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Drop that -phone!

I’ll explain the ‘’-’’ in a moment. Today’s piece is about the power of words to shape thought, to distort, to mislead. More specifically, I contend “smartphone” is the wrong word for the new genre of mobile devices.

I’m not completely naïve, however. In the end, I’ll agree there is little chance we’ll settle on another word.

Once upon a time, philosophers held thought preceded words: you thought of something and then struggled to find the right words for that gem. Later, psychologists of the twentieth century persuasion, came to think, no, to say words preceded thought: one could only think of thoughts for which they already possessed words for. As much as I like our dear Lacanians, some of whom hover around the Valley, the word ineffable leaves them… speechless.

Devoid of a clean theory, we can wallow in examples.

The most visible one is the PC, the personal computer. Derivative thought first gave us “microcomputers”, because they were “like” minicomputers, themselves “like” the only serious computers, mainframes — only smaller. Next, because size matters, we’d get nano computers, pico computers, femto computers…

Fortunately, the gestalt, the user experience won: This is my computer, as opposed to the institution’s. The beginnings weren’t always easy: I recall a book called “You bought a personal what?”, published in the late seventies. I also remember our collective indignation at Apple when, in 1981, IBM boldly misappropriated the concept and introduced The Personal Computer and proceeded to win the market, that is until Microsoft gave it to the clones. The P word worked and won.

Decades ago, Motorola was the king of cell phones. Cell was a good word because it pointed to the amazingly powerful innovation of cellular telephony. Previously, mobile phones called a radio station and kept using the same frequency as the user moved around. This severely limited the number of users and forced mobile phones to have powerful radios to stay connected over long distances. With cellular telephony, frequencies  were reusable as users were magically handed over from one lower-powered radio station to another as they drove around, leaving the frequency behind, ready for another user.

The Motorola name came to be associated with radios of all kinds, from cars to the Moon. I recall Motorola execs calling their successfully miniaturized cell phones of the late eighties “little radios”. They were rightly proud of their technical prowess, I owned several StarTacs and MicroTacs. But when cell phones gained PDA features, Motorola’s clock got cleaned by the likes of RIM (Blackberry) and Palm (Treo). For a long while, Motorola’s culture remained backward-focused on the phone part of the customer experience. The new phone boss, Sanjay Jha, is now an Android convert: a couple of impressive Droid devices have put Motorola back in the race. More

Intel’s bold bet against ARM: visionary or myopic?

Today, Intel’s x86 architecture reigns supreme on PCs (and millions of servers, such as Google’s, that use the PC organ bank). Anywhere else, the ARM processors have won; they’re in billions of devices, regular cell phones, smartphones, entertainment devices, navigation systems and legions of other embedded applications.

Understandably, perhaps, Intel didn’t want to play in the low end of the processor market. But we now see the emergence of RPCs, Really Personal Computers, more commonly called smartphones. Nokia, RIM, Apple and the fast-rising army of Android licensees all use high-end ARM derivatives.

Intel’s answer is a family of low-end x86 devices, Atom processors. So far, Atom processors haven’t been used in smartphones, only in netbooks.

‘Wait’, says Intel, ‘over time, our proven semiconductor design and manufacturing capabilities will allow us to reduce the power consumption and cost of x86 processors. That’s how we’ll win this emerging market, just as we won the PC.’

Easier said than done. The older and more complicated x86 architecture is inherently disadvantaged against the more modern ARM architecture. And, as we’ll see, there is more to this fight than semiconductor design and manufacturing prowess.

For context, let’s go to Mary Meeker’s latest (June 7th, 2010) Internet Trends presentation.

By 2012, she predicts, smartphones shipments will exceed PC unit volumes. Approximately 480 million smartphones versus 430 million PCs, going to 650 million next generation devices by 2013:

Just as important, by next year, smartphones unit volumes will overtake “feature phones”:

Smartphones, feature phones? Without losing ourselves in taxonomy games, let’s turn to the popular Blackberry devices: they are good examples of the smartphone category. Anything less is a feature phone, sometimes called a regular phone, or a “dumb phone”. More

Mediocrity is king

Last week, the Huffington Post reached a new apex. Viewed from France, where ads are localized, its home page carried a remarkably tasteful ad: a farting application for the iPhone (see below). As prudery still rules in American media, you’ll notice that the farter’s exhaust aperture has been blurred. Fine.

