Wak Oentoenk

When you work in consumer electronics, one of the rules that gets drilled into you very early on is that you never do anything to disrupt the holiday selling season. In the US, the month between Thanksgiving and the end of the year can account for three months' worth of sales, if not more. During that time, you don't change prices, you don't alter your ad campaigns, and most of all you don't ever say anything about future products, because that might cause customers to hesitate before making a holiday purchase.

So the CEO of ATT, giving a speech this week in Silicon Valley of all places, says that a 3G version of the iPhone is in the works:

"Has Jobs announced that? I don't think he's announced that, but you'll have it next year."

Not only does he spill the beans, but he acknowledges that Apple hasn't announced it and then talks about it anyway (link). The next day the story is carried by the AP, MSNBC, the Times of London, Wall Street Journal, Bloomberg, the SJ Mercury News (which had the version of the quote above), and 318 other publications according to Google.

In the US, the assessment from a lot of commentators is that this won't have much impact because the iPhone is so popular anyway. Maybe, I guess, although the iPhone isn't sold out, so any loss in sales is still a loss. But in Europe, I think it could be a big problem. iPhone sales there are not going great to begin with, and folks in Europe are generally much more conscious of 3G vs. 2G issues. The acknowledgment that a 3G iPhone is coming could cause a lot of people to hesitate before buying.

If AT&T competed directly with Orange, O2, and T-Mobile Germany, I'd be tempted to speculate that they made the announcement on purpose to hurt the competition. But they don't, so I suspect this is just a case of a CEO who wanted to show that he's not controlled by Steve Jobs but instead demonstrated that he doesn't understand consumer electronics.

More than half of the traffic to this weblog comes from outside the US, so there are times when I feel obligated (and a little embarrassed) to explain how the mobile market works here. This is one of those moments.

Verizon, the largest US mobile carrier, made headlines in the US today by announcing that by the end of 2008 it's going to make its network available to any device and any application that the user chooses to install (link).

This will seem remarkable to people living in GSM countries where it's normal to choose any device you want. But in the US, it's an unusual idea. Here mobile usage is split between GSM and CDMA. GSM phones have SIM cards, which technically allow you to switch your account to any phone you want. But in practice, almost no users are willing to give up the several hundred dollar subsidy for buying a phone and service plan together, so they only choose phones that come through the operator.

Things are even more restrictive in the CDMA space, where there are no SIM cards. If you buy a Verizon phone, it can only be used with a Verizon account. Same thing for Sprint.

So Verizon's announcement is a nice change, on the face of it. It's also something of a pleasant shock, since Verizon has the reputation of being the most conservative and controlling US operator. But the announcement's actual impact on the market is going to depend on several questions that Verizon hasn't answered yet:

--How will open access be implemented? Verizon says it's going to define a process by which phones can be certified to work on its network. That could be routine or it could turn into a huge barrier to entry. We also don't know how a user's account will be switched between phones. Is Verizon planning to start installing SIM cards in its phones (something that has been done with CDMA in China)? If not, will you have to take the phone to a Verizon store to get it activated? How much will that cost?

Verizon apparently said something about doing activation through a toll-free number, which could be cool.

--How will the service be priced? Verizon's service plans include recovery of the several hundred dollar subsidy for hardware. You pay for the subsidy as part of your monthly bill. Since Verizon doesn't have to recover a subsidy cost on its open access phones, there's about $10 or more a month that it could pass along to consumers in the form of lower bills.

If Verizon doesn't price the open service lower, what happens to the extra money? Does Verizon pocket it? Or will they offer some sort of rebate on purchase of open access phones?

The answer to this one is critical. The US GSM carriers are technically open, but the subsidy prevents significant sales of alternate phones. If Verizon pockets the subsidy money, very few people will take advantage of the open service. The whole thing could turn out to be a PR gesture rather than a genuine change.

But in the hope that Verizon wants it to be more, here's what they ought to do:

--Make the monthly cost of the open plan lower than a traditional service plan, reflecting the absence of a subsidy.
--Make the handset certification process simple and low cost.
--Make it easy for users to switch their account to a new phone (preferably via a SIM card or website or that 800 number, so they don't have to come to a store).

That's an announcement I'd stand up and cheer for.


Impact on the industry

Until we hear the answers to the questions above, it's impossible to guess how impactful this announcement will be. The most important factor may be how the other US operators react. The best result would be if they start competing with each other to see who can make their network more open. If that dynamic takes hold, competitive forces might drive them to really open up even if they don't intend to.

By now I assume you've read about Amazon's Kindle e-book device. I think it's interesting and important, but more for its business infrastructure than for the device itself. And I'm not at all sure that it'll be a commercial success, unless it gets a lot more content quickly.


What they announced

Kindle's hardware is a lot like that of the Sony and Iliad e-book readers. I won't bother repeating all of the specs; you can find a good summary on Engadget here and here and in a lengthy Newsweek essay here.

The industrial design of the device looks uninspiring to me. It's made of white plastic, a color scheme that most people associate with ease of use, low price, and limited features. Considering Amazon's strong emphasis on ease of use in its announcement today, I guess the color makes sense, but it's at odds with the $399 price.

I haven't touched a Kindle yet, so maybe it looks nicer in person. But in the photographs its sloping edges and slant-key keyboard do nothing for me. It looks a bit like a badly-carved wedge of Parmesan cheese. There are a total of 54 buttons, controls, and keys on the face of the device, so naturally it looks cluttered. There's virtually none of the lust-inducing elegance of the iPhone; the design screams "utilitarian."

"Is it just me or is that thing one hell of an ugly thing to walk around with?" --Comment posted to Newsweek's article on the Kindle

The design is not necessarily a bad thing; the device is going to live or die based on its usefulness, not its looks. But the lack of a lust factor makes people much more willing to nit-pick its features and price. So far Kindle is rated 2.5 out of 5 stars on Amazon's own website, with most of the negative ratings coming from people who have never even touched the device.


Clever wireless, vulnerable business model

Interesting use of the network. Things get a lot more elegant when you look at the services attached to Kindle. Amazon has built in a radio that talks to Sprint's EVDO data network. Wireless is used to deliver almost all content to the device (except for MP3 files, which sync via a USB cable). This is both attractive and disturbing.

The attractive part is that Amazon can pre-test each Kindle device to make sure they connect to the Sprint network before they get shipped to the customer. This is a huge advantage over WiFi. One of the dirty little secrets of WiFi is that non-PCs often have a lot of trouble connecting to WiFi routers in homes and offices. I don't know why this happens, but I suspect it's because the router vendors test their hardware mostly against PCs, and never find the bugs in connecting to other devices. Trouble-shooting a Kindle that couldn't find the network would be a nightmare, and Amazon has bypassed the whole issue by leaving WiFi out of the device.

I also like Amazon's decision not to hit its users with a monthly fee to access the network. Instead, the charges are embedded in the cost of downloaded content. This means that users who buy a lot of content will be subsidizing the ones who read only a little, but Amazon has hidden the charges so well that I don't think anyone will notice. Kindle makes the wireless network do what it should do: Disappear.

I have two worries about the use of EVDO. The first is that if someone lives outside of network coverage (like at my house) their Kindle won't work properly. I would have preferred to see WiFi included as a backup. The second problem is that because Amazon has to pay for that wireless connection, it has to tax virtually any information transmitted to the device. You can load documents onto the device by sending it an e-mail, but you'll pay 10 cents for every message. That doesn't sound like much, but it's annoying to have to pay anything at all for something that's normally free.

Likewise weblogs: You have to pay $1-2 per month for every weblog that you want delivered to your device. That's understandable if you look at Amazon's expenses, but it's astonishing for something that's free on a PC. What's worse, the most enthusiastic readers -- the people most likely to buy Kindle -- are the people likely to be scanning 20 blogs a day. They won't pay $20-$40 a month just to read blogs.

One workaround would be to subscribe to an e-mail blog aggregator like Feed Blitz and have it send a daily digest to your Kindle. That'll presumably cost 10 cents a day -- $3 a month, for unlimited blogs. That is, assuming Amazon doesn't put a size limit on the messages sent to Kindle.

