Uploaded on Flickr by Enol

Over Christmas there was some intense negotiations between the various record companies and Apple over the removal of Digital Rights Management and Variable Pricing for music. The primary issue was that Apple wanted to get music distribution onto the iPhone because they felt that impulse buying on the iPhone was an important component to growth. They had offered variable pricing in return for these terms but over Christmas Sony was the only hold out, which resulted in Steve Jobs intervening.

In interviews, several high-level music executives, who spoke on the condition that they not be named to avoid angering Apple, said they operated in fear of Apple’s removing a label’s products from the iTunes store over a disagreement, even though that has never happened. The labels do not have much leverage in negotiating with Apple.

Overall the music industry fears the growing power of iTunes and Apple particularly the front page:

One chit the company holds is the power of the iTunes home page, where it promotes music………“Whether the industry likes it or not, the iTunes chart showing the most popular songs in America is a major influencer of how kids today discover and communicate with their friends what kind of music they like,” said Charlie Walk, the former president of Epic Records, a unit of Sony Music. “It’s a very powerful thing right now in American pop culture and immediately validates a hit song.”

What music industry executives are worried about is the growing power of the front page (and recommendation engine) of iTunes and the ability of iTunes to influence consumers. Couple that with a retailer that has enormous market power in the only growing sector of their market and you have a potential perfect storm for the executives of the music industry.

In the past the system worked on the concept of finite shelf space and fragmented music retailers. The music distribution companies were the distribution choke point and they decided what ends up on the front shelf at your music store and they got to kick around the music retailers. They were the ones that controlled what consumers got to hear on the radio, and they were the ones that decided how to price and promote an artist. (We all remember where we transitioned from Albums and Tapes to CDs). We could not understand why it was more expensive when the cost of manufacturing was lower. The transition of technology had traditionally always been good for the music executives, but this time the rules changed because they knocked straight into the network effect, the effect that creates natural monopolies because of their accumulate effects that benefit customers.

But today market power is shifting back to one large online retailer who continues to grow in substance and power each day. However what the music executives lose sleep over and could threaten their Gulfstream G650s is the ability for Apple to get into the music distribution game and sign artists directly.

Those with market power already, for example Madonna, already control all of the rights to their music. It would not be fantasy to suggest that the next album that Madonna releases will be an iTunes only album. What this means to the artist is a far greater share of the revenue stream as well as more control over how it is marketed. This is not that far away. After all the objective is to get their share of iPod hard disk space.

However the one thing that really kills them(music execs)  is the potential that Apple will have the ability (soon) to market new artists. Currently how the system works is much like American Idol. Hundreds of talentless and semi talented people get in front of a small group of “experts” who decide who gets to make an album and who gets shown the door. Even before the walk through the door for the first time, they have to submit to an oneous contract and are stripped of all rights to their own talent. (That is not to stay this is how it happens in the normal course of recording companies because there is usually lawyers on both sides involved, but that controlling a really talented person like Kelly Clarkson is indeed mining gold). However the market power of the record companies is controlling the distribution and access to that distribution. Currently if you are seriously talented you must deal with these people in order to participate in the channel. It is important for them to make sure that the artists know you cannot participate in this market without them. What they don’t need is the front page (and recommendation engine) of iTunes to create an alternative outlet where a talented artist can work the process and create exposure independently of the labels.

With the front page (and recommendation engine) of iTunes you potentially have the potential to create the next Pop Idol through simple exposure.

This is not to say that music industry system as we know it today will disappear anytime soon. This is because  there is a hugh system in place already to vet and process artists employing millions of people as we speak. The hard work behind the scenes still has to be done. Writing songs, the studio work, production and marketing as well as road time. A potential deal on iTunes does not preclude the hard work building the infrastructure behind your career as many people that you have never heard of already have done. What it means is that it is feasible for an artist to be a major success without having to deal with the major labels and that is what keeps music execs quaking in their G650s. Those cliche scenes where the young band working out of a garage gets the call from a record producer from Atlantic or Sony, will be replaced with the call from Apple one day.

