Most 1200 baud modems have a bit rate (how much data they can move) of 1,200 bits per second. For comparison, average consumer broadband speeds in the U.S. are 9.9 Mbit/s (1 Mbit is 1 million bits). So a 1,200 bit per second modem is more than 8,000 times slower than a 9.9 Mbit/s Internet device. My scientific conclusion is that’s hella old and slow.

In fact, it’s so old and slow that Pike Research says a common utility complaint is that carriers are seeking to get rid of these links, as they’re no longer profitable for the carriers. Decades ago it was fairly standard for a phone company to lease a dedicated phone line circuit (installed and configured by the phone company) to the utility in order to build wide area networks. But that’s not the case anymore.

Pike Research analyst Bob Gohn told me a bit more about why he thinks utilities are still using this technology:

1). “If it ain’t broke, don’t fix it.” Many of these lines have been in place (at least from a system design perspective) for over 20 years, and work just fine, so why change them? Also, these lines are generally very reliable.

2). The phone company may have installed a line to a relatively remote substation a couple of decades ago, but has not and will not put something else in without a significant fee.

3). But perhaps most significantly, the system protocols for SCADA systems (supervisory control and data acquisition) – from top to bottom – often assume there is a dedicated fixed line, and essentially rely on the attributes (speed, latency, etc.) of that fixed line. If it’s changed, even for a faster link like DSL or such, it may break the operation of the overall system.

Hence utilities stick with the antiquated technology, perhaps paying hundreds of dollars per month to lease the line, in order to not “upset the apple cart.” This is the key reason utility networks, like telecom networks before this, MUST switch away from these vertically integrated communications systems with their hidden system dependencies, and move toward layered protocol network implementations, where different layers can be switched out without unintentionally disturbing the rest of the system.

Amen to that.

For more research on the smart grid check out GigaOM Pro (subscription required):

Report: Open Source & the Smart Grid

Home Energy Management: Consumer Attitudes and Choices

Cisco Seizes Smart Grid Low Hanging Fruit

Image courtesy of portmanteaus.

WikiLeaks founder Julian Assange

WikiLeaks, the crusading anti-secrecy organization that just published 90,000 pages of secret government documents about the war in Afghanistan, has gotten a lot of attention for its campaign to become the world’s repository of whistle-blowing and embargo-busting information, and leader Julian Assange has become the star of the political talk show circuit. But the most interesting thing about WikiLeaks and the release of the secret Afghan documents isn’t the details of the U.S. campaign — it’s what the incident says about the evolution of a truly distributed and dis-aggregated new media ecosystem.

Shadowy sources have been disclosing secret information of all kinds to newspapers and magazines for decades, ever since Watergate made it seem like a public service to do so. But in this case, there was a middleman in the process, and one with a considerable amount of power — far more than any other source in a similar situation. WikiLeaks didn’t get the documents directly, but was given them by another unnamed source (possibly Bradley Manning, who was the source of an earlier secret video of a U.S. military attack on civilians in Iraq). The site then proceeded to broker a deal with the New York Times, The Guardian and Germany’s Der Spiegel, whereby the media outlets could have access to the documents and publish stories based on them simultaneously. Columbia Journalism Review has a detailed step-by-step account of how it happened.

Not everyone thinks WikiLeaks represents a fundamental transformation of journalism in the Internet age, mind you. Doug Saunders, the European bureau chief for the Globe and Mail newspaper, said on Twitter that “Wikileaks gave us the War Logs scoop in same way the brown-envelope industry gave us Pentagon Papers or parking garages uncovered Watergate” (although he later conceded that WikiLeaks was “a useful vehicle”). But comparing WikiLeaks and what it was able to accomplish to a source with a brown envelope in a parking garage — as Deep Throat was for the Washington Post reporters who broke the Watergate scandal in the 1970s — misses the larger point.

As New York University journalism professor Jay Rosen has noted, even after it provided the documents to the media outlets, WikiLeaks still maintained the ultimate control over them — including the ability to publish all 90,000 of them at the same time that the stories based on them appeared in the NYT, Guardian and Der Spiegel. This, Rosen says, provided an almost unprecedented check on the traditional media, since any gaps or omissions from their stories would become obvious. Typically, sources cut exclusive deals with a single outlet, and that entity has the final say over what appears — but WikiLeaks has altered that traditional balance of power.