The relatively closed nature of Kindle has led to some angry commentary on ebook enthusiast sites that you'd expect to cheer the product. For an example, there's an essay on Mobile Read here.


Self-publishing: Nice idea, but...

I was delighted to see that Amazon is allowing authors to self-publish e-books for the Kindle. You just submit them to the Amazon Digital Text Platform, set the suggested price, and Amazon adds them to its catalog (link).

The catch is that Amazon pays you only 35% of the suggested price of the book (link). They keep 65% -- for the amazing service of adding your book to their catalog (basically, they shift some bits around on a server). And by the way, if there is any bad debt, Amazon doesn't pay you any royalties at all on that sale, even though they're the ones who failed to collect.

By comparison, Apple takes 30% of iTunes revenue, and NTT DoCoMo takes about 11% of revenue from content and apps sold over its network.



I'd love to hear from the folks at Amazon if there's a reasonable business justification for keeping such a huge cut of self-publishing revenue, but I think it's probably for two reasons:

--Amazon is greedy, and/or

--They don't want to completely undercut the royalty structure of print publishers (who typically pay up to 15% royalties on a printed book)

Either way, Amazon's royalty structure is outrageous. And it won't last. One of the most important aspects of electronic publishing is its ability to change the wretched economic structure of the industry so authors get the majority of the revenue for their work (I've written about the economics of it here). The change is inevitable, and if Amazon tries to hold its current royalty structure it'll eventually just drive people to other e-book platforms that don't rip off authors.


Will it succeed? It's the content, dummy.

All of the issues covered above will affect the success of Kindle, but ultimately the sales of an ebook reader depend on having a huge library of reasonably priced content -- books and periodicals. Lack of sufficient books is what killed the last generation of ebook readers, Rocket eBook and Softbook (I worked at Softbook for a short while, so I saw the situation there first hand).

Judged by that standard, Kindle is off to a surprisingly mediocre start. There are some promising signs. For example, people don't like paying hardcover prices for intangible ebooks, so Amazon is pricing current best-sellers at $9.99, compared to about $15-$16 for hardcover. There are hints in some articles that Amazon is even subsidizing some books to hit this price. The price difference isn't big enough to make people buy Kindle, but it helps to overcome resistance. Good move.

The problem is in the library of other books. Or I should say the non-library. There are supposedly about 90,000 books available for Kindle currently, which sounds like a lot but actually makes for a poor selection. To get an idea of what was available, I took a quick look at the titles available from several prominent science fiction authors -- Niven, Brin, Asimov, Simak, Vinge, etc. (hey, I work in the tech industry, that's what I read). The selection is quite bad -- for many authors, the only Kindle editions are their second-rate books. Or there are a bunch of individual short stories available for 99 cents each, but not most of the novels. I strongly suspect that Amazon is counting each of those short stories as one of the 90,000 "books," because they are all labeled as books in the website. If true, that means the actual number of real books for the device has been heavily exaggerated.

Try the test yourself -- go to the search page here and type in your favorite author's name. Let me know what you find. Maybe fields other than science fiction have a better selection. I hope so.

There's nothing that makes an ebook customer angrier than paying $400 for a device and then finding that most of the things they want to read on it are not available. The iPod succeeded even though a lot of songs were missing from iTunes at first -- but remember that people could rip their own CD collections, and install MP3s for free. Amazon doesn't have a base of content that its users can shift to the reader, and it charges money for any document transferred to the device. So it has to fill the library on its own, quickly.

I think Amazon has a lot of work to do here.

I'm intrigued that about 16 newspapers and magazines are available for Kindle. Unlike books, newspapers and magazines are viewed as disposable, so people are less resistant to buying them electronically. And getting instant delivery of a weekly magazine is a significant advantage over waiting a few days for it to appear in the mail.

Judging by Amazon's price to receive the San Jose Mercury News (Silicon Valley's Incredible Shrinking Newspaper) on Kindle, prices are about 40% less than print subscription. That's not bad. What I don't know is whether the Kindle editions of the papers and magazines will be the full text of the print version, or just excerpts. If anything's left out, people will be turned off.

Amazon must get a critical mass of content -- meaning a lot more magazines and newspapers, and rapid growth in books. If it can do that, Kindle may finally jump-start the ebook industry. It won't explode overnight, but Amazon has a long history of forcing its investors to wait years for the full payoff on investments. If Amazon can maintain that patience, I think it Kindle has a chance.

But I sure hope they make the next version of it look nicer.

I was stunned today when I saw the press release from Access Company saying that they're giving away a beta version of the Garnet emulator for Nokia's N-series Linux tablets (link).

The Garnet emulator lets you to run most Palm OS applications. So in layman's terms, Access is giving away Palm OS for use on any N-series tablet.

I hadn't previously heard any hints from Access about offering Garnet for other platforms. I thought it was only supposed to be available with Access Linux.

I got excited by the announcement, figuring maybe Access had realized that the real innovation is going to come in the applications layer, not the core OS plumbing. I imagined all sorts of scenarios for what they might be planning:

--How about porting Garnet to some other Linux implementations. Hmm, what comes to mind? Maybe Google's Android? Access would need cooperation from Google in order for the emulator to talk directly to Linux. Would Google help with that?

--There is a need in the market for a mobile application environment that's truly "write once, run anywhere." Might Access intend to use Garnet to compete with Java? That would involve porting Garnet to operating systems other than Linux. How about Windows Mobile and Symbian? How about the iPhone?

--There are several ways Access could make money from this:

• Give away the emulator in beta but charge for the final version.
• Give away the emulator on N-series but charge for it on other platforms.
• Give away the emulator everywhere and make money by selling support software and bundling a software store and taking a cut of the purchase fees for apps (a derivative of the iMode and Acrobat models).

Intrigued by the possibilities, I talked to folks at Access. They shot down most of my speculation. As it was explained to me, this is a tactical move. By porting Garnet to the Nokia tablets they can get some testing for the emulator, and also give a "more interesting ongoing proposition for current developers." (It says something about the momentum for your OS when you feel the installed base of Nokia Linux tablets is an attractive developer target, but I guess you take what you can get.)

Access might try to put the emulator on other standard Linux implementations, but they're very busy working on software for licensees they can't talk about yet, and don't have time to port to anything else, including Android.

That's a shame. In my opinion, there's more of a market for Garnet on other platforms than there is for a Linux phone OS now that Google is giving one away.

But Access believes Google's nonstandard approach to Java and Linux is not going to go down well with the mobile development community. They said Android faces big challenges and a likely backlash.

Okay. I guess only time will tell whether that's justified self-confidence or denial of reality.

Meanwhile, I'll go play with Garnet on my Nokia tablet and wonder about what might have been.

Google today released a lot more details on its Android mobile operating system, including the software development kit. It looks like it would be fun to write apps for Android. The most interesting news is that Android puts a heavy emphasis on component software, encouraging developers to create software modules that can be shared with other developers and reused across applications. It's similar in spirit to what happened with mashups in the web apps world, although the technology involved is quite different.

If the developers follow through, this could make Android a very attractive and flexible development environment.

Google is offering $10 million in prizes to the best Android applications. That's an astonishing amount of money for the mobile apps space, where developers are used to living on stale bread with an occasional beef jerky chaser. For comparison, $10 million is probably more than the total marketing program budget in my last year at PalmSource.

It must be nice to work at a company that has limitless financial resources.

The price also says something about Google's business strategy for Android: Collect a lot of compelling applications that will generate user demand for Android phones. I think they can get the apps, but whether those will generate user demand remains to be seen. Having a big apps base didn't help us as much as you'd expect at PalmSource.

The other interesting news is that this is an entirely Java-based development environment, with a lot of extensions provided by Google for things like multimedia and font management. Although Android is based on Linux, as far as I can tell it's being used strictly as plumbing; the applications can't access it directly (at least not in this version). Data exchange between apps, and application access to phone features, can be locked out by the operator or handset manufacturer.

This should make Android a pretty secure operating system, although it won't be much fun for developers who like to mess around with the low levels of an OS.

