Open Social Media is a decade away

Today we wanted to send a video birthday greeting to our eldest, who is far away. We asked our youngest to make it happen (in part because her newer iPhone has 64gb while my two-year-old 16gb is full).

The two of them have in common Snapchat and Instagram; the eldest also has WhatsApp and the youngest has Twitter. Our youngest first considered Snapchat, but that’s temporary and has a 10-second video limit, so instead chose Instagram that has a 15-second limit. They both also have Facebook, but that seems mainly used for relatives and other clueless people to send one-way communications to these teens. They also talk via Skype but (like me) don’t launch it often enough to see text messages.

I use Twitter hourly and Facebook every day or two, while my Instagram and LinkedIn (web page) get launched perhaps once a month. So I went to Facebook to send a birthday greeting to our eldest — as did 11 other people, including my sister — but unlike with my middle-aged friends, did not prompt an ongoing stream of likes and replies.

Clearly there is both a proliferation of competing social media platforms and little or interoperability. Some people do automatic (one-way) feeds using tools like TwitterFeed and Hootsuite, but that doesn’t allow for conversations to take place across social media boundaries.

I am told that at the turn of the (20th) century telephone systems were not fully interoperable, and having a phone in one town meant you couldn’t call another. I wasn’t there and my dad’s gone, so (short of spending an afternoon on Google) I can’t confirm this. But (grabbing The Fall of the Bell System from my bookshelf) it’s clear that by 1913 AT&T had achieved interoperability between its local operating companies and its Long Lines division, allowing transcontinental calls to be made on its system.

From my (aborted) dissertation, I also know that the design points of 1st generation analog cellular systems in the US, Japan and Europe were to be fully interoperable with the PSTN (Public Switched Telephone Network). The US pre-cellular mobile phones of the 1960s required an operator to route calls to the PSTN, but the invention of the microprocessor made it possible for the AT&T’s car phone (and later Motorola handheld phones) to automatically complete calls. When the EU and the CEPT invented GSM —and with it Short Message Service — they made text messaging also interoperable (except with landlines) over the PSTN.

And, of course, fax machines used the PSTN to complete calls, but generally agreed on a series of (ever-improving) transmission standards for the graphical representation of the images sent over those calls. So when the telcos were involved, they grokked interoperability.

A Lesson from E-mail

Perhaps a better — or at least more recent — analogy comes from the proliferation of incompatible e-mail systems prior to the commercial Internet.

Using Google, I found a February 1987 posting I made to the Info-Mac e-mail list. After I quit my job to become a Mac developer but before co-founding Palomar Software, I used this as the signature line

Joel West                            MCI Mail: 282-8879
Western Software Technology, POB 2733, Vista, CA  92083
{cbosgd, ihnp4, pyramid, sdcsvax, ucla-cs} !gould9!joel
joel%gould9.uucp@NOSC.ARPA

In between, I know my various Palomar business cards had e-mail addresses for MCI Mail, AppleLink (later eWorld) and perhaps my AOL account as well. When Apple finally provided full Internet interoperability, it said joelwest@AppleLink.apple.com, while the next business card said joel@palomar.com when we bought our own domain name and locally hosted server.

So there was roughly a 10-15 year period when the proliferation of proprietary e-mail systems meant that two people could have e-mail accounts but not be able to e-mail each other — and (like today’s social media) people might maintain multiple e-mail accounts.

Now, any e-mail user can send to any other. With various MIME and HTML extensions — and dozens of client implementations —  the e-mail may get garbled or unreadable due to mutually incompatible interpretations of the format standards, but that’s a function of commoditized (often free) e-mail clients that don’t reward quality control.

Open Social Media

Will we ever have open social media? That would mean that there was some sort of formal interoperability standard (beyond OpenSocial), that it was implemented by the major platforms and that these implementations include the full functionality of their native platforms — public and private messages, text, images, video, “like” and perhaps even adding friends. (This ignores inherent incompatibilities such as the SnapChat model of disappearing messages).

The business models of these various companies seems to assume (or hope) that we will not, and that they can create stickiness and keep us in their proprietary walled gardens for as many hours/day as possible. This creates winners and losers: I like the idea of LinkedIn for contacts but hate it as a content site, and so only visit it when I’m seriously procrastinating (not Twitter or Facebook or blogging procrastinating) to avoid something I really ought to be doing.

One path forward would be vertical integration, but with one exception that seems a long way off. The exception is Facebook, which owns WhatsApp, and so could make them interoperable at any point.

Microsoft has Skype — but no real social media — but until one of these platforms falters and is available for sale, it will have nothing to integrate. Google still thinks people will someday use Google+ and would probably be blocked anyway by the EU from buying one of the major social media platforms. Apple with iMessage seems to want to add convenient, easy-to-use clients on top of the existing (commodity) addressing and delivery systems like text messaging, rather than build a proprietary communications platform and try to gain share against the Silicon Valley upstarts.

The 10-15 year time horizon could apply here as everyone copies each other’s features and (like email) social media platform become passé and readers move on to something else. Twitter launched in 2006, WhatsApp in 2009, and Snapchat in 2011. So realistically, barring some blockbuster acquisition there’s not much hope for the rest of the 2010s, but the 2020s seem likely to bring improved interoperability in this segment.

The Hubris of Ken Olsen

Ken Olsen, founder of Digital Equipment Corporation, died Sunday. Unlike many famous people, his obituary emphasized his successes rather than his mistakes.

And certainly the accolades were well deserved. DEC invented the minicomputer and with it an entire segment of the computer industry, one that propelled it to become the second most computer company in the world — more dominant than anything the British, Germans, Japanese (and even the French) could throw at it. Some say DEC was the first successful VC-backed computer startup.

For growing his company from 0-$8 billion in revenue in three decades, 25 years ago Olsen was dubbed “America’s Most Successful Entrepreneur” by Fortune magazine. He was greatly admired by the smart people who once worked for him and his once-great company, including Microsoft’s Gordon Bell (the inventor of Windows NT), Dan Kusnetzky and Robert Mitchell. A Boston radio station interviewed the author of his 1988 biography.

Still, Olsen made two great mistakes, which is why he was eventually forced out from DEC. Unlike Steve Jobs, was no second act, neither for Olsen nor for DEC, which was later purchased at a firesale price.

The first was ignoring the PC. He had democratized the computer by making $500k (later $100k) workgroup computers, but didn’t see how the toy PCs could ever replace it. I can’t blame him — I spent 1979-1986 as a DEC ISV and it took me several years to take PCs seriously, although I eventually quit my secure job to become a self-taught Macintosh programming expert.

More than a decade later — in his 1997 treatise on disruptive innovation — Clay Christensen argued that DEC couldn’t compete in PCs because the PC scale, distribution and cost structure were incompatible with large computer business.

Maybe that was true, but I think DEC and Olsen had a more fundamental problem. In a 1988 Smithsonian interview, Olsen still didn’t get it:

Q: When the personal computer came, truly to be on their desks at home, at work, how did the advent of the microcomputer effect your business? And how did you see it and how did you respond to it?

A: … We saw in the early 70's that it was going to be easy for people to make computers. The type of computers, we had made more powerful than this one, were going to be able to be made by anybody very simply and very cheaply. … The PC itself was a component to the network. We made some PC's designed to be part of the networking but the general PC market was not for us. There were too many people in it and it turned out to be true. At one time I think there was 500 or 700 people making PC's. Anybody could build them. You could build them in your basement. That was not for us.

Q: Was there doubt about that decision? Or debate about that decision?

A: No, because you see our goals were clear and when anybody can do it and there's nothing particularly unique that we can contribute, it's clear it's not for us. Now we had PC's demonstrated here long, probably long before anybody else did. Individually people would make them. But we very formally decided that was not what we were going to do. It would basically be a very good decision.

DEC was late to the PC, but still earlier than Michael Dell. For years, it could have bought Compaq, but instead in 1998 Compaq bought DEC (and was in turn bought by HP in 2002).

