Monday, June 28, 2010

Convergence vs. Format vs. Channel – Why the iPad has not yet Won my Heart

I am in the throes of a continuing dilemma: to iPad or not to iPad. The Apple legions would tell you my agonizing is futile, that Apple will dominate the “netbook/bookreader” space the way it’s dominated the “mp3/mobile phone” space. I am not yet convinced, and here’s why.


There is certainly room in the market for a portable device with a larger screen format. The larger format lets you interact with richer information sources and given a robust input mechanism such as a keyboard, it let’s you richly tie your own information to the information you interact with. This is compared with the smaller handheld platform which in many ways limits the depth of information that can be dealt with. Think of blogging vs. texting; think of the difference in web surfing on a phone vs. a laptop; or reading a book on a Kindle vs. a phone. And the fact is that the converse is also true. No one is going to be holding a iPad up to their ear to take a phone call, nor sticking the iPad in their pocket to listen to tunes on the school bus.

The question for me then become what set of features will something of this format converge upon, and what sort of business model captures value from that? The iPad is not and will not simply be a larger iPod. Users who choose it will have unique requirements and the types of information one interacts with may not be open to the same business models that information sources do on the iPod. Internet, email for all practical purposes are free. Music and cellular service were not.

Media Anchors the iPod

The exception to the media richness rule for handhelds is media, music and voice. One can store and retrieve this sort of content easily from a handheld device. The interaction with this type of content then is less about codifying knowledge but by instant retrieval in a contextually relevant situation. One interacts with their world by bringing their music into it, accessing it instantaneously according to the immediate desires and needs.

Music anchors the iPod in more ways than usage patterns. Apple’s business model is based upon it. Let’s be clear about it. Apple is not just a purveyor of iPod’s. Apple is a media store. Apple has a phenomenal market cap, not because it sells iPods, but because it sells the music that you put on the iPod. Apple has become the dominant channel for media. Think of the mall CD store around only 10 years ago. They are all but extinct.

So the logical question is: what will anchor the iPad? Is there a ongoing revenue stream that Apple can take over that will be of the equivalent of music for the iPod? Apple thinks its written media. Make no mistake about it. Music is to the iPod what books, magazines, and newspapers are to the iPad. If Apple cannot dominate more complex textual media the way it dominated music its business model will be significantly diminished.

It’s unclear to me yet that the stickiness of music for the iPod will necessarily translate to the iPad and text content. There are several reasons for this.

Amazon and Google

First, much of the textual media we access is already free. Internet, blogs, etc. All one needs here is simply access to the internet. And while the iPad may be a better platform for accessing the information, much in the same way that you can contextually access music on the iPod, without a viable keyboard, you’re ability to manipulate and create your own such content limits your ability to interact with the media in the additional dimension that this expanded format would allow.

Apple claims it’s reinvented how one interacts with such basic programs as email or calendaring. This may be the case, but let’s recall that Google dominates “the cloud.” How long before Google puts similar features onto it’s already popular versions of mail, calendaring, and documents, and before netbooks with touchscreens allow Google to make use of similar looks and feels, much like it’s Android platform now snipes at the iPhone platform.

And what about books and magazines, the closest analogue to it’s iTunes store? The problem here is that electronic channels are already well established. Unlike the burgeoning electronic music industry which Apple helped create and solidify in the midst of it’s early chaotic beginnings, we’ve been buying books online since the beginning of the internet. Have they been e-books? No. but I counter that this is not what matters. Once you’re selling books electronically, it is really a small step to selling electronic books. Amazon and Barnes and Noble already are established as online sellers of books. They have power with book publishers. Apple is not the pioneer in a new channel, but rather a newcomer to already established set of channel relationships. Don’t underestimate that power. Apple’s early domination of the e-music channel allowed it to command price premiums and gave it power to compete on price at the right time. It used proprietary standards only until it’s iTunes dominance was so well established that reversing it’s position on standards actually served to buttress it’s already entrenched position. Amazon [and Barnes & Noble] commands that sort of position with book publishers now and they are well established “clicks and mortar” players.

The Convergence Conundrum

I’ve never owned an iPod, but I love the platform. I’ve decided that once my current mp3 player (an iRivier H10 I bought almost 6 years ago) dies (and contrary to jokes about all things Windows-based, it continues to be rock solid performer – much to my chagrin) that I’ll replace it with an iTouch (no iPhone; my job supplies my cell, iPhones will never be enterprise standards, and I don’t need more small gadgets.) Here’s the problem. Once I have a device that runs the Apple apps platform, why would I need two? Wouldn’t I buy the device that best meets the needs of only those incremental things that I still lack?

