Sony is right in this case. Apple has demonstrated that the notion of a separate smartphone/tablet/game system market is unlikely to prevail in the real world. What’s really happening is that there’s an appliance market that shows (at the moment) three distinct faces. Some users will accept them all, and others will gravitate to one of the group, depending on how they balance the various applications and issues. The point is that it’s likely that all of these appliances will have a feature base in common, and that symbiosis among the devices will be important for players who want to keep multifaceted buyers in the vendor’s product domain.

This is also reflective of what Apple needs to deal with now, in the world it created. Things like televisions are clearly going to join the appliance ecosystem, and other stuff probably will, too. But what’s going to matter more is the experience that can be delivered through all this stuff, not the exact boundaries of the “stuff space.” Apple TV isn’t important except as a member of the Apple Ecosystem, and fleshing out that ecosystem is a job for cloud-hosted features, something that Apple is yet to demonstrate it grasps.

But then, Google hasn’t demonstrated that, either. Only Amazon so far has any cloud reality — and even there it’s not completely clear that they have a strategy or whether they just stumbled into a couple of gold coins from a pirate horde. Can they find the rest of the loot? We’ll see.

Another indication of market turmoil is today’s UBS decision to lower their earnings forecasts for Alcatel-Lucent. There is nothing in particular about the company’s products or strategy behind the move; it’s rooted in Alcatel-Lucent’s large exposure to the EU market and the debt crisis there, as well as cost reduction issues that the company still confronts.

I’ve noted many times over the years that Alcatel-Lucent has a position of unique opportunity and risk, both derived from the common cause of its broad product line. The company is in everything everywhere, so it has unparalleled influence. In the last year or so, though, Alcatel-Lucent has fallen victim to the common network equipment vendor problem of weak articulation. We’ve seen many examples of the company being unable to control an engagement that it is objectively the only player capable of supporting. Why? Because Alcatel-Lucent has no clear marketing position, particularly on its website, and because you can’t expect a sales force to be a strategic marketing tool; they’re compensated to close deals. In some cases, the sales team in carrier accounts can’t even recognize a service-layer opportunity.

Oracle is making its cloud strategy a bit clearer, but there are still plenty of places where the connection between offering and goal are a bit fuzzy. Perhaps the most revealing is its announcement of Oracle Public Cloud (OPC), a social-network front-end to a cloud service bazaar that will eventually include all of Oracle’s Fusion applications.

The idea is that companies can use this front-end to provide teams and individuals a point of access that offers them cloud capabilities based on their identity, and thus allows both line departments and IT to buy elastic capacity. The focus of the OPC is Software as a Service (SaaS), yet another example of the fact that anyone really looking at profit in the cloud has to be looking at the place where the largest amount of user cost can be displaced. SaaS also simplifies the notion of work backup and overflow, and since Oracle has championed the database appliance that can simplify data mobility and has embraced a Hadoop-friendly model for data distribution, you can argue that they’ve got the best cloud position in the market. In fact, I expect to see IBM working to refine their own strategy to ensure they can fill the same role.

The move comes at a critical time for Apple. While the company has almost been the single-handed driver of the mobile revolution, the product cycles in that space are getting shorter, and it’s harder to say what the next generation of devices might be. A smartphone is a logical extension of a standard phone and one that exploits the broadband mobile connectivity that was already in place. A tablet is in many ways an extension of a smartphone. What extends the tablet? What is the Next Big Thing? The answer is the cloud, the mobile/behavioral ecosystem that will create the electronic virtual world we’ll all live in, in parallel with the real world. For Apple, it’s the iCloud, a course Steve Jobs has already charted.

Google knows that, of course, and sees a similar vision. One could argue that Google sees it even more clearly than Apple, in fact, because Apple’s culture has always been just a tad elitist and thus egocentric. Android and the MMI deal are Google’s appliance play, and for now, ChromeOS is carrying the flag of the cloud, in the form of hosting the thinnest of all possible clients. ChromeOS, in my view, is just a placeholder for an eventual shift toward a more Android-centric future, but one that focuses on exploiting Android as a cloud conduit, just as Apple wants iOS to be.

The thing is, the secret sauce of the future is the mobile/behavioral stuff, and neither Apple nor Google have any particular incumbency there. Nobody does, in fact. My work with operators suggests that they understand there’s a lot to be done and a lot of money to be made in the mobile/behavioral symbiosis. The problem they have is that this particular area of service innovation is even more vague than content monetization, and they can’t get anyone on the vendor side to talk effectively about content. What hope do they have for mobile?  If you’re a vendor and if you want to own the market of the future, this is the problem you need to solve for your customers.

