Apple B.S.

Apple: selling hard drives is so 2000.

2011-06-08T16:49:00.000-07:00

You probably know that El Stevo and Apple presented the latest iteration of Mac OS X (Lion), iOS (5), and introduced iCloud as the successor to MobileMe (and so much more) this week. Having taken a few days to digest this, here's some reaction:

-while everyone fawns over iCloud as an extension of the iTunes store, my main takeaway is that Apple is well along on the path of transforming (cannibalizing?) a core business - hard drives. Wait, AAPL doesn't sell hard drives? Well, what's an iPod but a hard drive with earbuds?

This is one more example at how extremely well managed Apple is. One of the hardest things to do is to trash an existing business. A classic case is DEC (Digital Equipment)'s inability/unwillingness to morph their minicomputer business into a PC business in the early '80s as the PC revolution started. Likewise, if you're an MP3 player maker like SanDisk or Archos, you're about to go the way of DEC because you wouldn't abandon your local storage model.

This will fundamentally change Apple's business. Last year, Apple sold ~50M iPods, representing probably $10B (billion!) in revenue. iCloud was conceived to decimate this figure, as the more ubiquitous your music collection is, the less need their is for a single-function device. (In fact, the iPhone and iPad were already cannibalizing the iPod business to an extent.)

How many businesses do you know that would be willing and capable to innovate by swinging an axe at $10B in revenue? Now, think about how many are willing to do that by making the succeeding innovation free! (Up to 5GB + iTunes purchases-worth, at least.)

(btw: if you're interested in a Classic (original) iPod, better get it now - I'd expect Apple to kill their one hard drive-based iPod just after Christmas this year.)

Of course, there's more value to Apple than you may notice today. iCloud accessibility now opens Apple to new product markets. For example, why not an Apple-branded car stereo/media center/iphone accessory so you can pipe your media directly to your car's speakers, or a movie to LCD screens in the back seats. (Or, will carmakers provide an unfettered net connection to their cars?)

If Apple hadn't started a business of selling ear buds connected to a hard drive a decade ago, I doubt the company would still be around. (Mac computer sales alone weren't enough to survive.) Seeing the company make this leap really impresses me, on a strategic level.

-For the record, I'm impressed by Apple's approach with iCloud, - especially relative to the competition - though I'm still labeling cloud drives as overhyped, and still having a hard time seeing iCloud as anything more than a product with a significance and life in line with Apple's previous online efforts (iTools, .Mac, and MobileMe.) (The 5GB cap on user data - roughly a tenth of the size of my music collection - says it all to me.

This opinion might seem incongruous with my opening point of how great it is that Apple is forgoing their iPod business for iCloud usage, but while iCloud is revolutionary (in the sense that it cannibalizes the iPod business), to a user, this is the equivalent of adding wifi alongside Ethernet connections on Mac hardware in about 2002 - at least one if you have a good net connection. Most users won't care where the content comes from (local, or iCloud), as long as it plays, just like the choice of Ethernet or Wifi isn't as important as whether there is any connectivity at all.

-maybe it's just me living in not-too sophisticated or connected central Virginia, but I'm stunned at how heavily dependent Apple suggests we be on wireless connectivity via Verizon or AT&T. The combination of wifi and iCloud looks great, but I still occasionally lose cell connection at home and anywhere a mile outside of my town, let alone have enough cellular bandwidth to download a music album or movie. Is iCloud one more reason for me to curse at AT&T?

.....more thoughts to follow.

Cloudy thinking

2011-05-18T21:24:00.000-07:00

With news today that Apple is still adding data center capacity (in addition to the soon-to-open massive data center in NC, and near-confirmation that Apple has closed one or more deals with music labels to stream music, there's even more noise about Apple's cloud plans.

The popular wisdom is that Apple will host user's digital media for streaming to any Apple device. The argument goes that this would 1) reduce the need to for internal storage on iOS devices, thus enabling lower-cost iOS devices, and 2) simplifiying (or obviating) syncing. (If your media is in the cloud, there's no need to transfer music or movies among devices.)

There's 2 holes in this argument:

1) cloud-based content delivery is still subject to network bottlenecks and service outages, resulting in a terrible user experience. Apple is about magical experiences instead of having to explain why the movie stopped on a long car ride. ("Well, Junior, Daddy's signal dropped from 3G to EDGE. You can watch Toy Story once we're in the next city.")

2) cloud-based content is more important for devices with external storage. While syncing can sometimes be a pain for iOS devices, swappable memory cards make the challenge of media management a bigger chore. Virtually all Android devices use SD cards to provide the bulk of their storage. Thus, a movie or other file can be lost or passed around ad infinitum. (There's probably DRM involved, but since Android devices are open, this wouldn't seem to be much of a barrier.) With external media storage, you'd definitely appreciate the ability to stream from someone else's servers.

Apple, on the other hand, had leveraged their cash hoard to secure a long term supply of DRAM (internal) memory, and has a much more simple user experience.

