Microsoft Xbox One: Problem Solved or Major Gaffe?

Last night Microsoft announced that it had changed some of its policies around its forthcoming Xbox One game console that had generated considerable ire in the game console community. ¬†Most notably, Microsoft eliminated the requirement that the console be always connected to the Internet. That requirement and other “features” had created great fear in the gaming community that Microsoft was going to quash the secondary market for its console games, requiring users to buy new games and prohibiting them from sharing their games among friends. I won’t get into the details of what they announced and what changed here — you can Google that — but it’s shocking that Microsoft could get something so terribly wrong that they had to reverse course in less than a week. ¬†Let’s examine possible scenarios:

  1. Microsoft could have really believed this was a good move. ¬†We’re moving towards an always-on environment and Microsoft is not alone in that belief. Just the other week Adobe announced that it would no longer sell packaged versions of its Creative Suite, selling it only by subscription online. ¬†If this is the case, Microsoft somehow managed to miss a few things. ¬†First off, the use profile of a game console is different than the use profile of a high-end business-oriented software suite. ¬†Adobe’s move in no way was a watershed moment. ¬†It was an early move but this vision is not yet universal and so Microsoft’s forcing it early was not well received. ¬†Moreover, if this was their goal, their value proposition for it was, shall we say, lacking. ¬†“Hey, in an always on environment we can deliver you all these neat capabilities. ¬†The first ones require you to use our heretofore optional paid online service and we’re also going to regulate if not eliminate your ability to share and sell games but hey, this is the future.”
  2. Microsoft was trumped by Sony. After Microsoft’s announcement, Sony announced details around their PS4. ¬†PS4 is $100 cheaper¬†and had none of those draconian features that Microsoft proposed. ¬†If Microsoft thought Sony was going to follow their lead, they were badly wrong. ¬†Sony not only offered a solution that had none of Microsoft’s downsides, it did so at a price point $100¬†cheaper. ¬†Sony not only didn’t follow Microsoft’s lead, they quickly parodied Microsoft‘s sharing restrictions. My son observed that “13 million views had to sting.”
  3. Microsoft thought people would like this. I’m sure they’ve got all sorts of focus group research that said “we really like your direction.” ¬†Maybe they tasked their PR agency with “do a survey with people who will find this strategy palatable.” The sample size was perhaps 17.
  4. Microsoft was planing a “new Coke” scenario. I know this one is really cynical but maybe Microsoft anticipated the reaction and this was done on purpose. ¬†This is a strategy Facebook has used in the past. ¬†Announce something so over the top that the market reaction will be negative. ¬†You can then backpedal, saying “we’ve listened to the voice of the customer.” In this scenario, you assume customers are going to balk on¬†any changes so you purposefully announce something over the top so that when you back up, you’re still ahead of where you were before you made the announcement. ¬†I’d consider this a plausible scenario except for the back that Microsoft basically backpedaled to where they were before they made the ill-founded announcement.

You might say “no harm, no foul.” Microsoft backpedaled fast enough that by the time the consoles come on the market, closer to the holiday season, this will all be forgotten. I believe, however, Microsoft has done itself some permanent damage here. ¬†If you read your license agreements (and I suggest you do…if you suffer from insomnia”, Microsoft (and typically all vendors) reserve the rights to make unilateral changes in their licensing terms. Bottom line, Microsoft has always had the ability to impose these changes on their users, even post-sale. ¬†Nobody worries about these things here because they always think “Microsoft wouldn’t be so stupid as to do something that would slaughter their value proposition.” ¬†Well, now you’re thinking “maybe they would.” Sure, they backed off when it became clear they were getting slaughtered but do you think Microsoft has abandoned the approach or merely postponed driving it into their customers? Losing trust in your vendor is a very dangerous position and Microsoft may just have crossed that line. Maybe by beckpedaling they’ve closed ranks with their user base. But I don’t think so. ¬†This one will be fun to watch.

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I Don’t Care About Google Glass. But Augmented Reality Makes Reality a Read/Write Medium.

Google Glass is in the wild and reviews are beginning to flow in. ¬†They range from blogger Robert Scoble’s claim that “I will never live a day of my life from now on without it (or a competitor)” to some pundits already describing it as a failure. ¬†Truth be told, I don’t care about Google Glass.

Why not?  This used to be what we called a portable computer.

I carried one of these things. ¬†It weighed about 26 pounds. ¬†It’s one reason I needed rotator cuff surgery on my shoulder a few years ago. ¬†Or this.

That’s then-Apple CEO John Sculley proudly holding up a Newton 20 years ago.

If we judged the future of laptops on the basis of this Compaq or the future smartphones and tablets on the basis of the Newton, how stupid would we be looking today? ¬†The original Compaq and the Newton could charitably be called “proofs of concept.” ¬†Less charitably, they were devices that appealed to the (very) early adopter. ¬†(Does it surprise you that I had both of these devices, and even the Compaq’s spiritual predecessor, the Osborne 1. I once got out of jury duty because I had one of these with me in the jury box when it was time to be interviewed.)

This is how I view Google Glass, no pun intended. ¬†Note, I have not tried Google Glass and I’ve only talked to one person who has actually used the glasses. ¬†(He was underwhelmed.) ¬†But I don’t need to. ¬†Google Glass is not the present, it’s the future. ¬†That future, more broadly, is something called “augmented reality.” ¬†Broadly speaking, I think of augmented reality as the blurring of the lines between the physical and the digital. ¬†This is already more prevalent than you think. ¬†If you’re a sports fan, you’re probably already familiar with the first down line superimposed on the football field. ¬†You’re smart enough to know that one isn’t real. ¬†But watch a Fox baseball broadcast. ¬†That advertising signage behind home plate? ¬†The people in the stadium don’t see that one.