Can Android become a standalone runtime? The reliance on Java raises the possibility that the Android applications layer could be ported to other operating systems. I think this would be a pretty cool strategy for Google, as it would enable it to drive the applications experience on a lot of different phones. But it wouldn't be a lightweight layer -- Google has built a huge amount of middleware on top of Linux that would probably have to be ported as well. Unless Google designed the Android apps layer to be portable, something they haven't mentioned, I think the port would be pretty difficult.

Some other tidbits about the OS:

--Features supported in the OS include a built-in browser, 2D and 3D graphics, SQLite database, video and audio playback, GSM, Bluetooth, WiFi, 3G wireless, camera, compass, GPS, and accelerometer (if the appropriate hardware is included in the phone). That's a pretty standard feature list.

--There's also a set of optional APIs that can be excluded by an operator or handset manufacturer. They include mapping APIs and peer to peer messaging between phones. Google positioned the peer messaging as a way to let two users play checkers, but you could also use it to create an instant messaging application that bypasses SMS. I'll be interested to see if any operators allow it on their networks.

--The development environment is a plug-in to Eclipse, another standard approach. The SDK includes an emulator so you can test your apps before the hardware ships. That's essential, since Android phones are about a year away.

--Core apps included with the OS include mail, SMS, calendar, browser, contacts, and maps. The mapping app is the only unusual one.

--There is support for multitasking threads, and an application can run in the background (this should enable things like MP3 playback while you're browsing).

--Each application runs in a separate Linux process. This helps with security. Apps remain running until they're no longer needed and the system decides that it wants their memory. This feature seemed slightly weird. Windows Mobile also tends to leave code running until the space is needed, and that has resulted in performance and stability problems. Presumably Android will handle things better.

The other thing Google warns you about is that if your application doesn't use the proper calls to explain what it's doing, the OS may assume it's not important and shut it off arbitrarily. That can also happen to a properly-written application if the system runs low on memory. This is kind of spooky, and could result in lost user data, especially if the user loads up a lot of applications.

Call me old fashioned, but I prefer applications that quit only when I push the quit button.

--The security model is heavily sandboxed (meaning applications are isolated from each other). To reach outside the sandbox (to exchange data with another app, read the address book, or access the phone's features), applications have to ask permission at the time they are installed. Permissions are based on "trusted authorities and interaction with the user." In other words, an operator or handset vendor can lock them down, and if not then the user will be asked to grant permission. Users will not be asked again when the application is run; if permission was not granted at install, the app will just fail. I believe this is going to be a serious support problem -- it means the same application may work on a phone when it's on one network, but may not work on that same phone on another network. Good luck explaining that to the user.

Google may be counting on user complaints to force the operators to turn on permissions.

--The user interface needs work. Google says it's still working on the final user interface for Android, and that's a good thing. Engadget nicely posted a bunch of screen shots from the current interface today, and they have problems (link).

The first thing that bothers me is the icon carousel at the bottom of the screen.



I think it's a great design, but it's awfully reminiscent of the interface in Yahoo Go. Maybe that's just a coincidence, but Google lately has shown a disturbingly Microsoftian tendency to borrow ideas from others.

The overall interface design is relatively clean, at least compared to the overdesigned clutter that you see on a lot of smartphones. But it's optimized to look pretty on a computer screen rather than be usable on a real-world phone.

The giveaway is contrast. Most computers are used indoors, in a room with moderate lighting. By comparison, mobile phones are used in all sorts of settings, including outdoors in bright sunlight. In those conditions, subtle differences in contrast between text and background can easily be lost. For a good example, check out the screen shot below:



Looks nice on your computer, huh? But let's reduce that screen image to about what it would be on a real phone:



Already the text gets hard to read. Now take your computer outside into the direct sunlight. Go ahead, I'll wait for you to get back...

Done already? What you saw is that the words "Call Back," "Done," and so on pretty much disappeared because they're written in dark gray on a black background. You can find a lot of other examples like this in the Google screen shots.

A recommendation to everyone who creates phone interfaces: White on black. Black on white. Large fonts. It may not be the most beautiful design, but at least people will be able to use it.


What it means to the industry. I continue to think that the ultimate success of Android will depend on the creativity of the devices built on it, and we can't judge that until those devices ship. But in the meantime, I'll be very interested to see what sort of applications appear. Google can definitely excite developers, especially when it shovels money at them. This is an immediate challenge to Microsoft and especially Symbian, which has struggled to get developers to work with its very complex native APIs. The more that Android sucks up developer activity, the harder it will be for other platforms to get developer support. Android is a much cleaner design than older platforms like Symbian, and the component development model might drive the rapid creation of a lot of interesting applications.

Will Android be limited to the mobile space? That's the other key question. There's nothing in the Android development model that limits it to mobile phones, and in fact Google says openly that it's appropriate for use on all sorts of devices. Let's wait a few years for the Android applications base to mature. If it does well, we might eventually see Android devices that seek to directly challenge PCs.

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PS: Thanks to Ubiquitous Thoughts for featuring last week's post on the Android announcement in the latest Carnival of the Mobilists.

The bottom line: Google is now an OS company.

The fact that Google's recently-announced OS products are aimed at mobile devices and social networking sites is interesting, and I'll talk about the impact of that below. But it's secondary. I think the big, really important change is that Google has now jumped with both feet into the middle of the operating system world. That potentially has huge implications for the industry.

The impact will depend a lot on how Google follows up. If it pours substantial energy and resources into its OS offerings, it will be extremely bad news for Microsoft and other companies trying to charge money for their own platforms. On the other hand, if Google doesn't make a serious long-term commitment, it will embarrass itself deeply. This isn't like launching a new web application -- an OS has to be complete, and it has to work properly in version 1, or there won't be a version 2.


What they announced

It's kind of ironic. For years after Google became a prominent web company, people speculated about whether or when it would create its own OS. The logic was that Microsoft has its own OS, and Google was challenging Microsoft, so Google would create its own OS too. But then as the years went by and it didn't happen, people moved on to other subjects. The speculation died out. But one of my rules about the tech industry is that "obvious" things happen only after everyone in the industry has written them off. So I guess Google was due.

The company has been creeping toward the OS space for a while. Google Gadgets is an API to create small applications that run in web pages, and Google Gears is code that lets web apps run offline, making it easier for them to challenge desktop applications. But they were both relatively low-profile (or as low profile as anything Google ever does). But in the last couple of weeks, Google made two much more assertive announcements:

--OpenSocial is an effort to create a shared platform for applications that can be embedded within social websites (link).

--The Open Handset Alliance is an effort to create a shared platform powering mobile devices (link).

Although they're aimed at very different parts of the industry, they're both efforts to create a standard platform where there was fragmentation; and they're both alliances of numerous companies, with Google providing most of the code and the marketing glue. I think there's a recurring theme here.


Details on the Open Handset Alliance

Open Social was covered very heavily when it was announced a couple of weeks ago, so I won't recap it all here. If you want more details, Marc Andreessen did an enthusiastic commentary about it on his weblog (link).

The OHA announcement was today, and I want to call out some highlights:

--It's built around a Linux implementation called Android. Android will be free of charge and open source, licensed under terms that allow companies to use it in products without contributing back any of their own code to the public. This will probably annoy a lot of open source fans, but it's important for adoption of the OS, as many companies thinking about working with Linux worry that they will accidentally obligate themselves to give away their own source code.

--Google is creating a suite of applications that will be bundled with Android, but they can be replaced freely by companies that want to bundle other apps, according to Michael Gartenberg (link). There is a lot of speculation, though, that if you bundle the Google apps you'll get a subsidy from Google. The folks over at Skydeck estimate the subsidy could be about $50 per device (link). That might not sound like huge money to you and me, but keep in mind that mobile phone companies routinely turn backflips to squeeze 25 cents out of the cost of a phone. When you sell millions of phones a year, it adds up.

