Violate WTO rules, forfeit your IP?

With lousy Internet access over Christmas vacation, it was nice to have an RSS reader that automatically downloads stories for offline reading. One of the stories I found intriguing was on the Madisonian blog, about an odd case of IP retaliation in world trade.

The story starts with US efforts to prevents its residents from gambling using unregulated Internet casinos. (While I’d heard about the controversy, I didn’t realize that it was big enough to have a dedicated MSNBC news page).

In May 2003, offshore gambling interests filed a complaint at the World Trade Organization saying that the US ban on Internet gambling is an unfair trade practice. In November 2004, Antigua and Barbuda won their case.

If I understand the reasoning, because the US allows off-track betting within the US, the WTO regulators think it should allow offshore betting. Presumably the US could comply by imposing regulations for remote wagering (such as permit fees, bonding and background investigations) that could be applied equally to US and foreign remote betting organizations, but thus far the Bush administration has not made WTO conformance a priority. (The US still holds that its ban on interstate gambling is being applied fairly to international gambling).

The reason? Perhaps it was because there were real questions about the ability of the small countries to enforce the sanctions. So instead, Antigua (and its gambling industry) sought to collect the damages in other ways.

A week ago, the WTO arbitrator ruled (original bureaucratese here) that Antigua could violate US copyrights to the tune of $21 million every year. The novel precedent was successfully pushed by a clever Texas lawyer representing the gambling interests.

The $21 million represents a compromise damage amount between the US estimate of $0.5 million and the Antigua-Barbuda claim of $3.44 billion. Still, the decision sets a terrible precedent.

I realize that mutual hostage taking is the norm in international disputes — e.g., if Iranians seize US assets then the US government can seize Iranian assets. But having the WTO (which nominally is required to protect IP rights) sanction IP theft creates untold opportunities for mischief by countries that like to ignore IP rights already. There's also the question (as in many international sanctions) of punishing companies not party to the dispute.

Blogger Corry Doctorow argues that the US — which pushed hard to create the WTO — has been “hoisted on its own petard.” True enough. Since the US is pursuing an important public policy goal (reduced gambling) — even if through an imperfect manner — I wonder whether the ruling will fuel further U.S. cynicism towards subjecting domestic policies to review by international institutions.

Hollywood embracing information goods

Friday brought three major announcements in the long-promised transformation of entertainment products from physical discs to downloadable information goods.

The biggest announcement was that Warner Music is providing its catalog to the Amazon download store in the only format that it supports, which is unprotected MP3. With about 12% market share, Warner is the smallest and weakest of the Big Four recording companies and was taken private last spring in a $4.8 billion LBO after seven years of failing to get regulatory approval for a merger with the next smallest company, EMI (which holds the dominant position in music publishing).

EMI had embraced DRM-free publishing, helping Apple launch its iTunes Plus format in May — in effect, supporting Steve Jobs’ February call for the record industry to let it sell consumers the DRM-free music that they want. On the other hand, Warner had aggressively rejected this view. As reported by Jon Healey on the LA Times “Bit Player” blog, Seagrams liquor heir and current Warner Music CEO Edgar Bronfman Jr. angrily rejected Jobs’ suggestion to go DRM free:

The notion that music does not deserve the same protection as software, film, video games or other intellectual property, simply because there is an unprotected legacy product in the physical world, is completely without logic or merit.

On Friday, a Warner SVP said:

We believe that giving consumers the assurance that the music they purchase can be played on any device they own will only encourage more sales of music.

Of course, the decision by Warner to offer DRM-free music at Amazon but not the iTunes Store was seen as an effort to punish Jobs for asserting too much control over music pricing and distribution through its market leading store. Warner follows Universal, which declared war on Apple in August over pricing of NBC TV shows. While EMI is cooperating with both, only Sony BMG is refusing to sell its content without DRM.

This move helps cement the position of Amazon Unbox as iTunes’ main rival, less than six months after it was announced. However, it still has half the selection of the iTunes store and a fraction of the downloads to date.

However, competition from Unbox is already affecting Apple. I hadn’t noticed that in response to Amazon, in October Apple quietly dropped the premium it was charging for DRM-free content: Apple now charges 99¢/track for 256K AAC DRM-free music from EMI (and a few indies), and the same price for 128K AAC “FairPlay” encrypted songs from all the others. Because AAC is more compact (to my ear, a 128K AAC file is equivalent to a 160K MP3 file), Apple’s 256K AAC songs should be slightly higher quality than Amazon’s 256K MP3 files, but I can’t hear a difference past 192K so few people will probably care.

Warner using its market power to win favorable terms from distributors is just classic IO economics. However, Wired blogger Charlie Sorrel criticized Warner for not letting others sell DRM-free music:

Now all you need to do is realize that you can sell your music through many different outlets and make more money. Playing resellers off against each other has one pretty transparent purpose: Greedy price fixing.

If "[c]onsumers want flexibility" and you "want them to have that flexibility" as you say, why not sell via iTunes, or eMusic, or any number of stores wanting to push protection free music?

Sorrell, Healey and others expect that the end of DRM will encourage widespread adoption, as well as innovation and experimentation by music producers and distributors. Of course, there is also the likelihood that no post-Napster business model will be as lucrative as the peak of the 1990s, which means that Hollywood still has more painful consolidation and retrenchment ahead of it. (Or perhaps it will get government to tax hardware so that it receives a guaranteed revenue stream).

Friday’s news was also filled with rumors that Fox (and others) will be renting movies via Apple’s iTunes Store; naturally, a time-limited rental will be enforced by DRM. (There are also associated rumors that Disney will offer rentals, and that Apple will start licensing its FairPlay DRM, which it has long been pressured to do). Since the formal announcement is expected at Macworld Expo on January 14, I’ll just wait and see what rabbits Jobs pulls from his hat.

The final piece of download news was the most interesting to me: Wal-Mart’s admission that it had pulled the plug on its video download site a week earlier, leaving stranded all those who’d purchased movies in its format. Wal-Mart enjoyed key advantages: it was the first to get all six major Hollywood studios on board, and is the nation’s largest seller of DVDs.

This marks the second retreat by Wal-Mart from online entertainment — two years after it gave up on competing with Netflix in the movie rental business. Analysts were divided as to whether this marked a rejection of Wal-Mart’s particular approach (with Microsoft’s iPod-incompatible DRM) or the inferior user experience provided by today’s downloadable videos.

Back when I began teaching in 1998, clicks-and-mortar (e.g. BN.com) was seen to be superior to pure e-commerce (Amazon) and pure bricks-and-mortar (Borders). Today it’s clear that Wal-Mart’s advantages lie with physical distribution (and perhaps brand loyalty with its price-sensitive, downscale demographic) that doesn’t translate well to digital downloads of information goods by early adopters.

Internet analyst Henry Blodget trumpeted that Wal-Mart’s failure proved his point that general merchandisers are not doing well against entertainment-focused companies:

One e-commerce refrain we’ve heard since 1995 is that once the established real-world brand get their act together, the online pure-plays will be toast. We’re still waiting.

So what happens when Wal-Mart (or Target or Sears) eventually buys Amazon? Will they muck it up?

R.I.P., Netscape

On Friday, AOL announced that it’s pulled the plug on Netscape browser development, and that the browser will be officially unsupported as of Feb. 1. Users are being told to switch to Firefox.

(As a side note, I heard the news during the hourly CBS Radio national news broadcast. How often does a piece of of software make radio news?)

Back in the dot-com era (1999), AOL Time Warner bought Netscape at an inflated price ($9 billion) with its inflated stock as currency. But it was all downhill from there, with layoffs followed by layoffs and plummeting market share. AOL has toyed with reviving Netscape in the past, but Netscape never really recovered from losing the browser wars to Internet Explorer.

Charles Ferguson’s book did a great job chronicling what went wrong inside Netscape, with lousy software engineering and a lack of adult supervision being major contributing factors.

