mobile internet

The 2010 Media Watch List

No predictions, just a few of many hot topics for the newborn year.

Paywalls. 2010 could see a significant number of newspapers jumping into the paid-for option. Among the conditions to be met:

- Grouping around a toll collector. It could be Journalism Online in the US, a big media group in Europe, or even Google — should a truce occur between the search giant and publishers. From the user’s standpoint, the payment intermediary must be friction free, able to operate on any platform (web, mobile) and across brands.
Publishers will have to devise a clever price structure. If a knee-jerk move takes them back to the tired basic-content vs. premium-content duality, they are doomed.
- State-of-the-art web analytics affords much more refined tactics around users, platforms segmentation, etc. In addition, a paid-for system must be able to deal with many sources of income, such as monthly subscriptions, pay by-the-click, metering system based on downloads, time spent, etc.
- Publishers must act in concert. In every market, the biggest players will have to carefully coordinate their move to paid-models: everybody must jump at the same time. This is easier said than done: there is always the risk a rogue player will “cheat”, that is break the pact in order to secure a better market position. Also, too much “coordination” could encourage a disgruntled competitor to sue on anti-trust grounds.Daily newspapers shifting to periodicals. How many dailies in the world will shift from seven or five issues a week to three or two? Undoubtedly, many. This is a better trend than it sounds. For breaking news, print is no longer relevant, but it will remain the medium of choice for long-form pieces. Newspapers publishing a few times a week will gain by becoming more magazine-like in their news coverage; they’ll save their story-breaking capabilities for web versions. In this regard, the mobile web will soon become bigger than the original, PC-based variant.
The “instant web” such as Twitter and its offspring will thrive in 2010. The likeliest offshoot is video-twittering as pocket size camcorders continue to spread (see Gizmodo comparison here). These will be supplemented by an upcoming generation of high-definition devices with Net connectivity through wifi or 3G networks.

Advertising Disintermediation. The media buying side is definitely not the sector to be in for the next decade. First of all, ad spending will continue its adjustment to the actual time spent on various medias. In 2008, print captured 20% of advertising dollars for only 8% of the time spent; in comparison, digital got 29% or our time but 8% of ad spending. Those numbers, those discrepancies tell us the correction is far from over.
Unless they devise smarter ways to analyze web audiences (see below, the audience measurement issue) and, as a result, clearly define the true value of each group of users, there is no longer a need for the media buyers’ costly intermediation. The trend is there: the most agile web sites will go directly to brands and advertisers, they will propose sophisticated integration mechanisms for their sites and mobile platforms. So do social networks such as the 25m users French Skyrock (see our case study).
Anyway, Google will settle the intermediation issue as its boss candidly puts it in Ken Auletta’s books (1): “Google wants to be the agent that sells the ads on all distribution platforms, whether it is print, television, radio or the internet. (…) As our technology gets better, we will be able to replace some of their [large companies] internal captive sales forces”. Media buyers, consider yourself notified: you’re toast.
As for the creative side, we hope advertising agencies will, at last, wake up and think of new ways to integrate their messages in digital media layouts (as in print), rather than trying to divert users away from media sites (see previous Monday Note on the inherent design flaws of the internet). More

The 2010 Tech Watch List

Looking back at last year’s “Things to watch in 2009”, I’ll narrow the field a little bit: no more discussion of the auto industry, electric car markitecture notwithstanding, nor disquisitions of congress shenanigans, too much raw sewage material. Let’s stay with safer and generally cleaner/happier computer industry topics.

Microsoft 2.0 a.k.a. Google.

What is known: In its heyday, Microsoft strived to be all things to all people, from Office applications to Consumer Electronics (Windows CE), to Enterprise Computing (Exchange, Windows Server, SQL and Jet Servers and more), to mobile phones (WIndows Mobile just re-christened Windows Phone), to games (MSX and now the Xbox), to the Internet Explorer, .Net and now various Windows Live offerings and the Bing search product. And even more, such as various attempts at image processing for pros and consumers.
Now, we have Google with a similarly all-embracing land grab on the Web, from books to smartphones, from CAD software (yes, Sketchup) to music, video, “office” applications, collaboration, digital photography, application hosting, a payment system and more.

What is worth watching: When will Google’s “organic” growth start showing its limits? No tree ever reaches the sky. Google’s current strategy is eerily similar to Microsoft’s old “jump on anything that moves”. And, yes, it is smart to make Google a universal destination by using advertising revenue to finance free offerings that, in turn, channel more viewers to Google advertising.
But, eventually, the organism starts drowning in its toxic waste, meaning Google will face management tasks beyond its reach, or advertising revenue wont be able to subsidize everything else for ever, or it will slip and miss an important emerging trend such as social networks, see Facebook below.