--A huge list of companies participated in the announcement. That's not as impressive as it sounds; when you have a well-known brand, a lot of companies will do a joint press release with you just for the publicity value. But a few stood out:

Hardware vendors. Samsung, Motorola, LG, and HTC all endorsed the OS. HTC and LG gave particularly enthusiastic quotes. The first three companies have all been playing with Linux for some time, so I wasn't surprised. But HTC is another matter -- it is the most innovative Windows Mobile licensee, and Microsoft must be very disturbed to see it blowing kisses at Google.

(A side comment on Motorola: For a company that said it wanted to consolidate down on a small number of platforms, Motorola is behaving strangely -- it jumped all over Symbian a couple of weeks ago, and now is supporting Android as well. I think it has now endorsed more mobile operating systems than any other handset vendor.)

Operators. Participants in the announcement included NTT DoCoMo (a long-time Linux lover), KDDI, China Mobile, T-Mobile, Telecom Italia, Telefonica, and Sprint. That's a very nice geographic spread, and ensures enough operator interest to make the handset vendors invest.

--Google claims all Android applications will have the same level of access to data on the phone. That's pretty interesting -- most smartphone platforms have been moving toward a multiple-level approach in which you need more rigorous security certification in order to access some features of the phone. I'll be interested to see how the security model on Android works.

--We'll get technical information on the OS November 12, and the first phones based on Android should ship in the second half of 2008.

--Although Android's first focus is mobile phones, the New York Times reports that it can be used in other consumer devices as well (link).


What it means to the mobile industry

It all depends on the quality of Google's work and the depth of its commitment. If Android has technical or performance problems, it could sink like a stone. If it doesn't have enough drivers or has poor technical support, the handset vendors will avoid it. If the developers can't create good applications, users won't want it. This is a very different business for Google -- handset vendors and operators will not tolerate the sloppy, indifferent technical support that Google provides for its consumer web apps.

If, on the other hand, Google's platform really works and the company invests in it, I think it could have some very important impacts.

Impact on Windows Mobile: Ugliness. The handset companies endorsing Android are also Microsoft's most prominent mobile licensees. I doubt any of them are planning to completely abandon Microsoft (they don't want to be captive to any single OS vendor), but any effort they put into Android is effort that doesn't go into Windows Mobile. So this is ominous.

The whole mobile thing just hasn't worked out the way Microsoft planned. First it couldn't get the big handset brands to license its software, so it focused on signing phone clone vendors in Asia, thinking it could use them to pull down the big guys. But Nokia and the other big brands used their volume and manufacturing skill to beat the daylights out of the small cloners.

Now Google is coming after the market with an OS that's completely free, and may even be subsidized. This will put huge financial pressure on not just Windows Mobile, but all of Windows CE. Even if Microsoft can hold share, its prospects of ever making good money in the sub-PC space look increasingly remote.

Impact on Access: Ugly ugliness. How do you sell your own version of Linux when the world's biggest Internet company is giving one away? I don't know.

Impact on Symbian: Hard to judge. Symbian is the preferred OS of Nokia. As long as Nokia continues to use Symbian, it stays in business. The question is how much it'll grow. After years of painful effort, Symbian just managed to get increased endorsements from Motorola and Samsung. Now Google is messing with both of them. Japan has been a very important growth market for Symbian, now Android is endorsed by both DoCoMo and KDDI. All of that must feel very uncomfortable. If nothing else, it's likely to produce pressure on Symbian to lower its prices. And Symbian should be asking what happens if Android turns out to be everything Google promises -- a free OS that lets handset vendors create great phones easily. It's not fun competing against a free product that's been subsidized by one of the richest companies in the world (just ask Netscape).

Maybe if Symbian agrees to enable Google services on its platform it can get the same subsidies as Android does. It's worth asking. If not, maybe Symbian should be looking for other places where it can add value in the mobile ecosystem.

Impact on mobile developers: Potentially great. Mobile developers have suffered terribly from two things: They have to work through operators to get their applications to market, and they have to rewrite their applications dozens of times for different phones. If Android produces a single consistent Java environment for mobile applications, that would be a big win. And if it can open up the distribution channels for mobile apps, that would be great as well. We don't have enough details to judge either outcome yet, and the app distribution one depends on business arrangements that may be outside Google's control.

Impact on Apple, RIM, and Palm: Probably none at all. A lot of the coverage of Android is positioning it as some sort of challenger to iPhone and RIM.

I don't buy it.

Apple, RIM, and Palm all make integrated systems in which the software and hardware are coordinated together to solve a user problem. Android, by contrast, is only an operating system. It's plumbing, not the whole house. Unless Google's handset licensees magically develop the ability to design for users -- a feat equivalent to a giraffe sprouting wings -- their products won't be any better as systems solutions than they are today. The OS hasn't been the thing holding them back, and changing OS won't alter the situation.

Android puts interesting financial pressure on Microsoft, but it doesn't directly solve any compelling user problems. If it eventually drives a great base of mobile applications, that might eventually be attractive to some users. But in that case the systems vendors could just add a copy of Google's application runtime (it's open source, they can grab it anytime they want). Or they could host their devices on Google's plumbing. Palm and RIM might both benefit if they could transfer engineers away from core OS and toward adding value that's visible to users.


Impact on the tech industry: This isn't just about mobile phones

I have no access to Google's internal thinking, but even if it sincerely believes it's only doing a mobile phone OS, I don't think it can or will stop there. Technology products often develop a momentum of their own, no matter what was intended at the start. The lines between the computing and mobile worlds are breaking down already, and if Google creates an attractive software platform that's free of charge, that platform will inevitably get sucked into other types of devices. I'm not saying that Android is going to end up in PCs, but if it's functional and well supported I think it could end up running on just about everything else that has a screen.

Besides, if you look across all of the recent Google announcements, I think it's clear that Google has a larger agenda: It wants to break down walled gardens, because they interfere with Google's ability to deliver its services. It has even developed a standard methodology for attacking them: Create a consortium so you don't look like a bully, and fund an "open" alternative to whatever is in the way. They are doing it to Facebook, and they're doing it to Windows Mobile. Google doesn't even have to make money from the consortium, as long as it clears the ground for its services to grow.

Take a lesson from evolutionary history. The most successful animals are not those that adapt to the environment; they are the ones that reshape the environment to match their needs. I think that's what Google is doing. It's going to use open source and alliances to suck the profitability out of anybody who creates a proprietary island that it can't target.

It'll be interesting to see if and how Google applies this principle to the upcoming frequency auction in the US.

Or to anyone else who gets in its way.

Photo by Toby Ord. License information here.

[Edited to fix a typo; I apologize if you get a second copy in your feed.]

This week's Carnival of the Mobilists comes just after Halloween, a holiday when (at least in the US) people are disguised in costumes and kids fantasize about all the great candy they're going to get.

In the spirit of the holiday, Google has been keeping its mobile plans in disguise, and many of the Mobilist authors are speculating about the candy we'll get from them:

Skydeck makes some very interesting predictions about what the Google phone OS will do, and how much Google will subsidize it. I especially like the financial analysis.

In the second part of a three-part post, Abshishek Tiwari speculates about the services that might be included in a Google phone.

John at Nellymoser gives a long discussion of Apple and Google's efforts to open up the mobile ecosystem.


Other goodies in the bag...

Taptology does a nice job of comparing the buzz-building skills of Nokia and Apple to the buzz-killing behavior of Motorola and SonyEricsson.

Barry at StayGoLinks argues that the mobile web will take off when voice can be used as an interface to it, and gives a nice roundup of some recent voice-related technology announcements. Barry, I hope you're right. But speaking as a frustrated (non)user of Dragon Naturally Speaking, I'm not holding my breath.

Tarek Speaks Mobile enthusiastically reviews the new update to the Nokia N95, and says Motorola could learn something from it.

C Enrique Ortiz discusses the US mobile industry and the power of the operators.

Mob Happy rolls out a mobile version of its site, and discusses the traffic that resulted.

Xellular Identity reviews the various pricing and service plan options for ringback tones around the world. I had no idea there was so much diversity.

Vision Mobile gives a very detailed discussion of efforts to make mobile phone software customizable and flexible. It's an excellent overview.