You can get a sense of how shaken up this new arrangement has made some traditional journalists, by looking at the response from the NYT reporter who worked with WikiLeaks on the documents, and from NYT editor Bill Keller. The latter defended the newspaper’s decision not to link to the full storehouse of WikiLeaks documents, and also said that he felt compelled to pass on to the group the government’s displeasure at the publication of U.S. government informants’ names and other information, which Keller said he did “at the request of the White House.” Meanwhile, reporter Eric Schmitt seemed to recoil at the idea that the incident was any kind of “partnership” between the newspaper of record and the shadowy info-hacker organization:

I’ve seen Julian Assange in the last couple of days kind of flouncing around talking about this collaboration like the four of us were working all this together… but we were not in any kind of partnership or collaboration with him. This was a source relationship. He’s making it sound like this was some sort of journalistic enterprise between WikiLeaks, The New York Times, The Guardian, and Der Spiegel, and that’s not what it was.

Regardless of whether Schmitt or Keller are comfortable with the existence of what Rosen has called “the world’s first stateless news organization,” however, the fact remains that the Internet not only allows an entity such as WikiLeaks to exist, but gives it far more power than any previous non-journalistic organization when it comes to affecting the news cycle. The fact that sources with secret data can now go to an entity that doesn’t have to answer to any state or even international authority gives WikiLeaks a leg up on even the New York Times, which has made questionable decisions about significant news stories in the past (such as the lead-up to the war in Iraq, for example) for a variety of reasons. As Steve Myers at the Poynter Institute put it:

In inserting itself between source and publisher, WikiLeaks has shifted power away from the monoliths that once determined what is news and toward the people who, before the Web, would have been stopped in the newspaper lobby before they could see a reporter.

Media writer David Carr of the New York Times called the WikiLeaks case an example of “asymmetric journalism,” in which the source of information is also a publisher, but also works together with traditional media to make secret data public for society’s benefit. C.W. Anderson at the Nieman Journalism Lab called it “a classic case study of the new ecosystem of news diffusion:

from new fact-gatherers, to news organizations in a different position in the informational chain, all the way to the Twittersphere in which conversation about the story was occurring in real-time, back to the bloggers, the opinion makers, the partisans, the politicians, and the hacks. This is how news works in 2010.

British journalism professor George Brock calls what happened with WikiLeaks and the two newspapers and magazine a “mutualisation” of journalism — a term that has also been used by The Guardian to describe the newspaper’s approach to modern media, which includes an open platform that allows developers to re-use its content, and blog plug-ins that allow bloggers and The Guardian to share content. And WikiLeaks has in mind its own kind of plug-in: an embeddable disclosure and upload form that would allow newspapers to solicit secret documents and then hand them over to WikiLeaks for safe-keeping.

The New York Times and other traditional media entities may not like it, but it isn’t just the business model of journalism and the media that is changing; it’s the fundamental structure of the industry and how it functions. And they had better get used to it. Yes, WikiLeaks needed the Times and The Guardian and Der Spiegel to draw attention to and filter some of the information deluge it had on its hands, but the balance of power between source and publication has clearly been altered, and journalism will likely never be the same.

Related content from GigaOM Pro (sub req’d): What We Can Learn From the Guardian’s Open Platform

Post and thumbnail photos courtesy of Flickr users New Media Days, Menage a Moi and Yan Arief

Microsoft should be making its own handsets, says Peter Bright of Ars Technica. Licensing an operating system in the smartphone space doesn’t earn much money, so I understand Bright’s point. But the window of opportunity for Microsoft to build its own phone closed down the minute it said it would license Windows Phone 7 to hardware partners. The time to make the break from licensing a mobile OS and start making hardware has passed Microsoft by – at least until the next time the company decides to reinvent its place in the smartphone market, and even then it would bring challenges.

Bright’s description of the financial aspect of this situation I do agree with:

There just isn’t a whole lot of money in licensing a phone operating system like this. We don’t know, because the information isn’t public, just how much a Windows Phone 7 license will cost an OEM, but it’s generally assumed to be a few tens of dollars. Even assuming $30 per unit (which from what I can tell is on the high side), Microsoft’s partners would have to ship a whopping 30 million handsets to make this a billion-dollar business.

The first question that comes to mind then is: why is it a good idea for Google to give away Android and a bad idea for Microsoft to charge a license fee? The difference is in the business model. Google wants to keep its core, lucrative business in front of every eyeball it can with search and advertising. By being the dominant search engine, Google gains key information on search preferences or how consumers think when they use the web to find information. And of course, those preferences are paired with contextually relevant advertisements, where Google earns the bulk of its revenue, which it then shares with handset makers who use Android. Simply put: Google doesn’t need to charge for Android and if it did charge, that would add a barrier to adoption by hardware partners.

