Analysis of IT news

Saturday, November 24, 2007

Radiohead sold their latest album online

British band Radiohead famously short-circuited their music label, EMI, and put their latest album available for download on their Web site free of charge. Fans pay only what they feel the album is worth.

At the end of the day, was it a good move for the British band? Difficult to assess as there is very little solid information about the figures. On the one hand revenues generated from this online sale are nowhere near revenues generated by traditional CD sales. On the other hand selling directly to fans implies a very high margin, compared to $2 at most on a CD sold traditionally (and that's before production and promotional costs). There are also some side benefits: because artists make most of their money on tours, any promotion that helps spreading an album and helps the fan base growing sells more concerts tickets. But one must remember too that record labels also play an important part in the promotion of an album, cutting deals with radio to air the hit songs and TV shows to generate some publicity.

But the fact that Radiohead's move wasn't widely considered a success doesn't help their cause, as it gives little incentive other to bands to follow their path. Why not stick to the traditional and more secure way of doing business instead of taking a risk?

Now, the British band only used one of the potentials of the Internet: cutting the middleman. There are others potentials they have ignored. In particular, the ability to COMMUNICATE (this means BOTH WAYS) with their fans.

The online sales of the album are probably following a bell-shape curve, with the majority of customers paying less money than a regular CD and a few paying the same price or more (forget about those who didn't pay anything). Focus on those who paid the most, because those are likely to shell out good money to see concerts.

Consider the following scenario: paying for the album automatically grants you a complimentary ticket to a raffle, with prizes such as autographed photos of the band, free concert tickets, or even the ability to email the band and actually get a response from them. Better, make the raffle ticket "weight" linked to the amount of money paid. You paid $1, you get one raffle ticket. You paid $20, you get 20 tickets. You didn't pay anything? You're out of the game. In other words, make those who paid money feel appreciated for their good deed.

And speaking of making the most devoted fans appreciated, here's another idea: send the highest payers... a vinyl of the album. Why a vinyl? Because nothing ever replaced the experience of owning a vinyl album. Those were collectors, their covers were often pieces of art. The so-called CD "jewel box" came nowhere near that. Maybe it's the smaller size or the cold angular plastic, but CDs coms in a case devoid of any emotion. So send the biggest fans a vinyl. It doesn't matter if it cannot actually be played. Send them a fake plastic gold disk for that matter (like the ones artists get when they go Gold or Platinum), but just send them something they can proudly display on their walls.

Tuesday, November 20, 2007

The need of a web surfing appliance

There is definitely a need (and a market) for Web surfing devices. The signs? Current computer offers (both desktop and laptop) are widely overshooting a whole class of users: those who only want to surf the Web.

Modern computers are completely overkill when it comes to surf the Web. You don't need Windows Vista and a quad-core Pentium for that (nor the latest Mac for that matter). As a result, a whole category of customers are not only overpaying but are also facing the downsides of an overly complex product: an unnecessary complex way to do simple things, technical glitches, viruses, etc.

Maybe the most day-to-day annoying part is the time it takes to boot a computer. If you read this column, it probably happened to you: you were ready to go out, but as you leave the house you remembered you forgot to note down some information from the Web. Maybe it was the time of the movie, maybe the address of the restaurant or you forgot to print the map where you're going. But unfortunately you already shut down your computer. Those few seconds of web access cost you several minutes of your computer booting and shutting down again. Modern computers are not designed at all for a quick, short access to the Internet.

The concept of a web surfing device is almost as old as the Web, but it hasn't really materialized yet. Part of the reason is that most solutions have tried to replace the PC, whereas it should try to replace it only for the least demanding users. It should also try to target non-consumers which too many companies forget. The ideal device would indeed only contain a Web browser. No word processor or photo album software. As Web applications have greatly increased in power (think Google Maps), we do more and more over the Web.

This means that Windows has to go as it is way too fat. But taking a lightweight PC and slap it with a stripped down version of Linux won't cut it (I tried). There needs to be a tighter integration than that. Maybe it's a lightweight version of Linux and Firefox or Mac OS X / Safari with some custom hardware? Who knows. But Microsoft is unlikely to come up with a real solution. Redmond has indeed very little incentive to cannibalize its lucrative Windows market, and it has always been keen on cramming features. The first thing it would try to do would be to tie the device to MS-Office.

A first market would be the home web appliance market: a device, either with its own screen or using the TV's, that you turn on and off to immediately surf the Web. Something behaving more like a TV than a computer, even if technically it's more the latter.