Should schoolchildren in New York who perform well in class be given free cellphones and prepaid minutes as a reward? Yes, says Judy at Golden Swamp. She reviews the controversial proposal in New York and gives some interesting thoughts on the potential use of mobile phones in education, based on her own experiences.

Post of the Week. It was a hard choice. Although Vision Mobile's post is very detailed and worthy of consideration, I chose Golden Swamp as the Post of the Week because it gave me an interesting new perspective.

Next week the Carnival will be at Ubiquitous Thoughts.

There is so much happening in the Web world that I went into this year's annual O'Reilly Web 2.0 event hoping it would be like Aladdin's Cave of Wonders--full of bright shiny new companies that did amazing things, each more enticing than the last.

Instead, the conference was more like a United Nations conference, full of important people talking about important issues, but not a lot of surprise or dazzlement. The name "summit" really does fit. That’s not the fault of the folks at O'Reilly; their conference has just grown in stature so much that it attracts CEOs from huge companies as speakers. By definition those people are very careful about what they say, and don't make major announcement at an industry conference.

So while it was interesting to see people like the CEO of AT&T, we didn't necessarily learn a lot. But there were a couple of highlights worth passing along…

The full article is on the Rubicon Consulting web site, here. There's no registration required. From a mobile perspective, the highlight (or lowlight) is a quote from VC Ram Shriram on what a mobile software company has to do in order to get funded.

It's been interesting to watch the reactions to Apple's crackdown on people who hack their iPhones.

If you've been living in a cave or otherwise off the net, I should explain that Apple's latest software update for the iPhone tends to disable phones that have been hacked to undo the SIM lock (enabling them to make calls on other networks) or to install third party applications. In some cases, Apple has refused to repair the software in these "bricked" phones, forcing the user to buy a new one.

I've read contradictory reports on what level of hacking causes the iPhone to be disabled. Some reports say the update disables the phone only if the SIM lock has been broken. In phones with an intact SIM lock but third party applications, word is that the update "merely" erases the apps without disabling the phone. But the fear among iPhone users is that doing anything unauthorized with the phone, even installing an app, can cause it to be disabled. Apple appears to be feeding this fear deliberately.

This has stopped (at least temporarily) the rapid growth of third party applications that developers and enthusiasts had started creating for the iPhone. Although Apple doesn't endorse or encourage the creation of native apps for the iPhone, developers had quickly found ways to access the modified version of Mac OS X inside the iPhone, and were busily producing a series of interesting and cute add-ons.

I was astounded by the speed at which iPhone applications were appearing. Usually it takes about six months to get developers cranked up on a new device, and that's when things are going well. Just three months after the first shipment of the iPhone, there were already a lot of interesting apps appearing, and David Pogue at the New York Times had even created a video celebrating them (link).

Most technology companies would kill to have that publicity and a bunch of third parties creating new software for their products. Web 2.0 companies are all adding application interfaces so they can get developers, companies like Adobe, Microsoft, and Google are competing aggressively to create APIs for web development, and even Apple invests heavily in encouraging developers to create software for the Mac.

The assault on hacked iPhones has provoked a nasty reaction online, starting among enthusiasts (check out the video here) and now spreading to the mainstream press. The latest example, pointed out to me by Chris Dunphy (an angry iPhone user), is from BusinessWeek (link):

"Wasn't Apple itself the creation of two guys in garage with a knack for making interesting ideas into real things? So why punish the people who try to create something interesting, threatening them with the prospect of an inoperative phone?....The company that styles itself as the technology supplier of choice for creative people with great ideas is insisting that to own its products is to accept a defined orthodoxy where there's only one acceptable way to do things. That doesn't sound like the Apple I know. So I'm not going to buy an iPhone. And until Apple commits to changing this ridiculous policy, I don't think you should either."

I can't remember the last time someone at BusinessWeek actively campaigned against a product of any sort.


Why would Apple expose itself to so much criticism?

The weirdest thing about this whole saga is that it's not at all clear why Apple is putting itself through it. I've been asking myself that a lot, and want to share some thoughts.

The first thing I think we have to do is separate the SIM lock issue from the applications issue. They are two very different business and technical issues, and Apple may have completely different motivations for pursuing them.

Why defend the SIM lock? Many mobile phones, especially in the US, are locked for use on a particular network. All CDMA phones outside of China are like this (because there is no SIM card), and many GSM phones in the US are as well. The excuse for this is usually that the operator paid a subsidy for the phone hardware, and needs to recover the subsidy through service charges. But the operators also achieve this recovery through big cancellation fees if you switch operators before the contract is up, so the industry has not traditionally worked very hard to defend the SIM lock. Unlock codes for many phones are available online, and many operators will reportedly unlock your phone if you call them and say that you're traveling overseas.

Apple is the first phone hardware vendor that I've seen aggressively defend the SIM lock, and I'm not sure why. The most common explanation on the Web is that Apple's getting a revenue share on the monthly billings from iPhone users, so it actually loses a lot of money when any iPhone moves to another network. There is also speculation that if iPhones can be moved into countries where they are not available, Apple will have trouble extracting lots of money from local operators who sign up to carry the phone.

The latter explanation doesn't hold a lot of water for me -- most people want their phone to work in their native language, so an English-language version of the iPhone is not going to destroy the market for a legitimate iPhone in France. Also, iPhones moved onto unauthorized networks lose some of their cool features, such as the visual voicemail function. If Apple were selling iPhones in some countries for $99 and in others for $699, I would see more of a gray market threat, but the price gaps are not nearly that large. Combine the language issue, loss of features, and low opportunity for price arbitrage, and I don't think there is enough motivation for Apple to subject itself to the abuse it's taking.

But the revenue opportunity is a different thing. If Apple got, say, 20% of the mobile billings for an authorized iPhone, that would probably be about $120 a year from an average user -- in pure profit. That's going to be similar to the total margins Apple makes on the actual iPhone, and they get the billings every year. I have no idea if Apple's actually getting 20%, but that sort of number has been rumored for some of the European iPhone deals. Even if Apple's cut is only $10%, the revenue share would be a huge part of Apple's total profit on the iPhone, and something they would be willing to defend vigorously, even if it pisses people off.

Why kill third party applications? This one is harder to understand, because I don't understand what Apple gains from it. Having applications for the iPhone makes it more popular, and also sucks up developer activity that could go to competing products. My first reaction when I heard that Apple wouldn't allow applications on the iPhone was that it was a control issue for Steve Jobs - he watched the base of cool Mac developers get sucked away by Windows, and never wants to be vulnerable to a third party again (link).

There are a lot of commentators online who assume the control freak attitude is driving Apple's behavior on the iPhone. Others speculate that Apple is planning to offer a third party applications store, in which it will take a large revenue cut for third party applications that have been approved by Apple. I have no idea what the cut would be, so it's hard to say how much it's worth to Apple. But I think if it were a big part of their plans, they would have made that store available on the first version of the device. So although I believe they might create such a store (it's an obvious thing to do), I don't think that is the whole explanation. It's hard for me to see them bringing this level of criticism on themselves just to defend that hypothetical store.

Instead, I'm starting to suspect that they have a deeper motivation that they don't want to discuss in public because even acknowledging it could damage iPhone sales. It's better to take criticism from people who think you're evil than to admit that your device has a serious flaw, and I think maybe the security structure of the iPhone is a serious flaw.

When the iPhone was announced, Steve Jobs said it didn't allow third party apps because they could bring down the phone network. I thought that was stupid bluster at the time, because on most smartphones it's very difficult to do anything really nasty to the network. The applications and the phone run on separate processors, and given the limitations of the smartphone operating systems, it's very difficult to do anything really heinous to the network.

But the iPhone has a much more powerful OS in it, a derivative of Unix. The reports posted online by hackers who have played with the innards of the iPhone are very disturbing (link). Here's a great example:

EDGE network access is horribly slow, but it works....I made a few attempts to discover other hosts in the private address space, in hopes of finding other EDGE devices, but instead only found a few scattered routers, switches, and servers.