But the second-order problem was that Olsen and DEC never understood how to do semi-open strategies. It made piles of money in the 1980s from its VAX/VMS architecture, as the only minicomputer maker with decent software. Then Unix came along, commoditizing system software and allowing any hardware company to sell its computers to the DoD and other large customers.

DEC responded by rebranding its proprietary OS “OpenVMS” — a marketing oxymoron if there ever was one. In the meantime, Scott McNealy enjoyed a 20-year run at the semi-open, semi-proprietary Sun Microsystems, which produced enterprise technology that was simpler than DEC’s but better suited to customer expectations of increasing openness.

As has often been noted, successful firms, entrepreneurs and CEOs are often prone to hubris. Past success brings feelings of omniscience or invulnerability — or at least a belief the old ways will always work.

In this century, Apple, Google and IBM have all done a good job of executing semi-open strategies. Like DEC, Microsoft delayed too long in opening up. Fortunately for Microsoft, its core business is declining far slower than minicomputers 20 years ago, so it still has a chance to pull things out.

Open platforms and semi-open standards

For unexplained strategic reasons, last month Google said it didn’t want the semi-open H.264 video codec supported in its Chrome browser, but was favoring its semi-open WebM codec instead. This meant that the most popular HTML5 video format would not be available for Chrome users.

Not available, that is, until the intervention of an unlikely savior. Today Microsoft announced that it is supporting H.264 on the three main Windows browsers: its own IE9, and via plugins for Chrome and Firefox. The latter two make use of the extensible browser platforms that their respective open source sponsor created to encourage third party support (albeit not originally intended to help Microsoft.).

(Apple remains firmly committed to H.264 and HTML5 on both Mac OS and iPhone OS, as part of its pointed rejection of Adobe’s Flash.)

As a Mac guy, I rarely agree with Microsoft on standards battles, but I think they’re dead right on several issues.

Here are a few excerpts:

A Web without video would be a dull Web and consumers, developers and businesses want video on the Web to just work. As an industry we know this and have, until recently, been on a path to make this a reality with HTML5 by integrating video into Web pages more natively using H.264.
…
We’ve been clear from the first public demonstration of IE9 that the community deserves a reliable platform for delivering video as part of the modern Web.
…

• IE9 will play HTML5 video in the H.264 format. Why H.264? It is a high-quality and widely-used video format that serves the Web very well today. We describe many of those reasons in blog posts here, here, and here.
• Any browser running on Windows can play H.264 video via the built-in Windows APIs that support the format. Our point of view here is that Windows customers should be able to play mainstream video on the Web. …

Although predictably snarky (as it is about all things Microsoft), The Register noted the significance of Google’s action and Microsoft’s response:

H.264 is the mostly widely used video-playback codec on the web, but Google said in January that it was removing support for H.264 from future versions of Chrome.

Google said its resources would now be directed towards "completely open codec technologies," as the giant's goal is to enable "open innovation" on the internet. H.264 was built by Apple, Microsoft, and others, and is licensed by MPEG LA.

Future versions of Chrome will support only the royalty-free WebM codec that was owned and open sourced by Google last year, and the Ogg Theora codec.

As someone who’s been studying standards wars for more than 15 years, I think the Microsoft people are exactly right. The correct answer for web standards is choice and competition — just as we have choice and competition for cars, TVs, laptops, tablets and smartphones.

Accessing web pages is not like playing back 8-track tapes: it’s easy for a modern computer (and perhaps even a modern tablet or phone) to support multiple browsers.

I have four browsers installed on my MacBook Pro: Safari, Camino, Firefox and Chrome. Mainly I use them because I want to group a different set of pages for different windows, but sometimes I find that printing or browsing works better on one that the other.

Whatever its motives, Google attacking H.264 by banning it from its browser platform is the same idea as Microsoft trying to kill Java by discouraging its availability on Windows. It’s up to vendors to make their case to customers — both content providers and content consumers. Eventually the formats will shake out, but competition will force the codec providers to offer the best price and performance they can.

Google's war on semi-open standards

Google stirred up a controversy this week with its decision dumping H.264 video codec support from its Chrome browser in favor of Flash and its own WebM (VP8).

This clearly is good for Adobe’s Flash, and bad for efforts to build a Flash-free HTML5 Internet that was (until this week) a joint effort of Microsoft, Apple and Google.

The claim that Google is motivated by openness is quite hollow. While technically a Windows browser doesn’t need Google’s help to distribute a free Flash player, Google has been very pro-Flash in its efforts to help Android overtake the iPhone.

Also, even though royalty bearing, H.264 is an open industry standard, whereas Flash and VP8 are not. Flash has only one proprietary implementation.

Still, some speculate that argument one reason is the H.264 business model, specifically that Google doesn’t like the H.264 royalties charged by MPEG LA. Here is what Google’s revised justification said Friday:

We acknowledge that H.264 has broader support in the publisher, developer, and hardware community today (though support across the ecosystem for WebM is growing rapidly). However, as stated above, there will not be agreement to make it the baseline in the HTML video standard due to its licensing requirements. To use and distribute H.264, browser and OS vendors, hardware manufacturers, and publishers who charge for content must pay significant royalties—with no guarantee the fees won’t increase in the future. To companies like Google, the license fees may not be material, but to the next great video startup and those in emerging markets these fees stifle innovation.

The idea that Google’s latest push will cause VP8 to pass H.264 is fanciful at best: it will take more than support from the #3 browser to cause the rest of the industry to shift from H.264. If anything, Google’s efforts fragment and thus undercut any efforts to establish an open alternative to Flash.

One theory is that Google wants to ditch H.264 support from YouTube (which, if true, would send iPhone users away from YouTube — good for Android, bad for YouTube.) The theory that Google hates H.264 royalties doesn’t hold water according to an analysis by Ed Bott of ZDNet, because even the worst case cost is not material for a $29 billion/year company.

Clearly there is more to this strategy than meets the eye. A company that aspires to be the (unregulated) benevolent dictator of the Internet would be more transparent about its motivations — perhaps something the next CEO will be better at.

But for now, the only good explanation I’ve found is at the comic strip “Joy of Tech,” which argues that it’s part of a cynical Machiavellian strategy by the “do no evil” crowd to retaliate against Apple and generate controversy.

E-book adoption barrier

E-Book readers (and to some degree tablets) are locked in a chicken & egg standoff with e-book content when it comes to user adoption: no one wants to buy books in a format that doesn’t work on the reader or a reader that can’t read the content they want.

Amazon’s solution is that you can read their proprietary format on Kindle, computers, some smartphones but not their competitors’ e-readers. Apple and B&N have the same approach, except they also support ePub.

A worker asked me last night (at a bar) what book format he can buy that will be readable 20 years from now. I told him ePub, which might actually be true. Certainly ePub is like the MP3 format of digital books — when it’s DRM-free everyone can read it and thus the least common denominator of e-books. (Amazon doesn’t read it but obviously could if they weren’t concerned about undercutting their proprietary format.)

However, the iPod/iPad MP3/ePub analogy breaks down pretty quickly, as Forbes blogger Chunka Mai points out:

I’d like to have an e-reader that would let me read the paper books on my bookshelves, plus the ones that have been consigned to assorted stacks and (gulp) boxes as my kids’ books crowd mine out. …

This is important because much of my reading is spent on books I already own, not just new purchases. Have you, for example, ever stumbled across an old favorite and found yourself immediately consumed? Or rediscovered a book that you bought and never got around to reading? Have you gone searching through the stacks for that reference that suddenly became timely? Those are the kinds of experiences that I want my e-reader to support.

In concept, I want to make the same transition as I did from CDs to digital music. Once I ripped the CDs that I owned into iTunes (thank you, gracenote, for filling in the track names), I packed away the CDs and the CD player and never looked back.