Or, Google will become too powerful for the public good, destroying competition only too well and politicians will have their way with the Mountain View company. Unless Google learns, gets the better lobbyists and has its way with us like Wall Street, Big Pharma and Telecom companies, to name the best, do. More

Droid and Android

Last Friday November 6th, the much-awaited Motorola Droid came out. Powered by the latest version of Google’s smartphone OS, Android 2.0, the new handset is exclusively distributed by Verizon. The carrier backs Motorola’s handset with an aggressive marketing campaign on its website and on TV ads.

For such a “gifted” (Motorola + Verizon + Google) product, the reviews came fast and… furious, that is very opinionated.
One gent rejoiced: Droid, was going to free him from the iPhone – at last! Small detail: as you’ll see by clicking on the link, writing on October 19th, a couple of weeks before the Droid came out, the “reviewer” helpfully admits he hadn’t used the product: “I haven’t seen the phone, but I’ve talked with someone who has worked directly with it”.
That’s why I prefer playing customer, buying the product, getting the everyday usage experience.
More “facts-based” reviews are available from MacWorld, quite positive, Endgadget, very detailed, Business Insider, with a crisp conclusion: If you don’t buy an iPhone, buy a Droid. The very geeky, well connected Gizmodo, comes to the same “if not iPhone then Droid” result. I’d be remiss if I didn’t link a summary of Walt Mossberg’s review, that’s how you know you’re an über-geek, when your reviews are reviewed. See also the Wall Street Journal’s gadgetmeister’s original oracular blessing.
A deeper discussion of OS platforms and voice applications is available here at TechCrunch. [Disclosure: one of the protagonists, British Telecom’s JP Rangaswami, bought Ribbit, an Internet phone company, imagine Skype with an API (Application Programming Interface). The venture firm where I currently work, Allegis Capital, was an investor in Ribbit.] I’ll end the procession with a vigorous critique of Verizon’s punchy ad campaign by Andy Ihnatko, another respected, witty industry columnist.

With this in mind, unlike most opining individuals above, I went to a Verizon store and paid my own money to get a Droid. I did this on the very Droid-day, Friday November 6th, at the University Avenue Verizon store in Palo Alto, around 11:30 am. No line, I waited two minutes for a salesperson, a simple transaction as I already have a Verizon account. The activation turned out to be just a bit more problematic: ‘Too much traffic’ said the sales gent. I left the phone with him, went back to my office one block away. When I returned by lunchtime, everything was in order. Easy enough. More

Microsoft ambivalence

Lots of earnings reports this week, mostly good ones. Apple did better than expected, even by the most enthusiastic earnings seers, so did Amazon whose shares went up 26.8% today, adding more than $10B to its market cap in one day. I’m happy to see a quality company, one that treats its customer better than the vast majority of short-term oriented businesses, reap rewards for a combination of long-term vision and everyday attention to detail. We’ll get back to Amazon in a future Monday Note, when we discuss the flurry of e-book readers.

You might have heard Microsoft just launched Windows 7 this past Thursday, to good reviews and newish Apple ads, more installments of the ‘I’m a PC, I’m a Mac’ age-old campaign. The gent who plays the PC, John Hodgman, is much more than the character he’s become known for. See the speech he wrote and delivered at the June 2009 White House Correspondents dinner: he roasts the newly elected Barack Obama, calling him the first nerd president. This YouTube video won’t bore you, I’m not sure I can say the same for the latest, somewhat repetitious Apple ads.

As for Windows 7 itself, I haven’t updated any of the four candidate computers I mentioned last week. In part because I want to hear from early upgraders before I take the plunge, I still have the expensive and painful memories of being a Vista early adopter in 2007. I was the first one in line at Fry’s, in Palo Alto, at 8:00 am on January 30th — and proud of it. When the door opened, I turned around and saw I was also the only one in line. Instead of taking the hint, I forged ahead, bought a big HP laptop and the full Office 2007 Professional DVD. I had grown reasonably adept at running Windows Xp machines and couldn’t imagine how painful the Vista experience would turn out to be. I’m more careful, this time.
There is also the money. Upgrading the four machines, including a first install on a Linux netbook will cost me about $800, plus some application software, plus my time. Upgrading five Macs in my family cost me $49 and not too much time as the process was, for me at least, uneventful.
(This said, I plan to write a few short subjects on strange bugs, UI caprice or ergonomics non-sense in Apple’s products. Being a polite optimist, I’ll marvel: if the products sell so well in spite of these kinks, imagine what would happen if these problems disappeared!) More

The “Love Triangle”: Apple, Google and Verizon

At the end of my August 9th Monday Note, “War in the Valley, Apple vs. Google”, I committed to get into Google’s potential weaknesses in this conflict. Since then, things have gotten a tad more complicated.