Already there are smartphone apps that will display on screen images mixed from the camera and sources on the Internet. ¬†For instance, apps I have will point you to the nearest subway stop or will identify restaurants and other points of interest where you’re looking. ¬†Six years before introducing the Newton, Apple produced a video called the Knowledge Navigator. ¬†It’s a 5:46 tour de force of where technology would head, and still is headed. ¬†If you’ve never watched the video, watch it now. ¬†Go ahead. ¬†I’ll wait.

Now let your imagination run wild. ¬†Imagine that kind of software solution with a video projection system that presented relevant information to you in a heads-up display kind of fashion or on your glasses. ¬†Or, if we’re looking 20 years out, integrated into your retina or optic nerve. ¬†I kid you not. ¬†Think of the use cases. ¬†You don’t remember a person’s name? ¬†That’s a thing of the past. ¬†I now have plug-ins for my email that show me the recent tweets or Facebook posts from the mail’s sender. ¬†I’d love to have that displayed when I’m actually talking to you. ¬†How many times have you been talking about something and gone “what’s the name of that movie?” or “when did Apple introduce that Newton?” ¬†Pilots already use heads-up displays so they can get critical information without taking their eyes away from what’s outside. ¬†Already there are games for your smartphone that insert geo-located objects into your phone display. And looking at your cell phone while walking is such a risky behavior that there are a variety of solutions to help you do that more safely, from the serious to the frivolous.

So let’s not judge Google Glass as a serious product. ¬†I’m not saying I wouldn’t try it. ¬†Maybe even like Scoble, I’d never go another day without wearing this. ¬†Keep in mind, I’m the guy who five years ago used to wear “projector glasses” on airplanes so I could watch my own movies. ¬†Unlike Google Glass, these were big, heavy, wrap around glasses that contained VGA screens. ¬†You’d hook it up to your portable media player and watch movies that way. ¬†The glasses were sufficiently heavy that if you wanted to watch anything longer than a YouTube video, you basically had to tilt your head backwards at an angle so the glasses wouldn’t slide down. ¬†By the end of a movie, I’d be reclined around 45 degrees. ¬†Here we are five years after that watching movies on tablets and, very soon, on flexible portable screens.

The use cases for augmented reality are myriad, and compelling. ¬†Google Glass won’t be the product that gets us to realize that potential. ¬†It may even prove to be the product that gets us to laugh at the potential. ¬†But 20 years from now, we’ll laugh at the quaintness of that early effort, 10 years from now we’ll wonder how anyone could ever doubt the category and five years from now, we early adopters will all be embracing various forms of augmented reality. ¬† ¬†If Apple had done this (and they will some day), people would be tripping over themselves to laud their vision. ¬†Google’s track record of “the next big thing” is slightly more tarnished (to say the least), so it’s much easier to ridicule them and dismiss Glass. ¬†Don’t. ¬†This is our future, and the future is nearer than you think.

I attended an Augmented Reality meetup in New York last week and the line of the night was that augmented reality makes reality a read/write medium.  Think about that one.

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Pardon My Disruption: March Edition

I’m a little late getting this post up here — we recorded the session a little over a week ago — but better late than never. ¬†And for the second time in a row, snow interrupted our plans so instead of recording with a live audience at the Stamford Innovation Center, we participated remotely (using Google+ hangouts). ¬†I do need to work on my video skills. Despite having two lamps just out of camera range, my lighting is suboptimal. ¬†Then again, my pretty face is never going to carry the day… ūüôā

For those of you who want to watch the full video (an hour), you can find it here.  This month, we talked about:

  • Yahoo and Marissa Mayer’s work-from-the-office edict
  • Groupon’s CEO resignation
  • The new Facebook feed
  • Microsoft’s EU fine
  • iWatch (we didn’t really talk about this in the video here but I’ve got a few observations)

Yahoo and Working from Home

This is odd, coming from someone who has spent large portions of the last 20 years working from home and who is such a big believer in collaborative technologies, but I totally understand and support Marissa Mayer’s decision to require Yahoo employees to work from the office. ¬†Fundamentally, she inherited a broken company. ¬†I’m a member of a group called the Internet Oldtimers and one of the group’s members described the scenario perfectly. ¬†He said that good people in a bad system become bad people whereas bad people in a good system become immediately evident. ¬†Yahoo had a bad system which encouraged even the best of people to perform at substandard levels. ¬†How do we know Yahoo had a bad system? ¬†Mayer came from Google, as data-driven an organization as I’ve ever encountered, and simply, she went to the data. ¬†It would be one thing if people were working diligently from home but the data just showed another story. ¬†Mayer looked at the VPN logins and quickly discovered that people weren’t connecting to the company’s internal network. ¬†It’s one thing to say collaborative tools enable remote working. ¬†It’s a whole other scenario when your workers aren’t using the collaborative tools! ¬†They didn’t even bother to fake working very well. ¬†Yes, the system was broken. ¬†You could argue that this is a draconian step and that it will cost Yahoo in terms of current employees and ability to recruit new staff. ¬†That may be true but the bigger challenge is reorienting the organization and bold, decisive moves are required. ¬†I don’t expect this to be a permanent work condition but until and unless Mayer showed her commitment to a new Yahoo, she would have been merely rearranging deck chairs on the old Yahoo. ¬†I applaud and support the move.

