Jonathan Yarmis is Doctor Disruptive

I am down at IBM Connect (formerly Lotusphere) and was having lunch with four gentlemen from Sogeti, the global consulting company. We were talking about the evolution of IBM ‘s business.

I’ve been following IBM and Microsoft professionally for 25-1/2 years now. It dawned on me during this conversation that IBM had undergone an almost complete transformation while Microsoft has done none. Microsoft, then and now, is a Windows and Office company. They’ve increasingly become a provider of enterprise solutions, but still, it’s Windows and Office. Ironic, isn’t it, that the historic champion of the user, has become slow moving and enterprise-focused even while the market has embraced the consumerization of IT.

Meanwhile, the IBM I first knew was… well, at least the mainstream is a constant. But they’ve moved from hardware to services and software. From big enterprise systems (e.g., DB2) to a vast array of tools, middleware and platforms. (As an aside, it delights me that my spell checker accepts “middleware,” as I was in the room at Gartner when that term was coined.) And even the things they’ve always done have been refreshed and repositioned, although they might argue that the more things change, the more they remain the same.

Anyhow, it’s interesting to think that the company we think of as the innovative upstart — Microsoft — is actually the stagnant one, while the one we think of as the stodgy old company –IBM — it’s probably the best example of a big company transforming and continually reinventing itself. Master narratives are slow to change. Maybe it’s time to rewrite this one.

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As is so often the case, the Wall Street conversation about Apple’s “miss” generally misses the bigger issues.  You know I have issues with Apple’s general approach to business and you might think therefore that I’m going to gloat about a 10% drop in their stock price.  If you thought that, you’d be wrong.  Not being an investor in Apple, the stock price doesn’t terribly impact me, probably you and really, the way they do business.  Apple’s stock price doesn’t really impact its business.  Sure, some employees might go work elsewhere if the stock doesn’t continue growing robustly though Apple has always been more of a “let’s change the world” kind of place.  It can influence their ability to buy other companies but really, with over $137 billion cash on hand — that’s greater than Vietnam’s GDP — financing acquisitions is the least of their problems.

So, what do I think is interesting here?

