Another round-up of interesting posts about the mobile industry at this week’s Carnival of the Mobilists,
hosted by TomSoft.
Carnival 58
January 15th, 2007Five Thousand Dollars per Megabyte
January 14th, 2007
How Apple intends to keep you from installing software on the iPhone?
(Photo by protohiro)
Watch Steve’s demo of text messaging on the iPhone from his keynote address. The Mercury News has posted their bootleg version. It was shot with a camcorder over the heads of the Apple fanboys like a pirate DVD, but at least they indexed it, so you can jump straight to the bit about texting.
Forgive the crowd their cries of pleasure and awe. It’s a packed house, it’s the most anticipated product launch ever, he’s had forty minutes to soften them up by now, and this Reality Distortion Field goes to eleven.
But come on, that’s just iChat, Apple’s instant messaging client, running over SMS. What’s the point of that?
The point is price discrimination.
Steve typed "Sounds great. See you there." 28 characters, 28 bytes. Call it 30. What does it cost to transmit 30 bytes?
- iChat on my Macbook: zero.
- iChat running on an iPhone using WiFi: zero.
- iChat running on an iPhone using Cingular’s GPRS/EDGE data network: 6 hundredths of a penny.
- Steve’s ‘cool new text messaging app’ on an iPhone: 15c.
A nickel and a dime.
15c for 30 bytes = $0.15 X 1,000,000 / 30 = $5,000 per megabyte.
"Yes, but it isn’t really $5,000," you say. It is if you are Cingular, and you handle a few billion messages like this each quarter. (1)
Short of launching your own private satellite network, on a per byte basis SMS is the world’s most expensive way to communicate, and the most profitable product ever introduced by wireless operators.
On Tuesday, I found this part of the demo irritating, but assumed that I would be able to install iChat myself. Or better still Adium, which supports AIM, MSN, ICQ, and Jabber. (2)
But I will not be able to do that because … it will not be possible to install applications on the iPhone without the approval of Cingular and Apple.
It could get worse. Cingular has ‘not yet determined’ service pricing.
Right now, Cingular charges $19.99 per month for unlimited data; unless you have a Treo or Blackberry or Blackjack, in which case the price is $39.99 per month. Why?
Just because.
Smart customers sign up for the cheaper plan, buy an unlocked smartphone, and install their own email app, saving $200-$300 over the life of the contract (depending on the cost of the smartphone).
What if Cingular introduces an ‘iPhone date plan’ and charges $59.99 per month? I will not be able to do anything about it, because … it will not be possible to install
applications on the iPhone without the approval of Cingular and Apple.
I will not be able to make free phone calls over WiFi on my home or
office network because …
I will not be able to install Skype because …
I will be able to ‘touch my music’ - thanks Steve - but I will not be
able to use my own music to create free ringtones because …
It’s not just about Jobs being a control freak (although that may explain why we have to use Safari, a browser that some major web sites do not support, and why we won’t even be able to buy Java games). It’s not about the ludicrous claim that a third-party app could take down the network. It’s not about preventing other manufacturers from copying the iPhone. It’s about the money.
Fair enough. None of this changes the fact that the iPhone is a remarkable new product. Cingular and Apple exist to make money, and if they can persuade consumers to pay this kind of premium, congratulations.
But as a consumer, I have a choice. And for now the ability to install any application that I want leaves phones powered by Windows Mobile, Symbian, Linux, RIM, and Palm OS with some major advantages over the iPhone.
***
1. Even if Steve bought the biggest bundle of text messages that Cingular offered and used exactly that number every month, this message would still have cost him $250 per megabyte. But he’d have to send 100 messages a day to keep his average that low. On the other hand if he signed up for one of Cingular’s pseudo-unlimited data plans, iChat via GPRS/EDGE would cost him essentially zero.
2. Yes, I know that most people don’t have IM on their phones, so I still have to use SMS to send them a message. And where carriers do offer IM, it generally runs over SMS. But this is circular reasoning. Other carriers refuse to offer IM-over-data out of the box for the same reason Cingular and Apple do: so that you and I have to pay a premium for SMS.
New York or the Valley: Decision Time
January 11th, 2007
Uploaded by DogFromSPACE
Three months ago I wrote a post called "New York or the Valley?" about whether I should move to the west coast to start my next business.