Groupon’s CEO Resigns

Too much of this story has been about Groupon’s ex-CEO Andrew Mason and his polarizing style, his company accounting challenges and his flamboyant resignation (refreshing in its candor). I actually wrote about Groupon over two years ago, questioning their business, and in the intervening time, I think their challenges have only grown larger. ¬†Here are the fundamental problems for their business (and not just theirs, but LivingSocial and many other daily deals purveyors):

  • The deals are not great for merchants. ¬†They’re¬†indiscriminate, send a bad message, encourage “bad” business, don’t help the merchant’s information-gathering and give the merchant almost no control. ¬†Other than that, they’re great. LOL
  • The wrong party is in control. ¬†Deals should be structured, offered and managed by the merchant itself. ¬†You should be able to offer deals whenever you want to whomever you want. ¬†My favorite talking point here is to use the example of a donut shop. ¬†Let’s say you’ve had a slow day and it’s looking like you’re going to have to throw out a bunch of donuts. ¬†Wouldn’t you want to run a deal at the last minute, just in time for the evening rush hour, offering a special? You could make this look like a customer incentive for your best customers instead of the existing model where you’re discounting products/services that your loyal customers have been paying full price for. ¬†You could make this decision at 4 p.m., instead of weeks or months in advance. ¬†You could do this every time your inventory is high instead of once every few months. ¬†This is a fundamental problem of approach for Groupon and its ilk, and not one a new CEO is going to solve.
  • To feed the public market appetite for growth, Groupon moved from daily deals into an adjacent market, Groupon Goods. ¬†I’ll never understand why companies move into businesses that jettison much of what’s attractive in their legacy business. ¬†The great thing about the daily deal business is that you have no inventory. ¬†Your only three cost buckets are technology, marketing, and your sales commissions. ¬†This is a business with minimal risk as you can align costs relatively easily to revenues. ¬†With Groupon Goods, you’re now taking possession of inventory. ¬†If you don’t sell it, you’re stuck with it…or you have to lower prices, cutting your margins. ¬†Before this, Groupon could have been run out of a phone booth. ¬†Your servers were in the cloud, your salespeople were on the phone or on the road, your inventory was totally digital. ¬†Instead of pushing, and fixing, the core business, Groupon went broader. ¬†Big mistake in my mind.

The New Facebook Feed

Facebook is rolling out a new look and feel. ¬†Again. ¬†I wrote about this challenge even longer ago, almost four years back now. ¬†Back then, the challenge was competing with Twitter and its real-time impact. ¬†That challenge remains to this day and we’re now hearing of Facebook’s plans to incorporate hashtags, mimicking yet another Twitter feature. ¬†Facebook is now fighting battles on multiple fronts. ¬†In addition to Twitter, there’s now a battle for approach and design with Pinterest and Instagram. ¬†Yes, I know Facebook now owns Instagram but if you look at Instagram, Pinterest and even Microsoft’s new platforms, you’ll see a more richly graphical approach. ¬†I won’t get into this approach…well, maybe I will, briefly. ¬†I think much of this is eye candy at the cost of value, information and time. ¬†A picture may be worth a thousand words in some contexts, but in a lot of these instances, I’d rather see the thousand words or at least something that conveys greater value than just an image and a text headline. ¬†I think a lot of the motivation behind this approach is to get people to actually click through on something. ¬†More clicks = more opportunities to display ads or at least pump up your metrics. ¬†For the user — at least for me — more clicks = more time to get to value. ¬†I really don’t like the approach. ¬†But Facebook seems to be embracing the approach, whether it’s to increase its advertising footprint or contain Pinterest. ¬†There are laudable goals in the redesign — more easily connect users with the information they want to connect with — but I’m not convinced this is the real motivation or, if it is, that this redesign accomplishes that goal. ¬†But as always, we’re stuck with it. ¬†Expect to see tons of posts from your friends decrying the new approach…until we accept that this is the way it’s going to be. ¬†Oh well. ¬†At least maybe they’ll fix the multi-columnar approach, the logic of which I still can’t figure out.

Microsoft’s EU Fine

Microsoft was fined $731 million by the European Union. ¬†Why? Because it didn’t fully implement its deal to open up the browser market to competition, a deal struck in 2009. ¬†At that time, Microsoft had a near-dominant share of almost 80% of the desktop market. ¬†We all know what’s happened since then. Despite not keeping up its bargain, Microsoft’s share has steadily decreased and it now represents only about half of the desktop market and, if you factor in mobile, considerably less than half. ¬†In fast-moving markets like technology, somehow markets do a better job of adapting to competitive situations than governmental remedies. ¬†I’m not saying that the EU’s fine was misguided — they have to enforce their agreements — I’m just saying that the EU sanctions were, and continue to be, largely ineffective. ¬†Fining someone for four year old behavior (several generations in Internet time) while failing to act on current issues is, unfortunately, what we’ve come to expect from governmental bodies. ¬†I’m not advocating that they go sue Google but if they’re genuinely concerned with fostering real competition, going against emerging and existing monopolists with sanctions with real teeth would be much more impressive than what amounts to a (soft) slap on the wrist to a former monopolist. ¬†If anything, this action would¬†encourage me if I were considering a current offense. ¬†If this is the timeframe and scale over which remedies will be extracted, it’s no deterrent at all.

iWatch

Somehow I can’t get excited about this one. ¬†Perhaps Apple’s going to surprise me. ¬†Again. ¬†But I just don’t see an iWatch as the product which is going to reinvigorate Apple’s prospects. ¬†Back at the beginning of the year, I said their big opportunity is the digital home, and I stand by that belief. ¬†Yeah, yeah, the watch market is a $60 billion market. ¬†But if you’re under about 28, you probably don’t wear a watch. ¬†Can Apple make it cool? ¬†Probably. ¬†But the trend is to bigger screens, not smaller, and I’m just not convinced that anyone can make a watch a compelling companion to my smartphone, and make no mistake about it, this will be a companion product. ¬†I feel bad enough when I have to shell out $100 with every new phone for screen protectors, batteries and the like. ¬†Is it that much more powerful to have reminders on my wrist instead of in my pocket? ¬†Perhaps it could be a little more interesting if it incorporates the emerging niche category of activity monitors like Jawbone’s Up. ¬†We’ll just have to wait and see.

What’s perhaps most problematic for Apple is that their time to market advantage may be non-existent. ¬†Apple has had huge market advantages when it has launched its category-defining products, with competitive responses often lagging by a year or more. ¬†Not so with the watch. ¬†In fact, while the Apple iWatch remains merely a rumor, Samsung has come public with its intention to do one, and its indication that it has been working on it for a long time. ¬†While I question how genuine that effort was prior to the Apple rumors, it’s clearly a different world when a rumored Apple product introduction is met by immediate competitive responses, not stunned gasps of “they did it again.”