So the hacker was looking to hack other phones via AT&T's Edge network, and was not able to do so. That's a good thing from the perspective of the average user. But you have to wonder what those "scattered routers, switches, and servers" are. I doubt AT&T deploys switches and servers on its network just for laughs, so who knows how important they are to the functioning of the network, or how secure they are. I'm sure they were not set up with the expectation that hackers would be tickling them from an iPhone.

If you know the technical details of Edge and have any thoughts on this, please post a comment. Maybe I'm overstating the risk here. My personal reaction was that if I worked at an operator and read the quote above, my hair would stand on end (if I still had any).

Here's another interesting quote:

Every process runs as root. MobileSafari, MobileMail, even the Calculator, all run with full root privileges. Any security flaw in any iPhone application can lead to a complete system compromise. A rootkit takes on a whole new meaning when the attacker has access to the camera, microphone, contact list, and phone hardware. Couple this with "always-on" internet access over EDGE and you have a perfect spying device.

Well, that's pretty straightforward. There are already third party applications that turn a smart phone into a spying device, but you need physical access to that particular device in order to install them. The difference with the iPhone, according to this report, is that once you find a security hole you could install that sort of spyware remotely, via the wireless connection.

That led to a Computerworld article which says basically that viruses and other malware could spread from one iPhone directly to another without the user ever being aware of it (link). I'm not too alarmed by that just yet, because there isn't a critical mass of iPhones in any one geographic location to infect each other. But it could be interesting the next time there's a big gathering of iPhone users. Macworld, anyone?

To me the more troubling part of the report was the root privileges thing. I'm not a Unix expert, so I talked to someone who is. He confirmed that applications with root privileges in Unix can do just about anything. Unix is designed to empower programmers, and the assumption is that someone with root access knows what they are doing and can be trusted. (You can read some similar commentary in a eWeek column here).

There are ways to prevent third party applications from having root access, but the disturbing possibility (and I'm speculating here) is that Apple may have stripped out those protections in order to reduce the memory requirements of the iPhone and make it run faster. If that's the case, my friend said, it may be a pretty involved project for Apple to add those protections back in. Not at all impossible, but requiring a lot of work and time.

Through my years in the industry, I've done a lot of research on technology users. One of the things I've learned is that security problems are a great way to scare people away from a new technology device. If it even sounds insecure, a lot of people will stay away from it. Based on what I'm seeing online, there is a lot of evidence that the iPhone as currently structured is a genuinely insecure device once any uncontrolled third party applications get onto it. What's more, keeping third party apps off your own iPhone does not necessarily protect you, because malicious software could propagate from device to device.

If I were working at Apple, and this were the situation, what would I do? Well, first I would not want to acknowledge the vulnerability, because that itself would scare away customers. Second, I would do everything in my power to shut down all third party native application development. Squash it, kill it completely. And I'd be willing to take a lot of criticism for doing so because the alternative, acknowledging the security problem, would produce even more bad PR.

Let me be very clear here: I'm not saying that I know this is what's going on at Apple; I don't. And I'm not trying to start any nasty rumors (they are already out there). I should also point out that some reports on iPhone security have been a lot less alarmist (for example, here is Symantec's take from early July). But that was before the latest reports surfaced.

I think we need to ask whether Apple botched the security of the iPhone in the belief that people wouldn't try to add apps to it. They could easily have made that assumption; there have been comparatively few efforts to add apps to the iPod, after all. But the publicity for the iPhone, and Apple's bragging that OS X was in it, made it an irresistible target for hacking.

If Apple really does have a security problem in the iPhone, I don't think they will be able to keep it quiet. Experience shows that the best approach in this sort of situation is to come clean about the problem, take your lumps, and fix it as soon as you can. That way you at least retain your reputation for honesty. If the iPhone really is vulnerable, Apple risks ending up with the worst of all possible worlds -- it'll damage its reputation for honesty, piss off a lot of technophiles, and people will still hear that the iPhone is insecure.

It will be interesting to see how Apple handles this issue in the weeks to come.

=====

Thanks to John Hering at Flexilis for pointing me to the Computerworld story.

In my work at Rubicon, we spend much of our time helping tech companies with strategy and product planning. One recurring theme is the impact of web applications. We help web app companies figure out their customers and product plans, and we help traditional tech companies understand web apps and what to do about them.

As we do this work, we repeatedly run into a lack of basic information about how web apps are being used -- how many people use them, who uses them, which apps they use, and so on. There's a lot of anecdotal information from individual web companies on how they're doing, but almost nothing on the usage of web apps across the industry as a whole.

So we decided to fill that hole. This summer we did a survey of about 2,000 US adult PC owners on their usage of web applications. We released the results this morning at the AjaxWorld conference. Some highlights:

--37% of US home PC owners use at least one web application on a regular basis. Usage has already spread far beyond early adopters.

--Usage varies dramatically by app category. E-mail and games are the two most popular web app categories, but some other categories (such as online word processing) have very low adoption so far.

--College students are more enthusiastic adopters of web apps than non-students. More than 50% of college students use at least one web app regularly.

To me, the study was a good reminder of the practicality of most PC users. Although we in the industry worry a lot about the technical distinctions between things like web apps and packaged applications, most users don't care. They just want to solve their problems and get on with their lives. If a web app is better or cheaper than a packaged app, they will use it. If it isn't better in some way, they won't.

If you're working at a web app company and want to create a popular service, be sure you solve a real world problem that people care about. The doors are wide open if you do that.

If you work at a traditional software company and think you're immune to competition from web apps, or that it'll take years for them to affect you, you're living in fantasyland. For about 70% of US PC owners, there are no significant barriers to adoption of web apps.

There's a lot more analysis (and graphs of the findings) in the full report on the Rubicon website. Check it out here.

And there's some interesting commentary about the study here and here and here and here.

Something I wrote for Rubicon Consulting:

The cancellation of the Palm Foleo marks the latest in a long string of failed attempts to create a market for keyboard-based devices that are smaller, simpler, and cheaper than personal computers. Computer companies have been trying to make sub-PCs work since the 1980s, but the only place I know of where they have been a major success is in Japan, where the complexities of typing in Japanese encouraged many people to buy cheap word processors instead of typewriters.

Why do so many companies keep trying to get under the PC market? And do they have any chance of success? The answer is a lesson in the right and wrong ways to think about product strategy.


Listening to the customers

Anyone who has ever done research on PC users quickly notices a striking pattern--most of the features of a PC rarely get used. Here's a typical result from a research study asking US adults which applications they use at least once a week on their home PCs...

You can read the rest of the article on the company website here. No registration required.

"When two elephants fight, the loser is the jungle." --Ancient proverb

And so it begins.

The Apple-Nokia war finally got underway on August 29, when Nokia announced an array of new music-capable phones and an online music store. The two companies had been eyeing one-another like wrestlers outside the ring for more than a year. Apple entered the mobile phone market, but only in the US, where Nokia is a non-factor. Nokia openly declared that it's a computing company (link), but its non-phone products so far have been different flavors of lame.

But the August 29 announcements put Nokia and Apple on a path to direct confrontation. I haven't seen a lot written online about the importance of this conflict. I think that's probably because many of the people who follow Apple's business closely are based in the US and have trouble taking Nokia seriously because it's a secondary player here. Meanwhile, Nokia's most ardent followers are in Europe, and look at Nokia's actions in light of its regional conflicts with SonyEricsson and the European mobile operators.

But when you stand back and look at what's happening in the industry worldwide, it's clear that Apple and Nokia both want very badly to be the dominant mobile computing company for young adults. That makes a huge, relentless conflict between them inevitable. They're like two armies trying to take the same hill. One's coming from the west, the other from the east, so there's not a lot of fighting at the moment. But as soon as they reach the hill, there's going to be an explosion.

I don't know who will win, but I'm pretty sure that the main losers will be all of the other device companies and mobile operators who happen to be hanging around on the hill.

My advice to them: Run.


What Nokia announced, and why it matters

On the 29th, Nokia announced four phones, two new data services for its phones, and a new brand. Let's start with the services.

The Nokia Music Store is just what the name says, an online music store run by Nokia. It'll be accessible by both PC and selected Nokia phones. The N81 and N95 will be able to talk to the store directly, while for a number of other Nokia phones you'll be able to buy music on your PC and sync it to your phone (Nokia calls this process "sideloading").

