT&T’s Net Income was $3.6B for $113.8B in Equity, a ratio of 3.16%. Apple’s numbers were $7.3B for $69.3, a ratio of 10.5% — more than 3 times AT&T’s.

And just imagine the other carriers’ reactions. Not only would they kick Apple products from their networks and stores, Apple would find itself in court for anticompetitive practices, for unfairly favoring its own wireless arm.

One can see Apple’s stock losing 10% on the day of the announcement and critics would have yet another field day: “Apple does it again, their Walled Garden™ just grew taller walls!”.

But it’s also a beguiling idea. Let me count the ways.

Imagine the dancing in the streets. Apple would be finishing the job it started when it broke AT&T’s err… back, when it took over content distribution with iTunes. We don’t like carriers; we experience their service as both poor and expensive, to say nothing of their impenetrable and ever-changing contract pricing:

(Not to pick on AT&T. Every carrier offers a similar, bewildering array of entrapping offers.)

By contrast, imagine Apple’s simpler pricing. Three tiers to fit your appetite for data: $49, $79, $129 per month. No gimmicks, no SMS surprises, no fees piled up at the bottom of the bill: Just the price in your contract, plus taxes. If you approach the data limit for your plan, you get an SMS offering to upgrade you to the next level–but only for this month. No underhanded up-sell.

With $76B in cash and another $10B or so per quarter, a carrier is certainly within Apple’s budget. AT&T, with its $167B market cap, is probably out of reach (and too complicated, too many businesses), and Verizon ($97B), with its dying landline business and unionized workforce, isn’t in keeping with Apple’s ways.

But consider another carrier, T-Mobile USA. It no longer offers landline services, it’s non-union, and it’s affordable—it got a $39B offer from AT&T. Acquiring T-Mobile from its parent company Deutsche Telekom offers several advantages.

To start with, it prevents an abomination before the lord: It kills AT&T’s predatory acquisition attempt. Furthermore, as my friend Peter Yared noted, Apple might very well have big mounds of cash sitting outside the US, potentially subject to taxation if repatriated. Problem solved. Peter Oppenheimer, Apple’s CFO, shows up at Deutsche Telekom’s HQ in Bonn bearing a smile and an RSA dongle: “You have a Mac I can use to make the wire transfer?” No, they don’t. But a nice 30-year Anniversary Lenovo PC will do for the transaction.

Once the deed is inked, the hard work starts. This will probably be a two-year exercise.

Decisions will have to be made. Tactfully convert existing T-Mobile users to iPhones or free them go elsewhere? (The competition will, of course, welcome these ‘‘victims’’ with open arms.) Retrain employees or offer them a decent exit package?

But the big task, the goal of the acquisition: Play the Apple vertical integration game and adapt the network to support one and only one type of smartphone, Apple’s.

Other cellular networks have to serve a wide range of devices — from basic phones to gluttonous high-end smartphones — and support a mess of protocols: Ancient ones with layer upon layer of patches, more modern ones with their factory-fresh bugs. Contrast this with Apple Wireless’ simpler task of serving one type of phone, one type of protocol. Given the two-year time frame, let’s assume the protocol will be a stable variant of what markitects call LTE or 4G. And, from there, voice and data coexistence, smoother video calls, voice-mail on iCloud, and so on.

And that’s just T-Mobile. Need more spectrum? $10B, three months of net cash flow, gets you Sprint.

Another possibility, admittedly remote, is to use tight wireless network integration with iCloud to create an inexpensive “smart dumbphone”.

What I mean is: Today’s iPhone is an app phone. It has enough hardware oomph to run a wide range of applications, all “wired” to a screen size. Because of this, cutting the iPhone’s bill of materials in half is well-nigh impossible — an “iPhone Nano” would be a much more difficult proposition than the iPod Nano. Apple would need to send developers back to their Xcode.

A better alternative would be to jettison native apps altogether, to go back to the Summer of 2007, when Steve Jobs promoted Web 2.0 apps for the first iPhone. Today, the pitch would be HTML5 Web Apps. We can already see a few good ones on iPhones and iPads, such as the new HTML5 Kindle app:

Or the nicely interactive iPhone manual, which feels like a “real” app:

A putative iPhone Nano on the no-less putative Apple Wireless network would be a dumbphone with HTML5 smarts and tightly integrated (I’ll use the P-word) proprietary services to make it sing and dance.

(As it happens, someone else already came up with the name Cloud Phone, see Trevor Sheridan’s post on the Apple’N’Apps site.)