Interestingly, Alcatel-Lucent has just issued a press release calling for more thoughtful use of mobile assets in customer care, and when you read into the details, you see some of the elements of a mobile/behavioral solution at a more general level.  The Alcatel-Lucent mantra is “contact me, connect me, know me,” and that is pretty much what I believe to be the key to mobile/behavioral opportunity. You have to be able to reach the customer proactively with social/behavioral changes to their virtual world, to connect them to the other partners (human or cloud-machine) in that world, and you have to know a lot about their interests, desires and prohibitions to make inferences about what’s best for them at that moment in time. I’d like to see Alcatel-Lucent take this story more into the general consumer market. I’d also like to see some competitors push the story even further.

First, Android is still going strong; last month it had 10% more device activations than the month before. The Android store had more than 6 billion downloads, and there are more than 400 devices licensed to run Android. For those like me who remember the early PC-versus-Apple wars, the similarities seem obvious. Even in those early days, Apple wanted complete ecosystem control, and IBM promoted an open platform. The result is history; IBM PCs swept the market.

But Apple is still in the PC business, and IBM isn’t. That raises what I think is the key question for Apple. Is the best way to succeed in the long run to develop a new market, hunker down on a niche segment of it, and then milk that segment until another market comes along? Or is it to develop a concept that sweeps the market, share in its success, and move on?

I think that everyone realizes by now, at least reluctantly and subliminally, that Apple is going to lose dominance in the tablet space and the smartphone space, and that Google will gain it. Apple may be the BMW brand of both these device markets, but they’ll never lead them again. But BMW makes some nice change, and that’s not necessarily a bad thing. The badness might come in elsewhere though.

Ultimately, tablets and smartphones are our agents in the cyber-world. What we do, what we get, what we want, where we are, and how we spend and even think are getting wrapped around the gadgets. You win with those agents, and you win in that much larger behavioral space. Apple “lost” the appliance race. Did it also lose the agent race? Maybe not.

Steve Jobs’ big mistake isn’t that he wants a closed ecosystem, but that he wants everything to be in that ecosystem. Making it impossible for others to clone Macs became an obsession with Steve, and that meant surrendering the option to run Apple software on other systems. What Apple needs to do to counter Android is to license iOS. Or maybe to establish the concept of the personal agent as residing in the network, the cloud.

“Hal” was disembodied, after all. In modern terms, we don’t necessarily see a difference between a locally hosted intelligence and a local agent of a distributed intelligence. The iCloud might become Apple’s Camel’s Nose under the Android tent. Make it strong. Make it accessible to every mobile device user.  ut Android off from the larger, more enduring, food chain. That’s Apple’s choice. Accept another second-tier positioning, license iOS, or make iCloud the focus. Think on it, Steve.

Google+ is definitely a revolution, a step toward social networking as many believe it should have been all along. Because it avoids most of the privacy problems that seem inherent to Facebook’s simple model of “friends,” it could potentially be used more effectively without putting its members at risk. Because it’s built around communication, it would establish Google not only as a social network leader but also as a player in the web-based communications space that will eventually displace the old PSTN we’ve come to know. And behind it all looms the old Google/Microsoft face-off, this time regarding the Microsoft acquisition of Skype.

Make no mistake, Google wanted to counter the Skype deal probably as much or more as it wanted to be a social networking player.  Skype, in Microsoft’s hands, could become a powerful force to integrate Microsoft cloud software into people’s lives.  Skype could also be the foundation for social communities, of course, and having Microsoft in a position to exploit Skype at its leisure wouldn’t serve Google’s interests.

The fact that Facebook went running to Skype for a deal is interesting too.  They can’t now expect to buy the company after all, and they’ve admitted that they have either never thought of the communication-based social network (unlikely) or that they can’t toss money and time at creating one to counter Google’s move. Facebook’s weakness, as I’ve pointed out, is its off-market trading and correspondingly high valuation.  They can’t afford to keep going to the well for more capital and they can’t be perceived as losing ground—though they are.

All of this comes at a time when the Street is newly aware of the eroding credibility of carrier capital budget planning.  To quote Credit Suisse, “We expect the ongoing disconnect between revenue growth and bandwidth economics to drive an ongoing shift in carrier capex to specific projects focused on revenue generation or cost savings”.