• Apple has always been a new hit kind of company.  Back in the late 80’s, my then-boss Doug Cayne, when talking about Apple, would talk about how much of their revenue was generated by products introduced in the last year.  (How quaint it seems that vendors actually generated considerable revenue from products that were over a year old.  Not in today’s world.) Thinking of it this way shows the problem starkly.  The iPhone was introduced in 2007, the iPad was introduced in 2010.  That’s an easy sequence to figure out.  Is there a new product coming in 2013 to reinvigorate growth.  (More on this in a bit.) In the absence of this new product, it’s somehow not surprising that slowing momentum in older products is impacting Apple’s results.
• Older products + greater competition = lower margins.  Even a “success” like the iPad Mini came at a hit to margins as at least some of those sales cannibalized higher margin big iPad sales.  This is not yet an Apple strategy but rather just a result of aging product mix.  If Apple introduces lower-priced iPhones, then we’ll know they’re pursuing a lower margin strategy.  Until then, I view this as just a product mix and age issue.
• Those who are against a lower margin strategy miss an important point.  Apple’s revenues and margins are not exclusively from their hardware sales.  Not remotely.  Via the iPhone Store, Apple gains considerable, and highly profitable, follow-on revenue for every device sold.  The whole ecosystem produces one of those virtuous cycles for which this industry is legendary.  If I have one regret, as an Android user, it’s that application developers for the most part favor the Apple platform first with Android typically a second, and sometimes distant second, platform.  Given the fact that Android unit volumes are greater than iOS, why is this?  It’s because iPhone users are much more likely to buy applications and services than Android users, who are overall at the lower end of the economic spectrum.  If Apple doesn’t play at lower ends, at some point Android’s growing market share will result in a shift in application developer priorities and thus it’s prudent for Apple to move downmarket.
• An interesting way for Apple to play in this space would be for it to start supporting non-Apple devices.  Apple today offers certain software products for Windows (e.g., iTunes).  At what point to they consider it lucrative and important to support Android? Increasing the urgency for this are the inroads Google’s making onto the iOS platform.  I don’t need to point out the whole maps disaster and YouTube on iOS is a major player.  (Psy’s Gangnam Style video alone generated $8 million in revenue for Google.)  Thus, from a defensive and offensive position, I think we’ll see Apple begin to embrace Android to bound the competitive threat.
• More importantly, the telecom industry has talked for some years now about “the next billion.”  Growth in this industry is going to come from emerging markets which have two important characteristics:  with lower GDPs, they’re much more price-sensitive and they’re often going to be users whose only computing device is their phone, unlike the Western world, where we typically have at least one computer to go along with our phone (and MP3 player and camera).  Despite my recent note about the single converged device, this new market may not have the money for multiple devices and thus the phone is it.  Growth is coming in this market.  It’s prudent for Apple to play in it to cement leadership in a post-PC world.
• Overlooked in Apple’s financials is the fact that they as much as anyone are being impacted by this post-PC world.  Mac sales were down over 20%.  That Innovator’s Dilemma is a tough mistress.
• Back to the new product question, this is a fascinating topic on which to ruminate.  It’s also difficult. Who before the iPhone and iPad predicted that Apple was going to revolutionize those categories?  So what’s next?  Conventional wisdom for some time has said an Apple TV is next.  Not the existing Apple TV small box.  I have a Samsung SmartTV, a Tivo and a Roku and all of those demonstrate both the opportunity and challenge for Apple.  The existing Apple TV box is not materially different than any of those, not enough to be the ground-breaker that saves the company.  And merely building those into the TV box itself is not the answer either.  Here’s actually where Apple may miss Steve Jobs.    Jobs had a great record in beating industry executives into submission around the iPod (music labels), iPhone (carriers, starting with AT&T) and, to a lesser extent, iPad (content providers).  The video (TV and movie) industry saw what happened to those others and was ready, willing and, so far, able to resist Apple.  To redefine the viewing experience, Apple needs their cooperation and so far that hasn’t been forthcoming.  Could Jobs have convinced some operator, network and/or studio to capitulate?  I guess we’ll never know.
• So, if Apple TV isn’t the 2013 savior for growth and increased power, what’s left?  If Apple’s going to surprise us, I would expect it would relate to something around the living room.  The TV is just one part of a broader home ecosystem that includes entertainment, environmentals, games and more.  Existing systems right now are insanely expensive and massively compromised.  Apple alumni are already showing what’s possible in the space — the NEST thermostat, which Apple is already selling.  Apple has the vision, the human factors, the gadgets and the resources to nail this one.  If I were advising Apple, I’d say own the home before you go about redefining the TV.  It’s the classic market for Apple.  Lots of people have been dabbling in it for years, with terrible implementations.  Apple can swoop in and everyone will laud them for inventing yet another market. </end sarcasm>  But seriously, doesn’t this scream Apple?  No more talk of the Xbox being Microsoft’s trojan horse in the home.  It’s Apple’s market to own.

There you have it.  Ignore the stock market reaction.  Apple had an amazing quarter by the standards of anything other than Apple’s previous quarters.  But there are big questions for Apple going forward.

• What’s its “next billion” strategy?  Apple on Android?
• What’s its next big idea? Not the TV. The home.

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For almost six years now, I have defined my “disruptive troika” as the intersection of social, mobile and cloud. Four years or so ago, I made a note to myself to add “big data” to that list. I never did that.  Even as “big data” has taken off as a subject of discussion, I’ve resisted adding it to my list (although I’ve occasionally dabbled with “analytics” if only because it makes for such a good acronym: SMAC — social, mobile, analytics and cloud).  Today I’m going to cement my position.  I’m not going to include big data in my list of disruptive technologies. Or maybe I should, because in focusing on “big data,” so many people are missing the point.  Big data has been co-opted by vendors wanting to sell more and bigger iron and more and bigger software, rather than more and better customer solutions.