A quick précis: France is a country of 65m people, with a modern tech infrastructure. Internet to the home is faster than in the United States and way cheaper than in Australia. The cellular networks work even better than the AT&T’s, and the three carriers use a single worldwide standard, GSM. Its internet population numbers 45m, a fast growing proportion of which speaks serviceable English, good enough to read the parts of the Huffington Post that are not written in Shakespearian English.

With this in mind, let’s focus on two interesting aspects of the HuffPo advertising mishap.

First, it shows how advertising is sold: by the bulk. The HuffPo sales people’s intellectual horizon doesn’t extend very far. This is what I call the Burundi Syndrome, one where American companies see the ROW (Rest of the World) as an aggregation of second class people. Consider Apple’s geographical definition for instance: its London-based EMEA division encompasses Europe, Middle-East, Africa. A vast zone ranging from Burkina-Faso to Sweden — where the average student is way more educated than its American counterpart and where the per capita GDP is just 20% lower than in the US (OK, Burkina Faso — I’ve been there too — has a long way to go).
Coming back to the Huffington Post, the choice of a below grade ad served on a ROW market demonstrates a tragic inability to understand the true power of the internet, i.e, making contents globally accessible to a solvent population.
That’s the first distinction between great media brands and cheap ones. Neither the New York Times, nor The Sydney Morning Herald nor the Guardian would delegate the sale of their non-domestic ads without some sort of guarantee covering the advertisers’ relevance.

Second, and more importantly. By allowing such a degradation in its premium advertising space (a home page is supposed to be just that), the HuffPo acknowledges that its content is, in fact, cheap. It therefore admits that volume, rather than targeting or relevance, drives the value of its content.

And volumes the Huffington Post delivers. A lot. According to ComScore (which is blessed with the rigor of a Greek public accountant), the Huff Post cruises at 26m unique visitors per month. Other sources agree on more than 20m UV, which is above the New York Times (19m UV/ Nielsen), and twice as much as the Washington Post.

How do I dare question such an audience success? Simply because, in my not-so-humble-opinion, The Huffington Post is not, per se, a news organization. Its content relies upon on a mixed bag of high profile bloggers, drawn from Arianna Huffington’s vast personal network; these individuals deliver thoughts of varying depth, ranging from fun stuff to leftovers quickly produced by an obscure assistant. More

Jobs, Ballmer, and Zuckerberg: Three Fixated Leaders at D8

by Jean-Louis Gassée

The eighth installment of the Wall Street Journal’s annual D: All Things Digital conference was held last week outside Los Angeles, your author in attendance. You’ll find full coverage of the proceedings here, and the speakers list here; it was an impressive roster, du beau linge, as we say in France.
Staged as a series of interviews conducted by Wall Street Journal high-tech guru Walt Mossberg and conference co-producer Kara Swisher, D8 brings us “straight-up conversations with the most influential figures in media and technology.”
On the D8 site, the one-hour fireside chats are mercifully chopped into digestible ten-minute segments. The D8 audience is limited to 500 people, a cross-section of high-tech execs and entrepreneurs, VCs, media investment bankers and attorneys, a few Hollywood types genuinely involved in bleeding-edge tech, some pained-but-valiant old-media reporters, and a handful of bloggers who are able to pay the stiff conference fee ($5K). Discouragingly, there were very few Europeans—discouraging when so much of our future is fought and decided within a five-mile radius that encompasses Palo Alto, Cupertino, and Mountain View, where HP, Apple, Google, and Facebook are. Below are my notes from the show about three fixated leaders: The two Steves (Jobs and Ballmer) and Mark Zuckerberg, CEO of Facebook.

Steve Jobs

Steve Jobs opened the conference with the only interview of the night. True to form, he tells us Apple will continue to design and create devices that provide the best user experience. He doesn’t care what the pundits say, he measures the win/lose proposition one customer at a time. That’s why he’ll spare no effort, avoid no fight in preventing anything—carriers, enterprise sales, Adobe—from adulterating the relationship between Apple and its customers.