What’s Next

In addition to these timely news items, we talked about a couple of larger thematic subjects:

  • The “IT-ization of consumers”
  • What’s next, after social, mobile and cloud

I’m not going to get into these here and now — this blog post is already long enough — but i’m going to write at greater length about these topics in the coming weeks. ¬†I identified social, mobile and cloud as my three disruptive trends, over five years ago. ¬†As they begin to coalesce as I predicted, people started to ask me “so what’s next?” ¬†For a long time, I answered that with “more commercialization and better integration of those pillars.” ¬†We still have a long way to go there. But I already see the seeds of the next big transformation which will, once again, change the face of technology and business. ¬†I just love that about this business; it’s never static…even while we all struggle to keep up with the pace of change and have to fight to incorporate new technologies and approaches. ¬†But the next change is coming and I’ll start surfacing that soon. ¬†(If you want a head start on your competition, you know where to find me.)

 

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Microsoft Tries to Derail the Barnes & Noble Juggernaut (!?)

In the legal morass that is Android comes the latest news that Microsoft is suing Barnes & Noble, alleging patent infringement. ¬†Think about the surface absurdity of that one. ¬†Microsoft suing Barnes & Noble. ¬†Even The Onion hasn’t contemplated this scenario. ¬†So, what’s really going on here.

At a macro level, here’s what’s happening:

  • These kinds of patent lawsuits are so common that I’ve almost stopped looking at them altogether. ¬†Usually it goes like this:
    • Someone sues someone else.
    • The someone else counter-sues.
    • The two companies exchange patent cross-licensing agreements, usually with one side or the other having to kick in some cash.
  • There’s a slight twist to the whole Android scenario, again though one that’s not uncommon. ¬†Most of these patent lawsuits have focused on Android licensees and not the deep-pocketed Google. ¬†It only makes sense to go after the weaker players, albeit ones with sufficient funds to pony up.

What are all these people suing in the Android space trying to accomplish? ¬†It’s real simple. ¬†If you’re trying to sell an operating system into a market where Google is giving it away, you need to make the OS appear not to be free. ¬†In other words, you may not pay for the OS but by the time you factor in legal costs, your free OS all of a sudden isn’t so free. ¬†Somewhere along the line, Google is probably going to have to ante up to help its partners by resolving all of these patent infringement issues. ¬†It probably means Google’s going to have to write a check. ¬†The good news: ¬†they’ve got $34.9 billion in cash on hand and are printing more each quarter. ¬†So much for the chilling effect on Android licensees.

What’s particularly interesting about the Microsoft/Barnes & Noble case is that presages interesting competition in the tablet marketplace. ¬†Why should anyone be worried about Barnes & Noble or, by extension, Amazon? ¬†The Barnes & Noble Nook e-reader actually runs on Android. ¬†In effect, they’re selling a specialized Android tablet for $249. ¬†How can they do that when the rest of the Android tablet marketplace is horribly overpriced as I’ve recently blogged? ¬†Welcome to the new world of ecosystems and razors and razor blades. ¬†Amazon and Barnes & Noble can sell these devices at low (or no) margin because the economics of incremental margin on the razor blades (books and other digital content) is so compelling and predictable that it pays to seed the market with devices. ¬†That’s another reason why Apple, asides from supply chain efficiencies, can sell the iPad so competitively. ¬†It can count on a reasonable income stream from the AppStore¬†while in the Android space, those margins go to Google.

Yes, I know that the Nook and the Kindle are not general-purpose tablets. ¬†Today. ¬†But the color Nook is pretty darn close. ¬†The Wall Street Journal’s Brett Arends even recently told readers how to turn their Nooks into tablets. ¬†He overstated his case to make a point: ¬†Barnes & Noble can do this easily and likely will. ¬†If not, they deserve to follow Borders into bankruptcy.

Netting it out:

  • Google is likely to have to share some of its profits with its ecosystem to cover legal exposures.
  • Google is likely to have to share some of its app store revenues with partners. ¬†Otherwise, the situation with competing app stores (already a fracturing standard) is going to get (much) worse rather than better. ¬†They need to do this one quickly.
  • In other words, Android tablets need to get cheaper and Google will have to share its app and advertising revenues to make that happen.
  • Players like Barnes & Noble and Amazon can become strong players in the tablet marketplace because they have the economic model and ecosystem to compete with Apple. ¬†Selling hardware alone is not much fun these days, and is only going to get worse.

Why Do Android Tablets Cost More than the iPad?

You know me. ¬†I don’t own any Apple products any more. ¬†I have:

  • HP desktop
  • HP convertible tablet laptop
  • Android cell phone
  • Sansa MP3 player

I can see the utility of a pure tablet given how much I travel (which I think is its optimal use case: ¬†on the train/plane/Starbucks). ¬†I’d like to buy an Android tablet. ¬†With yesterday’s introduction of the iPad2, I am however left scratching my head. ¬†Even before this, I was wondering “how in the world can the Android tablets be priced 20-50% more than an iPad?” ¬†Hence, my list of the top 10 reasons someone would buy/pay more for an Android tablet.

  1. What’s an iPad?
  2. I’d pay anything to avoid enriching Apple.
  3. I work at Google…although Google employees may hold out until the holidays to see if they’re getting one free.
  4. Google Maps.  Oh, you mean I can buy a third-party GPS solution that is every bit as good and works off
  5. I’m too unhip to be let into the Apple Store. ¬†(There are those who actually posit the Apple Store as part of the reason. ¬†Apple doesn’t have to worry about retail margins so they can price below those who must support those margins too. ¬†I don’t think this is an excuse, though it is a factor.)
  6. I hate waiting in lines to get technology products.
  7. I drive a Lexus and have gotten used to paying premium pricing for the same products.
  8. There must be a TCO argument in favor of Android, right?
  9. XOOM sounds so much cooler than iPad.
  10. If I’m stupid enough to buy an Android tablet right now, I’m stupid enough to pay a premium for it.