This is a flaw in the adoption model that (AFAIK) no one is pointing out. The MP3 caught on explosively because it provider a graceful path from the CD installed base.

In my case, about 10 songs are DRM-infested AAC from iTunes, and perhaps 100 DRM-free from Amazon. The rest are DRM-free version of CDs, including CDs I bought in 2008, 2009 and 2010.

So MP3 players were useful immediately, long before consumers made a large financial investment in electronic-only content. It’s not like the record companies wanted to make this easy: I’m sure they were hoping that I’d repurchase all my music again, just as I repurchased about 20% of my cassettes as CDs (and then abandoned the rest).

Mai also wants an open transfer of annotations and other content around the content:

These are, of course, not original cravings. They fit the vision famously laid out by Vannevar Bush in a 1945 Atlantic Monthly article describing his Memex system. They are fed by the aspirations that underlie much of the development of the World Wide Web.

Again, this is an angle not covered by others. I looked up this bio, noted that it included yet another book about dot-com success and also that truly inspirational book, Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years.

Mai offers an entertaining (if somewhat preposterous) way out of his dilemma:

Amazon is perhaps best-positioned to pull off what I want. I’ve been buying books there since 1997 and, as is the case for all their customers, Amazon has a detailed history of every book I’ve bought. This solves the question of whether I already own a book. If Jeff Bezos offered me the chance to upgrade to digital library with even just those books, he’d have me locked up in the Kindle’s proprietary format for life.

This assumes that publishers will let Amazon re-license the book on reasonable terms; Apple charged 30% to upgrade to DRM-free songs, presumably with most of that going to the record companies.

This also assumes that the publishers are stupid enough to slit their own throats. (Who knows, it could happen). If Amazon upgrades its print customers to its proprietary format, Mai and millions of other customers will be irrevocably locked into the company and its format. Pretty soon, the publishers will have only one distribution channel and a monopsony buyer who dictates the margin split with the authors and editors.

Absent such a clever solution, e-book adoption is going to be slow and gradual. And all the cute TV ads in the world won’t be enough to convince buyers that they should cast their lot perpetually with Amazon and its locked format. (If/when Amazon gets out of readers and allows others to read the format, it could be a completely different story.)

Google: the sometimes honest broker

The Wednesday papers have an interesting juxtaposition of two stories: bad Google and good Google.

The bad Google is that the EU (is finally) going after Google with an anti-trust complaint. After openly seeking Total World Domination for years, bad Google will enjoy the same sort of proctological exam that Microsoft once did. For those that watched the US and EU futilely attempt to stop Redmond’s bid for Total World Domination, two issues seem like déjà vu all over again.

First is the issue of tying. As the AP notes, yes we expect YouTube to show up first in Google searches, but its maps? Its finance? In a 2007 YouTube video, then-Google search executive Marissa Mayer noted that Google favored its own finance site when searches previously listed Yahoo first. Meanwhile, The Register details the complaints of the British firm Foundem and how it fell to the back of Google’s rankings after a 2006 algorithm shift.

The other is that Google’s ranking process is notably opaque — and the company intends to keep its algorithms a trade secret — which means that whether or not it’s fair, no one can say for sure. (Shades of Microsoft’s secret APIs that were revealed long after 1-2-3 and WordPerfect were wiped out while Novelware had entered its terminal glidepath.)

That’s bad Google, and the accusations (and rationalizations) seem no different than any other quasi-monopolist. Despite its activist nature, the current administration is certain to go easier on the US firm than the EU will — just as happened under the last two presidents.

The good Google is — according to the WSJ — going after Amazon and other lesser proprietary publishers (NB: Apple, B&N) to provide a truly open document file format. If that’s not enough, the new Google Editions will help brick & mortar retailers compete with both Amazon & B&N by setting up their own shops. (Presumably, this is much as Amazon zShops helped home-based resellers bypass eBay).

E-books are not going anywhere until there is the inevitable single universal format, available from all resellers and supported by all hardware. I suppose we could temporarily support two formats (cf. VHS and Beta, 8-track and cassette, or RCA vs. CBS in vinyl), but in this case it will be the market-leading proprietary AZW being challenged by the open format where (as is customary) everyone gangs up on Amazon.

Google can and will be open on books precisely because it is a monopolist elsewhere in the food chain. Its monopoly rents from search allow it to be indifferent as to book content and reader business models, because it knows it will make money searching for this content no matter who sells it. (Just as Intel was indifferent as to how the Internet grew as long as people used Intel-equipped PCs as clients.)

For years Google (out of copyright) books have been available both in PDF and (for selected texts) the EPUB open format. In it latest effort, Google seems to be winning the cooperation of (once suspicious) publishers and authors to sell content in an open format.

A key question is when Google’s strategy will attract the enemy-of-my-enemy allies against Amazon. Right now Apple dominates full-featured tablets with the iPad (the way Amazon dominates single-purpose e-readers with the Kindle), suggesting that it will be in no hurry to join Google’s parade — particularly since they are rivals in so many other areas.

On the other hand, the iPad business model makes money selling hardware with negligible ebook sales — and so Apple has little to lose by switching formats. Meanwhile, B&N is more interested in selling books in its store rather than nook hardware — so will it try to become the leader of open book content or continue to imitate Amazon’s proprietary book strategy?

Tablet Wars (1): media and media formats

Over the weekend, I became the first kid on my block (and in my office) to own a nookColor. Even a few days have helped me understand and appreciate the form factor and its future; this is the first of several postings on the future of tablets.

I’m a true believer, and I think Apple has it almost right. For that matter, two decades ago John Sculley almost had it right. The tablet is not a computer for typing, it’s a media device for consuming three things:

• websites and the limitless free content of the WWW
• professional, paid media — replacing the dead tree versions of books, magazines and newspapers
• video

At a reasonable size, weight and price, the tablets will make paper newspapers and magazines virtually disappear in less than a decade. If the price were right, my entire household would switch tomorrow.

One of the big problems, however, is open data formats. The world has become used to the open Internet and there’s no turning back. We also have MP3 (or AAC) files and MPEG4 streams that are also available on all platforms and devices.

Books and book DRM are only a small part of the problem. Yes, everyone but Amazon has agreed upon ePub with encryption (for now Adobe’s, in the long run probably an open standard.) Amazon hopes to make its proprietary format the world standard — even to the point of running TV ads arguing that any client device can read AZW files.

In the long run Amazon’s efforts are doomed, just as Apple’s proprietary FairPlay encryption was doomed. (For that matter, book encryption is as certain to be broken as DVD encryption was, but since the encryption is all in software, the encryptors may be able to occasionally pull ahead of the decryptors).

Today, the vertically integrated bookstores have ridiculous margins due to their lock-in and lack of a resale/remainder market. For example, a hardback Christopher Buckley novel remaindered at $6 was for sale at the Nook store for $10. For a 67% premium, consumers get no distribution, no printing, no inventory cost — and no option to resell or donate the used book.

Once we have open formats on e-books, then consumers will have choice, competition and (as is natural in a free market) distribution will again become a commodity. The price wars for music downloads (cf. iTunes vs. Amazon) and the alternate business models (cf. Rhapsody) will increase efficiency, reduce cost and fuel adoption for the printed word.

But another key content question is magazines: color magazine were one of the nominal reasons for the the NookColor going with power-hungry LCD over the e-Ink of its little sibling and the Amazon Kindle. They were also a great hope for the iPad launch.

The problem is that there’s neither a technical or business solution for tablet-based magazines and other color-heavy news publications. Each platform requires its own custom formatting. Also, as the former designer of NYTimes.com notes, magazine art directors have also gotten carried away with size and features in a slavish attempt to replicate the paper version. There is hope for a common technology format, using Adobe’s tools, to allow creating digital magazines for all the major platforms.

Most of all, there’s the problem of price. Barnes & Noble offers 67 magazines and 24 newspapers. A few are reasonably priced, like National Geographic or a variety of Hearst publications for $2/month.