On the other hand, Microsoft does have to charge for its platform because it only has a small segment of the mobile search market and therefore earns far less money overall on mobile advertising. And by “small segment,” I’m probably understating the difference in both search and mobile search between Microsoft and Google. TechCrunch points out a Pingdom chart comprised of data from StatCounter, showing that Google owns more than 98 percent of the mobile search market. Microsoft’s Bing is a blip on the mobile map, not even registering a half a percent.

So based on the business model and consumer usage, Microsoft isn’t well placed to generate the kind of mobile search revenues of Google. The company has to charge a Windows Phone 7 licensing fee in order to get any real return from the platform. Other revenue opportunities are tied to Microsoft services – which will be heavily integrated into the new handsets — but income from those are variable. The only fixed income from Windows Phone 7 is an up-front fee.

The alternative is what Bright suggests: Microsoft goes it alone and builds handsets of its own and thus controls the entire experience of hardware and software, just as Apple does. Although Microsoft is a software company, it has broken out of the mold with the Zune and Xbox line of hardware. But at this point, it’s just too late for mobile. With Windows Phone 7, Microsoft has lined up hardware partners such as Dell, Asus, LG, HTC, and Samsung. There’s no way Microsoft can cut these companies off at the knees now and go it alone by building a Microsoft handset.

Perhaps another opportunity will appear when Microsoft can create its own phone, but even then, the company is at risk. Four of the five handset partners are also companies that build Microsoft Windows computers. If Microsoft cuts them out of the loop in mobiles, it won’t sit well with them from a notebook and desktop standpoint. Granted, I doubt that any of these partners would completely jump ship to Ubuntu, but such a situation would raise tensions between Microsoft and its partners.

And taking the theoretical one step further by assuming that Microsoft ever does build its own phone, how would such a beast compete in the market? From a perception standpoint, I’m not sold that consumers would embrace the Microsoft brand on a handset. Microsoft’s Zune hasn’t staged much competition against the iPod juggernaut even though Zune is a compelling device, as is the Zune Pass subscription service. Microsoft’s recent Kin debacle may be more attributable to internal politics and lengthy delays, but even had the device arrived on time, it wasn’t groundbreaking from a hardware perspective. Perhaps Microsoft should just ride the mobile platform licensing train down the tracks and leave it at that.

Related research on GigaOM Pro (sub. req’d):

To Win In the Mobile Market, Focus On Consumers

If you’ve got a one-trick pony, you want the one we have. We’re in the ad business, and it’s growing rapidly. We picked the right trick.

Schmidt hopes display advertising and mobile will turn into two $10-billion dollar opportunities for the company:

‘If we have a billion people using Android, you think we can’t make money from that?’ Schmidt asked rhetorically. All it would take, he said, is $10 per user per year. Among other things, Google might earn such sums from selling access to digital content from newspapers.

Damn shame, a vast majority of those billion would be using a version of Android that doesn’t have anything to do with Google. Or that most of those billion pay less than $5-a-month to their phone companies today.

Pony image courtesy of Flickr user, Mariacecita under Creative Commons

Twitter clients currently poll Twitter’s REST API as often as they’re allowed to — 350 times per hour is the standard, though it now drops during periods of heavy usage. These rate limits will go away with User Streams. The streaming API enables each user’s Twitter desktop client to establish a single persistent connection to a Twitter server that pulls down new information as soon as it appears. The connection lasts until the user shuts down the client.

This addresses the way many people use Twitter — as a real-time communication and information tool. In an interview at Twitter’s office with head of product Jason Goldman, Ryan Sarver, and Raffi Krikorian I conducted for  our premium research service, GigaOM Pro, Goldman compared User Streams to a Bloomberg terminal.

Twitter will continue to use its REST and search APIs for many functions, but the company is also adding new functionality to user streams, such as real-time alerts for new follows and items favorited within a user’s network.

Sarver said user streams are expected to “have a measurable impact on reducing infrastructure demands and costs” because they will eliminate constant and unnecessary polling. Even though the streaming connection is always open, it’s event-driven, only transmitting information where there’s something new. However, Sarver admitted it’s possible that streaming could end up generating more demand than REST.

Twitter didn’t invent the concept of a persistent connection to a server; it’s commonly used for communications technologies. Chat clients like Meebo (see disclosure), for instance, make use of synchronous server connections in the browser, while enterprise mail programs like Exchange use them to deliver messages on mobile. Though it might seem unwise to take infrastructure advice from Twitter, the fact is, the service has experienced unprecedented growth and usage. The company built its service around an architecture that was designed to perform a set function without the capacity to scale. Now the company’s engineering team has to retain (and improve) that capacity and still scale. It’s a lesson other web startups should be so lucky to need to learn.

