Analysis of IT news

Monday, January 21, 2008

Apple and disruptive products

It looks like pretty much everybody has been disappointed by Steve Jobs' performance at MacWorld this January. Sure, he announced some cool products, but nothing groundbreaking. Wall Street was so not impressed that the stock took a hit.

To be fair, it was difficult to top last year's iPhone announcement. That's the downside of a taking everyone by surprise. Everyone after that such high and unrealistic expectations that you're almost certain to disappoint. And Wall Street sure has a reputation of easily having unrealistic expectations. But there is also one big difference this year: the announcements were mostly Mac-centric. Apart from the Apple TV that says goodbye to its connection to the computer (read: the Mac), the big products are the Time Capsule (a Mac backup device) and of course the MacBook Air.

If the Mac products are generally pretty cool, they don't generate the sale nor the buzz Apple needs to keep its revenue line and mind share. That's what Apple's non-Mac products can do. The iPod accounts for 25 to 50% of the company's revenue, and the iPhone has had everybody talking about Apple much more than any recent Mac product.

None of the products I've said Apple could come up with were announced. No Apple TV that allow you to browse the Web, nor a dockstation transforming your iPhone into a full-fledged laptop. Maybe Apple isn't ready yet. But maybe it's something else. In this week's column, Bob Gringely wrote the following:

"If you could buy a Mac that attaches to your HDTV for web surfing as well as all the other Apple TV functions, even at the original $299 price, it would have been a HUGE hit. But it might also have hurt Mac Mini and iMac sales, so Steve couldn't bring himself to do it."

I'm glad Bob Cringely agrees with me, but his other comment made me realize that Apple might NOT be interested in releasing those products because those are DISRUPTIVE products. They threaten to cannibalize Mac sales without bringing in as much revenue.

A $300 Apple TV-turned-Web appliance would indeed compete with the $600+ Mac Mini or even a $1200 iMac for those who have limited needs and crave Apple's legendary user-friendliness. Likewise, a $400 iPhone with a $??? "laptop dockstation" would compete with $1100+ MacBooks.

Very few companies are able to successfully cope with disruptive innovations, and Apple doesn't look to be part of the lucky few. If Steve Jobs has been ready to introduce non-Mac products (the iPod, the iPhone and the Apple TV), they've always been complementary to the Mac. At the very least Steve agreed they could be neutral. The Apple TV and the iPod Touch can now download music and movies directly from the Web without the need of a computer. But none of these products are running the risk to threaten Mac sales.

Apple has created a great mobile platform with the MacOS X embedded in the iPhone. And one day the embedded platforms will grow up to a point where they start competing with full-fledged computers. But it is entirely possible that Steve Jobs won't let his own embedded platform grow for fear it begins to compete too much with the Mac. Just like we've seen the innovations in the PDA market plateau since Microsoft won the market (hey, they don't want them to hurt Windows sales).

Maybe Apple will introduce disruptive products in 2008. But maybe Steve Jobs is so tied to the Mac it won't let any other product hurt it. If that's the case, the Mac might become a liability for its own company.

Saturday, January 19, 2008

Online movie rental offers

The war for movie rental is on. Several players have released - or plan on releasing - their own offers: Amazon partnered with TiVo to have people download movies online on the TiVo. Apple lets people rent movies and watch them on either the iPod and the Apple TV. Netflix struck a partnership with LG electronics to roll out a set-top box that allows to download and watch movies. LG's device, which is rumored to cost $800, might be its BluRay / HD DVD player. Vudu sells a set-top box for $400 that lets consumers buy or rent movies from the Internet. Last but not least, cable companies already provide movies-on-demand offerings.

Plenty of competitors, who have all signed up all the big movie studios, but no clear winner so far. There are indeed two key factors, and no player masters them both.

The first key factor is convenience. People need to be able to EASILY choose movies and watch them ON THEIR TV. "Easily" means "without too many steps". So a solution based on connecting a PC to the TV through a third party device doesn't cut it. In other words, a convenient offer leaves the computer out of the picture. "On their TV" means "not on their iPod or iPhone" (got it Mr. Jobs?).

The second key factor is the price. Downloading movies right to your TV involves some electronic device that connects to both the Internet and the TV. Eventually TV sets might incorporate this feature, but we're not there yet. So in the meantime consumers need to buy that device. But the thing is, will they really want to shell out hundreds of dollars just for the "privilege" of renting movies online? On top of that, because all the solutions are proprietary, consumers might be reluctant to purchase a device before there is a clear winner. Even deep-pocketed Wal-Mart dropped its online rental service. Who wants to buy the Betamax of online rental? Considering this, there are several approaches:
- One way would be to lend the set-top boxes for free (or rent it a very low price). So far, nobody has gone that route for obvious financial reasons.
- A common way is to just sell the device and hope that a lot of people purchase it. This is what Vudu and Apple propose.
- A third way is to add the functionality to a device that consumers may already have. That's what Amazon and Netflix have done by partnering with respectively TiVo and LG. The downside is that this approach restricts the pool of target customers.