However, conspicuously missing are the major business magazines: Business Week, Economist, Forbes and Fortune. I was getting ready to buy an electronic subscription to Business Week, but it isn’t available. The three major financial newspapers are available, at a steep price: $15/month for the WSJ and FT, and $11/month for Barron’s. (Not to be outdone, the LA Times, USA Today and NY Times are holding out for $10, $12 and $20/month. Not gonna happen)

Today, we have closed formats, no competition and exorbitant pricing. If it stays that way, paid news on tablets will never catch on. But I think commoditization and competition are inevitable, just as it was inevitable that Disney had to sell DVDs in Southeast Asia for $2 instead of $20.

Then there’s tablet video, fueling the shift away from cable TV and inextricably linked the problem of monetizing Internet video. This is already happening on PCs, and the 7" WiFi-connected tablet is a far more credible replacement for a TV than a 3" smartphone on a 3G network (with a limited-capacity data plan.)

Another loose end is the library. We need a common format before libraries will lend electronic content. We also need cooperation from publishers, which may be delayed either by their greed or (somewhat) legitimate concerns about piracy. I talked to a restaurant manager Tuesday who wanted to buy a Kindle or Nook as a Xmas gift for her daughter: the problem is, her daughter mostly reads library book, and there’s no way either one of them can afford to buy books at Amazon’s (or B&N’s) ridiculous prices to fuel her voracious reading appetite.

Finally, there’s the issue of family pricing. Cable TV, newspapers, magazines and record labels historically provided content for an entire family — just as wired phones once did. Do publishers and media companies expect to sell multiple copies to each household? I know they hope to do so, but it seems as though some form of family pricing is necessary, just as Apple learned to offer MP3 sharing for the entire house across multiple PCs, iPods or cellphones.

Opener than thou

Like many analysts, I thought one of the most striking things about Apple’s earnings call Monday was how much time Steve Jobs spent criticizing Google, particularly on openness. The frenemy of a year ago now seems to have become a rivalry every bit as bitter as Microsoft was during the early 90s. (Perhaps this is a side effect of vying for Total World Domination, much like the European Great Power rivalries from 1588-1918).

(I wasn’t able to capture the money quotes in realtime, but fortunately — as it does every quarter — Seeking Alpha has posted a complete transcript within a few hours. This is a great increase in financial openness over the way things were done 5-10 years ago.)

Here’s are some of the key points that Jobs (clearly) read from his prepared remarks:

Google loves to characterize Android as open, and iOS and iPhone as closed. We find this a bit disingenuous and clouding the real difference between our two approaches. …

In addition to Google's own app marketplace, Amazon, Verizon and Vodafone have all announced that they are creating their own app stores for Android. So there will be at least four app stores on Android, which customers must search among to find the app they want and developers will need to work with to distribute their apps and get paid. …

In reality, we think the open versus closed argument is just a smokescreen to try and hide the real issue, which is, what's best for the customer, fragmented versus integrated. We think Android is very, very fragmented and becoming more fragmented by the day. And as you know, Apple's strives for the integrated model so that the user isn't forced to be the systems integrator.

Some people called this a “rant,” but Jobs was far more factually accurate than the average political ad (admittedly a low bar) or even a typical comparative product TV ad (say from a cellphone carrier.)

Of course, there are important ways that Android is more open than the iPhone. It’s available from multiple hardware vendors and multiple carriers, not just from vertically integrated Apple. And the software is available royalty-free to other potential handset makers from the Open Handset Alliance, facilitating entry by even more vendors.

Other measures of openness are less important. Android founder (now Google mobile exec) Andy Rubin replied to Jobs with his first tweet about “the definition of open” being the ability to modify the source code. Like other Google execs, Rubin has a habit of using openness as a weapon against rivals and has been peddling the Android openness angle for some time.

While I haven’t met him, I’m guessing even a former geek like Rubin is too smart to drink too much of his own Kool-Aid.® Providing source code is only a small part of open source openness: as CNET’s Steven Shankland points out, being able to modify Android source code has little practical value to customers. In reality, Google determines the direction of the Android code base, and because letting go is hard to do, will likely to do so indefinitely.

Google’s openness glass is half-full, too. (Or, more charitably, it’s 2/3 full while Apple’s is only 3/8 full.) As Matt Asay so famously noted:

Google is a self-interested, profit-maximizing, semi-proprietary co that embraces openness when it suits its purposes

In fact, in one way Android is far less open than Apple. To get access to the customers of cellphone carriers, Google and its hardware partners have acceded to the closed demands of those carriers. Exhibit A is MG Siegler’s oft-remarked posting on TechCrunch last month:

Android Is As Open As The Clenched Fist I’d Like To Punch The Carriers With
MG Siegler
…
The thought of a truly open mobile operating system is very appealing. The problem is that in practice, that’s just simply not the reality of the situation. Maybe if Google had their way, the system would be truly open. But they don’t. Sadly, they have to deal with a very big roadblock: the carriers.

The result of this unfortunate situation is that the so-called open system is quickly revealing itself to be anything but. Further, we’re starting to see that in some cases the carriers may actually be able to exploit this “openness” to create a closed system that may leave you crying for Apple’s closed system — at least theirs looks good and behaves as expected.

The proliferation of carrier-controlled app stores (as mentioned by Jobs) is just one of the problems that ceding control to the carriers has created.

The reality was that breaking the control of the carriers with the iPhone was one of the greatest contributions Steve Jobs (or anyone) has made to ICT openness in the 21st century. Now perhaps someday we’ll get a choice of iPhone carriers here in the US, as other countries have had for years.

New Nook needs a niche

Barnes & Noble is hosting an event next Tuesday to introduce the next generation Nook e-reader, just in time for the Christmas shopping season.

Some Fool has already written off any hope of Barnes & Noble catching up. In a column entitled “Why Is Barnes & Noble Even Trying?” the owner of an iPad and a Kindle predicts utter failure:

B&N backed itself into a corner, and that's a dangerous place to be for a resources-strapped company fighting a hairy proxy battle for its independent survival.

What can it possibly announce come Tuesday? It's hard for B&N to take prices lower, and it's not as if it's a feature or two away from relevancy. Kindle is going to walk away with the dedicated reader space, while Apple and the flurry of tablets will take over the high-end and graphical textbook market.

He’s wrong: B&N may be down, but it’s not out.

In the e-reader space, the devices themselves are commodities. Yes, there are differences, yes some are cheaper or lighter or brighter. But the key differentiators — screen readability and battery life — depend on outside suppliers available to all. Instead, B&N needs to attack Amazon on one of the other dimensions of competition — the broader value proposition for the slate format.

What’s clear is that the e-readers are a different segment than the iPad, and for now there’s room for simpler, lighter, cheaper devices priced less than the Apple tablet — at least until people can get a $200, half-pound device that runs applications and surfs the web in color.

Amazon has a lead here over Sony, Barnes & Noble and others. It’s hard to tell how much of a lead, since Amazon won’t be honest about its actual sales and by controlling the distribution of Kindles, there’s no way for a third party like NPD or Gartner to measure this objectively.

Perhaps Amazon is hiding how small the book reader niche is. In January, CEO Jeff Bezos said “millions” of Kindles sold and Business Week speculated that the actual number was between 2-3 million. That’s 3 million Kindles in 27 months, versus 6.5 million iPads in 6 months.

Now that Steve Jobs says he’s not making a 7" iPad soon (if ever), this suggests there is a window of opportunity for the 7" readers. However, to win this market, B&N needs to challenge Amazon head-on.

For my own personal use, I’ve been evaluating the iPad, Nook, Kindle and pre-announced Android tablets (like that from Samsung). There are two ways that B&N can grow the low-end segment before Amazon does.

The first is that the e-readers are more than just for buying books. B&N has already offered other features such as browsing books in stores, and free Wi-Fi access at B&N stores. The E Ink display of the Kindle and Nook has its limitations — no color web pages — but B&N can do more to leverage the Android platform and other applications that users want for their mini-tablets.