The numbers support him—the iPad sold 2 million units in its first 60 days on the market—and the customer satisfaction surveys (JD Powers and Consumer Reports) validate his strategy. With the iPhone and iPad, Jobs has envisioned a new genre of very personal computing (see the March and May 2010 Monday Notes on this topic).

With this coming week’s Apple Worldwide Developer’s Conference, a new iPhone, and more goodies around the corner, Apple’s future looks secure… unless you start worrying about the side-effects of the unrelenting focus on the device and the user experience. More

Ballmer just opened the Second Envelope

You know the business lore joke. The departing CEO meets his successor and hands him three envelopes to be opened in the prescribed order when trouble strikes. First crisis, the message in envelope #1 says: Blame your predecessor. Easy enough. Another storm, the the CEO opens the second envelope: Reorganize. Good idea. And when calamity strikes yet again, he reaches for the third: Get three envelopes…

This past Tuesday, Steve Ballmer reorganized Microsoft’s Entertainment & Devices division, let go of its execs, Robbie Bach and J Allard, and moved a few more pieces around. All wrapped in the most mellifluous, Orwellian language we’ve seen from Microsoft in awhile. The full memo is here. We’re treated to encomiums to great work, friendship, spending more time with one’s family, leaving on a high note…under the guise of decency, this is indecent.
Ballmer’s view of executive leadership doesn’t admit standing up and taking responsibility. He can’t say ‘I screwed up’ and then explain what he’ll do to rectify the situation. No. Instead, two gents are fingered while they pretend they aren’t being blamed. In a surreal, a cappella farewell memo, J Allard writes to his soon former troops:
No one can touch our talent, our impact or our ambition. We’re the only high-tech company with the track record and self-confidence to reinvent ourselves as we have. If you want to change the world with technology, this is still the best tribe out there.

Robbie Bach dutifully plays his part in the down-is-actually-up corporate farce. He gives a long exit interview to the Microsoft-friendly blog TechFlash where he claims the dual departures are coincidental, that everything is fine. What does he have to say about tablets? Nothing much:
Well, tablet is an area that will evolve going forward. Certainly it’s a focus for what we’re doing in the Windows space, and how they’re thinking that space. We’re going to have a bunch of netbooks and tablet stuff that’s in the works there. We’ll just see how that evolves. I don’t think there’s anything earth-shattering about that. It’s just another set of devices, and we’ll figure out how we make sure we bring a good offering to consumers.’
And, regarding the now defunct Courier tablet:
Courier, first of all, wasn’t a device. The project and the incubation and the exploration we did on Courier I view as super important. The “device” people saw in the video isn’t going to ship, but that doesn’t mean we didn’t learn a bunch and innovate a bunch in the process. And I’m sure a bunch of that innovation will show up in Microsoft products, absolutely confident of it.
Serves us right for not reading the small print on the screen during the demo. These guys obviously think we’re idiots. That’s their privilege, but they ought to be a little more discrete about their low regard for us.

Not everyone buys this BS. One blogger, Horace Dediu, offers what many believe is the right explanation: Robbie Bach was fired because he lost the HP account. As the largest PC maker, HP is a hugely important Microsoft customer. A few weeks ago, HP acquired Palm for its WebOS smartphone software platform. The slap in Microsoft’s face still resonates; it’s a verdict on the failed Windows Mobile offering and a negative prognosis on its upcoming Windows Phone 7 Series operating system for smartphones. Days after the acquisition, Mark Hurd, HP’s CEO, let it be known that WebOS will be used in connected printers. As a final blow, HP’s (future) Slate Tablet, once held high as a Windows 7 device, will also use Palm’s WebOS.