Network spending focused on cost is an open invitation to Huawei, and spending on revenue generation is clearly not going to focus on creating more of the low-value bits that have put carriers in the disconnect to begin with. This is the issue that raised our concerns about Alcatel-Lucent’s FP3 chip announcement. The world doesn’t need a way to push more bits until we can figure out how to make bits pay, and right now everything happening in the industry is disintermediating the operator more. Alcatel-Lucent, we’d note, continues to champion IMS as the basis for mobile broadband “services” when the Google/Facebook brouhaha makes it clear that it’s going to be tough to make even IMS voice work effectively against OTT P2P competition.

With bit-pushing going out of fashion, Cisco seems unable to break out of the bit-and-box marketing mold and is instead looking to cut costs by cutting headcount. The company’s reported early-out package expired in late June and there’s no official word of how many people took advantage of it, but we did hear that there were still as many as three thousand more jobs on review for elimination.  That could push the total cuts above the 4,000 that were rumored. Cisco’s intransigence with respect to the service layer is creating an opportunity for its competitors, who could not only gain market share on Cisco’s fall from grace but also gain an early lead in the service layer. So far, though, nobody is stepping up with a good story, and we’d not be surprised to see any improved positioning saved for early September, timed to the carrier strategic technology planning cycle that will end around November first.

Some are touting this as a way of getting people to pay for pirated material, though 25 bucks a year per person won’t exactly stir the heart of the recording industry. Some think it rewards piracy by giving somebody a good set of songs instead of amateur-ripped copies for a low annual rate. And functionally, iCloud is still more of a locker. It’s not designed to stream stuff as much as to store it. And while it will make songs available to all a user’s devices, it downloads them on demand rather than streaming them.

The most interesting thing announced wasn’t really even iCloud, it was the addition of iMessage to the new version of iOS. This will let all Apple device users message each other in encrypted format, with receipts and so forth. There’s also improved technology to find others who are online, and if anything in the announcement could directly lead to a new service-layer threat, it would likely come from here.

Leaving the song-matching capability aside, iCloud isn’t much different from what Google or Microsoft might offer, and what a host of third-party products also have. Syncing devices with the cloud isn’t exactly big news. Anyone with multiple e-readers does it all the time for books, too. So we’re left wondering whether Apple trotted out the Big Gun for nothing, or whether the current iCloud is a kind of lightweight shape of heavyweight things to come.

Probably the most interesting stuff was what wasn’t in the announcement.  For example, regular device syncing with iCloud will happen only when you’re WiFi-linked and off the mobile network. Obviously that relieves what might be considerable user angst over the charges, but it also alleviates operator concerns about the gratuitous traffic. Operators are also likely to be relieved that video won’t be streamed/synced with Apple TV. In fact, it appears that Apple may have made a deliberate effort not to push operators too hard. Might they be waiting until they have something to leverage in such an operator battle?

So adding up the points, you could speculate that the iPhone 5 might be that un-SIM-ed phone we and others have talked about. You could speculate that when Apple has the tools to cut the cord, it will then expand iCloud and take the gloves off. If so, it would seem likely that the new iPhone and the new independence aren’t too far away. Why spend Jobs’ collateral on something that’s not even close to being explosive? Why alert Microsoft (which sort-of-announced an Xbox TV premium subscription service on the same day) and Google?

The Apple announcement gave both operators and vendors some breathing room. Apple hasn’t made that killer move in the space…for now. The problem is that the ongoing battle between Apple and Google in the mobile space, and the attempts by Microsoft to elbow in for itself, will surely drive more radical changes and put more pressure on operators to make the moves their vendors are reluctant to support. For someone wanting to increase their market share in the router space, this is what to look at.  New models are just new boxes, not new strategies.

The second major thrust in the Google stream after Android was Chrome OS and the “realization” of its thin-client promise. I put that term in quotes because the release of Chromebooks did instantiate a Chrome OS promise, but it may not have fulfilled it. The Chromebook has the features that were expected, meaning that it’s a thin client that integrates tightly with Google Docs, it provides a client for desktop virtualization (Citrix demoed this) for access to Windows apps, and you can even buy it on a license program, almost like a set-top box, bundled with the Google business services.  So what’s not to like?

Well, for one thing, the price.

There were speculations that Google might offer Chromebooks for a small annual increment over Docs, which would make it a compelling deal. They didn’t; a Chromebook/software package would cost a business about $350 per year. If you bought the Chromebook outright, the price would be over $400, which is more than low-end Windows laptops and almost twice the price of some netbooks.