Secondly, B&N needs to be the honest broker of open content formats. Amazon begrudgingly will support other formats, but if you look at it closely, its strategy is “AZW everywhere.” The company is more keen about promoting its proprietary file format and killing any efforts to establish a rival format, such as ePub. I don’t see Amazon relaxing this approach — any more than Apple wanted to eliminate the lock-in from the FairPlay DRM — unless or until it’s forced too. So if Amazon is a prisoner of its business model, this creates an opportunity for B&N.

Open standards are always a strategy of a follower or new entrant, not the market leader. The playbook is well-known and B&N needs to execute on it. The industry is impatiently awaiting an open format not controlled by any firm — presumably a DRM-infest ePub — but no one approach is yet challenging AZW.

Beyond books, the world has a lot of PDFs out there. I have 6 gigabytes of academic articles on my hard disk, and the average college student (at least in business) has a few dozen PDFs to read every semester: articles, syllabi, etc. The PDF is a semi-open standard, so B&N could get Adobe’s support if the Nook2 is well-suited for taking PDFs on the road. (And for obvious reasons, Adobe fears a tablet world controlled by Apple.)

There is the razor-and-razor blade cross-subsidy issue. Amazon wants to make money on its content and so pushes the Kindle price down in a way that makes it almost useless unless you pay for content. (This is reminiscent of its Seattle neighbor protecting videogame sales by making it hard to convert the XBox to be a Linux box.) Like Apple, B&N needs to make enough on the Nook to be profitable without proprietary content downloads — but perhaps using features like the in-store browsing to drive repeat traffic by Nook owners to its retail locations.

A final serious problem is identified by Tim Carmody of Wired: execution. Even the best ideas don’t count if they’re not executed well. This is doubly true against an entrenched rival with a 2-year headstart, if the main battle ground is the narrow window of the 2-month Christmas selling season. As Carmody notes, B&N couldn’t ramp up quickly enough last year:

Last October, Barnes & Noble announced the dual-screen, Android-powered Nook, promising preorder delivery and in-store sales before Christmas. The company wasn’t able to ramp up production to meet demand and had to fix immediate firmware bugs, delaying some preorders and pushing back in-store availability to February.

I’m sure B&N knows this too. My understanding is that the Nook was rushed to market in less than a year, creating a new organization from scratch. Now it has a Nook software development group in Palo Alto, in Silicon Valley just down the road from Stanford.

So this year the execution will definitely be better. Will it be enough for Barnes & Noble to gain on Amazon? Only if they outflank their proprietary rival with openness and features that Amazon is (so far) unwilling to offer.

Open standards at Stanford

Starting on Sept. 21, Ken Krechmer will be teaching a 6 week evening course in Stanford’s Continuing Studies program entitled “Interfaces: The Gateway to Controlling New Technology Markets” (Bus 209). To quote from the course description:

Interfaces are everywhere: user interfaces, software interfaces, protocols, and many more. Designing, developing, and deploying key interfaces are crucial to the long-term success of many products, product lines, and companies. And interface control is perhaps even more important. Controlling interfaces has reaped enormous rewards for some of the most successful companies on the planet, such as Intel, Microsoft, and Qualcomm.

These days, the web is full of market opportunities that might become long-term profit opportunities if key interfaces can be controlled. What will happen to social networking interfaces such as Google OpenSocial, Facebook Connect, and Twitter’s API over time? Or consider Apple APIs — several European governments are concerned that only Apple products can download music from Apple’s iTunes site.

This course analyzes the historic, legal, societal, political, and economic impact of controlled interfaces, and also suggests future directions: new ways of creating interfaces that sidestep the negative issues of control and yet still support commercial advantage.

Ken has spent much of his life focusing on standards. He was the founder/publisher Communications Standards Review, tracking the latest developments in communications standardization for many year until he was bought out by his arch-rival, Bell Labs. He also served on a variety of standards committees, including those sponsored by ITU, ETSI, TIA, IEEE and IETF.

I’ve known Ken since he sold CSR. He was the head of the program committee for the SIIT conference for many years, most recently at SIIT 2009 in Nagoya (and will be on the program committee for SIIT 2011 in Berlin in Sept 2011).

Today he is a lecturer at the U. Colorado telecommunications program. He is also doing research based on his deep knowledge of standards. I’m proud to say that his most quoted standards article — on the definition of open standards — was presented at a HICSS standards minitrack that I co-chaired and published in a special issue of JITSR that I co-edited.

Standards are obviously of crucial importance for the computers, communications and consumer electronics industries. In the US, it’s rare that standards are treated as a discipline or subject of academic instruction. When I teach my MBA tech strategy class, at most I get to spend one week on standards and can barely scratch the surface.

For those in the Bay Area who are interested in standards, it is hard to imagine a more in-depth education on their origins and implications.

Last gasp of Sun's semi-openness

Throughout its lifespan, Sun always had a schizophrenic view of open standards. Some of the things it did were very open, like giving away specs and/or implementations of things like RPC and NFS. Some of the things were traditional proprietary licensing models — akin to Microsoft or Intel — with SPARC chips, Solaris and the like.

On the other hand, Sun’s use of open source was always semi-open, as I noted in 2003 in my most oft-cited open source paper. In fact, Sonali Shah (now of U. Washington) coined the term “gated source” to refer to Sun’s use of open source-like approaches inside an extranet during the past 15 years or so.

While Sun eventually embraced open source, its opening always seemed like too little, too late. Certainly during its entire lifespan, Sun’s was at best semi-open — a combination of (as I put it in my 2003 paper) “partly open” and “opening parts”.

The crown jewels of Sun during its final decade was the Java programming language. One offhand estimate I heard was that Sun spent more than $1 billion in R&D on Java before it was gobbled up by Oracle, but that number seems low.

Now Oracle (owner of Sun’s IP if few of its former leaders) is suing Google for its independent implementation of Java in the Android platform. Since neither the IP nor the alleged infringement has changed since the first Android phone shipped two years ago, the lawsuit seems driven more by the change in management than a change in IP use.

Oracle is represented by David Boies, who once helped sue Microsoft for antitrust violations but more recently represented SCO in its suit against Linux and IBM.

The Merc sees it as a negotiating ploy:

While Redwood Shores-based Oracle did not specify the amount of damages it will seek, one analyst said the stakes could be high. But he also suggested the lawsuit may be a strategic move by Oracle in the course of a larger negotiating effort.

"At the end of the day, it could mean a fair amount of money," said Al Hilwa, a software industry expert at the IDC tech research firm. Based on other similar past disputes, he added, it's likely that the two companies have been negotiating quietly for months.

"Going public with a lawsuit may well be part of a strategy by Oracle for trying to force the issue," Hilwa said.

In contrast, ComputerWorld quotes a Gartner analyst who (correctly) suggests that Oracle will have a hard time making a case:

When Google developed Android it included a Java compatible technology called Dalvik with the phone OS. Dalvik was developed as a "clean room" version of Java, meaning Google built it from the ground up without using any Sun technology or intellectual property, said Gartner analyst Ken Dulaney.

"You can't just take a Java application from a Sun environment, where it's licensed, and run it on Android. You have to recompile it to Dalvik," Dulaney said.

The cleanroom process is almost 30 years old, used for hundreds of clones of the IBM PC, Adobe’s PostScript interpreter, and many other copryighted software technologies owned by litigious wealthy IT companies. When used properly, it is very effective — which is why Dell and HP are shipping more Wintel PCs than IBM, which dumped the business it created.

If Google used this process, Oracle faces a nearly impossible task of proving copyright infringement. If it didn’t — with all its brains and resources and lawyers and egos — then certainly it deserves to pay whatever a jury hands out in a courtroom.