For more detail and analysis, read the GigaOM Pro piece (sub req’d).

Photo courtesy Flickr user The.Rohit.

Disclosure: Meebo is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

If you’ve ever wanted to grab a piece of some of the hottest web startups in Silicon Valley and elsewhere, the upcoming initial public offering of Russian investment fund Digital Sky Technologies could be just what you’re looking for. The company has been widely rumored to be looking at a public share issue, and a report in the New York Times says that it has chosen Goldman Sachs as the lead underwriter for the IPO, which is expected to arrive sometime in 2011. The fund, which is controlled by one of Russia’s wealthiest men, has investments in what are arguably three of the hottest Internet companies on the planet: Facebook, Zynga and Groupon.

Digital Sky’s IPO offers investors the ability to buy shares in what has become a kind of mutual fund for hot tech companies. While it may not own a majority stake in any of the U.S. companies it has financed, the fund has a substantial enough investment in them to have an impact on its stock, particularly if any of its U.S. holdings decide to go public and see a subsequent rise in their market value (Facebook’s investors have said that they are not planning an IPO). Between Zynga, Facebook and Groupon, DST has a stake in companies that are estimated to be worth more than $30 billion.

DST first invested in Facebook last year, acquiring a 2 percent stake for $200 million, valuing the company at $10 billion, and later agreed to buy a further $100 million worth of stock from employees of the company (the latest investment in Facebook by Elevation Partners valued the social network at $23 billion). The Russian fund then participated in a $180-million funding round for Zynga that valued the social-game company at close to $2 billion, and earlier this year DST led a $135-million financing for Groupon that put a market value of more than $1 billion on the group-buying startup.

The Russian company is said to be a preferred investor for many companies because it cuts deals very quickly, and doesn’t require board seats or some of the other quid pro quo agreements that many venture capital groups ask for when they invest.

Investors who buy into the investment fund won’t be getting exposure to just Silicon Valley or Western startups, however: Digital Sky also has a substantial portfolio of Russian web companies, including Mail.ru — a leading web portal. The Russian fund also owns stakes in several large social-networking sites in Russia and Poland, and according to some estimates, controls companies that account for 70 percent of Russia’s Internet traffic. Major shareholders of the Russian company include the African media group Naspers, which recently bought 29 percent of Digital Sky’s stock, Russian billionaire Alisher Usmanov (who holds 27 percent) and Chinese web giant Tencent.

Of course, there’s always the chance that some or all of the investments that Digital Sky has made will turn sour, and the company will wind up holding a bag of useless preferred shares in failed startups — which would leave any shareholders of its IPO in the same boat. But there will likely be plenty who are willing to take that risk when the company finally launches on the public market.

Related content from GigaOM Pro (sub req’d): There’s No Stopping Facebook

Post and thumbnail photos courtesy of Flickr user Melissa Gray

Starting with the original Droid in November, and more recently with the Droid X (see our review here), Motorola’s adoption of Google’s smartphone platform is the primary contributor to Motorola’s continued turnaround. Motorola can’t rest on its laurels, however, else it risks repeating its RAZR complacency. For now, though, Droid is a winning play. The initial Droid sold an estimated million units in its first 74 days of availability and the Droid X quickly sold out. Motorola can thank Verizon as well as Google, because the largest U.S. carrier has backed Motorola’s Droid handsets with marketing dollars to help raise consumer awareness. It’s a win-win since data-hungry Droids are growing Verizon’s revenues.

Although Motorola’s smartphone share doesn’t yet rival that of iOS4 or BlackBerry, I’d think that today’s Motorola news would concern both Apple and Research In Motion, but for different reasons. Apple’s iPhone sales momentum appears to be slowing — it sold roughly the same amount of iPhones over the two most recent quarters — while less than a year after Android adoption, Motorola now sells nearly one Droid Android handset for every Apple iPhone sold.  RIM, on the other hand, still has no answer to more modern platforms like Android or iOS4. That’s expected to change next week when the company will likely launch or share additional details on its new BlackBerry OS 6 platform at a RIM press event. What RIM launches could dictate if it will stay the top smartphone seller in the U.S., or if Motorola’s Android bet will change that over the long haul.