Steve Ballmer has always been Microsoft’s most powerful salesman. That he lost the HP mobile devices account—and it was Ballmer who lost it, not Robbie Bach—is yet one more reason why Microsoft shareholders are troubled. Their unhappiness can be charted by comparing two stock price graphs, spanning the January 2000 – May 2010 period. Microsoft’s stock dropped from $56 to $25.80…

…while Apple shares rose from $25 to $256.88:

The morning after Steve Ballmer opened the proverbial Second Envelope, Apple’s market cap, the total value of its shares, surpassed Microsoft’s. In Wall Street terms, Apple is now the largest high-tech company, worth about $230B, a few percentage points ahead of Microsoft. Across all industries, Steve Jobs’ company is now second only to an oil company, Exxon, at $285B. When questioned about Apple overtaking Microsoft, Ballmer had this to say:
It is a long game. We have good competitors but we too are very good competitors,’ he said. ‘I will make more profit and certainly there is no technology company on the planet that is as profitable as we are.More

Cloud 2.0

Last July, I wrote about Google’s goal: Sink Microsoft by deploying Cloud-based Google Apps and, as a result, destroy the Microsoft Office money machine. Today, we’ll take another look at Google’s strategy and at Microsoft’s response with its just released Office 2010 which combines desktop and on-line apps.

First, the Cloud Gospel according to Google. Desktop bloatware is passé. Modern browsers can perform a magic trick: We, Google, maintain the applications on our servers, and we store your data as well—securely, trust us. For you, the experience is desktop-like. Word processing without Word. Spreadsheets without Excel. With one login and password, you can access your documents, create presentations, edit financials from any computer in the world that has an Internet connection.
If you’re on an airplane and want to edit your killer Board of Directors pitch, we’ll provide a local version of your files stored in what is technically called a cache inside your computer. You edit your slides and everything updates and re-syncs when you land and recover a Net connection. You have the best of both worlds: dual off-line/on-line modes. The magic relies on modern operating system, browser, and server technologies. The vast computing and storage power in today’s laptop does the rest.
To summarize: Take a laptop with a modern browser and you’re done. Everything–applications and data–resides in the Cloud. On-line or off-line doesn’t matter. It’s automagically synced.

Since it has no legacy business to protect, Google can offer free versions of its Web Apps. (As we’ll see later, they also offer paid-for versions.) Kill the $300-a-DVD Office Golden Goose and someday, my Son, all this will be yours: 1 billion users at $100/year…that’s a nice $100B/year service business. If you think I exaggerate, you’re right, but by how much? Facebook will have 500 million users sometime this year. The Google vs. Microsoft battle will play out over a decade or more. As a time perspective, Google will soon be twelve years old.

In the meantime, Microsoft isn’t asleep at the switch and they do have a huge legacy to protect. Last year, Microsoft’s total sales were $58B, down 3% from 2008.

(Numbers geeks can find Microsoft’s full 2009 Annual Report here. Note the Operating Profit, 35%. The company spends 15% of its revenue in R&D and 28% in Sales, Marketing and General Administration. Compare this to Apple’s 29.5% Operating Profit, 3% R&D, and 9% SG&A, with a comparable revenue level, in the $50B to $60B range annually. Microsoft’s Net Income is 25% of revenue, Apple’s is 22%. I used the latest available figures for both companies: FY 2009 for MS, Q1 2010 for Apple.) Microsoft Office represented 90% of the $19B Business Division sales, with a nice 64% Operating Profit:

Roughly 60% of all Microsoft’s profits come from Office and a little more than 53% from Windows OS licenses (or what MS calls its “Client” business):

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The Incumbent’s Curse: HP

Last week’s acquisition of Palm by HP makes a clear statement: HP recognizes we are at the beginning of the end of the classical PC era — and we’re witnessing the birth of a new generation, really personal computers, currently called smartphones (and tablets).

HP doesn’t want to be left behind, as it has been with its iPaq line of Windows Mobile devices, nor does it want to join the race to the bottom, again, to make profit-challenged Windows Phone 7 or Android clones.

This brings to mind an almost forgotten episode in HP’s past, one exemplary turn of events to keep in mind when looking at companies who dominate a market — for a while.

Once upon a time, HP owned the Personal Computer market. Then, in a characteristic case of the Incumbent’s Curse, lost it.
What? HP lost the PC market? But they’re the market leader with more than $10B in sales in the latest reported quarter.
That’s in today’s version of personal computers, the Wintel machines.
But the idea, the desire for a personal computer is very old.
For HP, it starts in the late sixties. They buy a design from Tom Osborne, the founder of a company called Logic Design.
I highly recommend reading Tom Osborne’s own words, it’s a long piece but one of the best I’ve ever read in the genre. You’ll find gems like:

‘I remember the overwhelming realization that sitting in front of me on a red card table in the corner of our bedroom/ workshop, sat more computing power per unit volume than had ever existed on this planet. I felt more like the discoverer of the object before me than its creator. I thought of things to come. If I could do this alone in my tiny apartment, then there were some big changes in store for the world.’