In fact, Android does not have a complete Java implementation, but the Java language syntax with a different set of APIs that brought heartburn to Java programmers (and Sun).

I don’t know much about the Java patent portfolio, which is potentially a more seriously threat to Google since a cleanroom or independent invention is no defense for patent infringement.

I was curious to find no record of Sun asserting Java patents against other firms, at least openly. The only Java patent litigation I could find was a $92 million settlement in 2004 by Sun in favor of Kodak for Java infringing patents created by Wang Laboratories (and bought by Sun)

Certainly there have been at least limited Java clones, including HP’s MicroChai in 2001, which apparently shipped in a few HP devices.

So does Sun/Oracle have a weak case? Has it been using the patents behind the scenes to win royalties or eliminate competing Java implementations?

However, the fact that Sun has patents to assert over Java implementors shows that it always intended the Java platform to be semi-open, and that its abortive effort to make Java a truly open standard was never intended to give up control.

Andy wants you to buy his openness

On Tuesday, the Merc had a (very brief) Q&A with Android founder, now Google Mobile executive Andy Rubin.

I recommend the entire interview, but let me quote the most relevant passage to this blog:

Q: Since you started this effort, industry and government regulators have moved toward making the market much more open. Given that, is Google's Android effort still necessary?

A: I think so. It's a progression. We're at a moment in time right now, but the definition of openness is going to change over time.

What does openness mean? Is a platform that is open to outside programmers open? Is a platform that has an open content store open? Is a platform that's open source open? All those definitions are still in flux, I think.

So I don't think it's time to give up. I think it's time to double down.

I certainly agree with most of this — openness is ambiguous, with lots of definitions. However — like others — I reject the idea that “open” is a bright line, black or white — rather than shades of gray.

One of the shades of gray, of course, is whether openness in (say) hardware is more important than openness in (say) search engine choice.

Still, Rubin seems to have an element of realism (and perhaps self-awareness) absent from other Google exec pronouncements. I’m not quite as skeptical as Steve Jobs is about “do no evil” — but clearly Google (like other companies) is spending most of its time doing what’s good for Google.

Thus far in mobile, Google has used openness in its mobile platform as a club to gain influence or advantage over the various industry incumbents. To the degree to which the openness is genuine and accurately portrayed, Google certainly deserves credit both for giving people what they want and pressuring the rest of the industry to be more open.

Adobe strikes back

To respond to Steve Jobs’ official criticisms of Flash, Adobe CEO Shantanu Narayen granted an exclusive interview this afternoon to the Wall Street Journal, which promoted it via a blog and its News Hub online video. Note to iPhone owners: News Hub cannot be viewed without Adobe’s Flash.

While most of its responses fairly presented Adobe’s side, Narayen made two comments that bear response:

We are multi-platform.

Actually, Adobe wants the world’s web developers to write for a single platform — Adobe Flash — that is hosted on top of all the other major platforms.

Flash is an open specification.

That doesn’t make it an open platform — if there’s only one implementation, then the firm gains all the benefits of lock-in and economic rents of a proprietary standard (Adobe’s a little more open with PDF, where it supplied its technology for ISO 32000 standardization, through a process known for allowing firms to retain influence and control.)

So if Adobe’s idea of an open specification is one where everyone can implement what it decides, that’s even less open than an open source company that throws dual-license implementations over the wall while using “fishbowl development” processes that don’t allow for open governance and participation.

In his letter, Steve Jobs was reasonably accurate on this point:

Adobe’s Flash products are 100% proprietary. They are only available from Adobe, and Adobe has sole authority as to their future enhancement, pricing, etc. While Adobe’s Flash products are widely available, this does not mean they are open, since they are controlled entirely by Adobe and available only from Adobe. By almost any definition, Flash is a closed system.

Apple has many proprietary products too. Though the operating system for the iPhone, iPod and iPad is proprietary, we strongly believe that all standards pertaining to the web should be open. Rather than use Flash, Apple has adopted HTML5, CSS and JavaScript – all open standards. … HTML5 is completely open and controlled by a standards committee, of which Apple is a member.

Apple even creates open standards for the web. For example, Apple began with a small open source project and created WebKit, a complete open-source HTML5 rendering engine that is the heart of the Safari web browser used in all our products. WebKit has been widely adopted. Google uses it for Android’s browser, Palm uses it, Nokia uses it, and RIM (Blackberry) has announced they will use it too. Almost every smartphone web browser other than Microsoft’s uses WebKit. By making its WebKit technology open, Apple has set the standard for mobile web browsers.

Sharing an implementation provided under a non-viral license (as WebKit is) is today the most open form of platform available. Apple is rarely this open, but for WebKit they deserve credit for sharing code and control, just as IBM shared code and control with Eclipse.

Inevitability of e-book success?

Bloomberg ran a story Friday focusing on the adoption of e-books in college classrooms:

As Sony Corp.’s e-book devices vie with the Kindle to win over readers, the real showdown may come later: when a shift to electronic textbooks at schools threatens to eclipse the current market for the products.
…
Within five years, textbooks will be the biggest market for e-book devices, dwarfing sales to casual readers, predicts Sarah Epps, an analyst at Forrester Research Inc. in Cambridge, Massachusetts. Corning Inc., which is developing glass screens for e-readers, expects textbooks to fuel about 80 percent of demand for those components by 2019.

“Print will expire faster in the textbook world than in the trade book world,” Epps said. “The technical barriers will disappear and five years is enough for the content to catch up with demand. The potential is there.”
…
“The Millennials are very comfortable reading things online in a way their parents and grandparents are not,” said San Jose State University Professor Joel West, referring to the generation born in recent decades. “We will be seeing electronic textbooks become commonplace in the next 10 years.”

I said a lot of other things when interviewed about this a few months back:

• Amazon‘s achilles heel is the proprietary mobi format against everyone else’s e-pub, but if college students are using a book viewer for 4 years and renting books for one semester, this becomes almost a non-issue.
• Moving from selling dead tree books (with printing costs and inventory risk) to renting e-books will reduce the publishers’ costs dramatically. If publishers don’t share those savings with consumers — given the student and politician outcry about textbook prices — there will be hell to pay. I suspect, however, that most will play games with planned obsolescence in hopes of keeping their margins up.
• I doubt that e-book reader is a separate category over the long term. To me, it seems obvious that the e-reader will go the way of the pocket camera and the MP3 player as a dead-end stand-alone device.

The unfortunate thing for Amazon and its Kindle lead is that it’s much easier for other publishers to attract the relatively small list of best-selling college texts than it is to attract a full range of popular books.

On the other hand, I think the textbook market could allow Amazon an opportunity to exit the reader business — as I believe it inevitably will — and focus on its core competence of distribution (presumably at that point indifferent as to format). Under this scenario, rapid growth in the textbook market could very well force a disaggregation of the market into distributors and players.

So Sony and Apple (and perhaps Nokia and Dell) will be competing on the hardware side and Amazon/B&N competing on the distribution side. Colleges generally shy away from mandating a particular vendor for other hardware, so I think “buy an e-pub reader” is more likely to catch on with college syllabi than “buy a Kindle.”

Sharing in faux openness

The world's richest Internet property has landed America’s largest mobile phone carriers, after launching a year ago with the smallest of the major carriers.

The result of 18 months of negotiations, this presumably ends the feuding between the two over Google’s efforts to cajole, incent or mandate open networks in a mobile version of net neutrality.

But perhaps the two parties have a shared interested in using openness as a marketing slogan, some magic pixie dust over a non-open strategy.

As noted earlier, Google (and other dot-coms) want open networks (dumb pipes) as a way to cement their existing market positions. And Android has an association (Open Handset Alliance) of companies that want to catch the code Google is throwing over the wall, but not a fully open, shared governance open source community ala Eclipse.

As for Verizon Wireless, they’ve been claiming that their network is open, but there’s understandable skepticism for the operator that has proven the most controlling and difficult of the US carriers to work with.