I put it this way: given that my wife and I could live anywhere in the US right now (we have recently returned from a long trip and all our things are in storage), and that I am planning to start a new technology company, are there any advantages to starting it in New York?
Phrased a little differently each time, I put that question to dozens of friends and colleagues in the last few months. But apart from the obvious cases - businesses related to financial services, real estate, or marketing - no one could make a strong case for NY.
Yes, I heard many pleas in mitigation, many
examples of how you can succeed here, presuming that you have
already decided that this is where you want to live. But we haven’t. Though we love this city, we’re also attracted to the Bay Area - the climate, the scenery, being a little closer to my wife’s family in Oregon, TechShop. Call it a wash. My wife and I decided to make our decision on purely professional grounds; to go wherever we thought we could maximize our chances of success.
So Summer and I are moving to San Francisco at the beginning of February. To old friends, bye for now - my new business will bring me back to NY quite often. To new, we can’t wait to meet you.
And if you think I’ve missed some very important advantage of New York … sigh. Too late.
The iPhone Cometh
January 10th, 2007
Uploaded by dotdean
And so the iPhone cometh. For a thorough overview, see David Pogue, Michael Mace, and Russell and Carlo.
Forget about the ’specs’; several phones already on the market beat the iPhone on paper. This is all about the user interface. Every advanced phone in the world today is an ugly compromise, the unholy union of an elderly cellphone and a PDA. But the multi-touch interface on the iPhone looks as if it may be better than an iPod, better than any PDA, better than any tablet PC, and maybe an acceptable substitute for a plain old voice cellphone … if it performs anything like as well it did in Steve Jobs’ keynote address.
You cannot go by the press reports, or even the animated demos on the Apple web site. Until you can play with the thing yourself you will have to sit through the whole damn 90-minute presentation if you want to understand what I am getting at. Sorry.
The concepts are not new. You’ve seen this stuff in movies like A.I. or in the work of Jeff Han, and Go Computer had gesture-based interfaces (with a stylus) on commercial devices in the early 90s. But Go is gone, and OpenMoko is still vaporware. Apple will be the first to put this technology into the hands of millions of people, and for that they deserve all the praise that they are getting.
Forget about the price. $499 with a contract is steep, but this is Version 1.0. Version 1.0 of the iPod was $399 in 2001 and did nothing but play music. This year Apple will sell its 100 millionth iPod, and the most popular model is half that price. For the same reason, forget about the lack of 3G, the 2MP camera, and most of the other shortcomings on the feature list. Remember the leap from Version 1.0 of the iPod to the Nano.
Don’t blame Apple for going with Cingular instead of Verizon. Blame Verizon. Given Verizon’s refusal to support Bluetooth (beyond headsets) or WiFi or simple desktop synchronization and their insistence on Verizon-branded proprietary software (like their $4-per-song alternative to iTunes) there is no way that Verizon could carry the iPhone. Why do you think Verizon doesn’t offer any high-end phones from Nokia or Sony Ericsson? The iPhone and products like it will ultimately force Verizon open, as I have been saying for months now.
Why has Apple been able to leap so far ahead of Nokia with their first phone? Because Apple is the only company with the chutzpah to tell a major US carrier what a phone ought to look like. Nokia, Motorola, Sony Ericsson, RIM, and Microsoft have all bowed before them. So I think Tom Evslin is wrong; this is a revolution. And if Apple can really sell 10 million phones it will have even more control when it comes to Version 2.0.
As well as lamenting the Cingular deal, Fred Wilson thinks that the iPhone will have no impact on sales of the Blackberry and that the market was wrong to sell off RIMM. I disagree. True, the iPhone is highly unlikely to appeal to RIM’s core enterprise customers - it’s expensive, entertainment-focused, and won’t play nice with Exchange Server or support Office attachments at first. But RIM’s high valuation is a bet on their being able to break out of the enterprise market and sell to consumers. RIM’s legacy business is secure, but Apple just took their future away.
Even if Apple makes it very difficult to unlock the iPhone, they will have to sell unlocked versions in Europe and Asia if they want to make their sales targets. I predict that more unlocked iPhones will be imported back into the US than any handset ever sold - not just for T-Mobile customers, but for Cingular customers who don’t want to wait until their contract is up for renewal.