Fortunately, in 1998 AOL released Netscape code as open source (creating Mozilla.org). This marked perhaps the first major corporate-sponsored open source development project. (Sleepycat and MySQL use open source as a distribution strategy but it plays a minor role in the development efforts). In 2003, AOL handed over the keys to Mozilla to an independent foundation, thus assuring the browser a life beyond AOL-Netscape’s failed business model. (To the degree that getting crushed by a free Microsoft browser constitutes failure).

Through the combined efforts of individual open source contributors, charitable/foundation types, and corporate sponsorship (mostly big IT companies like Sun and HP), Mozilla has become a big success, mainly through its flagship Firefox browser. Firefox now has about 15% market share, which is far less Netscape’s near-monopoly, but the only effective competition IE has had in the past 5 years. If the Netscape users switch to Firefox, its share could conceivably pass 30%, which both the Netscape and Mozilla pioneers would consider vindication of the past decade’s efforts.

Peace on Earth

After Thanksgiving, Christmas seems to be the day of the year when Americans are most likely to give thanks for their many freedoms, particularly those guaranteed by the BIll of Rights, which begins

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

Of course, many Europeans enjoy similar freedoms. Canada used to. But much of the world does not.

This morning’s paper contained an AP story about how supporters of Chinese human rights are fighting a proposed Beijing clampdown on text messaging:

Beijing police will work with government agencies and telecommunications companies to investigate and punish those using text messages to “spread rumours” or “endanger public security,” the city government said in a notice posted on its website late last month.

Chinese authorities commonly use vague charges such as those to detain dissidents or others it views as a threat to the ruling Communist party.

Although the notice did not detail specific punishments, a story in the city's Communist party mouthpiece newspaper, the Beijing Daily, earlier this year said people who spread rumours or other false information are subject to detention for up to 10 days and a fine of up to $70.

China has more than 500 million cellphone users and text messaging has become an increasingly effective way to spread word of meetings or demonstrations.

I doubt that American or European teenagers could comprehend the idea of being arrested for sending an SMS — except of course those in “New Europe” whose parents grew up behind the Iron Curtain. Much as I’d dislike being detained for 10 days, it’s certainly better than being clubbed to death for opposing the government’s policies.

In my opinion, such repression in China, Russia and elsewhere gives lie to the claim by Lee Kuan Yew (parroted by other totalitarians) that political and economic freedom can be separated. The first half of the 21st Century will see many experiments that will show which view is correct.

Profitable Christmas PNE strategies

Positive network effects are normally associated with platform strategies such as those for videogame consoles and PCs, as outlined by the book Information Rules. In the last few years, new PNE strategies have been attempted with social networking websites, but many of these sites are still using unproven (if not dubious) revenue models.

At tonight’s first round of Christmas gift exchange, I became better acquainted with two new business models that seem to combine network effects and direct revenue models in novel (and promising) ways.

The first example was the JibJab animated cartoon site, which is best known for a series of political satires such as “This Land” played on the Tonight Show during the 2004 presidential campaign. The company’s claim to fame is superimposing facial pictures on top of cartoons and then tilting them back and forth to the music.

Now the company has branched out into personalized video greeting cards (not its first attempt to monetize its brand and technology). My sister sent a JibJab Christmas card in which her family’s pictures were superimposed on a movie of Santa’s elves goofing off at work. It turns out my teenage niece got a card from a friend, sent her own card to her friends, and then her mom said “let’s send this to our friends.” Two interesting freemium wrinkles are that some cards are free, and you start out with an initial credit, so it’s easy to get started (as my niece did) before you realize this will end up costing real money (although a lot less money than 20th century technologies like sending Kodak photo cards).

So the more people who send cards to their friends, the more potential customers JibJab gets, and each one gets lured in with a freemium model. My only questions is that once everyone’s doing it (as with the Blue Mountain ECards) the novelty wear off?

The other new business model is Webkinz, which for $14 gives you a small stuffed animal combined with a paid social networking game site called KinzChat. As with my niece (same niece) and nephew’s Wii, the Webkinz was a hot product in short supply this Christmas shopping season. Participation in the fad has even helped retailers carrying the product.

So Webkinz has to build a website with games, login tools, age-appropriate content etc., and then they get to command a high gross margin ($5? $10 per toy). The KinzChat logon only lasts for a year, and then the parents must go buy another premium-priced stuffed animal or junior will be kicked off the website.

No clue as to how long this fad will last — Beenie Babies, Cabbage Patch Dolls, pet rocks, and other similar fads eventually faded away. But it seems safe to predict that Webkinz will spawn a whole raft of online re-interpretations of low-tech toys.

Google vs. Google

Google seems a bit schizophrenic right now. On the one hand, some at Google are promoting its own Linux mobile stack (aka the gPhone) based on its Android acquisition. The goal is to have an open stack that commoditizes mobile phones, reducing the power of handset makers and particularly those that use software as a differentiator.

On the other hand, others at Google are working to deliver the best possible Google experience on the iPhone, by modifying Google’s web applications so that they are convenient to use, and show off the iPhone to its best advantage. Google even has an entire Mac-specific blog. Not surprisingly, some of the Mac-focused Googloids are Apple alumni, most notably Scott Knaster, the first manager of Apple’s Macintosh Developer Tech Support (MacDTS). (Of course, Google CEO Eric Schmidt remains on Apple’s board of directors).

On the one hand, these strategies are not perfectly aligned; however, they are not working completely at cross purposes, in that both are about mobile phone users having a better user experience with Google web applications.

On the other hand, it’s the sign of a healthy tech company to not try enforce a complete company-wide mandate, but instead to promote internal competition, bottom-up emergent strategies. Google’s 20 percent time policy is designed to do exactly this, building a culture that encourages such experimentation.

The one problem is that this depends on a huge amount of organizational slack, supported by Google’s obscene gross margins. The problem is that such margins are temporary — just ask IBM, Apple, Microsoft, or for that matter, the big three TV networks or your local newspaper monopoly.

When push comes to shove, the 20 percent rule will be gone, just like similar cultural shifts hit IBM, Apple and HP. I’m not claiming I know when it will happen, only that either the industry- or firm-specific effects delivering these margins will eventually be competed away. It will be years or maybe even a decade, but it will happen.

When the slack is gone, will such bottom-up initiative still be encouraged? Carly Fiorina, in her by-the-numbers approach to build “the new HP,” did her best to stamp out Bill and Dave’s concept of “the HP Way.” When that time comes for Google, Larry, Sergey and Eric will be long gone.

3G IP and recommended IP blog

Friday marked an important milestone in Nokia’s war against 3G IPR owners, and the competing efforts of one of the two major IPR licensing companies (InterDigital) to preserve its business model. It was clearly a mixed decision, with each side winning some but not all of what it wanted — as evidenced by both stocks going up.

InterDigital (as it is wont to do) issued a press release to spin the results. The release aptly summarizes the complexity of the particulars:

InterDigital, Inc. ... today announced that the English High Court issued a judgment finding that European Patent (UK) 0,515,610 ... is essential to the 3G UMTS WCDMA European standard promulgated by the European Telecommunications Standards Institute. ...

In bringing the action in July 2005, Nokia sought a declaration that 31 of InterDigital’s UMTS patents registered in the UK are not essential to the standard. ...

In the course of the litigation, Nokia withdrew its challenge to one InterDigital patent, InterDigital withdrew nine patents as non-essential, and two patents are no longer in force. InterDigital chose not to contend at trial that a further fifteen patents were essential, but considers that these patents may be essential under the second part of the ETSI definition described above. Accordingly, the recent trial and this judgment involved four patents.

The press release quoted IDCC’s “Chief Legal Officer,” a testament to the importance of litigation in its business model.