As for the reaction from competing carriers, one has only to turn to the history of Apple Stores to get an answer. Existing retailers didn’t ditch Apple products when the company started its own retail chain. In fact, Apple Stores set a new standard in pre- and post-sale service. As a result, competing retailers raised their game. One can expect a similar reaction from AT&T and Verizon when faced with Apple Wireless.

So, yes, it’s a beguiling idea, but…

Would buying a carrier make sense financially? Look at AT&T’s iPhone ARPU, reported at more than $100/month. For Apple Wireless, this translates into more than $1B per million iPhones on its network. In 2010, T-Mobile’s ARPU was approximately $50/month for its 33.7 million customers. It’s tempting to look at the potential billions in service revenue and pronounce Apple Wireless the next big revenue opportunity.

But service isn’t Apple’s way of making money. Their one and only goal is selling devices. Everything else is in support of that goal. Execs, starting with the CEO, will wax poetic about the crystalline purity of software, more/better/faster content, new iCloud services; but what really counts is device revenue and profit. In the iPod days, iTunes didn’t make money, but it boosted device volume and margin. For today’s $100B Apple, a couple of billions in iTunes revenue is nice, it pays the bills, but it doesn’t move the needle. The iPhone is what does.

A wireless carrier owned, operated and integrated by Apple would only take two or three years to generate (much) more revenue than iTunes. But would it sell twice as many iPhones? Probably not.

It’s a nice fantasy, a carrier with the service quality and simplicity we get today when we enter an Apple Store. But for the fantasy to become reality, Apple Wireless would need to give birth to services that generate significant new hardware opportunities – opportunities that would need to be unavailable through Verizon and AT&T (otherwise, what’s the point?).

Another way to deflate the fantasy is to consider the US-only nature. Apple can’t and won’t go around the world and buy wireless carriers. With China soon to become Apple’s largest and most profitable market, the company isn’t about to lose sight of that prize, to be distracted by the complicated task of acquiring and integrating a US carrier.

That was the reverie…

Back to reality, why can’t carriers stop playing their games and show us some decency?

JLG@mondaynote.com

The New Faces of Digital Readers

First of all, note the evolving language: the term Online Readers is now passé as it morphed into Digital Readers. The shift reflects two trends: a broader range of device types and, in news consumption, the spectacular rise of mobility. Today, we’ll focus on a recent set of surveys that quantify these trends. And we’ll take a look at their impact on business models and strategies.

The first survey was released last week in Paris by Havas Media, a major European advertising player with a 25% market share in France. Last May, the polling company CSA surveyed a panel of 600 people reading 20 major French publications: national dailies and weeklies. Because the French rate of ownership for digital devices is comparable to what happens in other markets, the survey’s findings can be safely extrapolated outside of France.

Here are the key findings:

Respondents declare spending 37 minutes a day on digital publications as opposed to 22 minutes a day on print press. This number is astonishingly high. It shows the switch to digital has occurred – at least for readers of large national medias. It also confirms the segmentation of digital audiences. More broadly, when Nielsen finds that, on all mature markets, internet users spend no more than 30 minutes a month on digital newspapers, it also proves how important it is to go after the most loyal customers as opposed to collecting eyeballs – and flybys – for the sake of raw audience numbers that carry less and less economic meaning…)

How media consumption is distributed: according to the Havas Media survey, 51% of the respondents prefer web sites, 31% go for electronic editions, and 17% use applications. In these numbers, the web’s dominance reflects (a) the high volume of contents that are still free as many publications keep playing both sides of the fence, meaning both ad-supported and paid-for models, and (b) the importance of real time news.
In contrast, the lower score of digital editions stems from the fact most still use a basic PDF format. This doesn’t deliver the best reader experience, nor does it fit the needs of mobility: download speed and reading comfort on a smartphone screen. (I’ll come back to the future of digital editions in a next Monday Note by talking about the ePresse.fr kiosk we launched last week in France).
As for the poor scoring of apps, it can be explained by the lack of great interfaces for smartphones, and the still relatively small penetration of tablets.

When do people actually read their news on digital devices? Mid-morning breaks constitute the first of two prime times during which web consultation is favored by most users (36% of respondents), while digital editions and apps account each for 21-22%  (apps are doing quite well at lunch time). The second prime time occurs in the evening, after work, when use is evenly distributed between devices.