Related research on GigaOM Pro (sub. req’d):

To Win In the Mobile Market, Focus On Consumers

When I asked why did Nissan choose to work with AT&T, Perry explained that AT&T uses the global standard for mobile communications known as GSM, which can be used internationally. By contrast, Verizon, for example, uses the U.S.-specific standard based on CDMA. We didn’t want to have to do all that extra development for two different standards across the world, explained Perry. Nissan, a Japanese giant, plans to sell the LEAF worldwide.

Nissan has built an impressive IT and mobile connected car in the LEAF. Announced back in July 2009, Nissan calls its system EV-IT, and it encompasses an onboard transmitting unit connected through mobile (AT&T) networks to a global data center. In-vehicle IT services include being able to see the radius that the car can drive with the current battery state of charge, as well as being able to identify the closest available electric vehicle charger on a map.

The car also has a dedicated iPhone application and LEAF-owners will be able to remotely monitor the state of charge of the battery, and can pre-heat or pre-cool the car. And as we all know, the iPhone — one of the most important platforms for mobile application development — is still exclusively for the AT&T network.

Nissan also plans to roll the Internet, smart phone connectivity and advanced navigation into the base price of the LEAF, which at $33,000 will be one of the most low cost highway legal mainstream electric cars. Perry told me in an interview at the Plug-In 2010 event this week that he expects the first wave of LEAF-buyers (it goes on sale in December) to be gadget-savvy, always-connected early adopters. Similarly, competitor General Motors plans to roll five years of its OnStar service and OnStar Mobile App into the $41,000 base price for its upcoming plug-in Chevy Volt.

Nissan’s partnership with AT&T is another example of the larger move in the auto industry (helped along by software companies) toward what we’ve described as the era of Car 2.0. The idea behind Car 2.0 and Nissan’s IT system is that the next generation of electric cars will link to the power grid and communication networks and function a lot like consumer electronics.

According to a report by analyst John Gartner we published on GigaOM Pro (subscription required), utilities and EV-service providers will steadily increase their investments in IT related to electric car management over the next five years. Gartner predicts that electric vehicle supply equipment — including wall-mounted charge points for homes as well as commercial charging stations — will grow to a nearly $400 million industry by 2015.

For more research on electric vehicles and IT check out GigaOM Pro (subscription required):

Report: IT and Networking Issues for the Electric Vehicle Market

According to its 10-K filing, Netflix spent $66 million in the second quarter 2010 to license streaming titles for its Watch Instantly service, compared with just $9 million that was spent in the prior-year period. (Hat tip to CNET) The acquisition of new and better content has helped drive its subscriber numbers up 42 percent over the past year, with 15 million subscribers at the end of the second quarter, compared with 10.6 million a year earlier. In addition, those subscribers are watching more streaming content than ever, with 61 percent using the service, compared to just 37 percent a year earlier.

But despite a huge increase in the amount of video streams it’s serving up through Watch Instantly, Netflix’s streaming costs haven’t increased proportionally. In the second quarter, the company said costs associated with delivery over third-party CDN networks only increased by $1 million versus the previous quarter. Netflix is benefiting from bandwidth costs continuing to fall exponentially as it grows its streaming business.

So the real cost of running its streaming business is in acquiring the content, not delivering it.

On the DVD side of the business, just the opposite is true. Netflix spent $24 million on DVDs last quarter, compared to $43 million during the previous year’s second quarter. For the first six months of 2010, the company shelled out $61 million on DVDs, which is down from $89 million during the first half of 2009.

But expenses associated with DVD delivery offset its reduction in purchase costs. According to Netflix, the costs of its DVD-by-mail business increased by $23.1 million in the second quarter. Due to the vast increase in its subscriber base, the number of discs shipped grew 9.3 percent, despite a 20 percent decrease in the number of DVDs per sub. Those costs could increase even further next year, as the U.S. Postal Service has announced plans to increase postage rates (again).

The good news is that Netflix’s streaming strategy appears to be working. It seems to have entered into a virtuous cycle in which it is able to sign up subscribers who are attracted to its streaming service, which enables it to reduce its spend on DVDs and put more cash toward acquiring streaming content, which will pull in even more subscribers.

Related content on GigaOM Pro: Three Reasons Hulu Plus is No Threat to Netflix (subscription required)

GetJar bills itself as the “second largest app store,” boasting over 73,000 software titles. With roughly 225,000 apps, Apple’s iTunes App Store is the largest. But Apple’s store only supports a single platform in iOS4 devices, so GetJar goes after the remaining market, which is magnitudes larger. GetJar is a centralized software store for Android, BlackBerry, Symbian, Windows Mobile and Java devices. With such a wide variety of supported platforms, the company is on pace to deliver 1.1 billion mobile applications over the next year.