The litigation suggests that IDCC has overdeclared its IPR, and in the face of litigation, abandoned most of its claims of essentiality. It made a stand on 4 patents, and managed to win 1 — plus the 1 patent that Nokia conceded up front. Of course, any essential patent means that Nokia has to pay royalties, and (as with the Qualcomm-Broadcom patent dispute) those can be quite significant. (Maybe that’s why Nokia didn’t issue a press release).

What I found most interesting in researching the story was to discover an unfamiliar IP blog called “ipeg”. Its coverage of the Nokia v. InterDigital explained the legal basis on which the competing claims were decided, something I didn’t find anywhere else. The tone suggests that its interest in IP is oriented towards a lay audience — or at least towards a business audience. I quickly added it to my RSS reader.

Communitarian content and operational ineptness

Regular readers know I have mixed feelings about Wikipedia. On the one hand, I think its model — biased towards maximum participation, minimal quality control — leads to highly variable quality, especially on obscure topics. On the other hand, it is an extremely useful resource — particularly for settling a party bet, even if I forbid my students from using it as a primary source (because it’s not).

Some of the strongest criticisms of Wikipedia have come from the online tech magazine The Register. Two weeks ago, they ran a long saga about how Wikipedia blocked the IP addresses of an entire community to prevent one man from making edits to four articles. This week, SF-based Cade Metz summarized the inherent Catch-22 of Wikipedia’s conflict of interest policies:

In Wikiland, you aren't allowed to edit articles where you have a conflict of interest. If you do so, you could be grounded. But the inhabitants of Wikiland also have the right to anonymity. This means that no one may ever know if you have a conflict of interest.

Taken separately, these two pillars of the Wikipedia law book are sure to ring a few bells. At least once a month, a news story appears in which some self-serving organization is slapped for violating Wikipedia's conflict of interest policy. This month, it's the BBC wearing the dunce cap.

And, naturally, we all realize that Wikipedia is a place where you needn't identity yourself. At the very least, this hit home in March when cyber sleuths revealed that a 24-year-old uber-Wikipedian was masquerading as a professor of theology with not one, but two PhDs.

But few seem to realize that these two Wikicommandments are completely incompatible. The trouble with Wikipedia goes deeper than a few edits from the BBC, deeper even than a 24-year-old pretending to be someone he's not.

OK, that a few self-appointed leaders of a volunteer group can be petty and self-serving is no great surprise. That it continues in such a big and highly visible nonprofit is a little more surprising.

But what sent me to The Register was a very odd report in the AP that acknowledged the earlier Register story. Both were about the recent Wikimedia Foundation COO who was a convicted felon — bad checks, shooting her boyfriend and a fatal hit-and-run. The articles questioned whether poor administrative controls would hurt the foundation’s current fundraising push (supported by banner ads on every article in more than a dozen languages).

At one level, this comes as no surprise. Founder Jimmy Wales has always made it clear that he’s a big idea man not interested in sweating the details.

But on the other hand, it's yet another depressing indictment of the lack of accountability common in the nonprofit sector. Big nonprofits are notorious for high overheads, lax controls and weak oversight. Exhibit A are the repeated scandals at the American Red Cross, which blogger Hildy Gottlieb attributes to a lack of vision and values. (Which is not a problem at the ARC's more effective rival).

Society needs nonprofits to address a wide range of cultural, educational and material needs. But the successful ones seem to be created by institutional entrepreneurs with a strong vision and leadership ability, and (often) taken over by bureaucrat-managers who need a paycheck. Ineptly run companies go out of business, or at least have their shareholders fire the lame executives and replace them with new ones. The measure of success for nonprofits are so ill-defined, and the oversight so weak, that it appears that even the mediocre nonprofits take on a life of their own.

Earlier this month, a Salvation Army blogger in Australia perfectly captured this with a Peter Drucker quote:

An organisation begins to die the day it begins to be run for the benefit of the insiders and not for the benefit of outsiders.

Wikipedia was a huge success in user-generated, community-owned content long before its foundation began its fundraising drive. It can't let the fundraising overtake its original goal of publishing a free encyclopedia. It should limit its fundraising to keeping the servers running and avoiding mission creep (not bloody likely), but given its large amount of volunteer labor and original shoestring budget, the online encyclopedia will probably continue no matter how badly run the nonprofit is.

Next generation's IP train wreck

David Pogue had a very thought-provoking column today about self-enforcement of IP compliance such as copying disks and Napster-style downloads. He explains how he normally surveys his audiences on their attitudes towards copyright, finding that at some point his audience ends their self-serving rationalization and admits that certain activities cross over the line into IP theft.

This didn't happen at a recent talk at a college campus:

I just could not find a spot on the spectrum that would trigger these kids' morality alarm. They listened to each example,looking at me like I was nuts.

Finally, with mock exasperation, I said, "O.K., let's try one that's a little less complicated: You want a movie oran album. You don't want to pay for it. So you download it." There it was: the bald-faced, worst-case example, without any nuance or mitigating factors whatsoever.

"Who thinks that might be wrong?" Two hands out of 500....

[I know] that the TV, movie and record companies' problems have only just begun. Right now, the customers who can't even *see* why file sharing might be wrong are still young. But 10, 20, 30 years from now, that crowd will be *everybody*. What will happen then?

Anyone who teaches on a college campus has seen this coming, but Pogue's anecdote should wake up music (and now movie) industry execs into realizing that their days for building an ethos of legal downloads are numbered. And if this is the attitude of young people in the most IP-oriented economy in the world, this does not presage well for any IP-based business model.

The best things in life are free?

Apache has for a long time had a claim that is rare (if not unique) in the software world: the best software, that is most popular, and is cheapest (i.e. free).

This form of open source is collaborative innovation, or what Eric von Hippel would call “user innovation.” But what about people who need to make money off of their IP?

There are a few good examples of valuable books available free online:

• von Hippel’s 2005 book Democratizing Innovation
• The best book on open source licenses, Larry Rosen’s Open Source Licensing
• A better-than-most book on the business of open source, Producing Open Source Software (recommended by a client)

We don’t have page proofs online, but the book I helped edit Open Innovation: Researching a New Paradigm is also available free online. Compared to the $100 hardback, the double-spaced proofs are a hassle, but at $40 for the paperback (as with Rosen’s book) the paper copy may be more useful.

So while you can’t say the best things in life are free, there are a few good things in life that are.

Patents and commodities

Today's paper has the (not widely published) report that Netgear is being sued for patent infringement over its Wi-Fi gear. Netgear (along with Cisco-owned Linksys) is one of the decade-old commodity producers of network equipment, but is more recently facing competition from Chinese brands.

The lawsuit was filed Wednesday, according to Bloomberg:

Dec. 19 (Bloomberg) -- Netgear Inc., the maker of networking equipment for homes and small businesses, was sued by Fujitsu Ltd., LG Electronics Inc. and Royal Philips Electronics NV over patents covering wireless computer networks.

Fujitsu, LG and Philips are part of a patent-licensing pool created in 2004. Participants share inventions covering the so- called 802.11 standard, a protocol for wireless local area networks that lets computers talk to each other at high speeds.

While Netgear refuses to pay royalties to patent holders in the pool, it claims in advertisements that its products comply with the standard, Fujitsu, LG and Philips said Dec. 17 in a complaint in federal court in Madison, Wisconsin. Netgear products targeted in the suit include wireless routers, personal- computer cards and adapters.

This is really interesting for several reasons:

• With the notable exception of MPEG4, patent pools have been rarely successful for coordinating patent holder interests.
• Thus far, IEEE standards such as Wi-Fi seem to have had fewer patent suits than most other standard (although Buffalo Technology lost a case last year).
• Fujitsu, LG and Philips are not major producers of this gear except in their respective home markets.

Wi-Fi and its parent Ethernet have been one of the most successful (and most commoditized) multivendor standards of all time. Does this presage a new flurry of patent filing (or litigation) for Wi-Fi users? (Of course, the patent thickets around WiMax and 802.16 constitute an IP Lawyer Full Employment Act). Will it push up the price of gear? Will it form an entry barrier in this commodity business, with big electronics companies pushing out smaller companies the way that Telcos have taken on Vonage?

