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

Posted on March 24, 2011 by jyarmis

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.
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Why Letting AT&T Buy T-Mobile Sucks for All of Us

Posted on March 21, 2011 by jyarmis

Letting AT&T buy T-Mobile sucks.  Even more insidious are the rumors that regulators have already given this a wink-wink approval.  Why does this suck?  For many years, we Americans lived in a mobile telecommunications backwater.  Large portions of the industrialized world had better, more advanced telecommunications systems than we did and even emerging markets were leapfrogging over our infrastructure and approach.  Then along came Apple.  Regular readers here know I’m no fan of Apple’s business practices but give credit where credit is due.  Apple knew it had something big and knew that it could strong-arm one of our carriers into playing business by its terms.  So committed was Apple to this approach that it was willing to go with AT&T when we all knew, and have come to see more and more, that its network sucked.

Apple begat Android and for a brief period of time, we lived in a world where capabilities and platforms and ecosystems ruled, not carriers with their focus on profits at the complete expense of user experience.  We were already seeing how much carriers hated that world.  Have you seen the crapware loaded on your phone these days, crap that can’t be removed?  Look at Skype on Verizon’s Android.  I can download Verizon’s version of Skype (and not uninstall it after that), which not only just works on 3G, it requires that you turn off WiFi (so that no other applications can access WiFi while you’re Skyping).  I’ve never understood this but I’m guessing that Verizon is scared enough of Skype as a competitor that they want to give it minimal functionality.  This also means that I can’t use WiFi for Skype internationally, even while Verizon’s CDMA technology is deployed only in a few other countries around the world.  Oh by the way, I can download Skype’s version of Skype, but that works only over WiFi.

Get used to it.  This is the world we’re going to see.  We’re likely to see a trifurcation of the app store world.  Trifurcation?  Yes, we’ll probably see app stores emerge from the carriers since they’ll each impose their own requirements for apps to be certified for their networks.  At the very least, since both networks are likely to impose data caps, each with their own byzantine pricing structures, you’ll have to download the app that’s best optimized for the network pricing model.  (You’re going to love that one, app developers.)  And trifurcation?  Well, the cable companies have already banded together to offer unified WiFi in many markets (e.g., TimeWarner and Cablevision in New York City), to better compete against mobile/telco Internet/TV incursion.  We’ll likely see an app store emerge from there, with apps that are designed around a very different model, whereby you do your high bandwidth transactions when connected to WiFi, in an online/offline synchronize model as opposed to the mobile model of perpetually available bandwidth.

This is not progress.  This is not innovation.  In fact, it will stifle innovation and inhibit the deployment of broad-based mobile applications and infrastructure.  What can we do about this?  Not much, I’m afraid.  I’d love to say “write your congressman and write to the FCC,” but I’m not so young and naïve as to believe that would help much.  What would I like to see the regulators do here?  For starters, I’d love to see them disallow the deal on anti-competitive grounds.  If you believe the scenario I outline above is possible or even likely, this clearly is a combination in restraint of trade.  If they won’t do that, at least impose these regulations on the merged entity:

  • Limitations on data caps for a period of 3-5 years.  Anyone with an unlimited plan at the time of the merger gets to keep that as long as they maintain a data contract with the carrier.
  • A prohibition on a carrier app store.
  • Limitations on the crapware installed on phones and/or the ability to remove it, at least after 90 days of phone ownership.
  • Serious notifications of potential data overage where there are data caps.  We’ve only recently gotten that protection for call overages — long overdue, and prompted by European regulators, not ours.  In data, it’s much more insidious because we don’t always know when/how much data we’re using.  There should be onerous requirements on the carriers here, such that we can effectively meter our usage.  And there should be rollover of unused data.

I wish I believed any of this would happen, but I don’t.  Instead, I think we’re about to enter a period where the ironically named Long-Term Evolution (LTE) is actually a major step backwards on the evolutionary scale.  We’ll have faster speeds…and much less ability to exploit them in interesting and game-changing fashion.  It’s a shame that AT&T, who was once broken up by the regulators, is so adept at the regulatory game that it is about to win via acquisition what it could never win the open marketplace.

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Why Do Android Tablets Cost More than the iPad?

Posted on March 3, 2011 by jyarmis

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.

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The New Math: When 5 + 4 = 1 (Nokia and Microsoft Get Together)

Posted on February 11, 2011 by jyarmis

The rumored partnership of Nokia and Microsoft has come to pass, as Nokia announced today that it is going to embrace Windows Phone as their primary smartphone platform.   I’m not going to go into a deep analysis of the keys to success.  That will be well covered in the news today.  The big one obviously is how many platforms will developers support?  iPhone, of course.  Android is on the cusp of becoming 1a to Apple’s 1.  A must-do platform.  In certain markets (e.g., enterprise), Blackberry is 1b or at least a strong contender.  HP made its WebOS move earlier in the week, with some interesting value propositions, linking computers, tablets, phones and peripherals.  What would make Windows Phone compelling for developers?