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Over at Gigaom, they are predicting a wide spread slow down of Wireless Data Services WDS:

Last week, UBS Research in a research note pointed out that AT&T had 1.25 million 3G laptop subscribers as of the end of the fourth quarter of 2008. Net card additions had fallen 121,000 from the 186,000 additions in the third quarter and 166,000 in the second. This was “likely due to weakening spending at both businesses and consumers,” said UBS. Going forward, severe job losses and overall belt-tightening (including less travel) on the part of companies will reduce the number of 3G laptop subscribers as well.

While we agree that the reduced increase in the number of wireless data subscribers per month is due to the slowing of the economy in general, the carrier’s future is in wireless data services, as voice minutes as percentage of revenue continue to decrease.

The strongest element for success for WDS is not the carriers themselves, if it was up to them we would still be charged 10c per Kbyte and no one would be using the service. The future of WDS is because very powerful constituents are about to fight tooth and nail to control the key applications on tomorrows Smartphone. Google, Nokia, Apple and Microsoft are spending billions to make sure that will happen.

Google believes that mobile advertising will be larger than the existing browser bound search as they are able to reach further into the consumers life. Microsoft, smarting from the serious ass-kicking from Google are determined to make sure Google is not number one in the mobile space. Apple, whilst having a head start in the new mobile world (heck, they created the new mobile world) will not be satisfied until iTunes is the only place you can buy digital music and control the multi billion dollar market. And Nokia, while they have a strong head start, are very conscious that if they do not react, they will be as relevant in 2012 as Motorola is today.

If the carriers become information highway roadkill, then that is just fine with the big four, they need the carriers only insofar as they deliver customer data to them when and where they need them, and most importantly not to be an impediment to the delivery of these services.

Although carriers have direct retail relationships with their customers, Apple has shown that it is possible, with the right circumstances to have a stronger relationship with that mobile customer than the carriers. When was the last time you heard an iPhone user gloat over ATT?.

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Mobile OS Market Share

Analyst firm Canalys has released the results of it’s Consumer Mobility Analysis Report and it is very good news for Apple, good news for RIM and Microsoft and bad news for Nokia:

The success of Apple and RIM, as well as fifth-placed HTC with its Windows Mobile devices, has eaten into Nokia’s share of the smart phone market – a market it has led consistently for several years. Nokia’s broad portfolio of models, and the wider audience it attracts, does leave it more exposed to the trends affecting the overall handset market. Year-on-year its smart phone shipments fell in Q3 for the first time. “Nokia is also transitioning from some very successful volume drivers, like the N95 and E65, to a number of successors, such as the flagship N96, and shipments of these new models have not yet ramped up,” noted Canalys analyst Tim Shepherd. “And Nokia has taken time to bring a touch screen product to market in the wake of the iPhone’s success, despite having had the experience of producing the Series 90-based 7710 four years ago. Conversely, vendors such as HTC with its Touch Diamond have capitalised on customer demand for this type of product.”

As every one expected in the Apple earnings conference, the Apple iPhone 3G has leaped past RIM to take number two position for smartphone shipments. Blackberry still grew at a healthy clip but expect their margins to be squeezed as they sell more “down market” phones such as the curve.

Nokia has nowhere to go but down currently as the buzz is elsewhere with the Apple RIM battle and the coming rationalization of the Linux market with the Andriod Operating System.

The odd man out is Windows Mobile. After 8 years on the market, it has failed to grab more than 13% of the market (much like SQL Server) and is coming under heavy criticism for it’s interface and jumbled approach to the mobile market. HTC is the number one shipper of Windows Mobile, but they have put a tremendous amount of effort behind the new T Mobile G1 device. If Andriod does big things for HTC (and Samsung) then life gets very uncomfortable for Windows Mobile.

Windows Mobile currently costs vendors between $8  – $15 per handset which translates into $40 – $65 million in license fees per quarter. If Android can show an increased ARPU (average revenue per user) for the carriers in the same way as Apple iphone has done for ATT Wireless, then it is going to put Microsoft in a difficult spot. Smartphones for consumers are all about functionality, but smartphones for carriers are all about more data packages and more revenue.

However Microsoft understands that the future of mobile is tying data-sucking services to the device and not just mobile Outlook but a host of services including location, search and social stuff. Microsoft has a long way to go to convince carriers that they are in the game.