The value proposition here is vastly complicated by the price, of course. If a Windows laptop costs less than a Chromebook, then how long will it take for the Chromebook to pay back? Obviously in capital cost terms, it never will. Yes, you can argue that you save more on the Google replacement for Office, but the problem is that you can run that replacement on a Windows laptop too. The same goes for thin-client apps. And if you need Windows virtualization you need Windows, and if you have a Windows laptop instead of a Chromebook, you have it already.

The Chromebook launch, in my humble view, is a fiasco for Google. They’ve taken a promising notion, a cloud client, and created a market entry strategy that most companies won’t be willing to adopt, which means they’ll have to fight their way back into consideration at some later date—or fail.

Larry Page needs to take some inspiration from Steve Jobs. Not only would Apple never have done a launch that lacked a compelling early value proposition, they would probably never have done this sort of deal to start off with. Why has Apple, who aspired to enterprise success for literally decades, have failed to grab onto the thin client brass ring, unless it wasn’t really a brass ring?

The problem is that hardware and software costs are declining. If you can build a netbook for less than a Chromebook, including hard drive and a Windows license, then you’re charging too much for the Chromebook, you’re trying to pad your profit margins. Apple knows that you never want to get into a business that’s commoditized from the start. Sure, there are always price wars, but not at market entry! At least not for companies that need higher margins. Google’s Android model, where somebody else has to make and sell the box, is also the Chrome OS model, and the failing here is clear. Manufacturers of PCs have nothing to gain by pricing Chromebooks aggressively and reducing their own profits.

But whether Chrome OS succeeds or fails in the long run, it’s clear that what it will do is crystallize the thin-cloud-client picture. There are benefits to pulling complexity off the desktop, just as there are benefits to substituting tablets for laptops in the consumer space. If what you want from the computer you use is simply an online on-ramp, then strip off the junk that’s not essential to that mission and create a cheap device that’s cloud-dependent. If that proposition is valid, which tablet sales show it is, then cloud services are literally the way of the future. All of networking will collapse into hosting services in some way. All network operators will become cloud providers, or they’ll sink into financial ruin. All equipment vendors will become cloud equipment providers, or they’ll follow that same path.

Another dimension of Google’s developer conference also impacts the computing space, though. Android is a Linux variant.  One of the major problems Linux has had is a lack of good desktop software. Another is a lack of reasonable support. Android, especially given Google’s broadening vision of the devices it runs on, could become a kind of next-gen Linux distro, competing with SUSE, Ubuntu and the rest. With Google behind it and a broad population of devices supporting it, Android could capture more interest as a desktop and laptop OS. My surveys and modeling show that if you could make LibreOffice run truly equivalent to Microsoft Office, and if you had good video and photo editing software on Linux, you’d end up with something that could make users abandon Apple and Microsoft.

That’s what I think is the craziest thing about the Chrome OS picture. Why would Google push a computer replacement by a thin client as they expand the value of their premier OS as a platform for computing? If Google wants to hurt Apple and Microsoft, pair Google Docs up with LibreOffice, launch Android as a PC operating system, port Picasa and some video tools, and then offer it to hardware vendors. You can’t win in PCs and eliminate them at the same time, Larry!

Microsoft’s big problem isn’t Google and the cloud, though, it’s Apple. We’re living in a world where wireless and appliances are redefining how people do just about everything, and Microsoft has let itself get trapped outside the candy store window. Phone 7 just isn’t going to catch up in the mobile handset space, Nokia deals notwithstanding. Microsoft has no effective tablet strategy because it’s afraid of undermining its Windows 7 space. The more iPads Apple sells, the more it turns the consumer away from Microsoft; away from anywhere that Microsoft appears even able to move.

Yes, Microsoft has to protect its current incumbencies, but without creating new ones that matter, it’s only delaying the inevitable. Microsoft won in PC operating systems over Digital Research because DRI missed the IBM PC opportunity. One slip and you’re done. Microsoft missed MP3 players, smartphones, and now tablets. It needs to get its act together–and fast.

Google is one of many companies that isn’t happy to see that outcome. In Google’s case, it’s trying to recast YouTube to attract more online video fans. Professional or at least semi-professional production is being encouraged, and there are some signs that Google may be close to addressing one of the biggest problems with YouTube, which is less the “production quality” issue than the “needle-in-a-haystack” issue. There are thousands of interesting and valuable YouTube videos, but it’s not likely that most will be viewed widely simply because they can’t be found.