I'm not saying that Apple isn't planning some kind of cloud service (there's a lotof evidence suggesting that they've bought the iCloud.com domain registration, for example), but I think Apple will use the cloud in a new and different way instead of as your basic media locker. My best guess (here) is that Apple will enable remote streaming of your self-hosted media to your devices (and perhaps friends' devices?) through their cloud. This might allowed synchronized media consumption, which might be a really cool tool for remote but synchronous educational programs.

Google Chromium laptops

2011-05-14T17:24:00.000-07:00

Since I'm in the mood to post links to great articles, check out this one analyzing the strategy behind Google Chromium. (Hint: the author thinks the iPad obviates the need/demand for Chromium.) Killer quote from the article:

"The Chromebook model requires the user to have a fully functional machine, browser, connection and Web services. Without each and every one of these elements working perfectly, a Chromebook is nothing but a tray for serving snacks."

It's a great article, chock full of reasons why Chromium will fail. I'll add another one: Google sees a need for a free, non-MSFT OS to power laptops (and perhaps desktops.) If that describes your needs, wouldn't you already be a Linux user, which also has the benefit of thousands of applications?

Ballmer, MSFT, & Skype

2011-05-14T17:13:00.000-07:00

Following up on my earlier anti-Ballmer rant, here's a very well written indictment of Ballmer.

Ballmer is taking a lot of heat for the Skype deal. He may have overpaid, but not as bad as most think: MSFT announced that the deal is all-cash and paid for using offshore profits.

MSFT, like many large global companies do not repatriate their profits to the US, as this triggers a US income tax on the profits. As a result, many global companies have large amounts of cash sitting offshore, doing absolutely nothing.

MSFT's income tax rate the last three years has been right around 25%, so in reality, MSFT effectively paid ~ $6.4B for Skype instead of the $8.5B headline number. Again, MSFT might have overpaid, but the estimated overpayment is at least $2B less than what most in the MSM are saying.

Btw: the Ballmer article linked above makes a great point: how much could it have cost for MSFT to built a Skype-immitator instead of acquiring Skype? Even if it's a billion bucks in R&D (no way), it's still billions cheaper than buying Skype.

Reading material & cloud-based media streaming.

2011-04-22T13:56:00.000-07:00

I just stumbled upon The Monday Note - an excellent blog co-written by Jean-Louis Gassée - a prominent Apple-ite from the early days, and founder of Be, Inc. Gassée is now a VC in California, and studies the media/IT scene. He's got some great analysis and commentary, and a unique perspective, at least among the commentariat. In this week's note, Gassée analyzes the AT&T + T-Mobile deal and its' ramifications, while his partner has a very insightful note on what Flipboard means to the media industry.

You can find the Monday Note through the link above, or in the links sidebar.

Also great reading is "Apple: Building A YouTube Killer?" hosted at Forbes.com. The blog author does a great job of laying out various puzzle pieces to guess at one potential coming Apple innovation: a YouTube-like site to host media created by consumers using Apple hardware.

Apple is all about selling hardware, and has an unimpressive history of providing online consumer solutions (.Mac? MobileMe? AppleWorld? iWork?), so I don't agree that Apple is going into the online site business, but it is an intriguing proposition nonetheless.

I also think that all of the speculation about a cloud-based music storage business is a bit off. I don't think users are ready to reduce their dependence on local storage, and I don't think the cloud is ready for the required massive surge in usage. I have a hard enough time with AT&T call connections - am I really going to rely on my phone company's wireless network to stream music & video? Sure, Pandora proves that the all-streaming model works, but can it work with 1) video content, 2) 189,000,000 iOS devices?

Instead, I think Apple will facilitate remote access of your own networked media through new software, perhaps in 10.7/iOS 5.

Consider the evolution of media connections in the Apple ecosystem:

2005 (?) Airtunes + AirportExpress allows streaming of iTunes library through home stereo

2009 (?) Home sharing allows streaming media on a local network among Mac and iOS hardware.

2010 Airplay enables iOS to home stereo streaming

2011 Airplay begins to handle video content (to Apple TV)

(Not sure if I've got the dates right, but the progression is accurate.)

Here's the current capabilities, graphically:

Now, imagine if Apple enabled ANY concievable connection among your iOS devices, your Mac, your networked hard drive, your TV, and your stereo.

Note: not much of this is revolutionary. As Microsoft has been advertising, WIN 7 enables remote access to home media.

My concept - which I'm calling Streamline uses Apple's network (the data center in NC) to facilitate media streaming. With Apple's servers in between your home HD and your iOS devices, security is improved, and there's an opportunity for Apple to save a step by streaming iTunes purchases off of their servers, rather than thru your (assumedly) lower capacity pipe.

My guess would also give Apple customers a huge incentive to buy a new Time Capsule, as you'll always keep your network router turned on , but you wouldn't want to always keep your home desktop/laptop on at all times.

Just a guess on my part. Please weigh in with your thoughts, or technical arguments for/against "Streamline."

Update: Eric Schmidt

2011-04-15T14:32:00.000-07:00

Here's a great article from BusinessInsider continuing the theme that Eric Schmidt might have been more lucky than good.

BI's article lists Schmidt's 10 biggest mistakes. By my calculations, eight of these are new additions to my list, so Schmidt ain't looking any better - certainly not $100M better.