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Uploaded flickr by gholzer

Windows Mobile was originally launched as Pocket PC in April 2000. It was born in an age when Microsoft was busy trying to tie everything to the Windows Desktop and cast a long shadow over every part of the IT industry. It was not long after that that the Windows wheels fell off when the US DOJ and the EU put paid to that. However Windows Mobile is a product of that past where the motive was to tie customers (mostly enterprise) to the Windows platform and windows groupware products. It is this motive that will be the destruction of Windows mobile.

Microsoft has up till recently insisted that the Windows folder experience is what is necessary and that Windows desktop users would be comfortable with using it on a mobile device. This was however a circular argument because the number one mandate was to proliferate the Windows brand, so that justification was made, however RIM had made that argument dead in the water. What RIM did find was that push email/calendar and contacts the number one issue.

Microsoft also made the mistake that they made in the portable music market, the Plays for Sure approach was an unmitigated disaster. They believe that OS distribution model (eg Windows) would win over an OS integrated approach (iPod). This idea was firmly beaten into the ground with the introduction of Zune player which is an integrated music player. What they forgot and continue to ignore is that with mobile devices, the number one issue is the experience on the devices, and the iPod ushered that era in bringing about a renassiance of the Mac Operating System.

It is ironic that RIM and Blackberry ended up doing a much better job of delivering functionality to the mobile enterprise and now dominates the push email market for corporate. It is the one device that held held back the Windows Mobile from dominating.

With the spectacular success of the iPhone, having in the last quarter moved past RIM in smartphone revenues, RIM is now having to respond, and have a raft of new devices coming out in the next few months. Google and their launch partner T-Mobile have released the new Andriod platform and App Store. They have effectively rationalized the linux mobile market and set Linux on the path to significant market share. Motorola is putting their “Good” people behind Andriod and you will see a raft of new capabilities including their messaging platform move to Andriod.

All this will mean Microsoft will have to respond with their own hybrid experience. They will need to develop an App Store to compete with the others. But this too has challenges because apps will need to be tested over a wide number of devices, whereas Apple only has to test on a single platform. Google intends to have one App Store that will allow distribution to all Andriod phones. The problem with all this activity is that for Microsoft, they have to follow what others are upto. And all this activity is without the benefit of the Windows monopoly. Microsoft has never succeeded where they have not been able to force users to adopt through the Windows operating system, and Windows Mobile is no different.

According to Bob Cringely, Windows Mobile is doomed because of simple market dynamics, that is there will be no room for a Windows mobile device. He states that it will be dominated by iPhone, Android, RIM and everyone else. He believes that handset manufacturers will abandon Windows mobile because they need to go where the action is (read critical mass). They can’t go to iPhone or RIM, which means they will migrate to Android with it’s open architecture, App store and enormous Google presence. What this means for Windows Mobile is over the next year it will continue to be marginized and more handset manufacturers will quietly drop the OS over the much cheaper (read free) Andriod OS and features.

Only time will tell, but it is hard to see how Microsoft can compete with the iPhone freight train and the Android sexyness. They could release a Zune phone but as everyone knows that ship has sailed….

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The upgrades to 2.0 for the iPhone and iPod Touch has arrived. If any one has tried to install upgrades and new applications in other smartphones then they will appreciate just how good iTunes + iPhone/iPod integration is.

I upgraded my iPod touch to 2.0 and added in Ebay app, AOL Radio (with NPR goodness on it), trip adviser, iTunes Remote.

I had one problem and it had to do with the DRM system. What happened is that the applications loaded but would not run. A blank screen would briefly appear then it would return to the main menu. To fix this problem you need to read this. Basically, delete apps (hold finger down on app until it wiggles), reauthorize your mac then resync your ipod/iphone. This fixes an out of sync DRM thingee.

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[Uploaded on July 10, 2008 by SashaNZ]

IPhone 3G Mania struck New Zealand at 12am (NZ Time) this morning as red beanie (touke) wearing yanks desend on Auckland’s Vodaphone  shop on Queen St.Both ifixit.com and Engadget.com flew to New Zealand to get their mitts on lamburgers and Apple’s iPhone.

Engadget was on hand to chronical the world’s first iPhone 3G owners.

The first person in the world to own an iPhone 3G was 22-year-old AUT physiotherapy student Jonny Gladwell..