GetJar’s app store is intelligent enough to determine what device a handset owner has, and only shows applications compatible with that device. And as a central repository, GetJar gains useful metrics and data on what consumers are downloading, which in turn can help developers. Today, for example, the company says that customers in India are downloading more productivity apps than consumers in Europe or North America. Armed with that type of information and support for multiple platforms, developers can target different types of software in regions where consumers are likely to buy it and thus earn per-download revenues.

Related GigaOM Pro Research Report (subscription required):

Surveying the Mobile App Store Landscape

Social-game maker Zynga has signed a joint venture deal with Softbank Corp. to set up a Japanese subsidiary of the company. Softbank has also invested $150 million in Zynga, whose Farmville and Mafia Wars games are among the most popular on Facebook. The partnership was reported last month by the Nikkei news service and by Bloomberg, but was not officially confirmed until Wednesday. The deal is expected to involve distributing Zynga games to Softbank’s mobile phone customers, one of the largest groups in the Japanese mobile market.

Zynga is also reportedly involved in a partnership with Google that included $100 million in financing from the search company. Although there has been no official confirmation of the investment, Google CEO Eric Schmidt told the New York Times in an interview that a partnership with Zynga was in the works. The web giant is said to be working on a gaming-centered social networking project — code-named Google Me — that is seen as a competitive response to the growth of Facebook.

Zynga has been the social-gaming industry leader for some time, with several of the leading games on Facebook, and has attracted more than $500 million in investment from venture funds (if the reported Google investment is included). Although the company has been closely aligned with Facebook, it has also signed a number of external development and distribution deals, including a recent one with Yahoo that will see Zynga games appear on Yahoo properties. Based on the trading of Zynga stock on secondary private markets, some have estimated the company could be worth as much as $5 billion.

Zynga competitor Playdom was acquired this week by Walt Disney Co. for as much as $763 million, depending on future performance, and game-maker Electronic Arts bought Playfish for as much as $400 million last year.

Related content from GigaOM Pro (sub req’d): How the Next Zynga Could Reinvent Social Gaming

The improved screen may be a bigger draw for consumers than the smaller size, as Amazon claims the new technology makes fonts crisper and much easier to read. Pages also turn faster, addressing a common complaint by users of electronic readers.

Amazon is expecting these new Kindles to trigger higher sales due to the reduced pricing.

“Kindle is the best-selling product on Amazon for two years running.  We lowered the price to $189 and sales growth tripled.  Now, we are excited to introduce a new generation Kindle that is smaller, lighter, and faster, with 50 percent better contrast.  Readers are going to do a double take when they see Kindle’s bright new screen and feel how remarkably light the smaller 8.7 ounce design feels in one hand,” said Jeff Bezos, Amazon.com Founder & CEO.  “If you don’t need the convenience of 3G wireless, we have an incredible new price point—$139 for Kindle Wi-Fi.  Kindle Wi-Fi has all the same features, same bookstore, same high-contrast electronic paper display, and it’s even a tiny bit lighter at 8.5 ounces.  At this price point, many people are going to buy multiple units for the home and family.”

Amazon has not disclosed the profit margin on the Kindle readers, and these low-cost readers must be approaching the subsidized range if they aren’t there already. The profitability is likely in the selling of content, so it’s possible these cheaper readers could be selling as a loss leader for Amazon. The electronic reader space is heating up, with Amazon’s competitors also offering devices with similar capability. Are we heading for the eventuality of Amazon giving free (or almost free) Kindles to customers?

If we are, it could be a result of fending off the competition. Barnes & Noble is selling a Wi-Fi version of its Nook reader for $149, so Amazon is going after the Nook with its cheaper Kindle. On the high end, there’s competition from Apple’s iPad, which is a more general purpose device, but also a platform.

In response to other devices — such as smartphones –offering a reading platform, both Amazon and B&N have built the readers into full-blown platforms, with versions of the two reader apps available across multiple operating systems and devices. The winner of the e-book wars will likely be the company that builds the biggest ecosystem for consuming content, and Amazon is already doing a decent job in that area. While electronic readers are important as the primary marketing platform for the seller’s content, they represent only a fraction of the prospective target devices that can consume the content due to these reader apps.