Truthfully, I really don’t understand it. ¬†I’d expect Android tablets to cost $100 less than an iPad. ¬†At least. ¬†At current price points, they’re going to kill the market. ¬†So, what do I think the real reasons are? ¬†I’m stretching here.

  • They know Android isn’t really ready yet for the tablet form factor so they’re pricing it so only the really committed will buy in now. ¬†Purposely keep the market away even while you’re dipping your toe in.
  • The various parties to the ecosystem are really that clueless to think that their Smartphone success will translate to the tablet market and that they can support comparable/premium pricing.

Honestly, I’m baffled. ¬†If they’ve got me ready to buy an iPad, they’ve really accomplished something very bad.

Toy Fair 2011: Where Technology is Largely Lacking

I attended Toy Fair 2011 once again (with my friend and one of the smartest people I know, Larry Smith) which filled New York’s Javits Convention Center last week and it was a journey through quieter times. ¬†I was shocked how little cutting-edge technology there was nor tie-ins with mobile devices, cloud services, virtual goods and other ways to extend the reach and impact of traditional “toys.”

I suppose I should have realized things were going to be a little different when I went to pick up my press/analyst badge (for which I had received email confirmation). ¬†“No, you don’t qualify,” I was told on-site. ¬†Instead, they gave me the badge for financial analysts. ¬†I tried to explain the difference between the two but was met with blank, uncaring stares. ¬†I was told, however, that my badge would get me pretty much everywhere the press badge did except the press room (and I didn’t really want to spend time there anyhow). ¬†In retrospect, it was a great advantage. ¬†At times the show floor was pretty barren so if I had a press badge or, even worse, a buyer badge, I’m sure I would have been besieged by booth personnel wanting to tell me about their wares. ¬†But with the red badge I was wearing, no one particularly wanted to talk to me. ¬†(At least I assume it was the red badge.)

Having immersed myself for the last five years in social, mobile and cloud technologies, I was shocked how little of this there was on the show floor. ¬†There were lots and lots of toy blocks, lots and LOTS of stuffed animals (referred to in the trade as “plushes”) but not so many microchips or web connections. ¬†I’ve become accustomed at tech trade shows to 90% of the booths having iPads for demonstration purposes; here, it was more like 4% (no exaggeration). ¬†It was so low-tech, there were some booths who had old traditional CRTs and not flat-screen TVs. ¬†I think the industry is missing HUGE revenue and engagement potential by not only not having toys that contain intelligence but also by not linking them to web sites that add functionality, engagement and further revenue opportunities.

In its story about the show, Time Magazine pulled together an article on the 100 all-“Time” greatest toys. ¬†It’s amazing how consistent themes remain over, um, time. ¬†Clearly this is an industry that doesn’t like change. ¬†Even more, look at what Time picked as the top 10 tech toys they found at the show. ¬†They included:

  • Monopoly Live. ¬†I would characterize this as how not to add technology to a classic. ¬†Gratuitous technology aimed at “appealing to interrupt-driven kids” does not an improvement make. ¬†This approach should die a quick death.
  • Angry Birds. ¬†Yes, if you haven’t had enough of it on your iPad, you can now play the board game. ¬†The video game industry understands the concept of “brand extension.” ¬†Not so the “traditional” manufacturers.
  • A “kid-tough” camera. ¬†With full-featured adult cameras going for under $100, I’m not sure there’s much of a market here. ¬†In fact, I’ll bet most five-year olds can better handle the new generation of touch-screen, feature-rich cameras than can most adults. ¬†Maybe they should repackage these as cameras for seniors.

Three things did catch my attention.

  • The richness of really good scientific experiment kits is wonderful. ¬†As a kid growing up, I was pretty much contained to a microscope and slides. ¬†Kids today have an amazing array of real science kits focused on timely issues like potable water, renewable energy and the like.
  • I don’t remember exactly where in Disney World I saw this for the first time but they have this set-up where you wave your arms and motion-detecting devices sense your movement and turn it into music, varying the pitch and speed with how you wave your arms. ¬†This has now made itself into home-sized and -priced technology. ¬†And at the very low end, you can build your own musical device by just painting a piano.
  • You’re probably already seen ads for the Parrot AR Drone, a flying device that uses the iPad or iPhone to control it. ¬†It makes for great demo though it strikes me as one of those toys where after 10 minutes of using it, you’d get bored. ¬†The gimmick may be better than the reality. ¬†More broadly, though, you’d think the toy manufacturers more broadly would understand the appeal of (a) the iPhone and (b) a device containing accelerometers. ¬†If it’s useful in a phone, surely they can think of ways it would be interesting in a toy. ¬†And price is probably not an issue here. ¬†The componentry is cheap enough.

All in all, Toy Fair was a wonderful retro journey for me but caused me to reflect on how much of mainstream industry still hasn’t understood the power of technology, now available at incredibly low price points. ¬†“Gamification” is a growing trend in technology (“funware,” as my friend Alan Berkson calls it). ¬†Technology is embracing games. ¬†If games/toys don’t embrace technology, there stands to be another industry where the technologists take over and the traditional players get shunted aside. ¬†To their credit, the largest players in the toy industry (e.g., Mattel) seem to be the most advanced with technology. ¬†That’s perhaps not as I’d expect it. ¬†The disruptors should be driving the trend. ¬†Maybe it’s because of the tech savvy required, or the capital investments. ¬†For whatever reason, though, this is a space likely to see a lot of change in the next few years. ¬†Here come the technologists.