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[Uploaded on August 31, 2007 by nobihaya]

The Adobe CEO Shantanu Narayen spilled the beans over progress made on getting Flash working on the iphone yesterday:

MACMILLAN: And then just to follow-up was on the Apple iPhone 3G — any update on Flash support within that device? Thanks.

NARAYEN: With respect to the iPhone, we are working on it. We have a version that’s working on the emulation. This is still on the computer and you know, we have to continue to move it from a test environment onto the device and continue to make it work. So we are pleased with the internal progress that we’ve made to date.

The exchange was made during an earnings release conference call on Tuesday. It is no surprise that progress has been made given the fact that mobile safari is built on exactly the same framework as the full blown Safari.

Whether or not we get Flash on the iPhone is and has been a function of marketing and politics between Adobe and Apple. Indeed the Flash on iPhone discussion is just one part of a much larger battle for web development tools currently going on between Microsoft and their Silverlight Project, Google with it’s support for open standards, Adobe’s Flash specification and Apple.

Macromedia Flash’s early success was because of Microsoft. In 1997 Macromedia and Microsoft came to a bundling agreement with Internet Explorer 5 which allowed it to be quickly distributed. Couple this with a growing developer base that found it easy to use and flash quickly became the prevalent. Interestingly enough, Microsoft inked the deal to fend off the threat from Netscape and Java.

Up until it purchased Macromedia in 2005, Adobe attempted to destroy Flash through a number of failed initiatives including VML and PGML. Once Adobe acquired Macromedia and Flash, it set about extending Flash’s dominance in the market. Flash was given a big boost by the explosion of video content on the net lead by the popularity of You Tube, the first large scale video distribution side.

Today Flash is not supported on the iPhone and Apple have made it clear that it’s preference is open standards using XML, Javascript and HTML rather than any one particular proprietary runtime such as Java or Flash or Silverlight. However this desire may yeild to more practical considerations on making the iPhone platform a mobile game changer and take control of the consumer smartphone market (as opposed to the corporate smart phone market dominated by RIM).

This will ultimately mean that flash is supported but Apple will extract a price from Adobe over that support and that is much better support for Non Windows platforms. Apple will not allow Adobe to provide anything less than a top notch Flash Player 9 for the Mac and iPhone.

And with the 3G iPhone, Apple just may have the big stick to bring Adobe into line.

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Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone.
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

2007 will go down in history as the turning point where smartphones became mobile phones. With RIM on a roll with it’s business ready blackberry, to Apple charging onto the scene with their user (and app) friendly iPhone, to Google’s Android mobile platform, 2007 was packed the sort of tipping points that make Malcolm Gladwell giddy.

Each of the “new” vendors are predicated on the user experience as the dominant need, not the need of the carrier and their business model. Indeed I have argued before that existing manufacturers (eg Nokia, Motorola) are subjected to the limitations their market and have acted accordingly. The carrier decides what features will be provided to whom and the manufacturer created it. Sure their was some give and take, but the immutable law was that the carrier decided what was on the phone and the manufacturer build it, and the sales person sold it.

So the key limitation was not that phones were not offered by the manufacturers but that phones were delivered consistent to what the manufacturers believed would be accepted by the carriers in their network. However 2007 was characterized by a fundamental change in how the consumers view the mobile phone lead by Apple.

Subsequently two new business models have arrived, the Apple iphone alternate reality and the Google application goodness reality.

Right in this mix you have an extremely clever consumer products organization that knows how to play hard ball. It is no secret that ATT was on the receiving end of negotiations with Apple over the iPhone. Apple received concessions that were unheard of in the industry up to that point. What is lesser known is that Apple’s iPhone pricing strategy is exactly that a strategy. The original $599 price was there to straddle the market. What that means is that you price the product close to the perception price when you launch it (ie $599) to capture the early adopters and to set R&D budgets for competitors because they had to respond to the product. Then 6 months later drop the price back to an aggressive position ($399) and again make the competitors respond. This is a technique used simply to slow down the competition by creating two reaction points. (This also allows consumers to react as well. Consumers react to changes in prices not absolute prices.) Apple brings a degree of marketing and product sophistication that has not been seen in the mobile market.