And, later in the same piece, his involvement in two more seminal products, the HP 35 and HP 65 pocket calculators, the latter being programmable and incorporating a magnetic stripe reader:

My role in the HP 35 was quite different than that in the HP 9100. Except for the card reader and the power supply, I did most of the circuit design in the HP 9100. I did none of it in the HP 35. Instead, almost all of my effort went into prescribing functional characteristics. This time, I knew that someone would want the calculator that followed the HP 35 to be programmable. A couple of times, I dug in and argued for features that would grease the slides for the follow-on product, the HP 65 (which, I think, was the best product I ever worked on).

The HP 65

I can’t resist adding this last quote:


We had no idea whether the HP 35 would be a success or a dud. (Before it was introduced, a market analysis by a major consulting firm had determined that it would fail because of the tiny keys and the RPN notation. In my opinion, it succeeded for those reasons.) Anyway, we gave it our all and found that it was so well received that overnight, it made the slide rule a relic.’

There is also an EDN interview of Tom Osborne here.

I was there. My biggest break in business, even bigger than being hired by Apple to start Apple France, happens when, in June 1968, HP France takes me off the streets. After dropping out of college and going through four years of what Californian therapists delicately call a “psycho-social moratorium”, I am ready, I get lucky. More

Aligning The Digital Planets

Let’s pause and look at trends that have emerged over the last few years: How will they affect the digital newsmedia industry? First, we’ll try and list a few undisputed facts. Then we’ll drift towards conclusions bordering the uncharted territory of predictions. It’s worth the risk.

The web fuel problem. The internet economic engine isn’t firing on all cylinders. For online news, that’s an understatement. The primary source of income, advertising, has proven itself unable to sustain ambitious journalism. There might be exceptions here and there, a few news organizations have found their way to profitability, but they flourish in niche beats. For example, Politico, which covers Washington DC’s arcana — but it relies on hybrid model (web and print).

Others benefits from a powerful mothership such as New York Times Digital’s DealBook on finance: with a 2.5 to 3m unique visitors a month, this eight journalists operation could break even if it were granted a separate P&L. (DealBook also brings intangible but highly valuable status to the NYT in its fight against the Wall Street Journal.) But these are specialized products.

Observers mention the Huffington Post, with its presumed 10m UV/month, as the prototype for a popular internet news success. To me, the HuffPo is not a journalistic product per se. Taking third party content, the HuffPo builds a clever participatory mash-up, with a focus on juicy stuff. The whole thing is staged it in such a way (splashy editing, pictures, headlines) that it triggers loads of prattling — and page views. Fine. But this is not hardcore journalism.

As we speak, a 50-100 people newsroom stands no chance of living by advertising alone.
This state of affairs won’t change anytime soon. Last year, US ad spending fell by 9% and we know the recovery will take a while. As the CEO of Zenith Optimedia (Publicis Group) said last week in Paris: “In terms of revenue, 2012 will be like 2006″. This even though he predicts the money invested on the internet will keep progressing and will end up coinciding with the time people spend online.

That’s fact #1: don’t count on advertising. At least not in full ad-supported mode, not for a while.

Audience concentration. Worldwide traffic on social networks has doubled in one year. If we go back to December 2007, it grew threefold since then.

On major markets, there is no sign of saturation. Actually, quite the contrary: in the US, the growth is 43% in just two years. This growth partly organic, with Facebook now beyond the 400m members mark. But time spent is increasing as well. On Facebook, it now reaches almost 6 hours a month, six times more than its nearest competitor MySpace, and two more hours than just a year ago.

In the meantime, the time spent on clever utilitarian sites such as free classifieds is still growing in less-mature markets. In France, Le Bon Coin (see our story Learning from free Classifieds) is still growing at a triple digit rate and serving about 4.5 billion page views a month, with users viewing 30 or 40 pages for each visit. Worldwide, an increasing number of people rely on LinkedIn for job-hunting, as scores of large companies use it for recruitment (read this piece in Fortune).