She Done Him Wrong (Photo credit: Wikipedia)

Let me state my biases up front.  I think the world is divided into two fundamentally different kinds of people, the quals and the quants.  The qualitative types would rely on judgment, analysis and experience.  The quants believe there’s truth in the numbers.  Despite being the son of a CPA, I lean strongly towards the qualitative side.  I look for data to inform my judgments and support my positions but I begin with a hypothesis and then look for supporting (or contradictory) data rather than beginning with the data.

So where does the problem lie?  Or, rather, where do the problems, plural, lie?

• I have an immediate and strong negative visceral reaction to use of the term “data.”  In about 1971, I had a summer job at IBM’s Data Processing Division headquarters at 1133 Westchester Avenue in White Plains, NY.  Back then, it was fair to characterize what we did with computers as data processing.  We have spent the last 40+ years trying to move up the information hierarchy from data to information to knowledge to wisdom.

So how is it that after 40 years of progress, we blow everything up and talk about the lowest level, the lowest value, the largest in volume?  The focus is wrong.

• More data is rarely the solution to a problem.  In general, we find that we’ve got all the data we need, and then some.  To use a politically incorrect example, on 9/12/01, we were able to trace the history of all of the terrorists back for years.  We knew where they came from, what flight schools they went to, how they moved around and so on.  We actually had all of that data on 9/10, and before.  The problem wasn’t the data, the problem was drawing predictive insights from it.  Nassim Taleb, author of the Black Swan, actually makes the provocative argument that data is toxic in large volumes, that it increases the noise in our signal-to-noise ratio.
• Vendors have co-opted the term to sell everything from in-memory databases to massive storage systems to faster networks to more sensors.  All of these may have a role in your organization but chasing technology in the name of “big data” is just a license to spend money.  Badly.

So, if more data isn’t the right focus nor the solution, what is?  Actually, this isn’t a new problem/solution.  Back in the early 90’s, I’d talk frequently about how Benetton transformed the fashion industry.  It’s quaint to think of now but back then, retailers typically planned and deployed their fashions long in advance of the season.  Some time in the spring, a retailer would order and a manufacturer make all of the items they were going to carry in their store in the fall or even the following spring.  If they bet wrong, they had massive excess inventory.  If they bet wrong the other direction, and something became much bigger than they had forecast, they just had to hope that trend continued into the next buying cycle, a year hence.  Benetton had the radical, for the time, notion of not ordering everything in advance but instead would change orders in season.  If something was hot, they’d deploy more.  If something was cold, they’d just shut it down.  (It’s ironic that Benetton was done in by competitors who proved even more nimble than they, further shortening time to market.)

Using timely data to inform critical business decisions and transforming supply chain decisions based on that.  That’s what we were talking about then and what’s what we should be talking about today.  The change isn’t so much in the volume of data, though that’s readily apparent, but rather the velocity and shelf-life of data.  We used to receive data daily, monthly or even quarterly.  Now we receive it instantaneously.  And data used to have a long shelf life.  Now, much of the data we can receive (e.g., location data) has value that’s measured sometimes in seconds.  Use it or lose it(s value).

So, what do we need to do differently?

1. Focus on velocity, not volume.  You need to shorten time-to-decision.  And having reached a decision, you need to shorten time-to-evaluation.  Is your strategy working?  If not, change it.  Quickly.
2. Test hypotheses. The volume of data is so large that the ability to “find truth” in the data is much akin to finding a needle in a haystack.  If one of the famous lines from The Graduate was “plastics,” the secret today is “mathematics.”  Hal Varian, chief economist at Google and Cal Berkely academician, has said for over five years now that mathematics will be the growth profession of the century as those skills will be necessary to build the models that will make sense of, or at least test, the volumes of data that we’re generating.
3. Business 101.  Make sure you understand your business rationale for chasing an information solution.  Can you act meaningfully on the information and will it drive better business outcomes.  I’ve talked to too many people where, when I ask “what will you do differently if you could answer that question,” their answer basically is “well, nothing.”