Much to the chagrin of the traditional model, Google’s Android platform is largely subsidized by search and advertising revenue. It is main premise is to allow developers and customers to come up with a platform that appeals to the widest audience. It is largely based on open source and hence is very extensible.

More importantly it has the support of Google’s core applications including search, docs, maps and others. It dominant motive is to provide a consistent platform for the delivery of Google goodness, and the extensibility to allow new applications (such as say traffic reporting system based on GPS, Google maps and real time traffic data. The Android platform has an anchor tenant so to speak.

2007 provided much in the way of change for the mobile market. It was a world of change from the beginning of the year to the end of the year in how the consumer viewed their role. However this has only opened the flood gates of change. The Block C auction in the USA proved that the open access rule does not destroy the value of the network as the carriers threatened, Apple and Google (and Symbian) are pushing the value of mobile applications, and Intel and ARM are pushing the limit of what’s possible with CPUs and by extension personal mobile devices.

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The big numbers story this January is that General Motors has held on to it’s spot as number one car manufacturer in the US over Toyota who has beaten Ford for the first time:

Toyota sold 48,226 more cars and trucks than Ford, according to sales figures released today. Toyota’s sales were up 3 percent for the year, buoyed by new products like the Toyota Tundra pickup, which saw sales jump 57 percent.

On a global basis it is expected that Toyota will overtake General Motors as the world’s largest auto maker with approximately 9.51M vehicles sold. The bigger story is the continuing decline in relevance of the US auto market to the rest of the world. The biggest stories are in Asia especially China and India where the growth of new vehicles are stunning. Toyota and it’s Asian counterparts are investing heavily in production in new markets and the results are starting to show.

Toyota also has a major cost and profit advantage to the (formerly) big 3 and is able to invest more heavily in new initiatives while the older automakers struggle to reduce capacity in the North American markets.

Ultimately however these numbers are meaningless and only really of interest for interest sake, much like personal computer market share. I have always been critical of personal computer market share numbers because they really don’t mean anything other than for interest sake. Lumping contact center personal computer workstation with a home user with a notebook user doesn’t mean much to anyone. The monolithic market for personal computers does not mean anything. What is far more interest is between relative uses such as notebooks for professionals, education market, multimedia uses, and home use.

My criticism for this number is also in how this is used. For example, a common misapprehension goes like this: Window has 90% plus share of the market therefore Microsoft must win with mobile phones and it is only a matter of time”. We all know that the true is that the market is very fragmented with Nokia/Symbian having the largest share (although 90% of the users don’t use 90% of the function).

Experience like Toyota tells us that the future is based not on directly challenging the large lumbering monopolies or (oligopolies) but to look for growth in niches that can turn into large markets. Toyota dominates the small car and now hybrid markets. They made the decision in the mid 90s that oil prices long term trend is upwards (peak oil etc etc) and they had to dominate the market when that occurs.

Dell is looking decidedly like Ford with it’s over reliance on the corporate market. It’s poor R&D spend is coming back to hurt them. HP is not a personal computer company but a full service computing organization with a personal computer division. It’s R&D and services business make it attractive to corporations as an alternative to IBM. Acer is looking more like Toyota as a fast growing Asian.

The long-term trend is not generic corporate workstations who will always be heavily discounted, but trends in computing, largely mobile in nature. Take for example the iPOD, it is a mobile computing device for music delivery. It is a personal computer but designed to do one thing well.

Predictions

• Generic Windows Computing will continue its inevitable decline. Microsoft will be the only one making money in this sector and because Dell is heavily dependent on this market, it will continue to decline as HP, Acer and others continue to take market share.
• There will be a host of new sub notebook designs this year from Apple and others that will be flash memory based or based on the new super small hard disks.
• Look for the rise of the personal assistant devices (PDA) again lead by Apple. The Apple touch technology will be used in both PDA and subnotebook formats. Both will have the ability to use the Bluetooth keyboard and mighty mouse and sync with core Mac hardware wirelessly.
• Tablet computing has always suffered because it was designed as a general purpose computing device that is mobile. Tablet computing needs to be application centric with tools that allow it meet specific functions. Hats off to Panasonic with their toughbook range. They found a niche and build the product to meet it. Look for GPS enabled functionality built in this year and application centric tablet devices.