Similarly, it’s a mistake to think that the iPhone is not important because only high-end customers will be able to afford it. For one thing, this phone will set the design direction for the whole market and it and phones like it will cost $200 or less in a few years’ time. But more importantly, the high end is the most important segment of the mobile phone market, because it is the most profitable segment. Motorola and Nokia are selling more phones than ever but getting punished by investors because their phones are too cheap and their margins are collapsing.
Having said all that, Apple still has serious questions to answer:
- Battery life: forget about talk time, forget about music playback, what is the standby time and why are you being coy about it?
- Why would you even think about blocking third-party applications? If so, what is the point of having OSX?
- Why do you need a cable to sync it when it has WiFi? Is it because you want to drive any possible games or downloads through iTunes and DRM?
Finally, I believe that Apple has made at least one deal with the devil, and it’s in their implementation of SMS. But I will save that for another post.
***
Happy New Year … Summer and I took a break to visit friends and family in Dublin and Brussels. Now back to work.
Apparently, I am Spiderman
December 30th, 2006Your results:
You are Spider-Man
|
You are intelligent, witty, a bit geeky and have great power and responsibility.  |
Manifest Destiny Part IV
December 19th, 2006Via Tom Evslin
This is the last in a series of posts analyzing the forces that might break the hold that carriers have on the mobile market. See also parts I, II, and III.
(10) Regulation
I saved regulation to last, although not to build suspense. Like most entrepreneurs, I recoil from the subject. But wireless spectrum is a commons. There may be better ways of managing the commons than the frequency allocation chart above, but even in a world of open spectrum and software-defined radio we’d still need a licensing regime for new devices.
I’m interested in what kind of regulatory changes we might see in the next five years and their impact on my business.
Network Neutrality
I missed most of the kerfuffle over network neutrality while traveling this year, but now that Congress is in the hands of Democrats legislation seems inevitable. Partisan lines have been drawn.
The central issue is how to prevent a wireline carrier from deliberately degrading service to a content provider that refuses to pay a fee: is self-regulation enough or do we need an umpire? No one is even suggesting that a cable company or DSL provider should have the right to block access to a content provider completely. But wireless carriers do this all the time. Many mobile content providers in the US cannot get their content onto any network. The more people use the mobile web, the more this becomes a free-speech issue - a smart mob can’t use other media to communicate. How long will regulators let this go, not just in the US but in Europe? Or will mobile operators offer network neutrality themselves in exchange for eliminating their liability for content that goes over the network?
Unlocked Phones
Carriers control the market because they control the phone. One way they do so is by ‘locking’ handsets to their network; they sell you a phone at a discount and one of the many strings attached is that you can’t take that phone to another provider.
But what if there is no contract? What if the contract is up? Why can’t I buy a CDMA phone directly from LG and demand that Sprint activate it on their network, so long as I pay for service? If I buy a phone from Sprint and switch to Verizon when my contract is up, I can take my phone number with me. Why can’t I take my phone?
A few weeks ago the Librarian of Congress (regulators are everywhere) granted an exemption under the DMCA covering software for unlocking cellphones. So far only Tracfone is seriously affected, because they subsidize handsets without forcing customers to sign a two-year contract. But regulators could go much further. Nothing would do more to increase competition in the US wireless market than legislation requiring carriers to accept other handsets on their network. Right now GSM providers can’t stop you; Verizon will allow it but makes it so hard that no one bothers; Sprint just says no. There is a clear precedent for change: the Carterfone decision.
Full Number Portability
Give someone control of a namespace and they will charge a rent for it. What would NetworkSolutions charge for a domain name if you couldn’t switch to a different registrar? IM interoperability wouldn’t be an issue if you could take your AOL screenname to Yahoo. But Wireless Number Portability is old news, right?
Not in Japan, where it was just introduced. Not in Canada, where they are still waiting. And we are all still waiting for Full Number Portability, between fixed and mobile networks. FNP makes it harder for carriers to charge a toll for terminating a call on a mobile network, a big issue in Europe if not in the US, because the customer can’t know in advance whether the number they are calling is mobile or not.