No longer dreading the subpoena

My first open source consulting client was Medsphere Systems Corporation in Orange County — not far from UC Irvine (where I did my Ph.D.) and with ties to UCI. I worked closely with the two founders, Steve and especially Scott Shreeve. The founders took VC money, and so eventually had to turn control of the company over to "professional" management.

Medsphere is a healthcare software company that was taking public domain code (Vista), adding their own software and services, and hoping to build an open source community. I was a consultant from 2003-2005, which included writing a paper with Siobhán O’Mahony on what makes a sponsored open source community work (to be published in revised form next year), and co-founding the first Vista-specific trade association. (NB: The Veterans Administration was using "Vista" long before Microsoft started their Longhorn project, but so it goes).

The Medsphere slogan was "professional open source," and while I was a consultant there I offered advice on how to create an open source community. But after they brought in an outside CEO (and then another one), it seemed like the people who "got" open source no longer had authority to do anything about it, so my last involvement was in November 2005.

From the outside, it seemed that the Shreeve brothers didn't get along very well with the second CEO (who was not very entrepreneurial). But it still came as a shock when the CEO, backed by the board fired the Shreeves in June 2006. The offense? That CTO Steve Shreeve had (gasp!) released some of the company’s code as "open source" on SourceForge.

A few months later, the company sued both Shreeves, seeking $50 million in damages. The result was a public relations disaster, with the open source community saying things like "Medsphere betrays community." This article summarized the community reaction:

Recently Medsphere, supposedly an “Open Source” Medical Software Company, has sued its founders Scott and Steve Shreeve. Why? Medsphere claims that the Shreeves illegally released Medsphere software to Sourceforge. An “Open Source” Software company is suing its founders for releasing code under a free license… that’s a bit like Ford suing its employees for making cars. Recently Fred Trotter has come forward with evidence that he claims makes the Medsphere lawsuit baseless. Read on for an email interview with Fred Trotter regarding who did what in the Medsphere lawsuit, and why every free software developer should care about what is happening to the Shreeves.

Since Vista is still in the very early stage of commercial adoption, the potential early adopters are all Vista (i.e. open source) fans, and thus carry a disproportionate influence. Influential open source blogger Matt Asay called it a “debacle” tied to corporate egos.

Because I helped them develop the open source strategy, I was worried about being named as a defendant or at least being tied up having to testify. Thus it was a huge personal relief to read this afternoon that the case has been settled, although all sides are staying mum. The company has also hired a new CEO (3rd since the Shreeves), a new chief medical officer (replacing Scott Shreeve) and a new chief marketing officer.

More important than my anxiety, the Shreeves (two very talented and energetic medical professionals) can put the whole sorry affair behind them and move on with their lives. Scott Shreeve has started a new venture, Crossover Health, and is now back in the limelight.

Even if the lawsuit is over, IMHO this sordid mess leaves the VCs with a permanent black mark. From 2002-2006, they invested $12 million in a company whose strategy was always to release open source, and then they wholeheartedly backed the decision both to fire the officers who released open source and to sue them. Were the investors (Azure Capital, Thomas Weisel, Wasatch) incompetent in not knowing what an "open source company" meant? Did they panic when deployments ran behind schedule? Were they duplicitous? All of the above?

I have no inside information, but their performance in the Medsphere debacle raises grave questions about any future open source investments that these VCs make — both from their limited partners (the ones who provide the money) and any prospective portfolio companies.

Make way for Googlepedia

The best job in the world must be acting as chief strategy officer for Google. Every month you get to come out with a new initiative for Total World Domination, while at the same time positioning as an improvement for Google customers and the Internet economy as a whole. Being chief economist of Google would also be fun, but there you have to crunch the numbers, and I’d rather paint in broad strokes and leave the implementation to others.

Over the weekend, the dead tree news delivery vehicle was talking about “Googlepedia,” Google’s answer to Wikipedia.

Wikipedia was arguably the first breakaway hit of user-generated content on the web. By Tim O’Reilly’s definition, that would make it a Web 2.0 success before “Web 2.0” had been coined. It has achieved its goal of unprecedented scope for any reference source, but its inclusiveness has brought inherent (perhaps irreparable) quality problems, particularly in the less-trafficked entries (which of course provide that broad scope). My own experience with contributions — with some people making my work better and some making it worse — mirror the problems of Wikipedia as a whole.

Google is planning a different model. In the official Google blog, its VP of engineering Udi Manber wrote

Earlier this week, we started inviting a selected group of people to try a new, free tool that we are calling "knol", which stands for a unit of knowledge. Our goal is to encourage people who know a particular subject to write an authoritative article about it. ...

The key idea behind the knol project is to highlight authors. Books have authors' names right on the cover, news articles have bylines, scientific articles always have authors -- but somehow the web evolved without a strong standard to keep authors names highlighted. We believe that knowing who wrote what will significantly help users make better use of web content. ...

A knol on a particular topic is meant to be the first thing someone who searches for this topic for the first time will want to read. The goal is for knols to cover all topics, from scientific concepts, to medical information, from geographical and historical, to entertainment, from product information, to how-to-fix-it instructions. Google will not serve as an editor in any way, and will not bless any content. All editorial responsibilities and control will rest with the authors.

So this is a completely different approach to producing content — initially commissioned (solicited) articles and later (presumably) expert-written by a broader audience. This would certainly address the problem that current Wikipedia articles tend not to have a coherent tone or perspective.

However, Manber admits Google may not completely solve the (inherent) quality problem of user-generated contented:

The tool is still in development and this is just the first phase of testing. ... Once testing is completed, participation in knols will be completely open, and we cannot expect that all of them will be of high quality. Our job in Search Quality will be to rank the knols appropriately when they appear in Google search results.

So picture Slate (Slashdot?) type magazine articles with Amazon-type user feedback. (The domain name “knol” isn’t available, apparently because it means “turnip” in Dutch).

I’m would expect that Googlepedia would be a great source of anxiety for founder Jimmy Wales and his Wikimaniac volunteers — a head-on threat, unlike Conservapedia, which serves a tiny niche market of American home school parents upset at the leftist bias of the mainstream media and some parts of Wikipedia. Googlepedia has more resources than another project attempting to fix Wikipedia’s inherent flaws — Citizendium, by Wikipedia co-founder Larry Sanger. (Sanger himself is skeptical of Knol).

But in the AP story (carried by my paper), Wales gave a flip answer:

In a Friday interview, Wikipedia founder Jimmy Wales downplayed Google's latest move. "Google does a lot of cool stuff, but a lot of that cool stuff doesn't work out so great," he said.

Organizations that underestimate Google tend to go out of business or at least fade into oblivion. Wikipedia is better established than that, but I still think they should worry.

When "unlimited" isn't

Among the most famous legal spectacles of the 1990s were the two most powerful Bills in the world, testifying under oath about things like what the word "is" is.

Today The Register posts a story (lifted from the Globe and Mail) about a Calgary twentysomething who found that his $10/month "unlimited" plan actually cost $85,000. Upon appeal, Bell Mobility made a "goodwill gesture" and reduced it to $3,243. (Heck, that's only $3,176 in real dollars).

Set aside for a minute the legalistic response of the telco, and the various plans and price discrimination strategies that Bell Mobility is likely using to maximize ARPU for data plans. Saying something is "unlimited" when it isn't — with or without a footnote — is misleading on its face, if not false advertising. I suspect BM will be getting a call from Industry Canada or the Attorney General's office.

This points out the problem with using mobile data as a full substitute for wireline connections: the bandwidth is too expensive, even though Bell Mobility is using the most efficient cellular data approach available today.