This is part of the issue. It’s easy to see how the integration of phone, music, and small packet internet integrate well into one package, i.e. how they converge. But once we establish the viability of a separate device, the additional advantage of convergence becomes less sure. This is what Amazon is betting on. It’s what Google is betting on.  There are 3 points of convergence that are already established and it is unclear which will actually win. Google owns the convergence of the cloud. Amazon owns the convergence around the ebook channel. Apple wants to own the convergence of the device.

My Bet

My bet here is that the channel and hence Amazon will win. Amazon wants you to buy books through their bookstore but use them on any device you want, including their popular Kindle reader, and including the iPod/iPad platform. Apple wants you to buy books and only use them on their platforms, hoping its platform is sticky enough to convert you. Amazon already does significant volume and reaps significant profits from its books sales and so has price advantage. Neither will advocate open standards until one wins out.

My bet is that the platform will not establish the same sort of stickiness that it did in the case of the iPod, because Apple is not starting from the same sort of position and in an industry with the same sort of immaturity as the e-music industry.

Here’s where the competition will come from.

Amazon will continue to sell books for the best pricing. Publishers won’t like it, but then neither did music distributors when Apple did it. Until people figure out exactly how e-books are best read (small devices, backlit LCD, or EPaper) Amazon’s platform agnostic strategy seems better to me. Amazon has just dropped it’s price on the 2nd gen Kindles to $198, and I predict that Apple will eventually be forced to remove the Kindle apps from it’s app store. Google will develop and proliferate next gen operating systems, enabling netbook manufacturers who cannot compete with Apple’s resources to establish iPad-competitive platforms on their machines (think Android). Next gen netbooks with touch screens and these updated operating systems will come out faster than expected. And at the prices that manufacturers will be willing to charge under Apple’s premium pricing, they will compete.

To be sure, Apple has it’s brand, and it’s legions of loyal (dare I say rabid) users, and they will certainly get spill-over sales from this, although for reasons I’ve mentioned, and because lots fewer people read books than listen to music, it’s difficult to say how that will play out. They key will be if Apple and it’s app developers can develop apps that make use of the iPad’s unique format for as of yet un-thought-of uses and if they can do this faster than the entrenched competitors can refine their particular points of advantage.

As for me, Amazon just released an update to its Kindle for PC software to add the features I needed that were missing (screen color changes to adapt LCD screens for more comfortable reading, annotation capability, and support for screen rotation). My netbook is now the e-book reader I need, and short of the Kindle’s e-paper, perfectly adequate, especially given it’s ~$250 price tag. Given Amazon’s still unbeatable e-book pricing, I’ll be buying books from their store, and unless Apple pulls the Kindle apps, I’ll still have the option of switching to an iPad should the platform play out differently.

Wednesday, June 16, 2010

Now that’s Funny

For those of you who read my last post on the BP “Coffee” Spill, and might have thought I should just loosen up and laugh a little, here’s a vid that is the proper philosophical counter point to the Coffee Spill. Hugh Laurie offers us his solution for the oil spill and… well, for whatever else might need fixing. The bufoonery is now in the right place. And I think it’s freakin’ hilarious!

Tuesday, June 15, 2010

BP and Coffee or “Why I’m Not Laughing”

This video clip has been circulating the interwebs appearing on various friends Twitter feeds and Facebook pages. Even a few Objectivists friends have linked to it approvingly. I admit I chuckled the first time I watched it as well. I’ll ask you to watch it and see what your first response is.

The fact is that I no longer find it funny. In fact, I find it an insulting smear. I admit to being seduced by it’s premises, and after thinking about why it was funny to me I realized I accepted a premise hidden in its humor which is absolutely false. The answer lies in the answer to a simple question. Why is it funny? For me analyzing automated emotional responses is interesting, many times because I find unexpected implicit judgment embedded in them.

The video portrays BP executives spilling coffee and then attempting to clean up that spill unsuccessfully. Obviously a metaphor for BP’s handling of the recent Gulf spill caused by the explosion and sinking of the Deepwater Horizon drilling rig. The executives try all sorts of bizarre and overly complex solutions to mitigate the spill, ultimately ending in a failed attempt under the direction of movie actor Kevin Costner.

The essence of the humor here is the executives myriad of failed attempts in the face our own knowledge of a remedy that is simple, commonly known by all, and virtually guaranteed of success. One could simply use a paper towel to wipe up the spill (an irony made more concrete by the use of such a paper towel, not for its obvious use, but instead to draw a schematic for another overly complex failed mechanical attempt). The video is funny because the executives are portrayed as buffoons. If we laugh at those things we find insignificant, then it is the executives status as incompetent clowns that forms the basis of the humor in this case.

But does this metaphor actually hold? A simple question reveals the problem with the metaphor. In the case of the Deepwater Horizon incident, what is represented by the metaphorical paper towel? What is the solution to this incident that is obvious even to you, simple, and has an almost 100% guarantee of success? Do you know? You must know if the metaphor is to hold. But you don’t. I’m certainly not a petroleum engineer or deepwater geologist. I don’t know what it is. This is because the metaphor doesn’t hold, not in the least.

