Embracing Chaos

My girlfriend has a kindle that she very much enjoys.  One of the biggest benefits from it she gets is having a large amount of content in a very small device.  She is a scientist who is very much an information worker.  Having access to a great many research papers in searchable form is very useful for her.  (If only the PDF import worked on multi-column papers!)  She also tends to live out of a backpack, so being able to have several interesting things to read at any give time is very appealing.

So she’s often reading her kindle on the bus.  She’s noted one interesting difference between reading her Kindle and reading a regular book while on the bus.  When she’s reading a normal book, people will ask her what booj she’s reading or will look at the cover and just talk to her about the book itself.  With the kindle the question is always "how do you like the gizmo?"  Which gets old after a while.

Here’s a suggestion to Amazon on how to address this social problzem: offer full-color PDFs of the covers of books that you purchase for the Kindle, so people can print out their own covers.  These could slide into a convenient holder on the Kindle’s attractive leather case.  Long-term it’d be great to have a color e-paper cover for the book, but we’re not holding our breath for that one.

Last week I went to a different kind of Dork Bot meeting here in Seattle called the Catastrophic Cacophony Workshop.  It was a maker-style event where we broke up into teams of people and in 90 minutes had to build a robotic musical instrument out of one supplied motor and whatever other parts we could scrounge together. 

Our team started with the basic idea of a repetitive percussive instrument with multiple hammers hitting multiple objects.  So we constructed a platform to hold the motor and used tennis rackets to make a rotating frame that held a series of arms that struck objects as they went around.  We then built frames to hold up things like pot lids or copper pipes to be struck, and attached everything from small chains to bundles of spaghetti to the rotating frame to strike them.  The real enabling insight came from the women on the team who realized that by spacing the arms un-evenly we could create an interesting rhythm.  The one-two-and-three rhythm across a variety of instruments ended up sounding much like a drum circle that actually got people dancing.

Thanks to Espressobuzz for capturing our creation on video.  Thanks to Josh Kopel for bringing the event to Seattle, and Shelly Farnham for organizing.  And to my wonderful teammates whose energy and creativity made the Spinning Spaghetti Monster possible.

Coincident with the launch of the iPhone 3G hardware, Apple has started
a couple of new online services: MobileMe and the iPhone App Store.  In
some ways these are natural extensions of existing product lines.  But
I believe their launch actually represents a fairly substantial
strategic shift as Apple attempts to diversify from a hardware-only company to one that runs on a mix of hardware and services. In order to make this strategy work, Apple will need to sacrifice its much coveted high hardware margins.

Diversifying from hardware

Since Jobs pulled the company
out of the doldrums, Apple has been a
manufacturer of high-end hardware.  This is a very nice place to be.
Their margins are very high.  If you compare the hardware bits that go
into a Mac to those in any PC, Apple’s prices are much higher.  PC manufacturers
squabble over low single
digit margins because their product is almost completely commoditized.
HP, Dell and IBM struggle to differentiate themselves in the market.
Meanwhile Apple can charge a hefty premium for good industrial design
and software that is slicker than windows.  iPod followed in this
tradition of high margins by setting the bar for usability in portable
media devices and following up with fantastic marketing.



Being a niche retailer of high-end products is a comfortable and stable
place to be.  However, having a single line of revenue isn’t good for a
large company, so diversifying makes a lot of sense.  Thus Apple’s current push into services.

The iTunes music store was an important pre-cursor to the current push
into services.  Even though iTunes moves a massive volume of music, if
you work through the accounting confusion, they’re not actually making
much money there.  Because the established music industry giants are
completely fucked and have no
idea what to do, they drive the margins of all big online retailers
down to a pittance.  But iTunes did something very important for Apple: it established a billing relationship with customers. Cellular operators have this
kind of ongoing billing relationship with their customers which enables
them to push high margin, low utility products like ring-tones. Similarly, people
are used to spending small quantities of money in iTunes to get music.
So iTunes is the perfect precursor for an App Store.  In this way,
Apple doesn’t even need to rely on the carrier’s billing relationship
to build a services business.  This will be very important for Apple in
coming years as carriers increasingly become just another provider of
wireless bandwidth.  In the coming decades, the value will not come
from piping bits around.  It will come from the services built on those
pipes. 