Back in the 1990s, the "Negroponte shift" was proposed by the MIT Media Lab co-founder (and little brother of the famous diplomat), in which TV would go over cable and voice would go over the airwaves. But what about Internet bandwidth — delivered by cable TV or phone companies — which is several orders of magnitude required to deliver voice? Yes, we'd like connectivity everywhere, but clearly the consumer trend is towards fiber optic speeds (multi-gigabit). While mobile voice capacity was solved a decade ago, it's hard to see how airwaves can provide gigabit bandwidth to millions of consumers in an urban area any time in the next twenty years.

Linux Mobile fragmentation-or is it consolidation?

My friend Tom Chavez forwarded the news that NTT DoCoMo and some of its handset vendors have blessed the Access (née Palm Source) plans for a Linux-based mobile phone platform:

ACCESS CO., LTD., a global provider of advanced software technologies to the mobile and beyond-PC markets, today announced the signing of a memorandum of understanding with NTT DoCoMo, Inc., NEC Corp., Panasonic Mobile Communications Co., Ltd., and ESTEEMO Co., Ltd. under which the companies will study the use of ACCESS Linux Platform(TM) as the basis for developing a shared Linux® platform for mobile phones and an operator pack for NTT DoCoMo. …

Under the MOU, ACCESS will make use of MOAP(L) (Mobile Oriented Application Platform based on Linux) which is the FOMA(TM) mobile platform used by NTT DoCoMo, and will lead the development of a shared software platform that also conforms to specifications of the LiMo Foundation, an independent, non-profit foundation established with the aim of promoting the use of Linux by the mobile industry. The five companies have also agreed to consider development of an operator pack for NTT DoCoMo based on the shared platform. ACCESS intends to begin marketing the commercial products resulting from these efforts during fiscal 2009.

So what we have is an (at least partial) convergence of Access’s technology, with the LiMo standards effort, and DoCoMo’s existing MOAP(L) smart phone platform. DoCoMo sees it as helping LiMo:

"In January this year, NTT DoCoMo established the LiMo Foundation, together with key companies worldwide," said Kiyohito Nagata, senior vice president, managing director of Product Department, Products & Services, NTT DoCoMo. "The conclusion of this memorandum will substantially expedite the development of a shared platform based on LiMo Foundation specifications, as well as promote consideration of an operator pack by the five participating companies. In this way, the memorandum will contribute to the dissemination and growth of the Linux platform and the creation of an associated ecosystem. We expect it to enable the development of products that are even more attractive to NTT DoCoMo."

Of course, DoCoMo is also a founding partner of Google's “Open Handset Alliance”. How can it do both OHA and Limo? Last month, DoCoMo claimed to be agnostic:

Explaining the apparent conflict [DoCoMo spokesman Shuichiro] Ichikoshi said, “Our corporate stance is that we are neutral and open to whatever technologies or software that may contribute to progress/pervasion of W-CDMA services or improvement of our services. Consequently, we will openly evaluate and examine Android, as we do with LiMo.”

In other words, DoCoMo joined OHA/Android to have a seat at Google’s table — at least to keep an eye on them, and (if things go well) to nudge Google in their direction. But, it’s clear from the latest announcement, their main goal is to have a DoCoMo-controlled MOAP(L) going forward, and make sure that it conforms to the LiMo spec (and vice versa). Befitting any former telecom monopoly, they would rather be in the driver’s seat than be a spectator in Google’s show.

So on the one hand, DoCoMo isn’t fully committed to the gPhone alliance. On the other hand, it sees three previously distinct efforts — MOAP(L), Access, and LiMo — as heading on a convergent path. (Perhaps a trajectory fueled by a billion or more of DoCoMo’s yen).

Apple at a crossroads

Usually, coverage of Apple’s platform strategies is naïve, oversimplified, or worse. In some cases, the mistakes are over trivial things, but in other cases, reporters get the core story wrong. For example, in response to claims that Apple’s problems in the 1990s were due to its cloning decision, I wrote an academic paper noting that more likely causes were its supply chain problems and its failure to innovate.

I have generally been positive on Apple the last few years, even if not optimistic enough to invest in the stock at the lofty price of $60 (today it closed at $190). It’s had great quarters, growth and record earnings. Still, I feel it’s had a good run — everything breaking its way (except for the AppleTV belly-flop) and that someday its luck might change.

This evening I was impressed by a very thoughtful (and to my mind, accurate) critique of the crossroads Apple faces in its current strategic goals — shifting from a PC company to a PC and music company to a PC, music, video and mobile phone company. The conclusion to the article by Adam Penenberg in the December Fast Company strikes exactly the right tone:

Apple is at a moment of choice: If it can stay hot and produce breakout couture hardware indefinitely, it can hold onto its closed model, elite pricing, and huge margins. In many ways, the world would be a prettier place if it did.

... Now that the race for an end-to-end system has begun in earnest (significantly, it doesn't look all that different from the race to own the desktop years ago), Apple needs either to win that race outright, or to get comfortable with being simply part of the solution. Winning outright is a very tall order, of course. It means coming up with a self-contained system so beautifully functional that a critical mass of consumers are willing to enter that world and never leave.

OK, so I think Penenberg’s right because he agrees with me. But it’s really a pretty simple equation: either a closed system provides a complete solution, or it has to become more open. (The iPod works with MP3 files and the iPhone works on GSM, but you know what I mean).

Closed used to work for DEC but then their industry segment died. Closed still works pretty well for Sony, Microsoft and (once again) Nintendo. However, Steve Jobs faces two major problems that the console makers don’t face. One is that the content suppliers hate Steve’s buyer power, meaning that competing systems (open and closed) will be getting a lot of attention from said suppliers.

The second is that the mobile Internet is going to at least a partly open model — where cross-platform content (such as eBay or Google Maps) is going to be an important part of the value proposition. If most of the value comes from open services and apps (such as Web 2.0 apps), then it will be very hard for a closed system to build a dramatically superior solution.

So if the past five years have been a perfect storm for Apple, the perfect storm against Apple would be a mobile phone industry with lots of Web 2.0 content and a good rival music site.

Not all billionaire decisions are smart ones

Even the world’s richest man can make mistakes — and not just Bill Gates.

CompUSA is being liquidated. America’s only major national computer chain was founded in 1984, and under CEO Nathan Morton grew to hundreds of stores and billions in annual revenue. But Morton died in 2005, and its new owner — Mexico’s Carlos Slim failed in his dubious attempt at buying cheap distressed properties. The company hasn’t turned a profit since 2005.

Some say that CompUSA is failing in competition with major big box electronics retailers. Perhaps that is part of it — that there’s a big convergence of markets and the idea of pure computer retailers may have gone away. There’s also the direct sales competition from Apple, Dell and HP. No one mentions it, but retail computer margins are slim and inventory costs (particularly when products become obsolete) can be brutal.

But frankly, I don’t think CompUSA was a very good computer store. For utterly routine things, the office stores (Office Depot, Office Max, Staples) do a fine job, and they’re more convenient located. For advanced things, the CompUSA workers never knew as much as the Apple store employees, or the independent computer dealers who still survive in little pockets here and there. So if they had actually been good at selling computers, they might be around.

Slim made his billions running monopoly telecommunications in a less developed country with limited domestic competition. Free markets can be tough, so perhaps Mr. Slim needs to find and trust top managers with experience coping with real competition.

Wii will rip you!

When the whole Wii saga began, my daughter wrote (in an obvious homage to the 1977 hit song)

Wii will wii will rock you

Going on intuition, I showered early this morning and drove to my nearest Fry's superstore in search of the mythical console. It was not that wacky — Fry's runs its big ads on Fridays while Circuit City and Best Buy do it on Sundays. Since I can't stand in line this Sunday, this could be my only shot before Dec. 16.