Finally, a question: Larry Page has moved dramatically since taking over as CEO. There's basically 2 strategies for new CEOs - proceed quietly with a "get to know you" attitude, or proceed dramatically, making changes right away. Page is of course already familiar with GOOG, making the quiet strategy a bit less realistic, but do Page's changes validate the notion that Schmidt wasn't doing enough or doing the right things?

(Also: GOOG's quarterly financial results (the last under Schmidt's leadership) were - for them - lackluster. How is this connected to Schmidt - is this an indication that Schmidt likes to leave in advance of any slowing growth, or is this more evidence that Schmidt was just "mailing it in" for the last 6 months (or 6 years?))

Eric Schmidt steps back. Will anyone notice?

2011-04-06T09:39:00.000-07:00

Larry Page took the reins at Google this week. Most of the press coverage of this change focuses on the challenges ahead that Page and Google face, but I'd like to spend a few minutes reviewing Schmidt's impact, as well summarized by PC World ("Top 10 Google Accomplishments Under Eric Schmidt.")

IIf I were to write a similar article, I'd title it: "Top 10 reasons why Eric Schmidt proves that it is more important to be lucky than good."

I'm usually the first to judge a leader by results - and by any measure GOOG's growth during the Schmidt period is impressive - but I am struggling to see what Schmidt provided, other than grey hair, a splash of cold water to cool off GOOG's impulses, and a pragmatic voice.

(In Schmidt's defense, I can only judge by what we publicly see of GOOG. I don't get to see the problems avoided by Schmidt's deft management, and it is real easy for me to conclude that a lot of GOOG's success would have happened with anyone else in the Captain's chair by understating the challenge of just keeping the company together amidst insane growth. Also, at the time of Schmidt's hire and every point thereafter, GOOG probably had their pick of potential CEOs.)

Another example of how it is difficult to appraise Schmidt: more than any technical development, I think the most important thing GOOG has achieved in the last decade is building their brand to the point of ubiquity. (Heck, they're a verb ("Google it.")) I don't know how much credit Schmidt deserves here - there's nothing in his background to indicate a brand building expertise. Someone, though, made some brilliant choices.

That being said, I think that since the IPO (2004), GOOG has pretty much been a one-tick pony (advertising), and Schmidt's management hasn't been anything special, especially when you consider the enormous resources available to him - current cash on hand: $35B - meaning there's absolutely no project GOOG couldn't afford to resource better than anyone else. GOOG's R&D spending just over the last four years is >$11.5B. How many Twitters or Facebooks could $11.5B launch?

(I am assuming that most of GOOG's IT investment is captured in the financials as capital expenditures. Servers must have an expected life >1 year.)

If you look at the accomplishments cited by PC World in GOOG's post-IPO period, the list is unimpressive:

-the acquisition of YouTube
-GOOG's mobile efforts (Android)
-Chrome

If you don't believe me, take a look at this comparison of Google in 2001 versus 2011.

(btw: Android is a "win" for GOOG, but I recall reading somewhere that Schmidt was a skeptic of mobile efforts, which were championed by either Brin or Page. Also, I suspect that Android is near it's peak - either the growing fragmentation, or the claim on future revenues* that network operators and handset manufacturers may make will take some of the shine off Android.)

Here's a list of disappointments:

-China (3rd place in online ad sales.)
-diversifying revenue.
-Social networking (Buzz, Orkut, etc)
-Google Video (at least it motivated GOOG to buy YouTube)
-either Android or Chrome OS (likely Chrome OS) - why does GOOG need 2 OSs?
-Product efforts: Knol, Wave, Google TV
-anything to do with media. (How long have we heard that GOOG is going to sell music and video in their own iTunes-like portal?)
-anything to do with payments (principally Google Checkout.)
-anything to do with offline advertising (radio, print.)

I'm also disappointed that Schmidt soured the Apple relationship two years ago. As you may recall, Schmidt was on Apple's Board of Directors and privy to Apple's future plans for mobile products and software while GOOG was simultaneously developing Android and the Chrome OS. This conflict of interest seriously soured the GOOG-Apple relationship.

Other than scaling the advertising business, I think the company has been coasting post-IPO.

Schmidt clearly was lucky to be in the right place at the right time. Had he stuck with Novell (which he was CEO of before joining GOOG), he'd be known as the guy who drove Novell into mediocrity. Instead, he's got a net worth

So, what kind of parting gift do you give a guy who made billions off of you? How about $100,000,000? Yes, GOOG gave Schmidt $100M as a thank you. (I'm really surprised that this hasn't gotten more attention.)

I'm disappointed in GOOG. The company consistently touts it's 21st century ethics, openness, shareholder friendliness, and progressive management style. IMHO, a $100M handshake on the way out the door is as old-style, sweetheart, cronytastic as it comes. (Never mind that he's already the 117th richest guy in the world.) Is this any different than the outrageous bankers' bonuses bashed by Obama and others during the financial crises as "shameful"? ($100M = 7X the bonus of Goldman Sachs CEO Llyod Blankfein earned from 2009-2011.) Ironic, isn't it, that Schmidt is rumored to be joining the Obama administration as Secretary of Commerce.