Each time I travel to the United States, I see thirty-somethings glued to an increasingly dominant triple-windows setup: Facebook for social interaction, Craigslist for daily dealings, and Hulu for catch-up TV viewing. (Add a couple of news aggregators from Google and others and you get the whole picture). That was in case you still wondered why time spent on newspapers has gone down, from 42 minutes a month in 2006 to 32 minutes now (these are US figures, to large extent applicable elsewhere).

That’s Fact #2: the audience is flocking to social nets, and to a narrow group of useful/entertaining sites, at the expense of newsmedia. More

Digital Takeover, The Fairfax way

New world, new approaches. Australia is a vibrant, younger economy. You can feel it everywhere. It moves on, it changes, it adapts. And, in the media business, it seems to adjust pretty fast.

Fairfax Digital is, by far, the leading online group in Australia and in the region. It is a division of Fairfax Media Ltd., with the following perimeter:
- 434 publications between Australia and New Zealand (for a country of 21.3m people!)
They include:
- 248 newspapers in Australia: among them two of the country most influential dailies, The Sydney Morning Herald and The Age published in Melbourne
- 80 newspapers in New Zealand
- 46 magazines in both countries
- 15 radio stations
- 24 printing plants
- 284 web sites (229 in Australia, 51 in NZ and 4 in the US).

Below are basic numbers for FY 2009 ending in June 2009 (the annual report is here), in US dollars and in euros (conversions are at today’s rate)

Fairfax Digital (FD) accounted for about 10% of Fairfax Media Ltd. revenue and 16% of its EBITDA for FY 09 (and a hefty 52% for the first half on FY 2010). This give FD’s chief executive Jack Matthews and his crew a great deal of pride — and sustains their fierce independence. This American-born TV and digital media veteran is passionate about the business he’s been building within Fairfax. “We treat this change as a point of singularity, he says, you know, when rules break down, and nothing make sense anymore. Usually, in technology, we tend to overestimate the short term impact and underestimate the long term”. For Jack Matthews, it is more a question of transformation rather than a matter of development or evolution of existing lines of business. More

Windows Mobile Reset

Microsoft is doing the right thing: at the Mobile World Conference in Barcelona, two weeks ago, Steve Ballmer hit the reset button and announced an entirely new smartphone OS, Windows Phone 7 Series. This is fundamentally better than flogging yet another ‘’new and improved’’ rev of the aging, failing Windows Mobile (née Windows CE) platform.

This is a new approach for Microsoft — with some old tricks mixed in.

So far, on the desktop or with mobile devices, Microsoft has played the evolutionary game,  trodding  (1) the cautious backward compatibility path. To this day, the message always has been: Stay with us, your investment in your (or our) applications is safe.

Since the 1.0 release of Windows CE in 1996, the credo was: Stretch but don’t tear; improve, expand but don’t break existing programs. See this Wikipedia timeline.
But three factors came to break the faith.

First, in mobile phones, Microsoft never managed to establish the kind of dominion it enjoys on the desktop. On PCs, the company first used tied sales, or bundling: if an OEM  (Dell, HP) bought Windows but not Office, the OS license price was much higher than with a Windows + Office combo. Then, to thwart competing OS such as Linux, it used licensing agreement tricks. Yes, you, the OEM, could sell dual boot PCs, meaning a PC that could launch Windows or Linux when turned on. But, an important but, the Windows license contained a clause obligating you to only use Microsoft’s Boot Loader, the program that loads on start-up and manages the process of choosing which OS to boot. An even more important ‘’but’’: when you looked into the Boot Loader’s license language, you found it was licensed to you for the sole purpose of booting Microsoft OSes. You were forbidden to use the MS Boot Loader to boot Linux. If you wanted to have a Windows license, you had to agree to the exclusive and exclusionary use of the MS Boot Loader. This explains why, to this day, Dell and any other OEM don’t sell a dual-boot Linux/Windows system. It’s not because Linux is bad or expensive. Most users, reasonably, would want the safety of Windows as the fall-back toolkit as they experiment with a different platform they’re not sure of: see what happens on the Macintosh with virtual machines running Windows. Microsoft managed to prevent such experiments on Windows PCs. More