Amazon’s recent disclosure that a big jump in Kindle content sales occurred may have more to do with the release of the iPad than with sales of the Kindle reader. The company had the free Kindle app available for the iPad on the day it launched, and it may not be a coincidence that Kindle book sales jumped at that time. The company will not disclose what percentage of Kindle books sold are for devices other than the Kindle reader. There are currently over 100,000 customer ratings in the iTunes store for the Kindle app, so it’s almost certain iPad owners are buying Kindle books without a Kindle reader in hand.

Customers can pre-order the new Kindles immediately, with shipping to begin on Aug. 27.

Related research on GigaOM Pro (sub. req’d): Irrational Exuberance Over E-Books?

Enole co-founder Kurt Collins

Enole’s “universal sign-on for the world” API has been live since December, and the first implementations are coming out now. Co-founder Kurt Collins came by our office yesterday and showed me a few examples: In one called Viploc, a Mac is set to lock itself when it’s not in Bluetooth range of its owner’s mobile phone. So when the phone is not present (or its Bluetooth is turned off), the computer logs out of its current session. In another demo, an iPad app called ZapCash, users can send each other money when they are in proximity of each other. This will also work with near-field communications (NFC) chips as they’re rolled out to more phones.

Collins said he is also working on projects with the antivirus provider AVG for a security product, with Hasbro and Disney on a social media campaign around Mr. Potato Head, with a physical retailer on personalized recommendations and services, and with a music vendor on ticketing for a festival. The company currently powers authentication for the dating site Pickv, whose CEO Christina Brodbeck is an angel investor in Enole.

Rather than requiring a mobile app to be installed, Enole uses a unique identifier associated with a phone, such as a Bluetooth ID or MAC address. The company offers developers a REST-based API for identity and authentication using secure sockets layer encrypted transport and public key infrastructure (PKI). And to ensure reliability, Enole has also developed a way to use DNS to authenticate a user’s token should its servers be down.

Enole is jointly based in San Francisco and New York, with six employees who have backgrounds at companies such as Photobucket, Protocall and Clearspring. Advisors include Brodbeck, who was an early employee at YouTube, Jake Fuentes, who works in product development at Visa, and Erick Tseng, head of mobile at Facebook.

Mobile authentication will be a hard problem for a little guy to solve, and the biggies are giving it a hard look as well. (Indeed, Verizon has announced plans to offer “identity as a service.”) But at least it’s a good problem to solve.

For more on NFC and related topics, see my recent GigaOM Pro piece (sub req’d): A Mobile Payments Glossary

Google’s back-and-forth with the Chinese government seems to be costing the search giant a chance to dominate the mobile search and applications business in that country. Local handset makers such as ZTE and Huawei are pressing ahead, while Google is supposedly being pushed aside to make room for its main Chinese rival, Baidu.

The news that Baidu was trying to supplant Google’s search on Android in China coincided with word that HTC, one of the most vocal and early proponents of Android, was going to start selling phones in China. It made me wonder if HTC was going to use Google or Baidu? I mean, if HTC wants to do well in China, it has to go with a search engine that accounts for nearly two-thirds of the total searches in that country. But in pursuing such an option, the company also runs the risk of losing its close and preferential relationship with Google.

In order to get more details, I emailed folks over at HTC. I am still waiting to hear back from them. As for Google, the company promptly declined to comment. What do you think? Who will HTC go for?

Related content from GigaOM Pro (sub req’d): Do You Have What It Takes to Do Business In China?

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Nintendo’s soon-to-be released 3DS device is causing a stir in the gaming industry. But there’s a caveat hidden in all the buzz.

On Monday, well-known gaming industry analyst Michael Pachter released a research note proclaiming the forthcoming Nintendo 3DS would “revolutionize the gaming industry.” His belief was based on the new device’s 3D experience, which he says will not only spur sales of gaming hardware (he predicts Nintendo will quickly sell 10 million units), but also raise prices of software.

As I discuss in a post at GigaOM Pro today, Pachter may be right about the company being able to sell 10 million units fairly quickly, but he’s wrong about the overall prognosis for the 3DS.

The problem isn’t so much that the 3DS won’t be a unique gaming experience, it’s that the device, and with it, the gaming experience, is built around an antiquated business model popularized over 20 years ago by Nintendo and the Gameboy. With the Gameboy, Nintendo created a model centered around the release of a new generation of hardware every five years or so and by the sales of expensive software titles over the life of the device.

But in an apps-driven world where the iPhone and iPod touch rule (and Android is making huge forward strides), this model poses a couple of different problems.