As you can see I am bullish on mobile computing as making the most head way this year. However I also see home computing, read multimedia capabilities moving forward quickly this year. The iLife suite from Apple has been a deciding factor for many people to move to the Apple Mac at home. Look for some major movement in wireless home entertainment including media extension devices such as the Apple TV.

As for my out their prediction, Apple will make a big acquisition this year on it’s quest to be the home computing king. Apple will purchase Bose or Harmon International, both high end entertainment hardware manufacturers. They will commit to integrate their products with both blue tooth and Wifi N networking to build a complete experience in the living room.

Other than that, have a great new year….

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iPhones being delivered from an undisclosed location…..

…waiting the freight at each location on Sunday were armed personnel, who were reportedly hired by Apple through its courier’s ground handling agent and then cleared by the Transportation Security Administration. Armed guards are extremely unusual for freight coming out of the Asian sector, those familiar with the matter explained, and are typically reserved for shipments containing riches such as gold and diamonds.

You can read more here.

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This weeks Apple Shareholder’s meeting offered some more insight into the world’s favorite computer company with the world famous crusty and opaque CEO, Steve Jobs.

Aside from handing Greenpeace representatives a new one, (however Apple shareholders have managed to get Jobs to respond), Jobs also noted that the iPhone is on time, there is a real possibility that iTunes will get video rental, and Leopard will be worth the wait.

Not one to miss an opportunity to snipe Microsoft, Jobs also noted:

After being questioned about the amount of money the company invests in research and development, Jobs said Apple’s capacity to deliver new products is limited only by its ability to find talented new employees capable of great work. “I wish developing great products was as easy as writing a check,” he said. “If that were the case, then Microsoft would have great products.”

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If you have been in a coma you would have not known that Apple has announced an Internet/Wide Screen IPod/Cellular phone yet to be called the IPhone. This device is nothing short of a complete transformation of the smartphones for the consumer market. This week the Guys from MacBreak critique the IPhone from the floor of the MacWorld Expo. Then we are going to take a different angle and talk about cellphone design
with Jeff Han. Jeff is a research scientist for New York University’s Courant Institute of Mathematical Sciences. Here, he demonstrates for the first time publicly his intuitive, “interface-free,” touch-driven computer screen, which can be manipulated intuitively with the fingertips, and responds to varying levels of pressure. (Recorded February 2006 in Monterey, CA. Courtesy of Ted.com )

Ross Lovegrove is an industrial designer, best known for his work on the Sony Walkman and Apple iMac. In this highly visual presentation, he presents his recent work from furniture to water bottles which is organic in form and inspired by nature. (Recorded February 2005 in Monterey, CA. Duration: 20:14 Courtesy of Ted.com)

This weeks music is Luigi Cappela with Telephone Card -from Auckland New Zealand and is courtesy of Podshow Music at http://music.podshow.com

[odeo=http://odeo.com/audio/6077823/view]

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The Apple IPhone announced today is truely the state of art in industrial design. It is by far the most comprehensive and compelling phone ever invented. Although they had a great product with the Apple TV (iTV) and are delivering a compelling media controller for the phone, the IPhone has blown away anything that CES has to offer.

There are some things that you may have missed:

• Steve Jobs showed the Beatles on Itunes. It is our understanding that Apple Corp (The Beatles Holding Company) has not agree to any digital rights however Jobs showed in on the IPhone and Itunes today.
• Cisco and Apple have negotiated rights to the trademark “IPhone” but it had not been signed at the time of the announcement
• The Operating System in the Phone is Mac OSX. This means that it is multitasking user system but it also the world’s first BSD powered phone
• All aspects of syncing is going to be done through Itunes, not ISync as originally suspected.
• IChat Video is not part of this release of the phone because the camera is on the back of the phone not the front of the phone. I believe that this will come in time.
• There is no VoIP Client (iChat) probably because the relationship with Cingular
• The Safari browser has tabbed view with a quasi cover flow metaphor
• It is the first phone to take mashups to the next level, indeed it could be the first mashups on phones
• Localized services are very imporant for the phone experience going forward
• Cingular’s partnership is exclusive which means Apple got some concessions but the only one announced is the visual voicemail

Apple today upped the stakes today and created a real challenge for Motorola and Nokia, not from the sales figures but from a customer perception. The current crop of smartphones now look pretty average.

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