Sadly, there is no real offer right now. There was WebTV, but it hasn't been really going anywhere since it got acquired by Microsoft (not surprisingly).

The closest would be Apple with its Apple TV. If the device currently doesn't have a Web browser nor an Internet connection (it connects to the computer using Wi-Fi), it certainly can as it's powered by Mac OS X. And it looks more like an appliance than a computer.

The second market would be the portable web device market: this would target people who are on the road and want to surf the Web more conveniently than they can today. Right now there are two options: the laptop and the PDA. The laptop has all the downsides of a computer (see above) on top of being rather heavy and a PDA has too small a screen. Even with an Apple iPhone you don't surf the Web for hours sitting at a Starbucks.

Here as well, there is no real offer. There are however a few existing devices that could evolve into a decent Web appliance.

The iPhone sounds promising and its underlying lightweight version of Max OS X has definitely some great potential, but it remains to be seen whether Apple will come up with a larger screen for its glamorous phone.

The other promising candidate is Amazon's Kindle. Although it's an e-book, it has a sizable screen, is portable, cheaper than any laptop and supports 3G. But once again, there is no guarantee that Amazon will even consider turning it into a Web device.

Last but not least, if MIT's one laptop per child (the XO) isn't geared for the Western world (no need of a crank), it contains several modules that can be useful for a Web device. The XO is indeed a system that consumes limited resources and as little power as possible at a great price ($200).

Or maybe a company will one day design its own appliance.

Monday, November 19, 2007

News Item: announces its own e-book

News item: Amazon announced the Kindle, an electronic device allowing to download and read books.

Analysis: this is far from being the first e-book, but it looks like Amazon put a lot of thoughts in the design of the device: a screen which allegedly looks like paper. No tedious synchronization with the computer thanks to wireless. A better wireless coverage than Wi-Fi thanks to Amazon's own 3G cellular network without any monthly fee (it's included in the price of the device). On top of that a free access to blogs and Wikipedia.

Now, provided the Kindle is as good as advertised, will it be enough to convince people to abandon their beloved paper format? No matter how convenient can the electronic format be, it doesn't replace the physical contact with a book. Plus, several people like to keep their books in their library. Knowing they are stored somewhere in a computer isn't enough, they want to keep a physical copy.

That said, there are several scenarios where people will embrace the electronic format with little or no thought:
  • Material that users are already used to read on a screen: newspapers, blogs, Wikipedia. Here, the Kindle allows to access those resources from everywhere quickly (no need to power up the computer if you want to check Wikipedia for 2 seconds) with a screen much larger than any PDA's.
  • Physical material which is discarded after being read: newspapers (this is probably why people have switched to the Internet format so easily) or books you want to read only once (think of all the people trying to sell their copy of the latest Harry Potter as soon as they've read it).
There are however two stumbling blocks. The first one is the price tag ($400) which is a bit steep to read books, even if it includes complimentary 3G access. The second is the lack of stores where people can try one. People need to see by themselves how the device works before buying.

Nevertheless, I can only praise for thinking outside the box and release a device that goes beyond what already exists (the idea of complimentary 3G itself is praiseworthy). Assuming the Kindle works, it's interesting to imagine how it will evolve. The first step will be to add color. The PalmPilot and the iPod both started with black and white screens but eventually switched to color. But with a screen large enough to read a book, a keyboard and 3G access, the Kindler has the ability to evolve into a killer portable Web device. $400 might be a lot to read books, but it's not that much for a 3G Web device with a decent screen.

Monday, November 05, 2007

Google announces the Open Handset Alliance

New item: when everybody was expecting Google to release a Google Phone or Gphone, the company surprised everyone by announcing the Open Handset Alliance, a consortium to develop an open platform for mobile phones, and Android, an open source operating system for mobile phones.

Analysis: after OpenSocial, Google continues in trying to gather consensus with major players instead of trying to come up with a solution on its own like a Gphone. This is a very wise move from Google. Delivering a Gphone would be in direct competition with a lot of people, no matter how great it is.

This alliance brings extra competition in the smart phone operating system market, at a time where Palm OS is on its way out. The Android operating system is in direct competition with both Microsoft Windows Mobile and Apple's embedded version of Mac OS X. Windows Mobile is, like Android, following the concept of a common operating system for smart phones whereas Apple's idea of a "common" operating system means "as long as it runs on our hardware".