To recap:
- Amazon's offer: the price is right (provided you have a TiVo), but downloading the movie first on one's computer is cumbersome. Another downside is that TiVo users are already likely to have hundreds of TV channels with TV on demand. On the other hand, users who might be interested in online rental (e.g. people with basic cable) may not have TiVo.
- Vudu's offer is convenient, but $400 for the privilege of using their service is just too much. And because it's a startup company there's no guarantee it will still be in business a year from now.
- Apple has just upgraded a terrible offer into a so-so one. The apple TV's price has indeed been slashed from $300 to $230 and it can now download movies directly without involving a computer anymore. But you still have to purchase a device to rent movies. Also, will Steve Jobs manage not to alienate movie studios executives like he has done with their music counterparts?
- Netflix's offer is convenient but at $800, LG's BluRay / HD DVD player isn't exactly mainstream which highly restricts the pool of customers.
- So far the cable operators have a very compelling offer. It's convenient and consumers already have. The only downside is the reduced choice in movies the consumer can watch on demand.

So as we can see, nobody has the perfect angle. On top of that the movie studios seem to be ready to hamper rental download for fear of cannibalizing their DVD business. For instance, most online rental offers are around $4 per flick. That might not seem that much, but considering they don't have to ship anything it is. It is pretty much what Blockbuster charges, and much more expensive than Netflix. To make things worse, movie studios let new movies be available online after their DVD releases (30 days in the case of Apple iTunes) which hampers convenience. So one can wonder what market segments is targetted. Early adopters are ready to pay a premium but expect in return to have the best offer available, so will be frustrated if new movies are available after their DVD releases. Price-sensitive customers will want to stick with NetFlix.

There is however one area where online rental can shine: high definition. Even if the HD DVD / Blu-Ray war seems to be tilting in favor of the latter, very few people still have next generation DVD players. Online rental thus can cater to the millions of customers who have a high definition TV but are not sure yet what next-generation DVD player to buy.

But here is another approach that nobody has taken and which might work too: sell a set-top box that people will buy for something else than renting movies. I might sound like a broken record, but a device that turns your TV into a Web browser might do the trick. Any taker?

Saturday, January 05, 2008

Google wants to create its own encyclopedia

While Wikipedia is looking to create "a community-programmed search engine that competes with Google", Google is announcing Knol, its own online, community-built encyclopedia (in Google speak, a "knol" is a unit of knowledge).

Wikipedia founder, Jimmy Wales, claims Knol is more like Yahoo Answers than Wikipedia, but adds that "it's a much better story to post it as Google vs. Wikipedia". Nonetheless, the service is following the same principle than Wikipedia: letting users build an online repository of knowledge.

The rationale for Google is twofold: first, create another advertising channel. Because Wikipedia pages tend to rank quite high in the Google search engine, the latter is probably the main search tool used by people who are looking for a given Wikipedia entry. So there's some advertising money to be made here. Second, Google is trying to host more and more content. Its search engine might be the #1 search service used on the Web, it doesn't host the pages it's indexing, so there is always the risk of seeing users going to another service (fortunately for Google, it turns out users have some inertia even on the Internet). So having its own content allows to add more "stickiness" to its services.

Obviously, creating a sizable amount of content on its own would be a gargantuan task, so the best way is to let millions of users do the work, This rationale, sometimes known as crowdsourcing is already at play with YouTube and Blogger. Knol follows the same logic.

However, by highlighting authors, Google is using a completely different from Wikipedia which has always kept its contributors anonymous. Knol's strategy can be both a blessing and a curse. A blessing because granting ownership and recognition (not counting financial incentive thanks to ads) can be the best motivation. A curse because Google runs the risk of having ego clashes, duplicate pages competing on the same subject and less collaboration (most pages on Wikipedia are indeed produced by one or a few main author(s) but with plenty of small contributors).

It will also be interesting to see how is the system is abused, as it is for any service where users create the content. YouTube has to deal with countless illegal uploads of copyrighted content. Wikipedia has been fighting against several cases of fraud, from companies and celebrities who "edit" the entries bothering them to outright vandalism. One can safely predict that Knol will have its toll of abuse. The question is: what type and what will Google do about it? For instance, will there be a lot of false gurus pretending to be experts in a given subject just to artificially build some credentials?

Future will tell how will Knol evolve. If I had to take a guess, I would say that it will end up competing with Wikipedia on some type of content, but not all. Specialists craving for recognitions will love Knol. Pages that benefit from multiple contributors might be less developed than on Wikipedia. After all, why would you invest some time on a given knol if someone else takes the credit?

But back to Jimmy Wales' remark, whether the competition between the two services is real or imaginary, the perception of competition is not good publicity for Google, as the search giant here looks like the big, deep-pocketed commercial guy ready to take on the non-profit underdog.