I’m not saying that we can’t improve business processes or outcomes.  I’m a strong believer in our ability to take data and transform it into real business value, and tend to reject Taleb’s position, even while it delivers a cautionary note.  But if we continue this fool’s chase for Big Data and don’t transform it into better and faster actionable insight, we will have wasted money and competitive opportunity.  The focus must be on action and velocity, not volume.

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The question of the single converged device has been around for over 30 years now, almost from the time the second portable device was introduced (whatever that was).  A few years ago, conventional wisdom was that the iPhone finally answered that question affirmatively.  The iPhone was going to kill MP3 players, cameras, portable game devices and just about everything else portable.  As so often is the case, that conventional wisdom was wrong then and only gets more wrong every day.  Let me put it simply:  the single converged device will never exist.

This is not a position I’ve come to recently.  I can only find reference to my position on the Internet back to 2008 but my position here actually significantly predates the commercial deployment of the Internet.  In fact, it goes back to June 1987!      The very first research note I wrote at Gartner back then had this exact same title.  If I could actually find that note, I’d just reprint it in its entirety but the gist of the argument is that dedicated devices optimized for specific functions will always outperform general purpose devices.  At sufficiently low price points, the optimized device becomes attractive.  Further enhancing the attractiveness of dedicated devices is the still-vexing issue of power.  If I had devices that were never power-constrained, I might sacrifice certain devices but given real power constraints, we’re often facing trade-offs between device utilization and battery life.  Do you really want to play music on your phone while you’re flying if it means that you can’t make that emergency phone call when you land?

The advent of cloud computing has made it easier for us to support multiple devices.  In those old days, there was always a file movement challenge.  Your files were never on the device you wanted them to be on, and getting them from device to device required technical expertise that was sometimes even beyond my capabilities.  Now, my camera is WiFi equipped (well, one of the two that I have) and further can connect automatically through various predefined Internet providers to upload my pictures wherever I happen to be to whatever picture sharing site(s) I want to upload the pictures to.  Cloud computing reduces some of the friction of adding an additional device and thus makes it easier to make a dedicated device choice.  Of course, many service providers are struggling to keep up with this.  My cable provider, Cablevision, will only allow me to have a few devices automatically log in to its WiFi network and my music provider, Rhapsody, will only enable me to register a few devices, certainly not as many as I have.

So, what do I have?  And what don’t I have?  So, here’s my inventory.

• Desktop computer. A 23″ all-in-one device, perfect for apartment living.
• Laptop computer. 10.6″ Windows 7 laptop.  I’ve always gone for smaller, lighter devices and with a real 8 hour battery life and under 4 lbs., this laptop has led a resurgence in Windows-based computing for me.  When I say “resurgence,” I still use my portable devices for over half of the email and web browsing I do, but there was a time when my portable access was probably 90%.
• Phone.  Samsung Galaxy S III.  Big (almost 5″) Android-based phone, 4G, on Verizon.
• Tablet.  Google Nexus 7, Wifi only.  I use my phone’s hotspot capability when I don’t have Wifi access available.
• MP3 player.  I have a Sansa Fuze device, connecting to the Rhapsody To Go subscription music service.
• Cameras: I have a Samsung pocket camera (Wifi-enabled), a Panasonic digital videocamera and a Fuji faux-SLR (higher end than a pocket camera but not really an SLR, but a fraction of the price).
• TV: I have a Samsung 46″ “Smart TV” in the living room and a 32″ “dumb” TV in the bedroom.  Both are connected to TiVo.  I have a Roku box connected to the bedroom TV.
• Game console:  I’m going to hook my son’s Xbox360 to the living room TV.  He has left it here since his roommates in college already have one (or maybe even several).
• I have a home phone system that connects via Bluetooth to my cell phone so that I can leave the cell phone charging and still walk around the apartment with phone handsets.
• Printer: an HP all-in-one device (inbound faxing is done via eFax; the device isn’t actually connected to a phone line).  The device also has HP’s ePrint service so I can print to it from mobile devices and remote locations.  I admit I’ve never done this other than to test the capability.
• I also have various portable charging devices so keep all these things powered up.  I’m constantly reminded I should bring extra ones along, not because I need even more power but because every time I use one, typically at a Starbucks or airport, someone comes up to me marveling at my solution.  I’m sure I could sell them at a huge markup.