The Havas Media / CSA survey also points to the prime motives in news consumption:

#1: Real Time information, mentioned by 48% of the respondents.
#2: Free access. Not really surprising, it will be difficult to get people to pay for news. But there is hope: 29% say they’d be willing  to buy a digital edition. Interestingly enough (and sweet to Havas’ ears): 72% of respondents would be ready to trade a digital subscription in exchange for advertising, and 54% would trade the ability to get free downloads of digital contents in exchange for more advertising.
#3: Availability. A notion that encompasses accessibility and ease of use.
#4: Selectiveness is seen as print’s privilege and a key factor of for liking it.

As for the tablets, 56% of their use involves reading the branded press; that’s behind internet usage (77%), email (66%), or watching videos (62%). Respondents are not apps freaks: they have downloaded only 7 free apps and a bit less that 4 paid-for apps in their devices. These surprisingly low figures appear to be specific to the French market.
In the United States, according to recent Nielsen survey, the picture is different: iPhone/iPad users have an average of 48 apps of all kinds in their device, vs. 35 for Android users and 15 for RIM users (read Jean-Louis’s recent Monday Note to understand the Blackberry’s problem).
But if you factor the actual use of these apps by counting people who open them several times a day (68% of the users for iOS, 60% for Android and 45% for RIM), you’ll see what provides the best return on effort in the application business. In terms of numbers of app loaded and used, if we take a base of 100 for iOS,  Android will score 64 and the Blackberry 21.
Of course, the picture needs refinement: on the tablet market, Apple still dwarf Android by 100 to 2 but in the smartphone business, Android enjoy a 38% penetration (according to Nielsen), vs. 27% for the iPhone and 21% for RIM. Altogether, between a higher Android penetration and more usage by iPhone users, building apps for each platform will yield the same result in terms of market reach.

In conclusion, what does this mean for our media business?

1 / There is still a long way to go for applications to match browser adoption; it is mostly a question of interface quality.
2 / People expect real-time news, including in applications, or the added value needs to be outstanding.
3 /  Digital editions carry more of the brand attributes; but as long as they are not supported by better applications, and able to provide real time news updates, they will remain a relatively small market.
4 / The advertising model needs a bigger dose of creativity: a large chunk of readers would agree to more ads as long as their publication remains free — which paves the way to reinventing the sponsoring model for digital editions or for encapsulated contents.

frederic.filloux@mondaynote.com

iCloud: How vs. What

Once a year in San Francisco, Apple summons its third-party application engineers to the World Wide Developers Conference. Since Steve Jobs’ return to the company the event has grown in attendance and importance. One turning point was the 2002 introduction of OS X, a genuinely modern Mac OS, built on a Unix foundation. Then there was the 2008 WWDC featuring iPhone native apps and the epoch-making iOS App Store. (Yes, “epoch-making” sounds a bit grand, but it really was the birth of a new era.)

This year’s program was more loaded than usual, offering three main topics: A major OS X release, dubbed Lion, slated for this Summer; a new version of the iPhone/iPad/iPod Touch for the fall (iOS5); and iCloud.

The two-hour keynote is worth your while. Always entertaining, Steve and his co-presenters convey the massive effort that went into moving Apple’s engineering armies on these three fronts — with a mere 2% of revenue in R&D expenses.

But let’s focus on iCloud.

Apple has often been involved in feature-list schoolyard squabbles of the Mine-Is-Longer-Than-Yours type. Two years ago, Steve Ballmer, our favorite rhetorician, scoffed that the MacBook is an Intel laptop with an Apple logo slapped on the lid. He might as well have noted that all cars have wheels — round and black, mostly — and then gone on to sneer at brands commanding higher prices than your basic Chevrolet. (I’ve owned half a dozen of the latter.) In the world of cars, the value of the How is well understood: All cubic inches aren’t born equal.

For computers, we’re getting there. The PC market is in the doldrums: Shipments are stagnant, Apple claims a 1% drop in Q2 2011 vs Q2 2010 while, during the same time period, Mac shipments grew 28%. It can’t be the Intel processors, it is How they are driven.

Unsurprisingly, Apple’s iCloud announcement has been met with the same type of misunderstanding: ‘OK, after all these years, Apple finally makes the plunge into the Cloud. The Cloud is the Cloud. Or, rather, Google is the Cloud. What’s the BFD?’

A strong dose of skepticism is warranted. Even Steve calls MobileMe, his company’s previous effort, ‘Not our finest hour’. Both What and How fell frustratingly short of the standards of polish, simplicity and agility Apple is known and financially rewarded for. MobileMe’s 2008 vintage was plonk. This led to apologies, subscription extensions, and management changes. Improvements followed, including the well-regarded Find My iPhone service.