The enemy of my enemy is my friend.

As discussed last August, Eric Schmidt, Google’s CEO, had to leave Apple’s Board of Directors because, even for a Valley used to “coopetition”, the conflict of interest became really blatant.

Both companies make operating systems for smartphones, the new wave of personal computing. There, we have Android vs. iPhone OS. For the desktop, it’s Chrome OS vs. OS X. Yes, for the desktop: Chrome OS purports to be a Cloud-oriented netbook OS but, as explained in the same August 9th MN, Chrome smuggles very substantial desktop code under the cover of “mere” browser plug-ins, this to let Chrome OS stay useful in the absence of a Net connection. Picasa competes with iPhoto, Chrome, the browser, not the OS, competes with Safari. In July, Apple bought PlaceBase, a mapping company, whose Web site is now reduced to a set of API (Applications Programming Interface) documents, very likely to gain independence from Google Maps.
The more we dig, the more we find places where both companies want to pick the same pockets. If you think about it some more, both companies behave as if they’d want all your attention and all your money. Still ruminating, could it be both companies no longer take Microsoft seriously and, having lost a common enemy must now be at each other’s throat?

Then, we have Verizon and Apple. The “love” between these two has been hot since or, actually, before the very beginning of the iPhone. A few weeks before the inaugural June 30th, 2007 shipment of the JesusPhone, Verizon incautiously circulated the now semi-famous “iWhatever” memo to its troops, dissing the iPhone and its maker. 50 million (we’ll see the latest numbers in about 10 days) iPhones and iPod Touch(es) later, Verizon is more than ever dead set against letting Dear Leader have its way with its business model. To Verizon, AT&T’s fate is anathema: AT&T let Apple “run the table” for digital media sales over its wireless network. Put more crudely, AT&T bent over and became a “dumb pipe”, a wireless ISP in the service of the iTunes content distribution and revenue engine. For this unnatural act, AT&T got a $100 ARPU (Average Revenue Per User, the industry-wide average is about $50) and the use of the iPhone as a lure to steal Verizon subscribers. Verizon can’t stand that thought, they want to keep their birthright, that is a piece of every bit of digital content revenue moving through its network. More

A Blinding Flash of The Obvious

In the US, if Apple gave up on the AT&T exclusivity, the iPhone’s market share would double. So says Morgan Stanley’s anal-yst Kathryn Huberty. See this PC World piece here. And a CNN/Fortune Magazine piece here.

Let’s not throw stones at Ms. Huberty but, instead, question her bosses’ wisdom, work ethics or wakefulness. Is anyone editing the firm’s publications? Isn’t Morgan Stanley missing the real fight, the big struggle between Apple and carriers for mobile Internet content billions?’

First, Huberty’s thesis: If AT&T no longer had an exclusive distribution agreement for the iPhone, if, for example, Verizon also “offered” Apple’s smartphone, the device’s market share would more than double from about 4.9% to 12.2%. (In passing: what’s the last digit’s significance? Those are estimates, not measurements, good within a ± 10% margin of error, at the very best. Spreadsheet follies…)
Morgan Stanley’s seer bases her prophecy on French market share numbers after Orange lost its exclusivity and the other two carriers, SFR and Bouygues, gained access to the iPhone. The legend is the iPhone’s market share shot up by 136% as a result.

I’m sorry but that’s a lot of BS; there are no facts to substantiate such a claim.Readers probably know I’m a French-born Silicon Valley-based venture investor; I travel to the old country four or five times a year and keep reasonably close tabs on industry and political goings-on there.
Clouding the discussion with facts: The iPhone has been available from Orange since October 25th, 2007. The other carriers sued and local regulatory authorities subsequently nixed the Orange exclusivity. As a result, SFR started shipping iPhones in April of 2009, about six months ago. And Bouygues did the same about five months ago. Since 2007, Orange alone sold about 1.5 million iPhones. If Bouygues and SFR sold a generous 500,000 units since April 2009, how does this constitute a 136% market share increase?

More

War in the Valley: Apple vs. Google

It was long overdue: Eric Schmidt (Google’s CEO) finally resigned from Apple’s Board of Directors. Usually, these resignations are handled in the smoothest of ways: Thanks for the distinguished service and the like. This time, Steve Jobs issued a pointed statement: “Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest.” Full officialese here.