And what don’t I have?

• Phablet (that awkward cross between a phone and a tablet).  There’s little room between my 5″ phone and 7″ tablet for the interim device.
• 10″ tablet.  I actually had an early Android 10″ tablet (Acer A500) but given strong battery life on my 10.6″ laptop, I found I was using my laptop more and more and the tablet less and less, so when I got the Nexus 7, I gave the big tablet to my son (who uses it).
• Dedicated game device.  I just don’t play that many games. 
• You’ll notice I have no Apple products.  That’s my political statement.  I think Apple does beautiful work (although you sure have to pay a premium for that level of integration) but I don’t like the control they exert over their ecosystem.  If Apple was in charge of the Internet in the early days, the Internet would look nothing like it does today, and not in a good way.  I’m a believer in open ecosystems generally and I’m willing to pay an integration premium to support that belief.

And I see more devices in my future, not fewer.

In 1987 I wrote “the single converged device will never exist.” In 2013, 25-1/2 years later, I stand by that position.

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In the middle of last year, Google launched Google Fiber in Kansas City, offering a comprehensive and compelling high speed Internet and TV offering.  Let’s just say for the first time ever I thought “maybe it would be good to be living in Kansas City.”  OK, I got over that quickly.  I had largely forgotten about Google Fiber but recently, in a group of which I’m a member, someone asked “is Google serious about getting into this business?”  Short answer: no.  But Google’s initiative here is instructive as part of its larger strategy.

You may remember that back in 2008, Google bid on spectrum.  Google didn’t actually want to own the spectrum but wanted to force the price over a threshold which guaranteed openness.  Bidding $4.6 billion (yes, billion with a “b”) or more sent a message to the carriers about Google’s willingness and ability to invest to get what it wanted.  Verizon ultimately topped Google’s bid, to Google’s relief, but a message was sent.

Google pursues this same approach with its Nexus line of products. Their idea here isn’t so much to compete with its partners, though there’s certainly an element of that, but to set an example of what can (and should) be done.  Google can use the threat of direct competition to get device manufacturers (and carriers) to support features Google feels important to be supported (e.g., NFC and payments).  You could view Google’s purchase of Motorola as its expression of dissatisfaction with other handset manufacturers and the carriers, wanting more direct control of handset production.  Certainly the Motorola purchase was also motivated by Motorola’s patent portfolio but the handset club was no doubt an attraction.  Google walks a thin line here.  Samsung’s recent embrace of Intel’s mobile platform and operating system is certainly a response to the Motorola threat.  This isn’t necessarily the biggest threat in the world but Samsung is taking a page from Google’s own playbook.  These megaproviders have sufficient assets to engage in high-stakes games of chicken.

So, back to Google Fiber. We in the US are far from state of the art in our wired (or even wireless) infrastructure. In fact, we’re about 16th.  My first cable modem deployment was around 1997.  At that time, Cablevision delivered 10 Mbps to my home.  Here we are, 15 years later, and Cablevision’s base service to my home promises only 10 Mbps.  Still.  (They’re actually delivering closer to 16 on a regular basis, but we’re hardly talking about Moore’s Law kinds of evolutionary speeds.) Why do we lag so badly behind Western Europe?  One major study concluded that it’s competition that accounts for the difference. Google’s current and future business prospects are inextricably intertwined with better and faster broadband access, wired and wireless.  So, if it’s competition that will lead to improvements and if competitors are loathe to push each other — that requires massive capital investment — then Google has to provide that competition.   There was a day when you might have thought Verizon’s FiOS was going to be the great challenge to the cable companies.  Verizon has killed that hope. So into this breach steps Google Fiber. Who here wouldn’t want that service? The message is “look what can be done”..And c’mon Time Warner, Comcast, Cablevision et al. Get with it or maybe we’ll do it in your neighborhood. And customers, demand more. It must piss Google to no end that it’s entirely reliant on two of the most backwards-thinking oligopolies in the world, cable and wireless, which exert considerable influence over Google’s future monetization opportunities (e.g., payments).