MobileMe is a very Apple service

MobileMe is a cloud-hosted email, contact and calendaring solution.
There’s nothing revolutionary about this.  Google offers all of these
services for free.  By charging for these services, Apple is implicitly
promising to provide a better solution.  Considering their vertical
integration into popular hardware, it’s not hard to imagine that they
will succeed at this.  Google will probably remain committed to supporting
open standards for working with hardware.  By using proprietary
protocols, Apple can provide a higher-quality product and support it
better on the few platforms they care about.  It’s a classic story
we’ve seen in this industry before.

MobileMe’s launch was a
disaster.  This isn’t surprising as Apple is yet to demonstrated great skill in online services.  Personally I believe they’ll figure it out, because it’s
important to their long-term objectives, and they’re a smart company, and the skills to do this well are getting easier and easier to find.
But from a marketing perspective, MobileMe is nothing new for Apple.  Because
MobileMe is a premium service for which there is a very good free
alternative, MobileMe still targets Apple’s classic market segment.
They’re still targeting people who are willing to pay extra to have
something really polished.  They can stick to their classic bag of
tricks, like the ads that make fun of people who aren’t as cool as the
mac devotees.

App Store is new: a platform play

App Store on the other hand is going to be much harder for them to pull
off.  For App Store to succeed, their primary challenge is not to
attract paying customers, but developers.  Because independent software
developers (ISVs) are the ones who are actually creating value in the
App Store.  App is just a distributor taking a cut on that.  So what
attracts developers to the App Store?  Customers do.

It’s a real chicken and egg problem.  Nobody’s going to build software
unless there are customers to buy it, and it’s hard to get customers
without cool apps.  Well right now Apple has the whole farm, but it’s a
very small farm.  There are millions of iPhones out there, representing
potential customers.  Moreover, the iPhone SDK is very rich and capable
when compared to its competitors.  Qualcomm’s BREW, Windows Mobile,
Palm OS, Blackberry and Symbian have all faltered for one reason or
several.  Google’s Android holds much promise and hope, but at this
point it’s complete vapor-ware.  So for now, Apple has almost all the
mindshare of mobile application developers.

But how long will this dominance last?  Software platforms are natural
monopolies, meaning the
economics tend to be winner-take-all.  The chicken and egg “problem”
can easily turn into a virtuous cycle, pushing a winner to the top.
Application developers are fickle and will code to whatever platform
has the best distribution.  iPhones are very popular, but they are
still only used by a small fraction of all mobile subscribers.  Until the distribution of iPhones reaches a critical mass, their dominance as a mobile application platform is very shaky.

The mobile app challenger is HTML

But the laundry list of alternatives shows that the competition is
fragmented.  What could unseat Apple?  IMHO it’s not another
application platform, open or proprietary.  It’s the web.  Every
high-end phone can display web pages, and increasingly they’re using
high-quality javascript engines that can run real web applications.
Webkit, the super-fast open-source HTML/JS engine behind Safari is
showing up in Symbian devices, Blackberries
and Windows Mobile phones.

Apple’s challenge is to make the proprieray iPhone SDK compelling to
developers.  The alternative is to build a web application that works
well on webkit, and works on every high-end phone.  They can attract
developers in two basic ways — make the native features of their SDK
more compelling, and provide a large market for distribution of the
applications.

Charging for distribution of these applications is a gimick that won’t
last long.  Soon all the interesting applications will be free, but
tied to cloud services that have their own business models independent
of the mobile client.  Premium applications will start to seem a lot
like premium ringtones pretty fast.  Still, it will help bootstrap this
market for Apple so long as there are no serious competitors.

To stay on top, iPhones need distribution quickly

One thing that ties all these points together is that Apple’s continued
success with App Store hinges on having wide distribution of iPhones.
They are currently throttling the distribution of iPhones for some reason, possibly
because of software glitches.  But the aggressive $199 pricing is
clearly aimed at attracting a new larger customer base that will help
maintain their dominance in the mobile application space.

Long term they might be happy getting by offering premium versions of
applications that are freely available on the web.  But something tells
me they’re actually trying to break open the mass market on this one.
This is Jobs’ big play.  It’ll be really interesting to see how it
works out once Android hits the streets.