Drilling for oil a mile beneath the ocean’s surface is a complex technological marvel requiring teams of men with highly specialized knowledge in order to succeed. Staunching a gusher such as the Deepwater Horizon leak is an equally amazing marvel requiring the same men, with the same types of knowledge. Consider that there are only about a hundred deep water drilling rigs in the world capable of drilling oil wells at this type of depth. There is no “paper towel” in this case. Capping this well is one of the most complex engineering feats and only a few men have the requisite knowledge to even be able to attempt it.

And yet it is these men that the video attempts to smear. The video trivializes the nature of the problem before us and belittles the very heroes who will be responsible for saving the day.

And aren’t these men responsible for the spill? As someone who works in the petrochemical industry, it is not at all clear that this is the case. Determining negligence in cases of complex technical problems is a complex issue. The fact that the spill exists does not in any way imply that there was negligent behavior. And it is my experience that the largest companies are usually safer and more conservative in their practices than smaller companies. Certainly if BP is negligent, then it bears liability in the spill; however, this is far from proven.

But what do these responses, our implicit belief in the “paper towel” solution, our seeming justified impatience with BP and a desire to believe them incompetent and negligent, all have in common? In his blog post “Plug the Damn Hole!” Tom Bowden highlights the fundamental that I believe underlies this response: ignoring the causal. When one ignores the actual nature of a thing and its consequences, then all one is left with is whim. We wish the gusher were plugged so we become impatient, yet ignore what it takes to get such events under control. Our impatience is unwarranted. It’s based on whim. We believe the spill should be pluggable immediately as if one was wiping up a coffee spill, so all the efforts and machinations of the men working on solving this problem must signify incompetence. Our judgment of incompetence in unwarranted. It’s based upon whim. Our political leaders issue directives, haul oil company CEO’s before committees and call their responses inadequate only in hindsight and yet they will not change what it will take to solve this problem. Their fury is unwarranted. It’s based upon whim.

The fact is that the petrochemical industry is one of the safest industries on the planet. I am safer working in the average modern petrochemical plant today than I am living in my home and driving to work. If it’s true that oil companies have little experience plugging leaks like this it is ironically because such incidents are rare. It is because of the competence of men like these that we don’t have leaks like this everyday. And so their inexperience is a sign of their extreme competence, and the fact that we’re operating at the edge of our knowledge.

This problem will take time to solve specifically because it is a daunting problem to solve. The limited resource here is not money. It is specifically the brainpower to work on this problem. That brainpower is limited. There are relatively few men with the experience and knowledge to contribute to the solution of the problem. The minds who build the equipment used are rare, because the equipment and operations are so complex that only a few men have the knowledge to build them. But these men are not created overnight. It takes time and investment. What fuels that time and investment? Profits. Oil company profits to be exact.

In my post recounting my experience with cancer I said I wanted as much profit going to pharmaceutical companies as possible so that they could put as many scientists as possible working on cures for cancer. I said that there was an urgency fueling this desire since my life was at stake should my cancer recur. Today we’re faced with a similar urgency. I hope the leak gets staunched as soon as possible, and for that reason I advocate laissez faire capitalism. Because profits ensure that we don't have shortages of brainpower when we need it.

Some on the right are calling this crisis Obama’s “Katrina,” saying that his inaction will be his example of poor leadership. I don’t think it is. The perpetuation of the spill and his complicity in it will only fuel his ability to advance his environmental agenda. It will give him the momentum to make his deepwater drilling moratorium a complete ban and to further regulate. It will allow him to get cap and trade legislation enacted, thereby crippling US industry. In the words of Thomas Friedman, New York Times columnist and environmentalist, “A crisis is a terrible thing to waste.” [as a tool to influence policy]

What could Obama be doing, or what could be doing to put in place conditions that would help resolve this and future situations? Here are a few things among many options:

  1. Advocate the lifting of bans on drilling in lower risk areas like ANWR and shallow water continental shelf. Today we are drilling in high risk areas because cheaper less risky sources of oil have been deemed off limits. Technologically, this is the equivalent of banning farming in the Midwest and relegating farmers to ply their trade on the moon.
  2. Accept offers of aid in the form of material and most importantly, “mindpower” from other countries and other companies. Up to now the US has politely declined such aid.
  3. There is one proven technique that has been used to rapidly stop deep water oil leaks, successful in 4 out of 5 attempts by Russia in the 1960’s and 1970’s, quickly and permanently stopping those oil leaks. That technique is a controlled nuclear detonation, a “nuclear option.”  The US government can authorize the use of such an option, if the conditions of this well favor its use.