Apple: That Didn’t Take Long

Two weeks ago, I blogged that Apple was picking fights (then Sony) that it had no business picking.  The latest go-round now is with big publishers over how to sell subscriptions on the iPad and iPhone.  Naturally, Apple wants to dictate terms and extract its 30%.  Whereas bullying the music industry was pretty easy and, one could argue, justified, with these content producers, its a tougher argument and a tougher settlement.

In music, you could credibly argue that Apple made the digital music industry. ¬†Before Apple came along, things were fractured, to say the least. ¬†Apple unified a market, created a great experience, strong-armed the labels…and deserves to share in the fruits of its success. ¬†With books, newspapers and magazines, it’s a different case.

  1. These players had well-honed approaches and strategies before Apple came on the scene.
  2. These players are much better politically-connected than the music people who, ultimately, are small and don’t influence politicians very much. ¬†Magazines and newspapers: ¬†bigger and, oh yeah, that political clout.

Not surprisingly, therefore, the Justice Department and the FTC are said to be looking into Apple’s business practices. ¬†Wow. ¬†That didn’t take long. ¬†Apple announces something on Tuesday, on Wednesday Google launches a competitive offering (taking only 10%) and on Thursday there are rumors of government involvement. ¬†If that didn’t tell you Apple picked the wrong fight this time.

We’ve seen what government intervention did to IBM, AT&T and Microsoft over the years. ¬†We’re seeing Google’s challenges now. ¬†Welcome to the party, Apple. ¬†I reiterate my position that two weeks ago could have been Apple’s zenith.

Apple: When is Enough Enough?

I’m a big admirer of Apple. ¬†They design incredible products. ¬†They innovate and, beyond innovation, they create new categories and approaches. ¬†They have been richly rewarded for that and are now the second highest valued company in the world, behind ExxonMobil. ¬†You know there’s a “but” coming. ¬†And it’s a big one. ¬†Is it good for anyone (other than Apple) — even you — when they put their hand so deep in everyone’s pocket and when they tell you and me how to do business? ¬†(Full disclaimer: ¬†I don’t own any Apple products. ¬†I have a Sansa MP3 player, because I like the Rhapsody subscription music model. ¬†I actually like the Microsoft Zune subscription model even better, because then I get to rent and own music, but that’s maybe my next device consideration. ¬†I have an Android-based Motorola Droid, largely because I’m on Verizon and won’t buy any electronic device without a replaceable battery, so no, I’m not getting on line for a Verizon iPhone. ¬†I do, however, own some really old Macs and an original, and still working Newton. ¬†And my introduction to the technology industry in 1979 was on an Apple II+. ¬†But I digress…)

The latest flap is over Sony’s e-reader application where Sony wants to enable users to buy books without paying Apple its 30% “tax.” ¬†Apple, however, is insisting that all purchases must be made “in-app”…and as such, Apple wants to take its share of the transaction.

So, let’s get this straight. ¬†Apple owns complete control over whether your application makes it into the app store and if they say no, there’s basically no “legitimate” way for you to get an application on to your phone. ¬†With Android, while the default is to only allow apps to come in through the Android market, a simple uncheck in settings allows you to install applications from any source. ¬†Apple will tell you that’s to protect the user experience. ¬†That’s the same argument the telcos used to exclude devices from their network until, paradoxically, the iPhone came along and led to a new OS-centric model of wireless carriers here in the States and opened up the market to innovation that had been stalled for a decade. ¬†In other words, bullsh**, Apple.

But that’s not enough for Apple. ¬†Once the app has been approved, they want their full share of any revenue generated and won’t allow solutions that circumvent their taxing mechanism, regardless of how consumer-friendly and/or app provider-friendly those solutions are. ¬†If you want to make money on the iPhone, pay us our 30%. ¬†(This one will get really interesting the first time Oracle and SAP get serious about mobile apps. ¬†Clash of the Titans anyone? ¬†But it probably won’t get to that. ¬†Read on.)

If this were any vendor other than Apple, the hue and cry would be so incredibly loud that it would drown out conversation about American Idol. ¬†But Apple, our little darling, gets away scot-free. ¬†Imagine if Microsoft said “any transaction that occurs on a Windows machine will henceforth and forever more involve a payment to Microsoft.” ¬†The antitrust lawyers would move so fast that time would actually go backwards. ¬†But Apple?

Actually, I think this time Apple made a mistake. ¬†A big mistake. ¬†This one is so outrageously wrong that it’s sure to draw scrutiny from all corners. ¬†This could be the proverbial straw that broke the camel’s back. ¬†Apple probably thought “well, it’s only Sony. ¬†Who cares about them any more.” ¬†The real target, of course, is Amazon whose Kindle software is available on all platforms (imagine that, not just iPhone and iPad) and whose sales enrich Amazon’s coffers. ¬†Amazon is a threat to Apple’s control of the ecosystem. ¬†If Kindle is the standard for some forms of digital content, how can Apple own the whole process they way they do with music and, increasingly, video? ¬†If someone is able to stand up to Apple and not pay their ransom, what does that mean for all the others who feel they are being held captive?

So Apple started with Sony. ¬†A trial balloon if you will. ¬†This, however, could instead become Apple’s trial by fire. ¬†What Apple’s trying to do here makes Google’s and Facebook’s privacy intrusions seem like a walk in the park. ¬†Quite simply, Apple is trying to put a meter on the flow of digital content over the Internet. ¬†I’m loathe to draw comparisons to what’s going on in Egypt this week. ¬†Clearly, that’s a real-life saga that dwarves anything we’re talking about here. ¬†However, it’s hard to ignore the parallels. ¬†Enough is enough. ¬†Whether it’s a military dictatorship or a technological one, at some point the citizenry/customers say this has gone on too long and we need to push back.

While I’m not of course predicting such a dire outcome, this could some day be remembered as Apple’s Waterloo. ¬†They’re inviting legislative scrutiny in the United States and around the world. ¬†They’re forcing their “partners” to stand up and revolt. ¬†And most dangerous of all, they’re risking the love and support of their fan base. ¬†If there’s a coordinated effort on the part of content creators across all media types (books, music, video and, with today’s announcement of The Daily, news and information) — heck, even without a coordinated effort — the risk to Apple’s reputation, position (and market cap) is considerable.