(As an aside, isn't it funny that someone may be leaving a job as a CEO to take a position as a secretary? ;) )

I guess Brin and Page have a few hundred million reasons to gift Schmidt on the way out. After giving $100M to Schmidt, what do you give them when their day comes?

Also: I wonder what kind of influence $100M buys these days. Think Schmidt as Secretary of Commerce could make some of the DOJ investigations of GOOG go away?

* it's been my theory that network operators (AT&T, etc) will eventually ask for a slice of the ongoing revenue from Android users. I'm pretty sure that I've read that each Android customer generates $10 inrevenue a year (lifetime). Won't the phone companies demand a chunk of that? How about handset manufacturers?

iPhone 5 delay/ big Fall lineup?

2011-04-01T15:48:00.000-07:00

There's all kinds of chatter about the next iPhone (and revision to iOS) being delayed until at least this Fall, perhaps as late as the pre-Holiday season. This notion - widely adopted - was driven by a few leaks in late March.

As previously stated, I'm a believer that the next revision of the iPhone and iOS are coming sooner rather than later. Here's some additional reasoning based on the recent rumors:

1. I think that Apple has greater control over this information than suspected. That is, the fall rumors are only driven by "I heard" comments, meaning that they are most likely either a) incorrect, or b) circulated at the initiation of Apple themselves (likely to fake out their competition.) (More substantial are he rumors driven by positive news, such as the surfacing of new iPhone cases from case suppliers.)

2. The hardest hardware engineering work for the iPhone 5 was completed months ago: the introduction of the A5 chip into the iPad 2. I'm trivializing the challenge of creating a great gizmo, but the A5 is already validated with iOS4, and available in production quantities. Also, the A5 has already been mated with GSM and CDMA radios in the iPad 2. So, if the hardware is say 70% complete as of January, why would Apple slow walk the other 30% of the hardware engineering?

3. Smartphones are still a very, very competitive market. Even with the advantages of iOS, the iPhone 4 will be a less competitive product as time goes by. By October, iP4 will be 16 months old, versus Android offerings <1 month old.

4. The market for smartphones is still emerging, meaning that many customers are just now buying their first smartphone. Apple realizes the value of locking customers into iOS, and for that reason would be more inclined to introduce an evolutionary product sooner (for those adopting a smartphone) than a revolutionary product later. (case in point: iPad 2)

5. Apple's prime new product introduction window is before school starts. This is consistent for Mac hardware, iPods, and iPhones. I can't see Apple forgoing the opportunity to sell new iPhones in time for the back to school season.

6. The suspected reasoning for the iP5 delay is the completion of revolutionary additions to iOS to make the iPhone very cloud-oriented. I think that that is still no reason to delay new hardware, but more importantly, I think the idea is wrong - the cloud computing ship has sailed. (Not to say that there won't be any further "clouding" of iOS in the next rev, just that cloud dependency/integration is soooo 2009.) Apple knows that it can't beat Google at this game. In other words: Apple's advantage lies in their connection to the desktop (via iTunes) than via the cloud (a la Android.) I think Apple also realizes that cloud computing still isn't a very consumer-friendly experience - when you press play on your iPod/iPhone - you want to hear the song right away, not get a buffering message. This might change with an increase in bandwidth and decreased latency (as with the step up to LTE), but LTE isn't yet pervasive. I just can't imagine Apple making their hardware MORE reliant on network performance in NYC and San Francisco.

(more on iOS and OS X cloud thoughts in my next post.)

I can only think of three arguments for the fall delay:

1) to give Verizon 8 or 9 months of iPhone 4 sales (to October/November.) I can see 6 months (August) as being relevant, but would Apple really wait 2 extra months for the benefit of one of their re-sellers?

2) With Steve Jobs' leave of absence, new product decision making is dragging. Yes, SJ is involved at every level of product design, and it is reported that decisions at Apple not on Jobs' agenda really, really bog down and suffer from committee-itis, but I think A) Apple has probably come up with a working way to get the maximum input available from Mr. Jobs without slowing product development process, nor impeding his recuperation, B) Apple realizes that if Jobs' absence impairs product development, the financial markets will punish the stock. (We'll learn the value of the SJ-premium sooner rather than later, and it will be a huge number.)

3) iPhone 5 and iOS 5 are tightly tied together, and as opposed to previous years when the iOS revision has been introduced in 1Q, with the hardware to follow in 2Q, 2011 is setting up to not intro iOS5 until 2Q (the WWDC in June), suggesting hardware introduction in 3Q.

I don't have a good counter-argument to point 3, except to say that Apple accomplishes amazing advances in the 12 month iOS cycles, and it is probably getting relatively easier, but if they really do needs an extra 25% development time, the revision will really blow us away.

So, I'm sticking to my previous forecast of announcement of the iPhone 5 even a bit early (Mother's Day), or worse, June.

Thoughts?

Zune dead. How is Steve Ballmer still employed?

2011-03-16T07:37:00.000-07:00

So Microsoft is trying to softly kill its' iPod competitor Zune, but the news hasn't gone unnoticed.

While It's a least a defensible move at this point with MSFT having only a tiny share of the digital media player market, it is absolutely inexcusable that MSFT could miss this market and by extension the related opportunities (a la iTunes Store.)