Restrictions on Subsidies
One way that carriers keep control of the handset is to lock it, but the way that they persuade us to give them that control is by subsidizing our purchase in the first place. Korean regulators have banned and encouraged subsidies at different times, to favor the adoption of certain technologies. Finland has always banned subsidies, to avoid favoring any. Neither country has a shortage of mobile phones as a result.
Banning subsidies makes operator pricing more transparent, and forces them to compete on price and service alone. If they use the savings to cut the price of voice and data, consumers are better off in the long run. If they shift the dollars into marketing instead, we just get more TV ads and expensive handsets. I don’t expect to see a ban in the US, but regulators in other countries may try it.
New Entrants
Regulators play a large role in deciding how many operators there will be in each market, by granting new licenses and approving or vetoing mergers. In the US there is not much on the horizon. Clearwire is rolling out a nationwide Wimax network in the US and European regulators will start auctioning Wimax licenses soon; we have yet to see whether Wimax can match the performance of cellular networks for mobile voice, but dual-mode GSM/Wimax handsets should be more reliable than the WiFi versions, and so cut into the revenue of the incumbent carriers.
Open Spectrum
In the next five years? Not a chance. Be grateful that the FM gadget for your iPod is finally legal in the UK. Hope that somebody can make Bluetooth easier to use. And be grateful for WiFi. Until everybody on your block gets it.
The QWERTY Myth
December 13th, 2006
Uploaded by Whatknot
Cameron Marlow writes about how many taps it takes to enter a URL into a phone, and he’s written a tool to tell us. (Predictive text systems like T9 don’t help for URLs.)
Meanwhile, depending on whether you believe Gartner or the GSM Association, either 2005 or 2006 was the first year in which the number of SMS or text messages sent worldwide passed one trillion. Since fewer than 1% of the phones in the world have a Qwerty keyboard and spam is not yet a major problem (because of the economics), almost all of those one trillion messages were tapped out on a 10-digit keypad.
Back in the days of the (first?) bubble, people used to talk a lot about network effects and the overwhelming competitive advantages that they created. The more buyers visit eBay, the more sellers show up; the more goods there are for sale, the more buyers visit and so on until it becomes almost impossible for a new entrant to displace eBay. This was one argument used to support claims of "first-mover advantage" and strategies like "grow big, grow fast, or go home."
Network effects are real and powerful - eBay itself was defeated in the Japanese market because it was too late to enter, and more recently MySpace and Skype and Google’s AdSense (although not Google search itself) have demonstrated the power of networks.
However, during the bubble people made a much stronger claim for network effects: that a product or service could get ‘locked in,’ such that customers would still choose it over a new product that was clearly superior. Their favorite example was the Qwerty keyboard layout, which was supposed to be unassailable despite ‘better’ alternatives like the Dvorak layout.
Cute story, but it just wasn’t true. No one has ever demonstrated that the Dvorak or any other layout offers a meaningful advantage over Qwerty.
The rise of SMS should kill this myth. One trillion messages were composed last year using a keyboard that is clearly worse than Qwerty by any standard measure - speed, ergonomics, error rate - because a regular phone is smaller and cheaper than a Qwerty phone.
‘Smaller and cheaper’ are so important for phones that even RIM has had to degrade the keyboard on Blackberry phones in order to broaden their appeal.
Network effects are real, and confer real competitive advantages, but there is no such thing as lock-in. There is no product or service that a customer won’t drop if something better comes along. It’s just not always obvious what ‘better’ means. That’s part of the Innovator’s Dilemma.
Thanks to Jake for sending me Cameron’s post.
Update: A Citigroup analyst believes that 60%-70% of RIM’s Pearl phones are being bought by current Blackberry subscribers. Not only does this mean that RIM is having trouble breaking out of its niche, it also means that existing Blackberry owners are willing to give up a full Qwerty keyboard.
Paranoia
December 11th, 2006
Photo by katiew.
I have an idea for a new company. No, I am not ready to publish it to the world. But I have been talking about it with several people, including former investors, colleagues, and friends, and their advice has been very valuable. (Thank you all.)
Which begs the question - whom do talk to about your ideas, and when?
Most entrepreneurs are paranoid. True, not everyone is out to get you, but a lot of capable well-funded people are, and it only takes one.
At the same time, unless you can name someone who has built a billion-dollar company literally all by themselves, you have to trust someone, sometime.