But both What and How remained deficient.

The feature list barely differentiated MobileMe from other services. Mail, Calendar, Address Book, Photo Galleries, Web Hosting, File Storage are offered elsewhere on the Web by a long list of companies: Google, Yahoo!, Microsoft, DropBox, Flickr… Google, followed by Microsoft and others, also offer Web Apps, Google Docs being the best known example, an “Office Suite” in the Cloud, accessible anywhere, from any computer with a Net connection and a decent browser. This led many, yours truly included, to wonder: Does Dear Leader “grok the Cloud”? Does Apple have it in its DNA to do be a serious participant in the Cloud Computing revolution.

MobileMe’s reliability remained subpar, often showing evidence of “silos”, of poorly interconnected modules, a Cloud Computing cardinal sin, as recounted in the What I Want for my Mac Monday Note.

Against this tattered backdrop, iCloud walks on stage. The most striking difference with MobileMe and other Web-based offerings already mentioned, is the shift away from the browser. I’ll use a word-processor document to illustrate. In both cases we’ll assume you’ve already stated your credentials, login and password for Google, Apple ID, and password for iCloud. With Google Docs, you fire up your browser, enter the URL for your service, compose or edit a document, file it in a folder in Google’s Cloud, and it’s ready for you from any computer anywhere.

With iCloud, you fire up your word processor, Pages for the time being, and compose. No saving, no URL for a Web service. You get up and leave. In the queue at the airport you remember something, you fire up Pages on your iPhone and add the brilliant idea that just came to you. But how do you access the Pages document from your Mac at the office? You don’t have to “access” it, it’s already there on your iPhone, your iPad or, sitting at the gate after security, on your MacBook. Your document was automagically saved and pushed to your device. No hands, the system does it for you — and propagates the edits you just made.

(This is why, the week before the WWDC, Apple published “universal” — meaning iPhone + iPad + iPod Touch — versions of Pages, Numbers, and Keynote. I’m not sure I would want to write this Monday Note on an iPhone but, in a pinch, I can fix a mistake using the small device.)

This is the BFD, this is the How. Such behavior is available or will be extended to all applications and content.

The Google model sees everything through a browser. Apple’s iCloud model uses local apps transparently interconnected through the Cloud. Browsers Everywhere vs. Apps Everywhere.

Another important feature is the demotion of the PC as the media hub or, if you prefer, the untethering of our iDevices from the personal computer. From now on, content and apps are purchased, downloaded, updated wirelessly, PC-Free. And seamlessly propagated to all devices with the same Apple ID.

The demos look good, the iCloud technical sessions at the WWDC went well. But the full-scale implementation remains to be field-tested. For the document editing example, Apple used an iPad to iPhone and back example, and merely mentioned the Mac as a participant later in the presentation. Annoying details such as iWork file format incompatibilities between Macs and iDevices need closer inspection as they might make reality a little less pristine than the theory.

For developers, the new APIs just released will enable more applications to offer the seamless multi-device updates just demonstrated.

If iCloud works as represented, it will be very competitive — and the price is right: free for the first 5Gb of documents. (Content such as music or video and apps don’t count in those 5Gb.)

The “free” iCloud reminds us of Apple’s real business model. They want to sell lots of devices, everything else supports this goal. It seems iCloud’s easy, executive-proof How will sell a lot nicely interconnected Apple hardware. For competitors, weaving together a Brand X laptop, a Brand Y smartphone and a Brand Z tablet won’t be as easy or inexpensive.

To be continued as competitors takes Apple’s theory apart and as both developers and the company move the iCloud story into reality.

JLG@mondaynote.com

For further perspective, a few links:
- A prescient (April 15th, 2011) “Cutting That Cord” piece by John Gruber.
- A 10,000 feet overview by Philip Ellmer-Dewitt, in Fortune’s Apple 2.0.
Pascal-Emmanuel Gobry thinks iCloud annoys Google and humiliates Microsoft.
- John Paczkowski’s take in All Things D: iCloud: The Mother of All Halos.
- Business Insider thinks Microsoft had a service “just like iCloud” for Windows Mobile.
Walt Mossberg’s iCloud take, interviewed by Charlie Rose.
- Steve Jobs’ “It Just Works”, as seen by MG Siegler on TechCrunch.

AT&T Buys T-Mobile: Farce or Retro-Metamorphosis?