Think about it this way: you're Microsoft - you have tens of thousands of programmers and developers, billions in cash to use in the hunt for growth, and products already used by just about anyone with a keyboard. How could you not make an effort in digital media that AT LEAST makes enough money to make it worthwhile?

To squander that kind of advantage takes raw incompetence, and heaps of it. Let's simplify, and say that writing the software and engineering the hardware for a digital media effort isn't rocket science - certainly some team within MSFT was up to the challenge. Instead, Zune represents a failure of strategy and marketing.

We're seeing the same thing in mobile phones (Win7mo is tracking the launch of the Zune almost exactly), cloud computing, tablets, and in every one of MSFT's online efforts, which are hemorrhaging cash ($2B a year, but some accounts).

Diving deeper into MSFT's business, you can hear other criticisms of the company's products and strategy, too numerous to list here. As a shareholder, all I see that is performing well are the Windows, Office and Xbox groups. (Which do comprise tens of billions of dollars in revenue and >80% of the business, but I'm pretty sure a chimp CEO could deliver the same. Oh, wait.......)

It would be just about impossible to screw up the MS Office business, and I'd almost say the same thing about Windows, except the disastrous Vista really did seem like an intentional effort to screw up a business that prints money.

I tried to think of recent innovation success stories for MSFT, but I can't think of a single one......in the last 10 years. (Xbox has turned into a good thing, but you need to remember it's expensive and rocky start. If I recall correctly, MSFT invested $5B and 5 years before Xbox showed any kind of profit.)

(So far, the one good thing that Ballmer has done is something he hasn't done: he hasn't bought Yahoo. This might have been a good idea in 2004, but tying Bing and YHOO together to make a competitor to GOG is like tying together two cement blocks and calling it a raft.)

It's not only the geeks who turn their backs on Ballmer & MSFT - take a look at how the financial folks have appreciated Steve B:

For real fun, punch in GOOG or AAPL in comparison....

I cut Ballmer a break: when he started as CEO in Jan 2000, every tech stock was over valued, so instead I just took a ten year view. Over that period, MSFT stock is down 10%. AAPL is up 3351% (!!!), GOOG is up 421% in only 7 years, and even old HP is up 46%.

Besides the receeding competitiveness and disappointing financial comparison, Ballmer also fails the quality test. Over the last decade, he's had rings run around him by most competing tech CEOs. Steve Jobs, Mark Hurd, Carol Bartz, Larry Ellison, Jen-Hsun Huang and Brian Roberts. Each one of these folks have done huge things to turbocharge their company over the last decade. What's Ballmer's signature achievement?

(Btw: I don't put Eric Schmidt in the same class, but that's another post for another day.)

Steve Ballmer has been MSFT CEO for more than a decade (since January 2000), so the responsibility for this debacle starts with him. How the heck is he still employed? Apparently there's demand for a management team that shows up late to a market, makes half-efforts at big new markets, and delivers lame financial returns.

(I could duplicate all of the above arguments for Sony over the last decade, but I think this is less a result of CEO incompetence, and more about the difficulty of changing corporate culture.)

Like I said before, I'm a rabid AAPL fan but a MSFT shareholder. (And too frequent shorter of GOOG stock). So, I really want MSFT to succeed. How anyone can evaluate MSFT and conclude that Ballmer should continue to run the company is beyond me. It's time to fire Steve Ballmer.

Got it!

2011-03-16T06:40:00.000-07:00

So my plan to pick up a 1st gen iPad from an early adopter worked - I got an original iPad 16GB, with case and cables in the original box at a price that I consider a huge win $225, or 55% off the original price.

I had targeted $250 - half the original price, but the market adapted quickly and prices fell slightly. My price was slightly above the quotes to buy similar devices on EBay ($213) or Gazelle ($180), but the prices that EBay or Gazelle will resell these devices for is likely to be closer to $300. Plus, no tax or shipping for me, and I got instant gratification.

While the previous owner bought the iPad in the first month of release, you'd never know it from the appearance of the device - no noticeable scratches or flaws. It also appears that battery life is still strong.

I had experimented with other people's iPads, plus being an iPhone user I had a good idea of the likely experience, but I was still blown away - the iPad is an amazing device, as close to perfect engineering that I've experienced, hands down. Except for the fact that I left some work hanging and missed some sleep while experimenting, I'm completely happy with my purchase. Also, at this price, I have no qualms when the time comes over handing this device down within my family, selling (say, $100 in 6 months?), or just keeping it even beyond it's useful life in admiration of the fine engineering.

Got one right: no NFC in the forthcoming iPhone 5

2011-03-14T14:32:00.000-07:00

In my first post ever (OK, just a month ago), I went against the grain and predicted that the next iPhone would NOT have NFC capabilities. (NFC=a technology facilitating swipe and pay transactions.) My guess was driven by Apple's longstanding and very intelligent strategy to protect their brand by not adopting high-leverage technologies that haven't yet been fully consumer tested. Turns out, I may be right.