Google won a major concession in that unlike AT&T, Verizon promised not to block Google Voice. However, this decision will provide no competitive advantage because (as was inevitable) AT&T announced Tuesday that it had decided to capitulate and (also) allow Google Voice.

However, open does not mean that all applications and libraries are treated the same. For example, the revenue split between Verizon and Google is unknown: some claim that Google offers a 30% split, while others claim that the Android Market deal is so generous that Verizon will never take the iPhone.

Presumably Verizon will stop denigrating handsets — its current ads attacking the iPhone basically say who cares about the handset, it’s the network that provides the value. Certainly Verizon’s decision to seek advanced handsets will increase competition in the US smartphone market: T-Mobile and Verizon with Android, AT&T with iPhone and Sprint with webOS.

Verizon promises the new deals is not exclusive, causing Forbes to term the relationship an “open marriage”:

During Tuesday's call, Verizon's Chief Marketing Officer John Stratton said the company intends to continue working with multiple handset partners and software companies. "We don't see expanding business opportunities with one company as taking opportunities away from another," he added.

I’m guessing that Google will someday let go and OHA will eventually become open.

Conversely, based on decades of Baby Bell DNA (held both by Cingular AT&T and Verizon) I doubt the operators are going to suddenly get very open on their own. However, there may be enough pressure from the new administration and new FCC majority (at least until the 2010 Congressional elections) that faux openness could very well be replaced by real openness before they’re done.

The AT&T and Verizon announcements are the first of a series of major announcements this week at the CTIA Wireless show in San Diego. (I hope to have some live postings on Thursday).

Update, Wed 11pm: Somehow I missed that last month Sprint announced an Android device from HTC, as I predicted back in April.

Sony loses, goes open

On Thursday Sony announced its electronic book readers will switch to using an open e-book standard promoted by several US publishers.

Sony thus demonstrates yet again the number one axiom of open standards: open standards are embraced by vendors that are not powerful enough to get their own proprietary standard adopted.

The ePub standard was developed by the Open eBook Forum (now International Digital Publishing Forum), which is trying to promote the adoption of electronic book sales through a common standard. The Association of American Publishers has thrown its weight behind the ePub standard — ironically via a letter stored in a proprietary file format on the IDPF website. (The website certainly is not of the standard one would expect from an international trade association.)

Not only has Sony given up on its e-book file format, but its DRM too. As the NYT reported:

Sony will also scrap its proprietary anticopying software in favor of technology from the software maker Adobe that restricts how often e-books can be shared or copied.

After the change, books bought from Sony’s online store will be readable not just on its own device but on the growing constellation of other readers that support ePub. Those include the Plastic Logic eReader, a thin device that has been in development for nearly a decade and is expected to go on sale early next year.

“There is going to be a proliferation of different reading devices, with different features and capabilities and prices for a different set of consumer requirements,” said Steve Haber, president of Sony’s digital reading unit. “If people are going to this e-book shopping mall, they are going to want to shop at all the stores, and not just be required to shop at one store.”

Of course, open standards and low switching costs mean (as some have hoped for) commoditization of reader devices and competition based on price — certainly not Sony’s preference.

As always, where you stand on proprietary standards depends on where you site. In the NYT telling, Amazon is the big bad proprietary vendor of e-books, and the publishers want to gang up to reduce its buyer power.

But with music downloads, Amazon was the leading challenger to the big bad proprietary dominant iTunes, and record labels wanted to do anything they could to help it gain market share and reduce Apple’s clout. This included abandoning their pro-DRM position to give Amazon a DRM-free advantage.

And then we have Sony, the onetime master of proprietary and semi-proprietary standards strategies (PlayStation, Memory Stick, Compact Cassette). Its biggest gamble and most recent success came with the multi-billion dollar gamble on getting Blu-ray established.

As with music downloads, Sony has concluded that it doesn’t have the market power to establish its own proprietary e-book format. Unlike IBM, I believe Sony’s nominal embrace of open standards is only tactical and not permanent.

Like Amazon, Apple, Microsoft and others, Sony believes that an open standard shared with rivals is the third best alternative, after establishing its own proprietary standard (Memory Stick) or being part of a consortium that controls patent rents for a semi-open standard (Blu-ray).

Hat tip for original story about Sony to Matt Asay via Twitter

Tweet if you want Microsoft standards compliance

Tweet http://fixoutlook.org/ if you believe in the value of email standards. As TechCrunch reports:

While it is pretty much the standard email client, Microsoft Outlook has long had problems rendering HTML correctly in emails. And the latest version, Outlook 2010, due sometime in the next several months, doesn’t look like it’s going to be any better — and it actually may be worse. And a lot of users aren’t happy about it at all.

A group of people apparently felt strongly enough to create a site called Outlook’s broken — Let’s fix it. The site is simple, it’s a constantly updating stream of users tweeting out their desire for Microsoft to fix this problem with Outlook.
…
Microsoft has responded, saying basically that Outlook isn’t broken and that, “There is no widely-recognized consensus in the industry about what subset of HTML is appropriate for use in e-mail for interoperability.”

Hmm, I don’t see these types of campaigns against any of the other email clients though. Expect this campaign to continue.

The website has examples of the Outlook 2000 and 2010 display for readers to compare. At the most recent count, this website (an effort of the email standards project) has attracted more than 22,000 supporters.

Delusions of openness

Howard Stringer of Sony claims a deathbed conversion to open standards. In his interview with Nikkei Electronics Asia last month, he was quoted as saying:

Customers will refuse to accept it unless the technology is open. Youth in particular really dislikes closed technologies, closed systems and the like. …

Sony hasn't taken open technology very seriously in the past. Its CONNECT music download service was a failure. It was based on OpenMG, a proprietary digital rights management (DRM) technology. At the time, we thought we would make more money that way than with open technology, because we could manage the customers and their downloads.

This approach, however, created a problem: customers couldn't download music from any Websites except those that contracted with Sony. If we had gone with open technology from the start, I think we probably would have beaten Apple Inc of the US.

There was a time when it made sense to divide the market with closed technology, and monopolize a divided market, but that's just not an effective strategy any more. In the Internet universe, there are millions of stars - millions of options that have been created through open technology.

I would agree that Sony was the epitome of a closed technology company, but otherwise the rest of the answer (including the factually inaccurate claims of Apple DRM) was just plain wrong. (Intentionally misleading or merely confused, I can’t tell).

(Let me suspend for now the whole question of what is an “open” standard — the subject of my 2006 book chapter in the Greenstein and Stango book. Suffice it to say some standards are more open than others, but few are fully open or fully closed.)

From where I sit, the higher water mark for open standards was about 15 years ago, when the dominance of open standards was clearcut. We had IETF standards for TCP/IP, SMTP and FTP (with W3C standards for the WWW) that were as open as any standard ever: available free on the Internet for all to use, royalty-free. We had 802.3 (with 10Base5, 10Base2 and 10Base-T) from the IEEE.

Today, the young people Stringer mentions spend hundreds of dollars to buy content for proprietary videogame platforms from Sony and others. They communicate over proprietary VoIP protocols from an eBay subsidiary on a PC with a proprietary OS (either one) running on a proprietary microprocessor.

If they should happen to have bought a Sony digital camera or camcorder, they will be used Sony’s proprietary (and royalty bearing) Memory Stick flash memory card and soon will be recording video in its proprietary AVCHD format.

Now they could buy a Blu-Ray player from any number of players, but a fraction of every player (and disc) purchase goes to Sony and it partners in the patent cartel. Worrying about the June 12 (claimed) digital transition, they then buy an HDTV with an estimated $23 going to patent holders.

Similarly, if they have a cellphone, it doesn’t matter whether it’s a GSM or WCDMA phone (using standards from ETSI/3GPP) or a cdmaOne/cdma2000 phone (using standards from Qualcomm/3GPP2) — with a 5+% royalty (before cross-licenses) going to IP holders.