Apple is restricting choice, controlling innovation and enriching its coffers. ¬†And it’s not¬†benefiting¬†you. ¬†Enough is finally enough.

I do believe that this week may well have been the Zenith of Apple’s power. ¬†And that’s pretty remarkable to contemplate. ¬†Pride goeth before the fall.

How Important is Steve Jobs?

With the news that Steve Jobs is taking another medical leave from Apple — his third — it’s legitimate to ask the question of just how essential he is to Apple’s success. ¬†This is going to be a quick post, because I think the truth of the matter is that there are probably only 20 people who can answer that question…and they’re so secretive and such a part of the Jobsian communications strategy that we’re not likely to know the answer to that question for another year or more.

By all accounts, COO Tim Cook is a buttoned-down manager. ¬†Apple has been AMR Research’s (now Gartner’s) #1 in its Supply Chain Top 25 for three years in a row. ¬†Thus, I think it’s safe to say that Apple’s ability to execute its plan is in safe hands. ¬†Cook has probably been running large amounts of the operational show for years anyhow. ¬†How much it has helped him to have Jobs’s notoriously strong hammer can be asked, but ultimately this is not where Apple’s potential issues lie.

More to be questioned is how much of the marketing power of Apple is attributable to the “Jobsian reality field” and how much of the product vision is directly attributable to Jobs. ¬†Jobs has indicated that he’s going to remain engaged as CEO and assuming there’s some veracity to that assertion, it’s reasonable to assume that his exquisite sense of product development will continue to guide the company. ¬†With the Verizon announcement, the iPhone momentum continues even while Android continues to make inroads in the smartphone marketplace. ¬†Apple’s business plan never was to be the volume leader so this marketplace condition was to be expected. ¬†The same will probably happen in the tablet marketplace; Apple is quite happy to be the pioneer and then to reap early-mover profits while moving gracefully into the premium price place of the market. ¬†But given that, the question becomes “what’s next?” ¬†Apple has introduced two category-creating, or at least redefining, products in a row. ¬†They probably need another home run in the next two years to sustain their momentum and lofty market perceptions. ¬†Without Jobs at the plate, you’d have to question Apple’s ability, or at least likelihood, of hitting another home run.

This concern extends to Apple’s marketing as well. ¬†Again, they do a remarkable job, second to none certainly in the technology space , and even the broader consumer space. ¬†Here’s where it gets hard to call. ¬†Jobs doesn’t have to be omnipresent to sustain the Jobsian magic. ¬†In fact, lesser Jobs could actually mean more impact when he’s around. ¬†On the other hand, if he becomes perceived as merely a figurehead disassociated from the company he used to rule with an iron fist, his magic could be compromised.

Apple more than most companies is a cult of personality and the extended absence of its leader is a challenge for the company. ¬†That said, I don’t think it’s an insurmountable challenge. ¬†Microsoft was able to transition from a “cult of Bill Gates” to something more nuanced. ¬†But that was much easier because the cult of Bill was vastly weaker than the cult of Steve and the truth of a Bill-ruled company was less than the truth of a Steve-ruled company. ¬†I think we’re nearing the time when for myriad reasons Apple is going to need to let Jobs sprinkle some pixie dust on someone else, a visionary who can sustain the momentum and help transition the cult of Steve back once again to the cult of Apple. ¬†This mingling of Jobs and Apple is a relatively recent phenomenon. ¬†While a search of Time Magazine’s web site and Google couldn’t help me locate the quote, I have vivid recollections of a late 80’s/early 90’s quote there which said “second perhaps only to Harley Davidson is an Apple user’s love of their computer and the company who makes it.” ¬†The Jobs worship started with his return to the company who ousted him and with each successive product success, it grew only larger. ¬†It’s imperative now for Apple to share the spotlight, to bring a new person to the forefront as well as transition that passion back to the company so that it transcend’s Jobs, whatever his health.

So, back to the question that started my musings. ¬†I think Steve Jobs is as important to Apple’s success as any one individual has ever been to any technology company. ¬†Any extended absence by him could prove to be damaging to Apple’s future products and prospects. ¬†It sounds like there’s time for Apple and Jobs to transition that passion back more heavily to the company so that it can thrive in the inevitable absence of Jobs, whether it be this health-related matter, his waning interest or any other thing in life that could lead to his moving on/out.

He’ll be a tough act to follow, no doubt…but not impossible. ¬†Back in the late 80’s, I actually had Steve Jobs as the luncheon speaker at a Gartner PC conference I was running. ¬†This was right after he had introduced the NeXT computer, an amazing piece of software engineering that stood to transform the way we created and used software. ¬†He had demonstrated it weeks earlier at Gartner’s offices in Stamford, after which none other than Gideon Gartner came to me and said “do you think we should standardize our company on these?” ¬†The demonstration was that compelling. ¬†I, being a noted curmudgeon, said “give me a night to think on it,” after which I came up with any number of good reasons why it wasn’t the right thing to do. ¬†At the conference, Steve did his thing, and it was amazing. ¬†You could hear jaws dropping in the audience. ¬†I don’t know how many of you have ever given a meal speech but let me tell you, it’s the hardest thing in the world. ¬†Within three minutes, all you hear is silverware clanking and the din of conversation at the tables gets louder and louder. ¬†Not this time. ¬†Jobs had their rapt attention. ¬†You could have heard a pin drop. ¬†At the end, thunderous applause. ¬†Well, I was the next speaker. ¬†Now what do I do? ¬†How do you follow God and the 10 Commandments? ¬†All I was talking about was operating system futures. ¬†So I asked the audience, “how many of you want one of those things right now?” ¬†Every hand in the room went up. ¬†Then I said “how many of you are ready to standardize your company on those things tomorrow?” ¬†Every hand went down. ¬†(Well, I’m pretty sure Gideon wasn’t in the audience.) ¬†I then said “so now let’s focus on what our real options might be.”