Sure enough, I got to Fry's at 8:40 am and joined the first line I saw — which naturally was the line for the Wii. The store had opened at 8 am, and I was told that I was 3 shoppers too late — it sure looked like I should not have stopped to buy the newspaper. But somehow they miscounted, and $530.33 later I owned the “Wii Hardware Bundle” for my niece and nephew.

It turns out I was being unfair in blaming Nintendo for price discrimination (gouging customers). This was not a Nintendo-required “hard” bundle but a Fry's “soft” bundle, with $250 of Wii console and $240 of mandatory Wii accessories sold at list prices.

I estimate that $150 of the $240 is actually useful stuff, notably the Super Mario Galaxy game that my nephew is dying to get and also a spare controller. But the rest of the bundle is comprised of products that are either total drek, or extra accessories that they were unlikely to ever want (like the Nunchuk controller).

Thus it's not Nintendo trying to milk extra bucks out of its customers, but the dealer. This actually explains (and fits) the Costco bundles mentioned by Wii Tracker: to increase average selling points and avoid commoditization (and perhaps manufacturer wrath), Costco has tried to take hot products and throw in extra doodads to add “value” rather than sell the base product for a lower price. Standard Merchandising 101 sort of stuff.

My apologies to Nintendo, and of course my embarrassment at playing along with this whole sordid game.

The real Web 3.0

The Mercury News has fixed their mistake of buying Nokia's propaganda that Web 3.0 is just a mobile Web 2.0. In search of a Wii, I bought this morning's dead-tree edition and found the headline “Designing Web 3.0” on a story by Dean Takahashi.

In his profile of Tim Berners-Lee (formerly of CERN), Takahashi gets it exactly right:

Now he believes that the next step in making the Web more useful is to create the standards that enable computers to fully understand the Web and that allow users to find the right information more efficiently.

He and many other forward thinkers are working on the "semantic Web," an enhancement that would provide a universal exchange of data. The semantic Web is sometimes called "Web 3.0," following the Web (Web 1.0) and the social Web (Web 2.0).

Wii R price discriminators

In my thus far futile search for my niece & nephew’s Wii console to deliver by December 24, I found the Wii Tracker website. It’s a website that offers links to places that sell Wii consoles.

They link to a Mercury News interview (excerpted on a blog) in which Reggie Fils-Aime, the president of Nintendo of America, explains the sales frenzy:

Q: The Wii console has been a big hit to date, with you guys having a difficult time meeting demand. This is going to be a bad Christmas for folks still wanting to buy one, isn't it?

A: We have been sold out worldwide since we launched. . . . Every time we put more into the marketplace, we sell more, which says that we are not even close to understanding where the threshold is between supply and demand.

Q: What is it about your manufacturing system that doesn't allow you to catch up with demand?

A: The issue is not a lack of production. The issue is we went in with a curve that was aggressive, but the demand has been substantially more than that. And the ability to ramp up production and to sustain it is not a switch that you flick on. We're working very hard to make sure that consumers are satisfied this holiday, but I can't guarantee that we're going to meet demand. As a matter of fact, I can tell you on the record we won't.

Given this supply constraint, Wii Tracker makes Nintendo’s strategy quite clear: it’s quite easy to buy a Wii today, as long as you’re willing to pay $500-$600 for a “bundle” rather than $250 for just the base console. Increasingly, parents are paying twice what they were willing to pay in order to have the “must have” game in time for Christmas.

If course, this is exactly the sort of price discrimination (versioning) that Hal Varian advocates in Information Rules: charge more money to those who are willing to pay more, less to those who are not, and keep the two groups separate. So those who want to buy a Whttp://www.blogger.com/img/gl.link.gifii for junior's birthday in February will do fine, but those who want to be a hero on Christmas morning are hosed. That's me: in fact, my niece and nephew have birthdays in December, so I can't even try the wait-until-February ploy.

Update 12:45 p.m.: This morning’s WSJ says the Wii shortage is caused by 2007 sales exceeding Nintendo’s forecasts by 25%, by extremely conservative supply chain management, and by huge lags in ramping up production because it is 100% outsourced. Upon further investigation, I also found that the profiteering is not (directly) due to Nintendo, but its dealers.

Wireless rich get richer

The WSJ this morning had an article summarizing the announced bidders in the forthcoming FCC 700 MHz auctions next month.

• Bidding: ATT, Cox Communications, Echostar, Frontline Wireless, Google, Leap Wireless, Verizon
• Not bidding: Comcast, DirecTV, Sprint Nextel, Time Warner Cable [also T-Mobile]

The two largest US carriers are bidding, and the next two are not. The 2004 AT&T-Cingular merger has gone well, while Sprint Nextel has yet to recover from its 2005 merger. (The 2000 joint venture to create Verizon Wireless is long since settled).

Of the remainder:

• Google is trying to reshape the wireless industry by its bidding, even though the WSJ thinks it has no intention of winning.
• The relatively small Leap Wireless is seeking to grow its spectrum footprint after fending off the hostile takeover by Metro PCS.
• My former business associate Tom Evslin has criticized the plans of the highly political Frontline Wireless team, for trying to get its spectrum under the guise of "public safety."
• Only one of the three major cable TV companies is bidding, which means they’re not worried about the telco quadruple play competing with their triple play offerings.

Even with the potential new entrants and the wide variety of spectrum alternatives, their impact is likely to be at the margins. Instead, it seems likely that the new spectrum will be paid for by the most successful companies, to cement their existing market dominance.

Even less Motorola leadership

After a big announcement like that of Ed Zander’s resignation, there are always other shoes that drop. Monday morning’s paper had a tiny blurb that Motorola CTO Padmasree Warrior had resigned, with the speculation that she’d left because she was tied to Zander’s failed strategy of seamless mobility. Sure enough, her Motorola biography (now gone but cached by Google) listed her efforts there:

An engineer at heart with a true knack for business, Padmasree’s charter is to drive innovation, prioritize technology programs and accelerate creative research to commercialization. Padmasree's operational responsibility is to lead Motorola’s global team of 26,000 engineers and direct Motorola Labs, Motorola’s software, emerging early-stage businesses and the corporation’s intellectual property portfolio.

Padmasree is recognized internationally as the thought leader who shaped the industry vision of “seamless mobility” for next generation communications. She is credited with crafting much of Motorola’s strategy around seamless mobility; to deliver easy uninterrupted access to everything people want in a flat and mobile world.

This morning’s paper brought news that she’d become CTO at Cisco, presumably part of its effort to expand its influence in mobile communications. There was universal admiration at how she’d traded up after only one day of unemployment. Warrior herself blogged at Cisco about how she welcomes the opportunities of driving its platform strategies. (Certainly it’s been a long time since Motorola drove any industry platforms).

However, Brad Reese, a Cisco-focused blogger, pilloried the decision to hire Warrior, blaming her for commoditizing Motorola’s RAZR and failing to respond to the challenge of the iPhone.

I know far less about Cisco that Mr. Reese, but as someone who follows the mobile phone industry, I’m not sure how much credit (or blame) the CTO gets for Motorola’s recent innovation results. Did the CTO have line-of-business control? How much did the CEO control the allocation of resources. And as for getting beaten by the iPhone, I think a lot of very well run mobile phone companies were left scrambling when the iPhone came out.

In my opinion, the success or failure of a CTO depends not only on his/her vision, but also on the charter bestowed by the CEO. And I’d bet a week’s pay that John Chambers is not going to let anyone commoditize his main Cisco brand (even though the Linksys brand is all about competing in commodity markets).

Silicon Valley — America’s greediest place

Forbes has done some simple calculations of billionaires-per-capita and, not suprisingly, Silicon Valley ranks #1 and San Francisco is second in the US. Seattle (with the Microsoft billions) came in third.

They took the ratio of Forbes 400 members per 100,000 residents, and the San Jose-Sunnyvale-Santa Clara came in first. As with the nearby SF-Oakland metropolitan area, most of that money came from tech startups. California was also represented by Los Angeles (#8) due to entertainment moguls, while my hometown of San Diego didn’t make the cut.