In their 1999 book Information Rules, Carl Shapiro and Hal Varian noted that users will prefer open standards but buy proprietary ones if sellers make it worth their while (think of a “teaser” rate for lockin costs). Firms can lock in customers if they are careful not to get too greedy. Varian is now putting these ideas into practice as chief economist of Google.

So Stringer’s claims to the contrary, we are passing through an era of semi-open standards when firms prefer to support open standards over their rival’s proprietary standards, but much prefer to establish their own proprietary standards (think Memory Stick.) We’ve had semi-open standards for 20 years — think OpenVMS — and except for an occasional open source platform, I think semi-open will remain the norm. I’d be glad to fly to Tokyo to give a tutorial on the subject if anyone’s listening.

Academic victory for open standards

One of my major research (and blogging) interests has been on the open-ness of standards. A particular pet interest has been on semi-open standards — how firms decide which elements of openness to offer and which ones to block. (I’m also interested in how open standards relate to other aspects of innovation openness such as open source and open innovation).

A decade before I even knew there was an academic literature on standards, there were four academics cranking out the seminal work on the fundamental economic principles of standards creation and adoption — a literature known as network effects. Writing in two teams, journals like American Economic Review and Journal of Political Economy were filled with papers by Michael Katz and Carl Shapiro or Joseph Farrell and Garth Saloner. (Katz was also an FCC economist and Shapiro a Justice Dept. antitrust economist).

My dissertation is filled with references to these two themes, as well as to Information Rules, the HBS book Shapiro co-authored with Hal Varian.

One paper I did not fully appreciate until recently (because it appeared in a journal most libraries don’t carry) is a 1990 paper on open standards by Saloner. I am often proud of my chapter on open standards (in a 2006 book on the economics of standards), but it’s now clear that Saloner was the first to seriously consider openness in standards as an intentional tradeoff.

All of this is a long intro as to why I was intrigued by a Stanford press release issued Tuesday:

Economist Garth Saloner, a scholar of entrepreneurship and business strategy, will be the next dean of Stanford University's Graduate School of Business, President John Hennessy and Provost John Etchemendy announced today.

Saloner, 54, who joined the Stanford faculty in 1990, is the Jeffrey S. Skoll Professor of Electronic Commerce, Strategic Management and Economics, and a director of the Center for Entrepreneurial Studies at the Graduate School of Business. He will succeed Robert Joss, who is stepping down after 10 years as dean. Saloner's appointment is effective September 1, 2009.

In addition to his prodigious research, Saloner is credited with helping to lead Stanford’s particularly complex re-architecting of its MBA curriculum.

What I find particularly interesting is Saloner is one of the few people within GSB that seems to care that Silicon Valley can be found just outside the boundaries of “The Farm.” Rather than local problems of interest, most of the faculty of GSB are oriented towards an international disciplinary audience such as economics, sociology, psychology, or applied math. At Stanford, the greatest concentration of Silicon Valley-oriented business scholars are found in one department of the Engineering School.

Will Saloner’s appointment make the GSB (and its new Phil Knight Management Center) a new hotbed for the study of Silicon Valley entrepreneurship? Or will the institutional norms of the various fields drown out whatever preferences the dean and local alumni might have? Stay tuned.

References

Garth Saloner, “Economic issues in computer interface standardization,” Economics of Innovation and New Technology, v. 1, n. 1 (1990), pp. 135–156.

Ganging up on iTMS

Microsoft is running a new TV ad with “Certified Financial Planner” Wes Moss, promoting the $15/month Zune Pass as being cheaper than buying thousands of songs at $1/each from the iTunes Store.

As Ars Technica writes:

Moss compares $30,000 for iTunes to $15 for the Zune Pass. So where does Microsoft get the $30,000 number? Well, seeing as the 120GB iPod appears in the ad, I'm thinking the company is estimating each song at about 4MB, which really isn't much of an exaggeration. Of course, it's not exactly $15 versus $30,000. The $15 is a monthly fee, so you're likely going to be paying more if you plan on playing music for more than a month. That said, it would take you 166 years and 8 months to shell out $30,000 for the Zune Pass; many of us won't be living that long.

As of November 2008, the Zune Pass allows its users to keep any 10 songs per month. In other words, if you wanted 30,000 songs for keeps, just like the iTunes Store, you would have to wait 250 years. The cost would be a whopping $45,000, however. In other words, it's only really worth it if you're OK with the fact that you have to keep paying the monthly fee to keep access to the songs that you don't yet own. Otherwise, iTunes (or any other à la carte model) is the way to go.

Good Morning Silicon Valley (the Merc) observes:

The commercial doesn’t even mention the Zune itself; a non-techie viewer could be forgiven for thinking that the Zune Pass was an alternative service for iPod users. But going head to head on hardware probably isn’t the best play for the Zune anyway. The first step is to try to introduce doubt about committing to the Apple ecosystem by arguing the benefits of subscription over ownership. It’s a legitimate argument, depending on your needs, but one that hasn’t helped other subscription services like Real’s Rhapsody slow down the iTunes juggernaut. There’s no particular reason to think that Microsoft’s attempt to make the case will fare any better.

Whether I agree with their conclusions or slant, Microsoft is making legitimate comparisons between its offerings and Apple’s. That’s competition, and if it starts to have an impact, Apple will have to stop acting like a music monopolist.

What I found remarkable is that the Beast of Redmond is being more honest in its attack on Apple than is Sony.

In an interview posted this month by Nikkei Electronics Asia, Sony CEO Howard Stringer has suddenly become a convert to open standards. Stringer laments the failure of Sony’s late proprietary efforts to control consumer music libraries:

Q: In your keynote speech at the 2009 International Consumer Electronics Show (CES), you said that open technology is important today. Is that feeling based on the needs of customers?

A: That's right. Customers will refuse to accept it unless the technology is open. Youth in particular really dislikes closed technologies, closed systems and the like. …

Sony hasn't taken open technology very seriously in the past. Its CONNECT music download service was a failure. It was based on OpenMG, a proprietary digital rights management (DRM) technology. At the time, we thought we would make more money that way than with open technology, because we could manage the customers and their downloads.

This approach, however, created a problem: customers couldn't download music from any Websites except those that contracted with Sony. If we had gone with open technology from the start, I think we probably would have beaten Apple Inc of the US.

There was a time when it made sense to divide the market with closed technology, and monopolize a divided market, but that's just not an effective strategy any more. In the Internet universe, there are millions of stars - millions of options that have been created through open technology.

Every CEO is entitled to his woulda, coulda, shouldas. However, after years of being Sony going its own way on proprietary standards, I will believe Stringer’s deathbed conversion to open standards when the Memory Stick in every Sony camera is replaced by the de facto industry standard, Secure Digital.

However, Stringer was flat out lying seriously misinformed in his next paragraph:

Apple's iTunes Store uses its own proprietary DRM called FairPlay. I think this gives Sony a chance to provide something that Apple can't. And we have to move ahead and grab that opportunity before Apple begins to provide support for other hardware and blocks us out.

Apple announced four months ago that it was going DRM-free. Today, the FAQs on the iTunes Store are very clear:

iTunes Plus Frequently Asked Questions

What is iTunes Plus?
Now all songs on the iTunes Store are iTunes Plus songs. That means every song is available in our highest-quality 256 kbps AAC encoding (twice the former bit rate of 128 kbps), making for a sound that's virtually distinguishable from the original recordings. Plus, All music on iTunes is available without digital rights management (DRM). There are no burn limits and iTunes Plus music will play on all iPods, Mac or Windows computers, Apple TVs and many other digital music players.
…
Can I still buy music encoded at 128 Kbps with Digital Rights Management (DRM)?
All songs on the Store are now available in iTunes Plus, so tracks are no longer available as 128 kbps and with DRM.

Steve Ballmer, the honest competitor? I guess that goes with him being the nice one too.

Graphic credit: Joy of Tech.