Nokia will offer more purchase options than iTunes does. You can either buy and download individual titles (for one euro a song, a euro cent above iTunes), or you can subscribe to the store and stream all the music you want to your PC (but not save it) for ten euros a month.

Nokia positions the streaming service as a way to discover new tunes, after which you're supposed to buy and download the ones you want to keep. I can understand the practical reasons for not streaming from the store directly to phones -- there would be issues with data charges, network capacity, latency, and so on. But I don't know how users will feel about that. If I had a streaming account on my PC, I think I'd expect to have the same service on my Nokia phone. And why wouldn't you want to discover new music while you're on the go?

The bigger problem is that the 120 euros you pay a year for a streaming service is 120 songs you could have bought and kept forever. That's one new song every three days. For comparison, the average iTunes user buys three songs a month. A music subscription service is a great way to get access to a lot of music quickly, but unless you want a colossally large music collection, it's a huge financial drain in the long run (I wrote more on the economics of it here). No wonder the music industry loves the idea of subscriptions (link).

The re- rebirth of nGage. The other new service Nokia announced was a mobile game store. You'll be able to try games for free on your Nokia mobile or PC, and then after purchase you can use them on the PC or sync them to your phone (curiously, Nokia calls this process "installation.") Nokia also promises multiplayer and community features.

Price per game will be six to ten euros, and Nokia says you'll be able to pay by credit card or through your phone bill if the operator enables that. No word on what the revenue split is.

The service sounds pretty interesting to me. The most confusing thing about it is the name. The nGage service won't work with all of Nokia's N-series phones. I know there's no official tie between N-series and nGage (the names were apparently chosen separately), but try explaining that to a typical customer in a store. Nokia has struggled and failed for years to explain to customers the S60 platform that it uses in a lot of its phones; picture adding yet another layer of confusion on top of that (link).

I think the other important challenge to nGage is flash. There's a huge supply of free flash-based games on the web, and a lot of them are the sort of quick-reward, easy to use games that seem to do well on mobile devices. The biggest barrier to using them on mobiles is that Adobe charges for the mobile flash player, and so relatively few mobile phones have it installed. A small installed base of phones means that most developers don't target mobile flash. If Adobe ever drops the charge for the flash player, or if a free flash-equivalent comes along (perhaps a mobile version of Microsoft Silverlight), it might become very difficult to convince people to pay for nGage games.

I know nGage provides a higher-quality gaming experience than flash, but I'm not sure most mobile users will care enough to pay.

Ovi is a new brand that Nokia will use as a wrapper for all of its mobile services, including games, music, maps, photo sharing, and presumably more to come (link). I guess that makes sense from a convenience standpoint -- there will be one website (ovi.com) where you can go to discover all of the Nokia services (Nokia employees say that it will also be a gateway to the services of other companies as well ). Unfortunately, Ovi apparently won't work as a compatibility mark: the phones that can use one Ovi service can't necessarily use another. For example, many of the phones that can run nGage games can't directly connect to the music service. A brand is most effective when it represents a coherent idea or consistent product. I think Ovi creates an expectation of coherence but doesn't deliver it. It just says that Nokia's in the service business, which Nokia cares about but is not something that concerns users

If Nokia doesn't make all the Ovi services work on all its data-capable phones quickly, I think the varied incompatibilities between the Nokia services and devices are going to be a nightmare to explain at retail.

The four new phones
The N95 8GB adds more memory to Nokia's flagship Swiss army knife phone, which includes a 5 mp camera, improved 3G, WiFi, and GPS. This is the one that online reviewers always compare to the iPhone. It works with both nGage and the music store, and its base price is 580 euros before subsidy.
The N81 is a slider phone with WiFi and 3G, and has dedicated buttons to access both nGage and the music store. It'll sell for 430 euros pre-subsidy.
The 5310 is a slimline candybar phone that can play music synced from the Nokia music store. It cannot access the music store directly. It has dedicated music controls next to the screen, and its base price is 225 euros.
The 5610 is similar to the 5310, but adds a slider and built-in camera. Its base price is 300 euros. A lot of online reviewers have been comparing this and the 5310 to the SonyEricsson Walkman phones, and I think that was probably Nokia's thinking. But hold that thought because it's not necessarily how things will work out.

What's the impact? A huge amount depends on execution. How well will Nokia's new services integrate with the phones? How easy will it be to play songs and games? How many titles will be in the Nokia stores, and how good will they be? Services and mobile devices often live or die on the little details of usability, and we can't judge that for Nokia yet because we can't play with the new products and services.

But Nokia's direction is very clear. It wants to be in the mobile Internet services business, as both a developer and publisher of content and services. It's going to tie those services directly to its phones. And knowing Nokia, it'll keep iterating on both the phones and the services until it gets them right.

That's why Apple and Nokia are now at war. Even if Nokia's current products turn out to be lame, it's going straight into the territory that Apple has been pursuing ever since the first iPod shipped.

Apple's new products. I should add a little context on Apple's recent product announcements. In September, Apple made a lot of changes to the iTunes and iPod lineup. The move that got the most attention was the price cut of the iPhone from $599 to $399. I'll write more about that below. The other changes that stood out to me were:
--iTunes can now be accessed via WiFi on the iPhone and iPod Touch. This corrects a glaring weakness in the original iPhone. It's interesting that Apple apparently hasn't enabled the iPhone to talk to the store over a cellular connection. That may be because the network the iPhone uses in the US is too slow to easily download music, or it may be that AT&T doesn't want a lot of data traffic going over its network when the phone's data plan is flat-rate.
--The video version of the Nano, starting at $199, is a heck of a lot of technology in a very cute little package.
--The iPod Touch is basically an iPhone without the microphone and cellular radio. It makes a really interesting PDA for people who want to buy a basic voice phone and carry their entertainment separately. It's priced at $299.

(As an aside, I have a request: Once the iPod Touch starts selling like gangbusters, would someone please go find the person at Sony who decided the Clie handheld business was a dead end, and kick them in the shins?)


Relative strengths of the competitors

Or, how to piss off both Apple fans and Nokia fans in the same post.

Apple and Nokia are very different companies. Here are their relative strengths:



Resources. No contest. Although Apple is a very successful company, Nokia has vastly more financial resources.

Logistics. Nokia is one of the greatest logistics companies on the planet. It churns out hundreds of millions of phones, changes models frequently, and almost everything works properly. If Nokia were running the US Federal Emergency Management Agency, New Orleans would be 20 feet above sea level by now. Apple, by contrast, does a very competent job of managing contract manufacturers in Asia. Advantage Nokia.

Telephony experience. Another huge Nokia advantage. Designing phones and getting them qualified on networks is really tricky, and Nokia knows how to do it better than anyone else.

System design skill. This is Apple's core competence; it knows how to design hardware and software together to create a beautifully integrated system. Nokia's phones often appear as if their hardware and software were designed by completely different groups and slapped together at the last minute (because, in many cases, that's exactly what happened). This works great in commodity phones, but if the competition is for who can create the most elegant data experience, Nokia is at a huge disadvantage.

Brand power. Wow, this is a tough one. Apple has one of the coolest brands on the planet. Nokia's brand is beloved in Europe, and in most of the world it personifies upward mobility (except in the US and Japan). I call this one a tie.

User interface. Apple knows how to design these. The kindest thing you can say about Nokia's interface designs is that they're better than many other phone manufacturers. But that's like comparing a three-legged dog to a two-legged dog. Nokia's trying to get better -- at the announcement event, it showed video of a forthcoming device with an iPhone-style touchscreen (link). But for now, this one's clearly a strong Apple advantage.

Cleverness. Hey, it's Steve. Nokia's management is extremely smart, but you look to them for great operational execution, not brilliant strategy. After all, this is the company that brought us the original nGage.

Industrial design. I'm going to get flamed by the Nokia fans for this, but Apple has a clear advantage in design. The comparison: Nokia sometimes creates a great design. Apple rarely creates anything less than a great design.