This is the Valley and its cozy relationships. By which I mean executives and directors sitting on one another’s board, competitors enjoying the same directors, venture firms “sharing” their partners around portfolio companies. For example, besides Eric Schmidt sitting on both Apple’s and Google’s boards, we have Arthur Levinson, head of Genentech, a director of both companies. Or partners at Sequoia (a very successful venture capital firm)
 sitting on boards at YouTube and Google, which might have help a successful “exit”, that is the sale of YouTube to Google.
Back to Apple, there are also lingering allegations of a no-poach agreement, one by which the companies agreed no to hire each other’s workers.
Closer to home: Be, Inc., the operating system company I founded with a few friends from Apple and elsewhere. For a while, one of our investors (and director) also sat on Microsoft’s board. Microsoft executives were investors in his firm and we ended up with Bill Gates (indirectly) owning a piece of Be. Ah well… That was a decade ago, the statute of limitations ran out.
The SEC (Securities and Exchange Commission), the stock market regulator, has become more aggressive in watching out for companies engaging in collusive behavior through cross-directorships. See here .

Back to Dear Leader’s words: Google enters more of Apple’s core business. More

Apple’s Jesus Tablet: What For?

If you went on vacation and renounced Internet access for the duration, you might not have heard the latest rumors concerning the iTablet a.k.a. the Jesus Tablet, Apple’s eagerly awaited entry into the putative bigger than an iPhone but smaller than a MacBook segment. I’m avoiding the n-word: for Apple, this is the no-book category…
As for the religious nickname, let’s go back to MacWorld, in January 2007. Steve Jobs walks on stage and demonstrates the “iPod of phones”. The audience reacts with such religious fervor that, for a while, wags call Steve’s latest miracle the Jesus phone. (I could go on and call AT&T’s network the iPhone’s cross, but I won’t.)

Back to 2009, for the past week, we’ve had the strongest wave to date of rumors and speculation regarding Apple’s second coming (after the Newton, see below) into the tablet space. Putting such froth down would be ignoring the desire, the hope behind the agitation. The Greater We seems to want something bigger than and iPhone and smaller than a 13” MacBook, currently Apple’s smaller laptop.

Great, but what for? More

The Real iPhone 1.0

Saint Peter offers a choice of hells to a recently dematerialized high-tech tycoon (pick your favorite sinner) with a long list of transgressions. The basic one, fire, floggings, and the premium one, plenty of music, drink, food and other pleasures of the flesh. Said tycoon picks the fun venue, Saint Peter pulls a lever, the industrialist falls to the one and only fiery hell. Agitated, feeling cheated, the sinner demands to know about the other hell, the eternal party.
Saint Peter: It’s a demo!

The joke comes to mind as I watch Steve Jobs introduce the iPhone on stage at San Francisco’s MacWorld Expo, on January 9th, 2007.
It is too good to be true, especially the part about running OS X. The demo looks magical, as with most of Steve’s acts. The iPhone looks like one shocking product. But is it real? Nothing specifically aimed at the demonstrator, I’ve seen – and given – too many demos, it’s a sinner speaking.

Six months later, I’m relieved. The first iPhones ship, enterprising programmers manage to inspect the firmware’s insides and, yes, it is OS X. A trimmed-down version, of course, but the core of the iPhone’s software engine is the genuine article. More

Fun AT&T numbers

by Jean-Louis Gassée

AT&T can’t seem to catch a break. A couple of weeks ago, at All Things Digital, an industry conference, Randall Stephenson, AT&T’s Chairman, got the audience to snicker and roll eyes. The conference is held by the Wall Street Journal, led by its digital guru, Walt Mossberg and, “by invitation only”, $5K a pop, gathers movers, shakers and wannabes of what is now broadly called the digital media industry.
Mr. Stephenson was on stage, answering Walt Mossberg apparently softball questions. But, when you look more closely, Walt applies a trial attorney’s precept: Only ask questions for which you already know the answers, let the jury see how the witness responds. We were the jury as Walt asked the AT&T top dog about its wireless network performance problems. The witness got off to a decent start: “Yes, when the iPhone 3G came out we weren’t ready.” Then, he proceeded to claim things had significantly improved. That’s when the snickering started. In Silicon Valley, we all know the blank spots, the bad 3G coverage, right in the heart of high-tech’s garment district. See the full interview here.

Later, Stephenson committed a faux pas of Detroit proportions: he claimed everything (phone, Internet connection, TV) worked well when he moved to his new home in Texas. Really? AT&T’s Chairman, CEO and President gets a good connection? In a further misguided attempt to connect with his audience, he even mentioned his Apple TV. Clearly, he’s one of us, a discerning Apple customer… More