So, does Google want to own spectrum? Manufacture devices? Deploy cable systems?  No it doesn’t.  But if it doesn’t get other parties to do things they way it wants them done, Google will absolutely do the things it needs, not just the ones it likes.  Google surely has the resources.  It’s sitting on nearly $45 billion in cash.  That’s quite a war chest.

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2012 was a strange year for me.  On the  employment front, I spent (way too much) time working on a start-up that never came to fruition.  I then took a job that didn’t produce the opportunities either I or the employer hoped would come to pass.  In all that time, I was holding off on blogging because I was saving “the good stuff” for my new opportunity.  Lesson learned.

But I’m back, with a vengeance.  The world has changed a lot in a year…but has also progressed not nearly enough, and in ways that I think are counter to where we’re going to end up a few years out.  I’m back to document and discuss my perspectives.  I’m also back with a new attitude and approach.  In the past, I wrote long blog posts.  OK, very long blog posts.  I think the world still needs long-form exploration of issues, and I’m not going to shun that approach, but I’m going to supplement it with regular (even frequent) top-of-mind pieces.  Some of these will be spurred by current events or just random interactions I’ve had in various media.  The net will be that I’m going to try to write often (3-5x/week).  I hope you welcome the increased interaction and I look forward to discussing the timely and important technology and business issues we’re facing

My theme will, as ever, remain “disruptive technologies.”  For five years now, I’ve defined this as the intersection of social, mobile and cloud.  More recently, I’ve added analytics/big data into the equation (even while I think this is a grossly misunderstood area; more on that soon).   I’ll be adding some new things in the mix for 2013.  You can get a hint at through my regular video series, Pardon My Disruption, produced with the Stamford Innovation Center. If you’re in Stamford at noon the second Friday of every month, come on by and join our recording.

Just a quick note about Pardon My Disruption.  If you’ve ever watched the ESPN show Pardon the Interruption, you’ll get the idea of where I’d like to take this concept.  For those of you not familiar with it, PTI is a daily sports news show hosted by Washington Post sports columnists Michael Wilbon and Tony Kornheiser.  They’re, if this is not an oxymoron, two literate sportswriters and they banter about the day’s sports news.  They have adopted what I have embraced as the winning strategy for dialogue/debate shows: 1/3 legitimate debate, 1/3 mutual exploration of the issues and 1/3 scurrilous personal attacks.  I would love to evolve this into a full-time daily thing.  I just need two things: my Michael Wilbon and someone who will actually sponsor this and/or pay me to do this.  For now, I’ll just do this monthly with the Innovation Center.  Hopefully I can evolve it to something more structured and frequent and then, maybe, on to its full expression.

Nice to be back.

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I have been away from blogging for too long.  I won’t go into the reasons why — suffice it to say, I’m no longer saving anything for future commercial opportunities — but it’s nice to be back.

What has spurred this posting is a response I received from an anti-SOPA/PIPA message I sent to one of my (Connecticut) Senators, Richard Blumenthal, who as the state’s Attorney General was a fierce advocate for the consumer.  He in fact had been favorably inclined towards these terrible pieces of legislation although, like many in Congress, was clearly swayed by the outpouring of rational arguments against these bills.

I’ll post here the Senator’s reply to my letter.  At the end, he asks a very interesting question, and I’ll also include my response here.  Bottom line, I don’t think we need legislation to combat piracy.  I think industry has all in its power to build solutions that the market will embrace.  However, to do so will shift the economic value from the label to the artist/performer…and the industry will fight that to the bitter end, relying on legislative efforts when its other efforts fail.