Recently a would-be entrepreneur asked me whether she should patent her invention, but refused to tell me anything about it. Another person would only tell me that "there is a human function that has never been automated … until now" and did I know anyone who could help him? Er … Toto?
When there is nothing but a raw idea, a sketch on a napkin or envelope, my rule is that feedback is free. If I know you or you are recommended by someone that I know, and you have an idea that you would like my opinion about, I am happy to give you some thoughts. I may or may not ask you to return the favor. (I almost certainly will.)
If once you start talking about your idea I realize that there is a conflict - that I am working on something related - I will stop you and say so. If we decide to go on, I may end up incorporating some of your ideas in my own project, and you some of mine.
There is a time and place for formal non-disclosure agreements, but not until there is something concrete to protect, or you are forced to talk to someone that you are not sure about. And if your idea is really patentable you should be even more careful, because disclosure could invalidate your claims. Otherwise:
- Find someone that you trust.
- Tell her that you value her opinion and would like her advice.
- Make it clear that all you are offering is a thank you and a firm handshake.
- Tell her your idea.
- Listen to her opinion.
- Repeat.
Ah, but what if you don’t know who to trust? Easy! That means you are not qualified to be an entrepreneur. You are destined to be ripped of by your partners, your investors, your employees, your vendors, your customers, your immediate family, your priest, pastor, and dog, so best to give up now.
And that feedback is free.
Mortified
December 8th, 2006
Last night Summer and I went to see Mortified in New York. Every performance is slightly different, but each night nine or ten people read extracts from their teenage diaries, locker notes, poems, or - last night at least - rap lyrics (by a 14 year-old white farmboy) and a draft screenplay for a porn flick (by a 12 year-old Jewish American Princess).
For the web geeks among you, this show is user-generated theater;
not open mike like YouTube, but filtered and edited like Metacafe.
It’s cringe-making, painful, embarrassing, and incredibly funny. Anyone can submit a piece and the producers in each city - so far L.A., New York, Boston, San Francisco, and Chicago - hold open auditions to find new material. Some of the best pieces from the last few years have been published as a book, just in time for the holidays.
Thoroughly recommended.
DRM is Dead
December 7th, 2006
Nicholas Carr writes about EMI’s decision to release the new Norah Jones single as an mp3, as reported in the WSJ.
I see DRM as a futile attempt by a threatened industry to defend their existing business model, which for a hundred years has been predicated on manufacturing and selling some form of physical media (piano rolls, wax cylinders, LPs, or CDs) and earning a ‘breakage’ fee by selling people albums when most of the time they want singles.
What’s interesting about this story - in the light of my own posts about the wireless business - is the immediate cause of EMI’s move. It’s not that some Norwegian kid has cracked another DRM code, it’s that Apple’s DRM strategy - for now - has proved too successful!
Apple has a near-monopoly over sales of digital music. More importantly, they have a lock on the market for digital music players. Music sold through any other DRM channel won’t play on an iPod, so why bother? EMI’s best hope of selling digital music outside Apple is to sell mp3s, which will play anywhere, including iPods.
And mobile operators? Mobile phones will compete with iPods as portable music players, but most people will load up the songs that they already own from their PC, and the carrier will make no money apart from the initial handset sale. ("The iPod makes money. The iTunes Music Store doesn’t.") I can understand people downloading music over the air to their phone on impulse, and paying a premium to do so, but that will be a small business for the record labels and a negligible one for carriers. So why do they even bother? And why don’t all the carriers collaborate on a DRM strategy and build a single channel to compete with Apple? The answer to both questions is that content is the cupholder.
By the way, ‘Chris_B’ in a comment to Carr’s post says that unauthorized duplication of CDs is a much bigger problem than online file-trading. He is probably right for now, but I think that while the music business will survive the transition to digital content in some form, the CD duplicators will not. The only people who buy pirated CDs today are the ones who don’t have Internet access yet.
Traveling all over South-East Asia this year, I rarely saw anyone selling music - a few stalls in the Khao San Road in Bangkok, some sun-faded CDs in a store in Hoi An, Vietnam. Why? Because all the likely buyers were Western tourists and backpackers. And all of us had mp3 players.
On the other hand I saw two Internet Cafes - one in Cambodia and one in Laos - that were charging for the right to download music.