A local union organizer once described tech stock wealth as

a bunch of young white guys being in the right place and winning the lottery.

This is an odd thing to say around here, since even our local (PC and PC-centric) newspaper is about economic efficiency and wealth creation, even if it is socially liberal enough to match any Eastern big city newspaper.

It’s almost enough to make one think that the cult of George Gilder never hit the dot-bomb crash. Of course, back then we didn’t have tech zillionaires hoping to make money selling environmentally friendly toys.

Note to readers: with OS X 10.5, I’ve finally re-installed and updated my blogging software and now have improved productivity (and spell checking) in updating my blog.

Wii R Number One!

Today I spent an hour shuttling between two Best Buy stores in hopes of scoring a $250 Wii console for my niece and nephew. Not having bought a videogame console before, it didn’t occur to me to show up at 8 a.m. for a store that opened at 10 a.m. At both stores we were too far back in line to get one of the allocated units (125 and 80, respectively).

My 9-year-old wanted to know why a year-old console was in short supply, and I couldn’t answer — other than the Wii is obviously this year’s hottest Christmas gift. Reporters are writing stories about the shortage while consoles are going for twice the asking price online. Unlike in college football, it’s very clear who’s number one in the latest round of the videogame platform wars. (Even if Sony beat Nintendo for one month in one country).

The customary lesson from the VCR wars and various generations of videogame platform battles is that time to market and software are everything. The conventional wisdom is: line up content, and the customers will follow. But wandering through Best Buy (while my wife waited in line), it was obvious that there was more than enough content for Xbox 360 and a fair amount for PS3; in contrast, the Wii content was selling out. And some of the most important content is available for all platforms, like the Guitar Hero that my young relatives don’t know they’re getting to go with the Wii they don’t know they’re getting.

Instead, the Wii was the surprise winner against two behemoths fighting each other over gigahertz and polygon rendering frame rates. The Xbox was even first to market this time. Maybe price was part of Wii’s success, but my sense is that the motion-sensitive controller and fun games — i.e. innovation — were what made the difference.

So the next time someone assumes that network effects are the be-all and end-all, they should remember the Wii and the idea that (as Liebowitz and Margolis reminded us) sometimes the better mousetrap actually does win.

Would-be iPhone killers

While I’ve generally been bullish on the iPhone, the one part of Apple’s strategy I've questioned is the decision to grant AT&T an exclusive in the US (and other carriers overseas). Sure, the exclusive guarantees Apple a piece of the ongoing revenues in the US and Europe.

But excluding three-fourths of the US market (less in Germany or the UK) guarantees that competing carriers will be aggressively promoting competing products rather than selling more iPhones (as has happened for Motorola, Nokia and others when they had a hot product available across all carriers).

The Christmas season ads seem to be highlighting which phones AT&T’s rivals see as “iPhone killers.” What’s the lineup?

• AT&T (ca. 27% market share) has the iPhone, although the ads seem to be designed (and paid?) by Apple, not AT&T.
• Verizon Wireless (ca. 26%) had been promoting the LG Chocolate (as a music phone) and now is promoting LG’s Env as a web-browsing and messaging device.
• Sprint (falling towards 20%) is now promoting the HTC Touch, a Windows Mobile device from Taiwan (originally in GSM) with its supporters and detractors.
• T-Mobile (11%) is today promoting the HTC Shadow — yet another Windows Mobile phone, but of course has the various Sidekick models to appeal to the teen/twentysomething demographic.

What I find interesting is the carriers are hoping to dethrone the iPhone with wannabes — Microsoft, the Taiwanese and Koreans — not Nokia or Motorola. Yes, LG and Samsung are top 5 manufacturers, but they have been known for their manufacturing and not their software.

While Palm or RIM fans might disagree, overall Nokia seems to have the deepest and most consistent software operation of any handset vendor in the world. Cognoscenti talk about the N95 as the best multimedia phone not made by Apple, but it’s nowhere to be found. Of course, it doesn’t help that Nokia gave up on the CDMA (cdma2000) market and with it Verizon, Sprint and the various smaller carriers who comprise a slight majority of the US market. Since AT&T has no need for an iPhone killer, Nokia doesn’t have a lot of options here — foreclosing most of the market to LG, Samsung and Motorola.

So is this the list of best competitors to the iPhone? Or is it the list of vendors who want to buy market share through co-marketing dollars, price cuts and other incentives to AT&T’s rivals?

End of an oxymoron

Of three doctoral students visiting SJSU to apply for our strategy job, two have presented talks about Motorola: one on the entry of a Motorola battery division into China, and the other on corporate entrepreneurship at Motorola (their internal incubator).

For these two Motorola job talks, at least one wrote in the corresponding research paper

under the leadership of Motorola CEO Ed Zander …

to which I asked “Isn’t that an oxymoron?” On Friday, investors finally forced an end to the oxymoron, i.e. Zander’s four years of leadership in Schaumberg.

Now I’ll be the first to admit that Zander got a bad hand, following in the footsteps of failing nepotism, er, family control and many years of drift in the industry they created (handheld cellphones). But still, in drafting passed-over former Sun Microsystems executives, Google got the better deal. (Perversely, Wikipedia didn’t even list the Sun affiliation of the current Google CEO, so I had to add it).

Will Motorola be able to turn it around? I sure hope so. I got to know their history and their impact upon both U.S. and telecom innovation when researching my dissertation in the late 1990s. It is tragic to see how far they’ve fallen. But, on the other hand, I thought HP had been destroyed forever (through a combination of acts of omission and commission) but Mark Hurd seems determined to prove me wrong.

One last Motorola tidbit. At one point, Motorola had a project to port Skype to its phones. The project was a technical success, but for some reason none of the operators wanted to buy a phone with Skype pre-installed so the project was cancelled. To quote the former project manager (via our visiting scholar who shall remain nameless):

“I went to our own management and they said, no way in hell would we let you do this because our customers would kill us. The operators are fighting tooth and nail from becoming a bit pipe. Imagine one megabye of code, which is what Skype is, destroying a multibillion dollar industry. I was on one call with an operator and he says, ‘We're going to save you time and money. Don't develop Skype.’ ”

Put a Leopard in your tank

All but my fellow Mac bigots can skip the rest of this post. I upgraded my Mac to OS X 10.5 today and had a few observations.

One is that the branding of the software package says “Leopard” with “10.5” in smaller print. I didn’t get the sense that this was true with Tiger (10.4), so I guess Apple has concluded that using the code name to build buzz beforehand creates a brand that’s worth using after launch.

10.5 has brought some fawning reviews but also a few noting the key omissions (notably Classic). Today’s immediate problem was the loss of NetInfo Manager.

Without NetInfo Manager, I had to solve two problems:

• Enabling root access, using the new “Directory Utility” program.
• Moving my home directory — I have multiple System partitions on different volumes, but share the same user directory across these systems. The answer is to use the dscl command to map the user directories.

In our printer driver days, we used to have multiple system configurations installed (it was much easier under OS 7.x-9.x). Still, my former coworkers thought I was nuts to set up multiple configurations on my laptop — in this case, two versions of OS X and one with OS 9.

It turns out it’s already paid for itself. When my 10.4 partition died 6 weeks ago en route to the airport, I switched my 5-year-old laptop back to OS 9.2.2 and then 10.2.8. Rather than drop everything to salvage the 10.4 partition, I decided to wait until I could do a clean install of 10.5, which turned out to be painless (other than the $70 purchase price).

Much as I like Apple’s stuff, they can’t make the hard disk more reliable. And this little episode had a good side-effect: I bought an up-to-date copy of Disk Warrior, which worked like a charm. Even my wife (Palomar’s then project manager and procurement officer) remembered how the product bailed us out of jams in the pre-OS X days. It’s a good insurance policy to have on hand.

