January 2007
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Month January 2007

Choice, end to end control, distributed innovation and that iphone thing

A lot of chatter about the iphone — just read Dave Winer's piece — lots of conspiracy theories about how real the Job's demo was and people are starting to focus on the question of how closed the platform is.  Jobs has said that the platform will allow third party development but it will be "restricted" and managed — like ipod games.  Apple believes that in order to get a product into market — out of the box — end to end control of the hardware and software experience is the easiest and fastest way to deliver something that works to users.   This worked in the case of the ipod — it wasnt the first MP3 player to hit the market, it was just the first to work as seamlessly as it did, from the device to the pc.   There are smart phones of many flavors out there today — but they all require a lot of setup, maintenance etc.  The iphone is clearly going to be different — take a look at the Pogue's list of what is does and doesnt do.    

Last year I lived in Italy for six months and I made some notes about what an insanely mobile the country was — 57M people with 70M cell phones.   There are more mobile phones here than fixed lines, estimates are that 18% of the population have cut the cord (chk). Kids and couples walk around listening to cell phones playing music, like 30 years ago people would walk around listening to a radio.    Someone we know was chatted up by a waiter at a restaurant — for follow up, he offered her a SIM chip instead of offering his phone number.   SMS is everywhere and its far more conversational than in the US. The rates and pricing plans push people to SMS.    Wifi is fairly available and the cell co's are clearly nervous about voip / skype – 3 (Hutchison Whampoa) has an offer in market for $15 a month unlimited voip calling to over 25 countries from your handset.    And in Italy Apple has next to no presence (as of 06 they had no stores and next to no market share).  In Italy Apple has next to no presence (as of 06 they had no stores and next to no market share).

Over time the iPod functionality needs to merge into the phone.     Yet Apple has created a business model that is based on tethering hardware to software and reaping all of the margins on the hardware.    The result is that music that I have "bought" on iTunes isn't transportable to other non apple devices.   I really haven't bought it, its a rental agreement – with the a right to listen to that music on 5 apple pc's / devices.  Jobs knows that the ipod is close to its peak and its time to move the ball — the question in my mind is whether open and unlocked alternatives — palm, symbian, rim and even linux phones can out run Apple. 

The pressure points are in my mind (a) apple's dependency on the ipod and its related business mode — the iphone needs to have everything the high end ipod has (focus will be on music, video and phone — watch how they execute on core ipod features (eg: access to itunes store from the device (which today is not available), music and video sharing (also not available)) and then non ipod functionality.    The phone is a messaging device, music and ipod functionality needs to balanced against great messaging capabilities — voice and text (Phones outside of the US are used more for messaging that voice — calling them phones is a cultural artifact — they are messaging devices with voice as a secondary features)   (b) apple's tie to cingular (2 years), and the associated restrictions this brings with it (re: no voip, open wifi roaming, no HSDPA/3g, requirement for a 2 year contract, no unlocked alternative etc.)  (c) the tension between a closed end to end platform with controlled innovation vs. an open platform with distributed innovation and lastly (d) the execution of the hardware / device and the lack of a keyboard.  If this is mostly a media device Apple will miss the broader market. 

I have no doubt people will buy this product — it seems like a beautiful piece of hardware and simply postioned as the highest end ipod it will find a market —  just like the nano or video ipod.  But neither the nano or the video ipod defined a new category — they were devices in a long stream of innovation that started with the orginal ipod.   The iphone needs to define a whole new stream of innovation independent from the ipod.  And the business model will likely also have to evolve — in more developed markets (south korea the flip has occurred to a subsription model, $5 a month for all the music you want / can eat).     I am going to be watching the pressure points listed above to see whether similar to the ps3 vs. Wii the lowend offer some real alternatives, without all the restrictions that Apple's business model now imposes on it as the category leader – the mobile world needs to see some real innovation and what I saw last week suggests that not going to come from Apple. 

Things to watch in 2007

7 4 07
(things to watch in 07)

1. Google will feel the tension between search and browse and their associated business models. Google quick check-out will emerge as the companies key innovation beyond search and paid listings. Yahoo and Ebay will follow AOL and be rolled into the operating theatre — the problem isnt technology (panama etc.) its the business model tradeoff’s they have both made re: the tail.

2. Sector wise e-commerce will rise in importance as alternative currencies emerge as legitimate ways to transact. Its a different take on the subscription model but using ingame currencies to transact for other products (see qq coin). On the subject of virtual worlds, growth will continue at a pace, but second life will emerge as the one everyone could understand but few actually wanted to visit more than once.

3. Geographically, the rest of the world will come into focus as internet and media companies search for customers and growth and innovation. ROW will start to be a legitimate force of innovation rather than just a platform to duplicate US business models.

4. Connectivity wise, wireless broadband will finally become a force to be contend with

5. Policy wise: the Net Neutrality debate will recede as it becomes evident that while network providers need to have the ability to ability to manage bits, those who think they can manage or shape the transport layer to the bias one application or service over another will be proven wrong. The influence and relative progress of the ROW will help here. And while the focus is on policy — the internet policy debate will switch to US broadband adoption and relative speed/price of offerings in US vs. ROW.

6. In terms of protocols and the evolution of the web — web 2.0 given that it has moved from a useful definition to a undefined meme will recede in importance and the semantic web will begin to take shape, standards, api’s will be extended to form the basis for the next iteration of the internet

7. Hardware and device wise, Vista’s influence will be mostly in the enterprise, the Ipod starts looking tired, the Itv box becomes a big deal. Leopard will be a bigger deal than most expect. Xbox 360 will get squeezed from the bottom (Wiiiii!), PS3 will make its numbers, the product is pretty good, not as much fun as Wii but nonetheless good. And Linux phones should be on your radar, they are on mine.