Four weeks ago, we got the bad news: AT&T will acquire T-Mobile USA for $39B. An already bad carrier will get worse by gobbling a competitor, thus gaining more pricing power and reducing competitive pressure. Higher prices, lower service levels. The transaction leads us into a de facto oligopoly: AT&T and Verizon. (From the Wikipedia article just linked to: “Oligopolies are price setters rather than price takers.”)

Am I forgetting Sprint and other carriers such as Metro PCS and Leap?

Not at all. They’re merely too small to matter. They don’t have enough money for spectrum purchases and infrastructure build-up. Today, they don’t prosper, they merely survive. Tomorrow, with higher prices dictated by the two Big Guys, they’ll be thrilled to get a little bit of breathing room in exchange for their presence as token competitors on PowerPoint presentations to the Justice Department’s Antitrust Division.

Speaking of slides, feast your eyes on AT&T’s merger pitch at a special site, MobilizeEverything. You’ll see the “fiercely competitive landscape” and the gigantic increase in data volume: 8,000% since 2007.

No mention of the iPhone. Surely an innocent omission.

Coincidentally, “Mobilize Everything” is the title of an interview with AT&T CEO Randall Stephenson in the Brunswick Review, a PR mouthpiece. The interview, focused on “Strategy, Technology And Trust”, treats us to a collection of corpospeak platitudes such as:

“Leaders are people who get things done, and that takes courage…And above all, leaders never miss in terms of integrity.”

Very reassuring for this AT&T customer whose calls in the middle of the Palo Alto desert get disconnected several times a day.

Unsurprisingly, reactions to the projected acquisition have been negative. The overall sentiment is “everybody loses”. Well, not everybody: Wall Street sees the opportunity for more pricing power and cheerfully granted “T” (a single-letter stock symbol signals that you’re genuine Blue Blood) a 10% bump since the announcement.

Politicians, various government agencies, and the competition are jumping on the posturing opportunity. Sprint, with their expression of concern, is probably angling for concessions that will facilitate “regulatory approval.”

This is a farce. Compared to developed–and not-so-developed–nations, we have a terrible wireless infrastructure. Go to Europe, Japan, Korea, parts of China, and weep. With less competition, what incentive will AT&T have to improve coverage and service? Instead, AT&T will continue to milk its customers, parade its record $100 monthly ARPU for the iPhone…and continue to be the butt of jokes for its legendary bad service.

The regulatory review will unfold as an elaborate Kabuki script that will culminate in a pre-ordained approval. There will be congressional hearings, protests, and much handwringing but, in the end, we’ll hear sonorous but toothless concessions. AT&T is a company with deep knowledge of legislative and regulatory processes. In plain English: They know how to buy votes. Surely, they didn’t propose the acquisition without assurances it would go through, albeit at a (small) price, such as shedding assets or assuming new compliance obligations.

End of story? Not quite. More

What I want for my Mac

by Jean-Louis Gassée

I was a happy man. After twelve years of Windows use at work — the usual Outlook excuse — I was about to be saved by Vista.

On January 30th 2007, 8:00 am, the doors opened at Fry’s in Palo Alto. I showed up early to claim my prize, a 17” HP laptop with Vista factory-installed. I walked in and found that I was more than first in line — I was alone. Unfortunately, I didn’t take this as a warning. I bought the macho machine and completed the expedition with a $400 Office 2007 DVD.

That same morning, I flew to an industry conference, sat in the last row (as usual) so I could play with my new machine — and began to realize my mistake. I had become comfortable with Windows XP, deriving geek pride from my ability to juggle firewall settings, virus and malware countermeasures, I answered the Genuine Windows Advantage challenges and made coffee while the system checked for updates.

But Vista defeated me. I cracked. I walked down University Avenue to the Palo Alto Apple Store and bought a black MacBook (and Parallels software so I could still run Windows XP during the detox period).

The following Monday, my VC partners did a double take when they walked into the conference room: They saw the big Apple logo on the laptop and Microsoft Outlook projected on the big screen. Four years later, one by one, my partners are moving to the Light Side. (I also have a Dell netbook running Windows 7 — but it’s for “research.”)

During those four years, (some of) my Apple prayers have been answered: I have a new 11” MacBook Air, a neatbook I can really use on an airplane — even when the large gentleman sitting one row ahead suddenly reclines the back of his seat. Some days I wish I had a Mac as small and pocketable as my 2001 Toshiba Libretto but, all in all, my 11” Air is the most pleasant laptop I’ve ever owned, even more so than my dearly departed (stolen in Paris) 1991 PowerBook Duo.