Apple isn't afraid to be early on advancing technologies (such as Firewire), but very rarely alone, and very rarely in new aplications. (In contrast, Firewire was a quantifiable improvement on USB 1.0.) I can only think of Apple's early adoption of the wireless "N' standard as an example of being first to market with an unproven technology, and I wouldn't describe this as 'high leverage.'

NFC would be high leverage, as any pitfall or pothole in the adoption or application of the technology could have a tremendous negative halo around Apple. Imagine if someone's iPhone NFC capability caused - or was perceived to cause - a large purchase that the owner never intended? While you and I might conclude it's a problem on the part of the transaction provider, Apple could very well get calls from people steaming hot about how their iPhone had just ripped them off.

Also on the brand side, NFC isn't mature enough or simple enough yet that demands on Apple customer service wouldn't be significant. I'm no expert, but it seems like NFC is ready to go if you want to buy a pack of gum at Target, but if you want to pay for your car rental in Montenegro (which could transact in any of 3 currencies, among other challenges), you've got many potential problems.

So, I'm seemingly 1-for-1 in predictions. Maybe I should quit now while I'm ahead? Naw, what would be the fun of that....;)

On the flipside......

2011-03-13T21:29:00.001-07:00

While I'm still enthusiastic about buying a second-hand ipad at a deep discount, I neglected to take into consideration the seller's point of view. Assuming a seller can get $300 for their 1st gen iPad, and you really do want the latest and greatest technology, then upgrading from the 1st gen iPad to the 2nd generation iPad might only cost $199.

I've done this myself with my two previous iPhones, having sold them thru gazelle.com. I can't recall what I got for my original iPhone, but my 3G iPhone went for $150. Gazelle just offered me $100 for my 3GS, and I hope this number holds through the summer time, when I hope to get an iPhone 5.

Time to take advantage of an early adopter!

2011-03-12T17:53:00.000-08:00

So iPad 2 is here, and as expected, it is an incremental advance, rather than revolutionary. It seems that iPad 2 offers the following over iPad 1:

-Cameras, but they're really close to useless. Plus, when am I going to need to take a picture but not have my iPhone handy?
-A slight weight reduction
-A hugely more powerful CPU, which will make a difference in a year or two, but not now.

All of these are nicer, but the iPad 1 is hardly obsolete.

I was thinking of getting an iPad 2, but taking a quick look at Craigslist, Ebay and Gazelle.com suggests that the more economical approach is to buy a used iPad #1 from an early adopter of the iPad 2.

Aftermarket pricing seems to range from $250 for a base 16GB model to ~$375 for the 64GB/3G iPad. So, the iPad 1 is about half of the price of the iPad 2, which seems about right.

I've got a few messages out via Craigslist to sellers. In general, the sellers are overvaluing their iPad 1 (how can you ask for $350 for a used iPad that Apple sells for $399?) I think it's a matter of time, though, before one of them cuts price, and I end up with an iPad. Should i find the iPad 1 lacking, I'd happily offer it to my parents, and move on to an iPad 2 or 3.

btw: I think the incremental improvements in the iPad 2 only increase the probability that iPad 3 will debut before the Holiday selling season in 2011, as it won't be too difficult for the Android-based competition to feature match the iPad in their marketing.

AAPL stock: wow, did I miss the boat

2011-03-01T08:59:00.000-08:00

In reading about the import of the forthcoming iPad 2, I noticed that one stock analyst has projected - in a not too wild projection - "$36.8 billion in incremental revenue" for Apple in 2011.

First of all,how amazing is $37B in incremental revenue in one year? Quick research reveals that not even a retailer like Wal-Mart (which grew revenues by $28B between 2008 and 2009) has had such revenue growth, though taking a look at Exxon shows that they have grown sales by as much as $70B in one year ('07-'08) but that's less growth in business and more growth in commodity prices.

Second, consider how large of a number that is: it's not the fairest comparison, but $37B in revenue is equivalent to the annual GDP of Lithuania, and greater than Kenya or Costa Rica (according to the IMF). Apple's projected 2011 revenue of $66B is equivalent to the Sudan's (the 64th biggest economy in the world (for now) and just behind Libya (for now too.)

All of this makes me realized what an investing idiot I am. I jumped on Apple in the early 2000's, driven by the excitement of the iPod and buying into Steve Jobs' notion that Apple could be the BMW of computer makers - profitable even with only 5% market share.

The stock treated me well, and after tripling in about two years, I sold, thinking it wise to lock in my gains. Three-baggers are rare and great, but had I let it ride, I'd be enjoying a 30X return!

Speaking of stock results, who would you guess has performed better over the last 5 years, AAPL or GOOG? As you can see graphically here, it's no comparison: GOOG is up 64%, while AAPL is up 391%.

iPad 2 timing and new product announcements.

2011-02-28T17:21:00.000-08:00

I'm endlessly fascinated with Apple's new product announcements. Has any company, in any industry ever been so proficient at taking an event meant to raise awareness and completely run the AIDA marketing gamut? (In a nutshell, AIDA is a marketing term short for the 4 stages of customer marketing - Awareness, Interest, Desires, Action.)

Every other company is just hoping to achieve the first A, while by the time Apple new product announcements are complete, customers begin making plans to camp out overnight to be the first in line.