Google seems to be working to offer the semi-pro regular producer better visibility, which would then insure more viewing. In turn, it would mean that viewers would likely be offered stuff that at least includes a strong dose of content that could credibly carry ads. Will this work?  We’ll have to wait and see.

Apple, already facing an anti-trust review or two, is now getting growing push-back from app providers over the subscription-sharing rule. Apple wants a cut of every subscription, meaning that it want apps that sell something to sell only through Apple’s store and not directly to the consumer. If dissent spreads here, it could be a worse problem for Apple than government scrutiny.

From the very first days, Apple has fostered a closed ecosystem model to the greatest extent it could, bucking a general industry trend toward opening software and systems to third-party exploitation. Google announced its own program for an Android store that’s considerably more financially friendly to publishers and streaming audio/video apps, which only puts more pressure on Apple.

The rumors of a lower-priced iPhone and even iPad are further indications that Apple is worried about competition from Android. Just as the PC-compatibles shunted Apple aside in the desktop wars of the 1980s, Android-based devices are threatening to diminish Apple’s market share and marginalize it with developers—those who aren’t already upset by Apple’s store policies. But Apple loses in any price war even if it wins, because Apple is always seen as a player that sustains higher margins. With Jobs’ health now clearly a problem, the difficulties could be harder for Apple to work through. ]]> http://itknowledgeexchange.techtarget.com/telecom/apple-gets-push-back-from-app-providers-over-revenue/feed/ 0 http://itknowledgeexchange.techtarget.com/telecom/signs-of-future-mobile-and-online-trends-at-mobile-world-congress/ http://itknowledgeexchange.techtarget.com/telecom/signs-of-future-mobile-and-online-trends-at-mobile-world-congress/#comments Wed, 16 Feb 2011 00:41:21 +0000 Tom Nolle http://itknowledgeexchange.techtarget.com/telecom/?p=2246 A couple of talks at Mobile World Congress may be signs of important future trends in mobile and online. First AT&T CEO Stephenson said the difficulties in moving content between devices was hampering mobile content opportunity. He also commented that AT&T believed that apps should run across devices, not be linked to a single gadget. While at least the second of these could be a sour-grapes reaction to Apple’s App Store concept, no longer an AT&T private lake, it seems likely that Stephenson is onto something regarding content portability.

Then Google’s outgoing CEO Eric Schmidt’s often-disconnected talk showcased something important – online mobile services are reshaping our lives in ways nobody predicted. If you put these two talks together, you get a picture of an industry that’s grappling with a combination of enormous opportunity and influence, and enormous structural change.

We can find out what friends are doing almost in real time, so at least for a time we do. We can grab video clips to laugh over, check the weather, and so forth. But all of this is like a new TV show in a way. The first couple of episodes are fresh and exciting, then the writers just run out of ideas. Stephenson is worried that a focus on mobile social indulgence is going to cover up the need to establish something real and useful at the core of the mobile revolution, particularly in content.

My research has long shown that the majority of online content consumption takes place when and where traditional content can’t be consumed, meaning that it tends to be incremental to rather than to replace the old forms. It also suggests (though this is a hard point to survey or model) that a decent piece of the consumption is either linked to youth behavior that passes with age, or to novelty. But there’s no question that a smart multi-screen strategy would go a long way to creating a truly useful and enduring model because people often have to skip out on something, move during a showing, etc.

Stephenson made an app reference later in his talk, and if you think about it, there’s a linkage here. Apps that are truly compelling need to be fully pervasive. We know that the reduction in price of consumer electronics is going to breed a multiplication of devices, and so we need to ask whether we can become dependent on future apps without having those apps available to us when we think we need them. What Schmidt is suggesting is that mobility and online services will change our behavior, and that’s most likely to be true when we can learn to depend on the combination. Every time we don’t have access, every time we have to stop and start, every annoying glitch, makes dependency harder to establish.

In many ways, what both Stephenson and Schmidt are suggesting is that we need more network-centric services for mobility, which is ironic given that for voice service, that’s what we’ve had from the first. The broadband revolution in the mobile world bypassed the network operators almost totally. They jumped on smartphones to pull through higher ARPU and let the appliance vendors and their stores add non-voice (and now even voice) features. That could have been a fatal step, and still could be.

Handset players, especially those like RIM and now Microsoft/Nokia, seem to be courting operators to dodge the problems of feature disconnect by partnering with them. That, of course, only limits the number of people stealing from you in the perception of the operator.  Somehow they’ve got to be a part of the picture, and they’ve been so far unable to wrestle the initiative from the handset players.