The first is the hardware life cycle and associated pricing of 3DS. Nintendo has already seen the impact of the iPod Touch, and at a likely price of $250, the 3DS may not be worth the money when compared with Apple’s offerings. (While the iPod touch currently tops out at $399 from an entry point of $199, it offers consumers more bang for their buck.) And as for five-year hardware cycles, that’s a lifetime for consumers who have grown accustomed to a new iPhone every year.

However, the bigger problem for Nintendo and the 3DS is the software model. Nintendo has grown rich on a model premised on tight control of select software titles through approved partners. These partners traditionally release expensive titles through brick and mortar and online stores.

That model worked in the past, but not in today’s market. The app-store model has unleashed a wave of innovative new games (36 thousand at last count) from hungry developers looking to free themselves from the long, expensive and highly restricted development cycles associated with traditional console gaming. In comparison, Nintendo’s process is the mobile game software equivalent of the Soviet Union: too much control, artificially inflated prices, too little choice.

Nintendo may have re-invented handheld gaming with the DS, but the visual trickery on the 3DS won’t be enough to create a sustained multi-year sales cycle. The device is doomed, and Apple killed it.

Read the full post here.

Image Source: flickr user Colony of Gamers

If there’s one thing that web startups –particularly engineers at web startups — think about a lot, it’s what they call “scale.” What they usually mean by that is the ability to take the beta service tested with a dozen friends and turn it into a globe-spanning colossus, with millions of users interacting simultaneously, all while ensuring that those users don’t experience delays in the service. But the route to those twinned goals is never an easy one, says former Twitter engineer Alex Payne, who now works for a financial startup called BankSimple. As Payne notes in a blog post, focusing on speed can not only send you in the wrong direction, but leave you high and dry when you are in desperate need of true scalability.

The impetus for Payne’s post was an ongoing discussion about a software program called Node, which is used for running JavaScript code on a virtual machine. But alongside his comments about that specific topic, the software engineer noted that many startups confuse engineering for speed with the ability to build something that can really scale. He writes that scaling is so hard that “the ability to scale is a deep competitive advantage of the sort that you can’t simply go out and download, copy, purchase, or steal.” As he noted later in his post, the availability of high-powered computing systems and plenty of bandwidth is great for speed, but that doesn’t solve the scale problem:

The power of today’s hardware is such that, for example, you can build a web application that supports thousands of users using one of the slowest available programming languages, brutally inefficient datastore access and storage patterns, zero caching, no sensible distribution of work, no attention to locality, etc. etc. Basically, you can apply every available anti-pattern and still come out the other end with a workable system, simply because the hardware can move faster than your bad decision-making.

When it comes to truly scaling to Twitter or even Facebook size, however, those stop-gap solutions don’t really work any more, Payne says.

When your system is faced with a deluge of work to do, no one technology is going to make it all better. When you’re operating at scale, pushing the needle means a complex, coordinated dance of well-applied technologies, development techniques, statistical analyses, intra-organizational communication, judicious engineering management, speedy and reliable operationalization of hardware and software, vigilant monitoring, and so forth. Scaling is hard.

Debates about scale aren’t just an esoteric discussion of interest to engineers and developers. As Twitter’s repeated issues with reliability have shown, getting the right architecture in place to grow quickly and seamlessly — that is, the right combination of both software and hardware — is incredibly important, as Om noted, because it’s very difficult to re-engineer a service as large and fast-growing as Twitter is after the fact. It’s a little like realizing that you have the wrong kind of airplane, and then trying to convert the one you have into the one you need, all while you are still flying, and without crashing or disturbing your passengers.

Twitter investor and VC Fred Wilson said recently that the service repeatedly breaks because “it wasn’t built right — [it] was built kind of as a hack and they didn’t really architect it to scale and they’ve never been able to catch up.” In the past, Twitter’s own founders have admitted that the architecture they chose couldn’t keep up with the company’s growth, in part because they didn’t expect the SMS-style service they started with to become such a widely used form of communication — used not just for personal updates, but for everything from breaking news stories to providing customer support for major corporations.

In blog post, Payne notes that Twitter has solved some of its small problems with software changes, but that the service “is still fighting an uphill battle” to scale in a more substantial way. And unfortunately for every startup that is hoping something from the NoSQL movement or a specific development language or Node will be the magic ingredient that will transform their service into one with Facebook scale, Payne adds that “there are no panaceas for problems of significant scale.” For more on how Facebook has managed to grow to serve more than 500 million users and handle 100 billion hits a day, check out this recent post from the social network’s head of engineering.

Related content from GigaOM Pro (sub req’d): Social Networks Need to Grin and Bear Infrastructure Costs

Post and thumbnail photos courtesy of Flickr user jpctalbot