There are many dimensions to what makes Apple so successful in this regard, including somethings no other company has - Steve Jobs' charisma and showmanship. However, I would like to examine the strategic use of timing in their new product announcements.

As you can see in my post below, I don't expect the iPad 2 announcement on Wednesday to be revolutionary, but rather evolutionary. With roughly a year having passed since launch, Apple has had ample opportunity to release an "iPad 2" with bumped specs.

I don't think the year wait is dictated by the engineering challenges of creating iPad 2. I'm certain that if desired, Apple could have released Pad#2 in time for the Holiday shopping season.

Instead, I suspect that Apple has 3 things in mind with the timing of their new product introductions:

1) keeping operations simple & maximizing return on investment in the preceding product. I think Apple knows better than every company in the world the mayhem resulting from frequent hardware or software tweaks. To us it may seem like bumping up chip speed or adding memory is a simple thing, but with Apple's control over their entire environment, frequent changes increase complexity and likely harm the customer experience. Put another way, Apple avoids point releases in favor of whole-number revisions. Such a strategy also helps Apple's economics. as R&D costs are stretched over more units, and Apple's purchasing folks can squeeze even better prices from suppliers.

2) Timing to interfere with competitors' plans. Why didn't Apple launch iPad#2 earlier in 2011? Because they wished to follow the debut of competing products (like the Moto Xoom) and other similar announcements at CES (January) and the Mobile World Congress (Feb.) Not only does this boost the marketing impact of the new product announcement, but allows Apple to have the best market positioning. (Imagine if Apple intro'd iPad#2 in January starting at $599. Wouldn't every tablet competitor try to undercut that price?)

3) Market leadership. There is much focus on Apple's release schedules, with most pundits looking at the past schedule and assuming it will hold for the future. (There is consensus that iPhone updates are on an annual schedule, anchored in June.) Instead, I think Apple has some internal requirements to justify a product design that just happen to result in an annual release. My guess is that Apple engineers products to be in the top 20% of all similar products for a year. (i.e. Apple's specs are among the best for a given product for a year.)

If a technology were to come along that were disruptive to a particular Apple product, new product schedules would accelerate. In the case of the iPad, Apple looked all last fall at the competing tablet offerings and didn't feel threatened. With the release of Android Honeycomb - a much better tablet OS, by all accounts - I expect that Apple will accelerate iPad new product development, with perhaps another product launch (iPad#3?) in the late fall.

iPad 2-strategic implications

2011-02-28T17:18:00.000-08:00

There are a plethora of rumor roundups regarding the forthcoming new iPad (see here, here, and here for some decent collections of rumors).

I haven't got much to add, except:

-I think this release will be evolutionary, not revolutionary. But, this will be the last release before the iPad product begins to specialize. I'm not sure how Apple will target iPads to follow #2. I can see the utility of a stripped iPad to facilitate niche applications and wide specialized adoptions by corporations. (For example, a retailer or bank might like to deploy the iPad at the point-of-sale, but doesn't really want to pay for some of the iPad bells and whistles, like excessive memory, or cameras, etc.)

The product that I'm referring to (which I guess would be released in late 3Q) could be a very thin client/cloud-orientated iPad with minimal storage. For a consumer version, the iPad would have the media capabilities of an Apple TV (i.e. stream, with no local storage.)

If the iPad product line grows with a "lighter" version, I could also see the iPad product line gain an "HD" version, led by a retina screen. (I'm not sure if this would be the mainline iPad#3, or a premium product. Either way, the product line would begin to differentiate.)

-I don't hear this talked about much: I think the new iPad will add HSPA+ data access for the GSM iPads. The technology is ripe, and Apple hasn't really upgraded GSM radios since the iPhone 3G (in 2008!). I can't wait to see how AT&T and Verizon tussle over this, as AT&T's iPad could be >5X faster than the equivalent VZ product....unless VZ argues that you should by an LTE MiFi gizmo to provide even faster speeds.

Finally, I want to cast my vote for dual cameras. For the longest time, I couldn't see the utility of a camera on the back of an iPad, but there's a lot of talk about fantastic new applications leveraging the rear camera - imagine a fingerpainting program for kids - snap a picture, convert the image to effectively raster lines, then have the kids (or users, like me!) fingerpaint in the resulting image.

iPhone nano rumors: I don't think so......

2011-02-15T08:49:00.000-08:00

There's been an explosion this week of the rumors that are now a few years old: that Apple has developed an "iPhone Nano" 1/3rd smaller than the current iPhone. I'm not a believer. Here's why:

-Apple doesn't feature-strip in order to meet a price point. Remember the hub-bub a few years ago about how Apple needed to come out with a netbook-type laptop, or at least come close to the ~$500 netbook price point? It's the same argument here for a 'nano' - that Apple needs to create a derivative product to hit a certain price point. Whereas other manufacturers sell a product that is an ever-changing collection of components (CPU, camera resolution, etc.), what Apple sells is the 'Apple Experience,' in the form of hardware. I can't see Apple diluting the 'Apple Experience' just to hit a price point. In order to hit the guessed at price point, I think Apple would have to go light on memory, battery, or some other dimension that could result in a clunky experience. In this case Apple would rather just not sell the product.