Here’s what the Senator replied to me:

I think the Senator unwittingly asked an important question, and I responded thusly:

“Thank you for your thoughtful response.  You ask, perhaps unintentionally, a key question:  “If you think we can eliminate online piracy…”  That, of course, is a fundamentally absurd notion.  We can not eliminate piracy.  More importantly, though, going forward the key question we must ask is “is this a matter for governmental regulation or is this a matter for markets to resolve?”  I would argue that those who are most strongly advocating for governmental involvement are those who have been unwilling, not unable, to pursue free market solutions.

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Google’s decision to buy Motorola Mobility for $12.5 billion is one of the more nuanced acquisitions we’ve seen in a long time.  There are certainly a few negatives to the deal but the positives are so overwhelming as to render those negatives largely irrelevant.

The bottom line is that Google had to do something.  After having lost the Nortel patent treasure trove and facing an increasingly litigious Apple, Google’s options were limited.  The fact that Apple was able to gain an injunction against Samsung’s Android-based Galaxy Tab in Europe forced Google’s hand.  Google had been sitting on the sidelines while the Android licensees were bearing the brunt of the legal expenses, and risk.  Google has responded with a resounding play.  This acquisition very much levels the patent playing field over which so much is at stake.  (I won’t get into what I think about this whole patent situation but it’s clearly gone horribly awry, from protecting innovation to stifling it.)

Sure the licensees can’t be happy about having to compete with their technology provider.  That’s never a good situation.  However, I think Google should largely be able to assuage their concerns and in fact, I don’t think HTC and Samsung are the biggest target of this acquisition.  Google continues to need them to provide a rich ecosystem of devices behind Android.  And besides, Samsung and HTC are kind of stuck.  What are they going to do?  Throw their weight behind Windows Mobile?  That situation is no better and Google’s acquisition here may even force Microsoft into buying Nokia or RIM.  WebOS?  Nope.  This is still their best bet and they’re likely to be able to compete effectively with Google/Motorola to deliver compelling handsets, assuming some semblance of a level playing field, which I expect to be the case.

Google’s acquisition here really targets two other segments of the mobile space:  Apple and the carriers.  The patent battle with Apple is now on much more even footing although the real winners here are likely to be the lawyers who now get to sort this all out.  As regards the carriers, Google had to be envious of Apple’s ability to pretty much call its shots with regard to full hardware and software design.  Google had to do much more to kowtow to the carriers’ backwards notions of how things should be brought to market.  Now Google can deliver against its own vision even while Samsung, HTC and the others can get cozier with the carriers, dealing with the double-edged sword of carrier favoritism.  That favoritism clearly benefited Motorola with the original Droid launch.  Now we’ll get to see how much that might benefit HTC and Samsung as against Google’s unified vision but potentially weaker carrier relationship.  Google has clearly been trying to develop direct customer relationships beyond the control of carriers; now they have that chance.

Underappreciated in this deal is Motorola’s cable set top box business.  Motorola and Cisco/Scientific Atlanta are the dominant leaders in this space.  (I actually worked for General Instrument back in the middle 80’s, before Motorola acquired it.)  Google clearly continues to struggle with Google TV and its partners have recently slashed the prices of their devices, down as low as $99 (from $299).  All of a sudden, Google TV now has a major market share.  Of course it will take years for this to fully manifest itself as cable box life cycles are pretty long.  (When’s the last time you changed cable boxes?  Probably when you moved, if then.)  But the discussions Google will have with cable companies and TV manufacturers will change considerably after this acquisition.  All of a sudden, Google means more to them.  This might actually drive some business to Cisco but it also present Google with a unique opportunity to reshape its TV and media strategy.  I’ll have to give this one more thought.

Bottom line, this was a great and necessary move by Google.  The Android partners are not as happy as their press release comments indicate but they needed patent protection from Google and this is the best possible way Google had to accomplish that.  They can still compete effectively and anyhow, they don’t really have a choice.

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