Music solution. You'd think this would be an overwhelming advantage for Apple, but its arrogant handling of the music companies has made them even more desperate to tear Steve Jobs' throat out. They're anxious to work with someone like Nokia. Apple still has an advantage, but it has opened the door to competitors more than it had to.

Breadth. Nokia can fight on more fronts, and might be able to outflank Apple. For instance, Nokia's revived nGage game service gives it a second interesting offering for young people, whereas Apple is limited to just music and video. This is why I think Apple's decision not to open the iPhone to third party app developers is a huge mistake. If Apple had the help of third party developers, it could more easily fill out its software portfolio.


How they'll fight

Nokia wants a war of attrition. It will try to force Apple to compete on more fronts than it can afford to cover. I think we should expect to see a broad array of services added to Ovi quickly, aimed at enticing young adults in all sorts of different ways. Nokia will probably also launch a blizzard of media and entertainment phones with varied features, in the hope that a couple of them will hit sweet spots in the market.

Apple's game is to keep Nokia off balance and grab the most important opportunities. Think of a fencing expert: dodge, feint, and then stab the other guy in the heart. Apple currently has a product advantage -- its music service is already working. So it will try to capture as many customers as it can before Nokia gets its act together.

Apple can also use Nokia's size against it. Nokia has a huge product line and has to position each product carefully within it. Apple has only one phone, so it doesn't have much to protect. That's where the iPhone price cut comes in. The iPhone had been positioned against the n95, at the top of Nokia's product line. With the price cut, the iPhone is now looks much closer to the middle of Nokia's line, the phones that were supposed to be aimed at SonyEricsson.* Nokia can't slash the pricing of the n95 without screwing up the prices of its entire line, so with one price action Apple accomplished two things -- it can reach a lot more customers, and it forced Nokia to go back and rethink its competitiveness.

We should expect more surprise moves from Apple. It's more important for them to keep Nokia off balance than it is to please every customer. I think that's why Apple was willing to piss off the iPhone loyalists with a sudden, large price cut.

*Because of varying subsidies, it's hard to tell what the actual street price comparison between the new n95 and iPhone will be. The current n95 sometimes gets subsidized down by several hundred dollars if you buy a multiyear service contract. Maybe the new n95 will be subsidized down below iPhone prices. Maybe the iPhone will be subsidized too. Or maybe now that Nokia's offering its own services the operators will refuse to keep subsidizing the n95. We need to wait until the iPhone and Nokia's new services premiere in Europe this fall.


Impacts of the war: Alas, the innocent bystanders

The common denominator between Apple and Nokia is the imperative to move quickly. Nokia wants to broaden the competition fast, Apple wants to keep surprising Nokia with new features, products, and other changes. That's going to accelerate the pace of change in the mobile industry. And the accelerating pace of change, rather than anything in particular that Apple or Nokia have done today, is the biggest challenge to the rest of the industry. The other players have been struggling to keep up with the current rate of change; what will they do when Apple and Nokia step on the gas?

I've seen these situations before. You think you're just about keeping up with a competitor, and suddenly they disappear in a cloud of dust. I believe that's about to happen in mobile phones.

A shift from hardware design to systems design. Let's look at which companies have been most successful in smartphones: RIM creates e-mail phone systems that combine hardware, software, and services. DoCoMo and the other Japanese operators drive systems designs that combine hardware, software, and services. The iPhone does the same. Previously, those competitors were confined to particular countries or relatively small vertical markets, but now the world's biggest phone company is trying to do the same thing. That raises the competitive bar for everyone else in the industry.

What are companies like Samsung and Motorola supposed to do? They don't know how to create their own services, let alone integrate one well with a phone. In the music market, there are a lot of third party services out there, but none of them have been effective so far at challenging iTunes. I think they're not strong enough to change the competitive situation. Same thing for the operator services.

So the music phone market looks ugly. What's worse, if Nokia and the systems companies extend their new design approach to other data markets, the traditional mobile phone companies might be cut out of most of the big growth opportunities. They need to learn a new set of skills instantly, and they're far behind the curve.

The interesting potential exception to this situation is SonyEricsson, the leading vendor of music-enabled phones in Europe. Their hardware's nice, and they have a clean user interface that looks inspired by the iPod. Because I'm in the US, I don't have a good read on how smoothly the SonyEricsson phones integrate with operator and third party music stores. Is the experience as easy as using iTunes?

The Register says that Omnifone's Music Station is a promising possibility (link), but it's a subscription service costing 3 euros ($4.11) per week. For that same price you could buy 216 songs on iTunes per year, and at the end of the year you'd actually own something.

I really have trouble seeing the long-term economic benefit of a music subscription service for a user. If you subscribe to one, please post a comment and educate me.

SonyEricsson's management hinted to Time Magazine that it may create its own music service (link). If so, it had better hurry up. I have a lot of respect for SonyEricsson's hardware designs, but if it's limited to music stores with weird business models and ones that don't integrate seamlessly with its phones, it's going to have a very hard time outcompeting an accelerating Apple and a Nokia that's learning to integrate solutions.

Microsoft: Reverse course, again. This is the situation in which Microsoft could have stepped in to offer a music service to the phone companies challenged by Nokia. But in an exquisitely ironic move, Microsoft basically shot its licensed music store initiative last year in order to support the proprietary Zune. Now it can't step up to the opportunity.

Oops.

Microsoft is probably too late to recover in music, but as Nokia adds new services there should be a lot of opportunities to license equivalents of them to Nokia's competitors. Microsoft should focus less on selling its own OS, which scares the phone companies, and more on delivering services they can build into their phones.

And oh by the way, it's time to bury Zune. The iPod Touch just lapped it. If Microsoft wants to lose money on proprietary hardware, it should focus on Xbox. At least there it's buying market share for its money.

The operators lose control. They were struggling to establish their own services suites back when things were moving slowly. Now that Apple and Nokia are shifting into high gear, I don't see how the operators can keep up.

You can find very different scenarios online for where this will lead. Andrew at the Register predicts that the operators may strangle Ovi by refusing to sell any phones that support it (link). He has a good quote from someone who knows both Nokia and the operators:

The operators own the relationship with the customer. They're not going to allow Nokia to own it.

On the other hand, Richard Windsor, the excellent telecom analyst working for Nomura Securities in London, said in an e-mail brief that the operators are doomed:

Through their inaction, mobile operators have squandered the opportunity to be the service integrator for mobile and are left with the prospect of offering nothing to users except commodity data packets.

Who will be right? It depends on Nokia's ability to generate user demand for its services. If the users want the services, the operators will have to go along with it. I assume Nokia understands this and is prepared to do a big marketing push. Unlike Nokia's previous efforts to set up content portals, this time it has to succeed or it surrenders the future to Apple. So the conflict with Apple also locks Nokia into a war with the operators.

Isn't this fun?

If I were running a mobile operator, I'd stop trying to create my own services bundle, and focus on enabling as many Internet companies as possible to deliver services on my network, in exchange for a small cut of their revenue. An operator with the innovation of the open Internet behind it might be able to keep up with Nokia and Apple. But an operator working alone will be very lonely indeed.

What does it mean for users? You'd think that all this new competition would be good for users, and in many ways I'm sure it will be. But Apple and Nokia are both showing a disturbing tendency to keep everything proprietary. The iPhone is not open to third party developers, and at this point Ovi appears to be about marketing Nokia services, not opening up the richness of the Internet. (To be fair, Nokia employees say that will change, but I'm not sure if they mean that they'll offer access to any Internet service, or just to some selected ones that they cut a deal with. I suspect it'll be the latter.)

Welcome our new Apple and Nokia overlords. There's a disturbing possibility that we may end up exchanging one set of walled gardens for another. They'll be lavish, beautiful gardens, far better than the operators' truck farms for data. But we may not get the open data marketplaces that a lot of people have been hoping for.

If you want to read other perspectives on Nokia vs. Apple, check these out:
-A confident view from Finland (link)
-A cautious view from Jupiter Research (link)
-An outstanding article by Mark Halper at Time, with quotes from Nokia and SonyEricsson (link).