Enough nostalgia, I also have unanswered prayers. We’ll start with two easy ones.

My iPad, which I use less often now that I have the MacBook Air, has 3G connectivity. On my laptop I have to use a modem, the Verizon MiFi 3G. It converts the cellular data connection into a WiFi hotspot in my pocket and can support up to five ‘clients’. I use a similar but even smaller device from Orange when I’m in France. I could, of course, use my Android phone as a hotspot (again, for ‘‘research’’), and there are recurrent rumors that someday AT&T will let my iPhone play the same role, but I’d like to cut out the middle man. Now that we know the Verizon iPhone 4 uses the bi-sexual ecumenical CDMA/GSM radio chip, there is hope that all future mobile devices from Apple, MacBook Air included, will have worldwide cellular connectivity.

Less important, but still helpful for this klutz who breaks toes in the dark against furniture, I’d like Jon Ive, Apple’s design guru, to take a weekend afternoon and whip up a black envelope for my laptop. The one he designed for the iPad spares me embarrassment and money every time I drop my tablet.

More difficult: I’d like a MobileMe that works.

MobileMe is erratic, the Back to My Mac feature works, then stops working, and then works again for no apparent reason. Synchronization between machines is so haphazard I finally switched to DropBox — it’s free for up to 2GB of impeccably Cloud-synced files, and a mere $10/month for 50Gb. DropBox hasn’t always worked well on OS X, but the latest version seems to be stable and manages to sync data for a large number of platforms and applications. As an example, it syncs my 1Password passwords across all my desktop and mobile devices, including Android and Windows.

As described in a previous Note, I bought the family pack for OS X and iLife updates even though the ‘’single” version can be installed on any number of machines. That alone probably gets me into the lower tier of the Friendly Idiot database somewhere in Apple’s Cloud, but the fact that I also pay $100/yr for MobileMe upgrades me to Platinum status.

Two days ago, I left a Word file open on my office iMac. At home, when I realized my mistake, I thought I could reach into the office using Back to My Mac, close the file and then open the copy that had been stored/synced through DropBox. Back to My Mac refused to work that night, but I could still open the file from DropBox and continue writing.

At the office the next day, the “old” document was tagged for deletion when I opened the newer version from DropBox. It sounds complicated and it is: Subtle conflicts of timing and location can make syncing difficult for normal humans.

I thought that’s why we have Apple, the non-IT company that caters to The Rest of Us, but, unfortunately, its Cloud services are messy, unpredictable, and filled with rigid silos. The Apple Cloud is supposed to smooth the seams of synchronization but fails to do so because information isn’t properly shared between its various functions.

I experienced another example of Cloud rigidity when I bought a new $99 Developer subscription. I used the Apple ID and the credit card I use all the time for MobileMe and iTunes purchases. The sale went through, Apple took my money…

…but right after the successful cashectomy a cranky algorithm complained about inconsistencies and refused to activate my subscription. Instead, I got an email message asking me to send a notarized copy of my ID by fax:

I’m sure the robot meant well; perhaps its poorly-fed algorithm causes it to bark at shadows. I emailed twice, requesting help and conceding that I may have contributed to the problem. But, ahem, why did you take my money? And why resort to such antiquated means to resolve the situation? Can’t a human use judgment and an email or phone call to correct the misunderstanding?

24 hours later, no one had gotten back to me.

So, why am I enrolling in the Apple Developer Program? I want to test an early version of the next OS X release, Lion, which is rumored to borrow some of the look and spirit of the iPad. In last November’s Monday Note, I criticized the Finder for being too complicated. I’m curious to see if Lion will simplify the UI, fulfill its promise of moving to a more intuitive way of organizing and navigating the content of our machines.

[Apple Insider just published a neat series of posts covering many of Lion’s new features.]

(Interestingly, the new developer release is distributed through one of Apple’s Cloud services, the Mac App Store, the one that continues to enthusiastically embrace my Apple ID — and credit card.)

Still, if I could have only one wish, what would it be?

Without a doubt, it’d be a working MobileMe. Free? Nice, but I’ll take working over free.

[This isn’t my lucky week. After I wrote the above, I bought the $0.99 FaceTime app for Brigitte’s Mac and for mine. This turned into another obstacle course of inconsistencies in Apple’s Cloud, to say nothing of UI trouble. Who tests these things? Engineers or mere mortals?]

JLG@mondaynote.com