Remember the good old Windows / Mac / Open Source (aka Linux) battle for the desktop computer? The same thing is happening again on the mobile phone space: Windows Mobile / Mac OS X / Open source (Android, based on a Linux kernel).

Mac OS X's main asset is the iPhone which enjoys a great popularity as well as a huge buzz. The problem is that Apple is competing against pretty much the whole mobile phone industry. Software makers of course (but here, Apple couldn't care less), but also mobile phone manufacturers like Nokia or LG and wireless carriers like Verizon or T-Mobile. The only ally they have in the U.S. is AT&T which is the exclusive carrier for the iPhone (so basically, one single ally in each country). So at the end of the day, no matter how successful the iPhone is, Mac OS X is unlikely to end up on the majority of phones out there.

Windows Mobile's strength is its parent (Microsoft) and its ties to its desktop counterpart. Microsoft indeed has long standing alliances with several phone manufacturers, and Windows Mobile is playing the integration card with products such as Microsoft Office, Outlook and even MS SQL Server.

But those two assets are everything but unsurmountable. Individual users couldn't care less about integration with Office or Outlook (they're using a web-based mail anyway). And the huge buzz around the iPhone proved that a sleek operating system is overshadowing any advantage of being branded "Windows". Corporate users might care about Office or Outlook integration, but it remains to be seen if the competition can not provide an equivalent integration.

As far as alliances, if Microsoft enjoys a head start, Redmond is not known to be too kind to its partners once it has held the control of a market (ask PC manufacturers). Furthermore, a strong competition on mobile phones might be an incentive to switch to an operating system which doesn't require royalties.

But even price set aside, Android's main upside is to be open. How is that useful for the players involved? Because it lets them customize their products or services. In a space where competition is so fierce, the various players yearn to differentiate themselves with the competitors, and Windows Mobile does just the opposite. A phone manufacturer can for example come up with a phone that detects on the fly whether the phone is horizontal or vertical (like an iPhone), it doesn't do it any good if Windows Mobile doesn't support that feature. Likewise, all the wireless carriers try hard to lock their customers in so that they don't switch to another carrier when their contract is up. Unfortunately Windows Mobile erases differences (and thus any competitive advantage) of the software layer of a smart phone. The main thing the user sees is "Windows".

An open source operating system like Android allows to provide some customization which is an opportunity to differentiate one's offer. A phone manufacturer can come up with a phone with new technical features and customize Android to support those features while enjoying the benefits of a full-fledged operating system. A wireless carrier can customize the software layer of its phone by giving it a distinctive look and feel as well as unique features.

Apple might not care too much about Android. After all, they probably believe that the competition is way behind and will never catch up. On can however expect Microsoft to counterattack, and probably not in a nice way (the company's not known to fight clean). But in any case this announcement is a very good thing for everybody because it introduces some serious competition. Linux didn't overthrow Windows off the desktop, it nonetheless was used by several companies as a bargaining chip against Microsoft. We can expect at least the same will happen here, if not more.

Saturday, November 03, 2007

The challenges it had to face: Google

After Microsoft and Apple, let's have a look at Google. What challenges did the company had to face and overcome? How did it affect the company's culture?

Google has been releasing a wide variety of Web services, from web search (its core product) to Web-based email. If the company seldom pioneered a new market, it has often tried to offer a new approach to do something old and tried to raise the bar. There were a lot of Web search engines before Google, but the company released a search engine that was faster and more efficient than what was around. Gmail entered the Web-based email market late, but although it didn't become #1 of that market it nonetheless shook everyone up, forcing competitors like Hotmail and Yahoo Mail to significantly increase the storage they were providing. And when it was released, Google Maps was way beyond any existing Web mapping service in terms of user interface.

Pushing the envelope is by definition everything but easy, which is the first challenge that Google is constantly facing. As a matter of fact, the company started as a thesis project by its founders, two PhDs from Stanford. That's why Google has been very aggressively hiring talents right out of the university all over the world. Where Microsoft likes to hire MBAs, Google likes to hire PhDs. Two of the company's obsessions have been 1) algorithms and 2) user interface.