So you can follow Steve Jobs. ¬†I’m just glad that I don’t have to do it again.

Windows Phone 7: Microsoft’s (Considerable) Challenges and its Surprising Opportunity

As I discussed in my last post, mobile is a space Microsoft needs to win if it’s to remain as relevant in this decade as it was in the last two. ¬†I’ll never underestimate Microsoft’s power and, more importantly, its stubbornness/tenacity in battles it must win. ¬†However, there are so many moving parts in this space and so much potential for Microsoft’s efforts to go awry that it’s very hard for me to develop any enthusiasm for Windows Phone 7, launched yesterday.

Let’s just look at some of those challenges:

  • User interface. ¬†Microsoft looked at the iPhone and unlike Google, which said “we should copy that,” instead said “we can do better than that.” ¬†Trying to out-interface Apple is a daunting proposition. ¬†Has anyone done that? ¬†Ever? ¬†And in any event, is this the time it’s going to happen? ¬†I’ll give Microsoft credit for realizing that perhaps the market didn’t need yet another iPhone clone. ¬†However, its approach is actually at odds with how it has succeeded on the desktop. ¬†The desktop and to a large extent the iPhone and Android worlds have succeeded because they’re open platforms upon which application developers can unleash their creativity and users can freely and equally access that creativity. ¬†Instead here Microsoft has said “we know what activities you do with your phone and we’ll make those more prominent.” ¬†If this is actually a static set of activities common across a wide enough range of users, I’d actually applaud that approach. ¬†However, I don’t believe it’s at all a static set of activities and I think there’s sufficient variation from user to user that this approach will generally suffer. ¬†Sure, if you’re a Zune person, great for you. ¬†Both of you. ¬†But I don’t think many users are thinking “wow, this iPhone is too tough to use; I wish someone would simplify my choices for me.”
  • Does Microsoft’s approach make it harder for application developers to achieve prominence? ¬†With Microsoft controlling so much of the initial user experience, applications are relegated to a less prominent position. ¬†This might discourage application creativity in areas Microsoft considers “core,” like pictures or social networks, and might hurt application developers whose applications might otherwise be considered core by users but are relegated to less prominence on WP7.
  • How many platforms can the market support, anyhow? ¬†It’s clear Apple is a long-term survivor. ¬†I don’t say “leader” because ultimately that’s not their business model. ¬†They don’t play in high volume, low margin spaces and make no mistake about it, the smartphone market is going to be high volume in very short order. ¬†Blackberry is positioned to be a survivor as a niche solution. ¬†Their investments in corporate-relevant infrastructure mean that they can be a trusted provider for key scenarios even while other providers infringe on them at the margin. ¬†That means that Android, HP/Palm, Nokia/Symbian and Microsoft are left fighting for markets that can only support one or two of those parties. ¬†The decision may actually rest on more than just smartphones, which leads us to our next discussion.
  • Whither the tablet. ¬†Android needs rework to adequately support tablets. ¬†HP is going to move Palm into a variety of Internet-connected devices, including tablets, printers and more. ¬†What’s Microsoft’s tablet strategy? ¬†I’ll need more time looking at WP7 to assess whether this is a viable UI for tablets or whether it’s more likely to be some evolution of Windows not-Phone 7. ¬†If, however, WP7 is not a tablet or other embedded device OS, that constrains the market opportunity for WP7 and thus its attractiveness to application developers.
  • Velocity. ¬†Microsoft’s track record at getting operating systems out the door is, well, spotty. ¬†(I’m feeling charitable today.) ¬†The velocity in the phone market is a radically different dynamic than on the desktop. ¬†Upgrade cycles are measured in weeks and months, and certainly not years. ¬†Is Microsoft going to be able to maintain that pace and do so in a way that doesn’t jeopardize product quality. ¬†Their track record is sobering.

However, Microsoft is in an interesting position when it comes to the carriers, especially here in the States. ¬†The carriers have a love/hate relationship with Apple. ¬†They’d love to have the iPhone. ¬†They hate that Apple gets to dictate all of the terms. ¬†With Google, it’s more of a wary situation.

While Google is more complicit with the carriers than Apple, the carriers are (rightly) suspicious of Google’s motivations. ¬†If Google isn’t exactly making money licensing the core platform, then what’s in it for Google? ¬†Clearly Google views this as an essential step in moving its ownership of the search space on desktops into a mobile world. ¬†Thus, at some level, Google’s economic rationale and that of its partners are competitive and/or misaligned. ¬†That doesn’t make for a great partnership. ¬†Google competitors all around are trying to drive stakes into that misalignment with these patent lawsuits that further the economic risk elements and point out some of the inequities in the relationship (I get the benefit, you assume the risk). ¬†That said, unless we’re about to change the patent landscape and head to Armageddon like situations, these things usually resolve themselves with small amounts of money changing hands. ¬†I actually think that should one of the involved parties pursue these patent matters to full resolution, it will be counter-productive and will in fact hasten the time when we see patent reform up to and including the elimination of software patents, many of which, to this outside observer, seem, well, patently absurd.

So where does this leave Microsoft? ¬†To the carriers, Microsoft may actually seem like the most benign of the three partners. ¬†At least they understand Microsoft’s licensing model and appreciate the fact that Microsoft was their complicit partner on earlier Windows Mobile platforms (even while such complicity rendered the platform in need of its very replacement). ¬†Again, I’ll write about my dislike for the carriers in a future posting. ¬†They still hold to a desire for control that is unhealthy for the ecosystem and for us users. ¬†But given that they hold on to these notions, their desire to partner with someone who will cow-tow to their mandates is strong. ¬†If Microsoft’s willing to be that partner, all may not be lost for them.

Of course, that means that a Microsoft victory could be very bad for the rest of us…