Nokia has had its own set of challenges.  While they long said they were the world’s largest Smartphone company, they were kidding no one.  Once the iPhone came out, they were yesterday’s news.  Once Android gained momentum, they were in full denial mode.  They missed key trends (like Americans were buying clamshell phones) and took years to rectify the shortcoming, never to regain market position.

So now Nokia and Microsoft are partnering.  Not surprising, considering where Nokia’s new CEO, Stephen Elop came from.  (Microsoft, if you don’t already know.)  It didn’t take him long on the job to conclude that Nokia’s own efforts were failing and ultimately failed.  Nor did it take him long to conclude that his best strategic bet was Microsoft.  Given his background and their mutual desperation, it didn’t take long to conclude this deal.  In some ways, it’s almost stunning in its rapidity.

I just want to ask one simple question:  when have  two waning market players ever combined together to create one market-winning entrant?  I was sitting in a session yesterday at New York’s Social Media Week next to IBM AR star Mauricio Godoy and I asked him to come up with any examples of where this had worked.  Interestingly, he came up with a couple of situations.  Involving musical artists/groups.  I’m not sure they were entirely compelling but at least they had merit worth discussing.  But neither he nor I, nor anyone else I’ve asked this question to, could come up with a compelling instance where two fading businesses combined to reassert market leadership or even competitiveness.

Combining my problems with your problems sometimes solves both our problems.  More often, however, it increases complexity and amplifies both of our problems.  Friend and fellow analyst Bob Egan Tweeted this morning “Execution has been Nokia’s shortfall yet now it seems they are taking on even more execution complexity. Was hoping for simpler more focused.”

Often in business conversations, you hear people say that they’re looking for situations where 1+1 is greater than 2.  Here we have a situation where 5+4 is supposed to produce 1 or 2.  Now I admit that I’m just old enough that I missed the “new math” in high school.  (My sister, two years younger, learned it.)  But I don’t see the math working.  And in a market so dynamic and fast-moving, combining these two entities, neither of them known for their speed, may just hasten their mutual demise.  (I would, however, love to hear of successful business combinations in this vein in the comments.  Anyone?)

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Verizon to Randomly Punish Heavy Data Users

Posted on February 3, 2011 by jyarmis

Apparently, Verizon is going to begin throttling the data speeds of the top 5% of heaviest data users.  While I am sympathetic to the need to manage capacity on their network, this approach is just wrong on so many levels.

  • Most importantly, you have no knowledge or ability to control your situation.  If they said “over 500 gigabytes will get you penalized” (and gave you tools to understand your consumption; for now, this requires third party tools), I would be somewhat sympathetic (though probably not happy).  Now, however, you only know you’re offending after the fact.
  • This also creates a situation whereby if we all start conserving data access, to avoid being in the top 5%, we’ll reduce data usage and yet the top 5% will still get penalized.
  • I think Verizon is going after the wrong party.  I’m guessing the biggest issues are with high-bandwidth consumption sources like streaming video.  Hmmm…like their Vcast video service.  So, basically they’re selling you access to video services (for which you pay a premium) and then when you actually use the service, they say you’re doing it too much and cutting your service.  I don’t pay for any Verizon premium (high bandwidth) services like their GPS solution or their video packages but if I did, I’d be screaming bloody murder.  (How much do you bet that under the covers they’re actually going to exempt their own services from counting towards bandwidth consumption?  Next to scream, then:  Netflix.)

If Verizon has a data capacity issue, here’s how I would solve it:

  • Set pre-defined limits so that we know the playing field.
  • Give us tools so that we know when we’re approaching those limits and, more importantly, what our offending apps are.  I don’t know which of my apps are bandwidth hogs under the covers.
  • Figure out how to throttle speeds selectively.  If you throttle my low-bandwidth applications, like Foursquare check-ins or text emails, I probably won’t even notice the difference.  For me, no notice.  For you in aggregate, maybe enough of a difference that you don’t have to pursue these other painful approaches.

Congratulations!  You’ve bought a smartphone.  You paid big for the phone.  You pay big for the data package.  Now go in the corner.  You actually use all of the things we sold you.  Who told you to listen to us?!

 

Filed under: Mobility | Tagged: , , , | 1 Comment »

Apple: When is Enough Enough?

Posted on February 2, 2011 by jyarmis

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.

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