A second challenge the company had to face has been technical scalability. Services that push the envelope put a greater strain on the servers. When Gmail offered over 4 times as much email storage as the competition, its email search feature couldn't take 4 times longer. Likewise, Google Earth allowing users to "fly" above various points of the globe implies that a continuous flow of images needs to be sent to the user with as little interruption as possible. On top of that, when it launches a new service, Google knows it is likely to be flooded with requests, if not by a flock of curious, one-time users. That's what happened to Geoportail, a French territory-oriented, Google Maps competitor sponsored by the French Government. The service indeed collapsed after a few hours under the load of so many people wanting to try out the new site. So for Google, launching a new Internet service doesn't only mean writing some code, it also means a powerful hardware architecture to back it up. This is why Google has developed powerful data centers that spread the load across thousands of machines. It has also been deploying data centers all across the world and has been buying a lot of dark fiber to build its own network. Algorithms might be Google's pride, the company nonetheless has been developing physical assets to keep a competitive edge.

Another challenge the company has been facing is customer scalability. Google's business model translates to millions of customers, the majority of them providing little revenue: the millions of little website displaying Google ads, or the millions of small businesses buying ad space on Google search engine. This means that the company doesn't have the resources to deal with them all personally if it wants to keep healthy profit margins. As a result Google has been automating everything. Combine with the fact that the Internet has allowed Google to release a service directly to end users, and you have a company that doesn't have to work with anybody else to release new services.

The liability for Google is that it is used to have automated mass "partnerships", behaves like a black box to its customers and is used to change its services without much discussion with them. That's how the company recently changed its PageRank algorithm without warning, never mind that it upset numerous Google Ad and AdSense customers. Likewise, customers who believe they've been victim of click fraud will have the hardest time getting an email response from a human being, let alone talking to one on the phone.

This behavior is an even larger liability when it comes to real partnerships. To begin with, the company tends to have a "release it on my own" approach instead of seeking partners to help. It sometimes seeked some partnerships but it's an exception more than the rule (examples of such exceptions being the book scanning project or the free Wi-Fi project in San Fransisco). The "release often, release early" mentality works great for autonomous Internet services, it is less successful for services that require consensus. This is how Google got sued by several newspapers worldwide because it was indexing their websites without their approval. It's only much later that Google struck a partnership with some news agencies and start hosting some of its own content. Likewise, the Web search giant's attitude can hamper the promotion of its OpenSocial standard geared towards social networking sites. Here, Google just cannot do as it pleases without listening to its partners.

Friday, November 02, 2007

News Item: Google announces an open API geared at social networking sites

News Item: Google announced an open API geared at social networking sites. Named OpenSocial, the goal is to help developing applications that will work on all the social networking sites that support OpenSocial. At the time of the announcement, over a dozen sites have agreed to support that platform: MySpace, LinkedIn, Salesforce, Friendster and many others. Not surprisingly, Google's own networking site, Orkut, is among the partners.

Analysis: this move is widely seen as an attempt from Google to rally as many social networking sites as possible against FaceBook. The latter hasn't embraced OpenSocial, which is not surprising considering that 1) Microsoft acquired 1.6% of the company - and probably signed some exclusive contracts - days ago 2) FaceBook has little incentive to see all the 3rd party applications developed for its site ported to other less successful sites.

After having failed to establish itself in the social networking market with Orkut, Google tries to maneuver around the challenge by being a key supplier for as many networking sites as possible. OpenSocial, like any open standards, can change the name of the game. On the one hand, it helps promote the development of applications for such sites. On the other hand, it erodes some competitive advantages of those sites. Why so?

First of all, by embracing OpenSocial, a social networking site benefits from all the applications developed on this platform. But so does the competition. If it is a good thing for a site like LinkedIn which is lacking applications and can fear the rise of FaceBook, it is not for the front runner (present of future) which already has a lot of applications.

Second, an open application platform might mean it is easier to transfer contacts from one site to another. The API indeed provides some access to one's contacts. One of the main barriers that prevents users from jumping from site to site is to have to recreate all their contacts. If an application can at least find if they've already signed up / let you know when they join / invite them for you, then moving to the new social networking site of year is much less painful.

Now, several things could hamper the development of OpenSocial:

1) An endorsement is just a promise. Future will tell if the sites who have endorsed OpenSocial will actually support the platform, and if the platform is designed well enough for applications to be truly portable.

2) Google so far has been used to have "automatic mass partnerships": millions of anonymous Websites that embed Google Maps or Google Ads through an automatic process. Having to deal with a small number of high-profile sites is rather new for the company.

3) It remains to be seen if Google will resist the temptation of favoring Orkut at the expense of the other sites embracing OpenSocial, which could undermine its credibility.

4) The OpenSocial coalition regroups very different social networking sites. LinkedIn is for professional purposes only, at the polar opposite from MySpace. Some applications developed for one type of site might not be welcome on another type of site.