-a nano wouldn't connect with the iTunes ecosystem. Could a nano play movies or run apps? With less screen real estate, these might be diminished experiences. What's point of Apple selling a device that can't provide a rich media experience? To think otherwise is to suggest that a nano would mean.....

-a new form factor, which increases the complexity for developers. One argument for developer attention is how much simpler it is to write apps for iOS when compared to Android or RIM, which each offer a wide variety of screen sizes. Right now, iOS developers have to worry about only 2 screen sizes (iPad and iPhone, with iPad being 2X the iPhone resolution.) I can't see Apple making it more difficult for developers and more complicated for themselves.

-finally, to introduce a new product to hit the nano's price point is to ignore the opportunity of selling the last-gen iPhone at a greatly reduced price. As it is now, AT&T is selling new iphone 3GS for only $49. Why would they need a new product in order to offer a product in a market that they're already satisfactorily (though reluctantly) in?

There is some value in the iPhone Nano discussions - I think Apple will begin to differentiate the iPhone product line, but I see the point of differentiation being CPU cores. Rumors have it that the next rev of both the iPhone and iPad will graduate to multi-core CPUs. This is fantastic for applications that some of us are excited by (1080p HD video?) but total overkill for most. I could see Apple offering a single-core iPhone and a multi-core product, differentiated much like the iMac and MacPro desktops. I'm a bit out of my technical element here, but I suspect that multi-core CPUs will drain battery faster, thus the multi-core iPhones would be engineered different, perhaps with a larger battery. To many Apple customers - particularly international customers - the added complexity and expense of the multi-core product just is necessary, so perhaps Apple launches a single-core iPhone 4+, and a multi-core "iPhone HD" for the premium market?

Read this: I think AppleInsider (AI) has got it just about right.

2011-02-13T22:14:00.000-08:00

AppleInsider on iPhone 5 and iPhone Nano rumors.

Thoughts on iPhone 5.....part 1.

2011-02-12T21:11:00.000-08:00

I was really, really surprised that the Verizon iPhone was of the iPhone 4 variety. I expected that Apple would take the opportunity to launch a new, advanced phone. Given that the "4" was already 7 months old, and that a plethora of competing Android devices had been introduced since launch of the "4," I really didn't see how Apple could not at least bump some of the "4" specs to make a "4.5" if not a "5."

Since the new VZ phone is a "4," we can definitely start speculating about the "5." The popular p.o.v. is that iPhones only come out in the summer, and that this one is likely to be at the tail end of the summer.

There's really no strong reason for an annual iPhone release schedule, and no hard reason for the summer as the update period. After all, summer hardly seems like the ideal time to launch a new product. Consumer attention is more focused on beaches and BBQs instead of gadgets, though I think there is logic in having a fresh version in time for back-to-school shopping.

At the same time, smartphone competition is increasing. Since the release of the"4" Android has hit its' stride, Blackberry updated its' OS, as did Microsoft. Because of this, I don't think that Apple can update it's product line at their own comfortable pace. I also think that future updates will be less revolutionary and more incremental.

At this point, Apple's iPhone customers fall into 2 categories: 1) those already in the Apple ecosystem, and 2) those who will be fairly evenly comparing Apple and Android offerings.

There will always be an iPhone direct competitor offered by Android (I'm using "Android" to represent phones from all Android licensees - HTC, Moto, etc.), but Android also has the ability to segment the market with specialty hardware. Want a phone with a 10MP camera? How about 2 screens? We'll soon be seeing Android marketing boasting about 1 or 2 extremely competitive spec in contrast to Apple, such as chip speed, screen size, battery life, etc.

It's not Apple's style to chase specs - they're not just going to boost the camera resolution just to compete with Android, but they will have to update in more frequent increments, making each new iPhone more current during its' selling life. So, I'm gonna predict that the "5" comes sooner rather than later. (I'll center my guess Mothers' Day +/- 2 weeks.)

Here's more good reasoning on why "5" is coming sooner, rather than later.

What else will the "5" entail? Here's some guesses:

-an upgrade to HSPA+ for GSM "5's." AT&T's rollout of HSPA+ is very broad, on schedule, and well established. (Apple does not want to take a chance on immature network technology as any perceived network problems will reflect back to AAPL.) Thus, the "5" won't be LTE compatible, but WILL take advantage of the greater speeds offered by HSPA+.

Which introduced an interesting dilemma: does Apple have any obligation to keep the AT&T and VZ iPhones equally competitive? The addition of HSPA+ exacerbates the speed difference between GSM and CDMA networks, putting VZ at a disadvantage. Once an LTE phone becomes available, though, the dynamic will reverse.

-it won't include the rumored NFC capabilities that many are hyping. It's too early, both tech and business strategy-wise. Even though Apple has a well-deserved reputation for dramatic innovations, many Apple products are in-fact 2nd to market. (MP3 players existed before the iPod, for example.) I don't think AAPL wants to pioneer NFC applications. (Which reminds me of the old saying "You know how to tell the "pioneers" from the settlers? The pioneers have the arrows in their backs.")

More thoughts on iPhone 5 - including comments on chips, networks, form factor in Part 2 coming tomorrow.....