Walt says: wait for Kindle 2.0

Thursday the WSJ’s Walt Mossberg reviewed the Amazon Kindle in his main column. (15 years ago, when I was in the computer industry, this was the most influential computer column in the country).

His conclusions: Amazon knows how to sell books and has good partnerships, but doesn’t know how to make hardware.

Amazon has nailed the electronic-book shopping experience. But it has a lot to learn about designing electronic devices.

And, in addition to the dubious idea of charging for free online content (like magazines and blogs), it doesn’t work very well.

Microsoft and some other companies have done very well by selling a lousy 1.0 and a much better 2.0 or 3.0. (Remember, Windows wasn’t usable for anything until Windows 3.1, and the mass adoption started with 4.0 i.e. Windows 95).

Will Amazon get better? Will it stick it out (rather than give up)? I suppose if your business is selling dead tree information goods, you have to do anything in your power to prepare for the day (due to cost or convenience or environmental consciousness) that people stop wanting to kill trees. This would be unlike the (US) railroads, which never prepared for the era when people would decide to spend 6 hours crossing the country instead of 72 hours.

Is Silicon Valley still dominant?

In summarizing the Nokia “Web 3.0” article, I forgot to mention one key point. The whole tenor of the article (and the accompanying series) is part of the Merc’s crusade to reassure locals that Silicon Valley is still the center of the technology world. For example, this photo caption from Sunday’s paper (not on the web):

SMART-PHONE HUB
Engineers test imaging technology at Nokia Research Center Palo Alto. The opening of the facility a year ago illustrates how the valley’s pre-eminence as an incubator of innovation has been enhanced by economic globalization, not diminished.

Monday’s Part 2 carries on the theme with the headline “Valley’s edge: Success hard to copy.” I’m sorry, but this is way too Pollyanna-ish for my taste — seriously in denial as to the reality of globalization and the product life cycle.

I have no problem saying that there are times that the jobs moving to Silicon Valley outnumber those leaving the valley, and that more such times may lie ahead. But technology jobs are moving to Singapore, Tel Aviv, Banaglore, Beijing, Kiev, and any number of other places, not to mention other technologies being created and growing where the center of action is elsewhere (like Helsinki and Tokyo for mobile phones). So as with any other high-wage, high value-added industrial cluster, Silicon Valley faces the constant challenge of re-inventing itself to find new innovations that can only be created here. It can be done, but it’s not a sure thing.

I’m sure the CEOs and VCs of Silicon Valley don’t believe that SV is invincible, because for the past decade they have been pouring their money into other parts of the world. For many entrepreneurs, there is no other option — the kids’ soccer league and public schools are here, as are their professional networks — so they will start firms here no matter what. As in the past 50 years, some of these will succeed and many will fail.

But what about employment of the rank-and-file? Like London and Geneva, the Bay Area is becoming impossibly expensive for clerical staff, schoolteachers, cops etc. etc. (For example, for hospitals Northern California has 9 of the 10 most expensive labor costs in the entire U.S., a third higher than the national average.) Eventually these labor costs will push the cost of middle class living even higher. So even with the success of valley companies, how much of that success will accrue to local employees and the local economy?

The so-called Web 3.0

The business section of Sunday’s Mercury had a big cover article on Nokia’s presence in Silicon Valley, specifically the Nokia Research Center Palo Alto. Besides being a great place to host a Mobile Monday meeting, the article notes that the center has about 50 employees — apparently drawn from the alumni of some of Silicon Valley’s best companies. (The NRC PA director, Bob Iannucci, once was VP of research for Compaq and with it, head of DEC’s famed Western Research Laboratory.)

Not surprisingly, the Page Mill Road location is enabling "Nokia's new research relationship with Stanford University." (The normal translation: Nokia is putting up money to support Stanford research or access to that research). In 2006-2007, the two jointly hosted a series of research talks at Stanford.

Most of this was the customary “foreign MNC comes to Silicon Valley” story (to access talent, partners, etc.) But the title was provocative if not silly:

WEB 3.0’s CENTER
Phone giant Nokia navigates Internet’s third wave from Silicon Valley base

The explanation is buried within the story:

Nokia's efforts, Iannucci said, are aimed at maintaining the company's market lead as handsets equipped with robust Web capabilities - communications, search, video and more - become the third great wave of commercial opportunity.

The first wave, Iannucci said, represented "the democratization of consumption of information. Web 2.0 is about the democratization of information production. Web 3.0 - the next step - takes Web 2.0 and makes it mobile."

The term “Web 3.0” shows up frequently on the Web (2.0? 1.0?). Right now it’s a meaningless buzzword that means “new and improved,” right up there with “4G.”

Apparently I know a little more than the credulous Merc reporter about the mobile Web 2.0, having studied it for the past 5 months while supervising the forthcoming master’s project by Eduardo Sanchez and German Benitez. The short answer is that some Web 2.0 is desktop based, some is mobile, and some is both. So it’s ludicrous to suggest that adding things like ubiquity or mobility to existing Web 2.0 plans is going to transform this into Web 3.0, even though it will make Web 2.0 more widely available and more powerful.

A better definition of Web 3.0 is the semantic web — one where we are finding information based on meaning and not keywords. Interestingly, a Nokia researcher published an article promoting this definition in a peer-reviewed IEEE journal last June.

Another mobile carrier's CFIT plans

Earlier this year, I referred to T-Mobile’s denial of the inevitable commoditization of mobile phone network operators. It's happened to everything else in telecom. Now even international long distance is effectively free, thanks to VoIP carriers like Skype and my new favorite Lingo (which includes unlimited long distance to 23 countries for $22/month).

Sometimes I want to say it's a train wreck waiting to happen. But after reading the weekend transcript of the Financial Times interview with Vodafone's CEO, I think the more accurate metaphor comes from aviation crashes: CFIT, controlled flight into terrain.

The CEO is Arun Sarin, a former Pac Bell executive who (only about 100 km from here) designed the technology for its industry-leading cellphone services in California during the 1980s including the 1984 LA Olympics. Sarin then helped Sam Ginn spin off PacTel Cellular to form AirTouch, which later got bought by Vodafone and then merged with Verizon's US properties to form Verizon Wireless.

The FT news article (full text here) highlights' Sarin's atypical opinion of the iPhone, but he's certainly right that 2.5G is a lousy way to watch YouTube. More seriously, The Register notes his excess optimism about his long-term pricing power due to inexorable increases in competition.

Sarin admits that the mobile phone service will be a flat monthly fee within 5-10 years, although he still hopes to exercise price discrimination with multiple minute bundles. Presumably he's not worried about existing flat-rate mobile phone services.

He also expresses the heartfelt desire that his pipes won't become commodities, and that his walled gardens will somehow compete with the likes of Google and Nokia. Vodafone will triumph because it owns the billing relationship and because no one can build LBS without paying it a toll:

"Most importantly, we have 240m customers. We have the relationship with the customer, they are either buying top-up cards from Vodafone, or we are billing them on a monthly basis. Just the simple fact we have the customer and billing relationship is a hugely powerful thing that nobody can take away from us. We could lose our customers and then, yes, they could be gone.

“The second thing is we know where the customers are, in terms of location. We know precisely where you are. Frankly only we know where you are. The handset manufacturer that sold you the handset does not know where you are. But we know where you are.

“So if you say at the most basic level say we have got a customer relationship, we have got billing and we know where you are, these are hugely important things. So whoever comes into the marketplace is going to have to work through us."

So no one will get on the Vodafone network without paying Sarin's toll — faithfully recreating the AOL/BOL/CompuServe/NiftyServe walled garden model of the 1980s. Meanwhile, industry upstarts will be building a 21st century mobile version of the Internet with as much free (or cheap) third party content as possible. I guess it will be up to the next Vodafone CEO to deal with the consequences.

[Mixed metaphor alert] Sarin notes he still comes back to California (and Hawaii) to surf with his son, so he knows what a wipeout is. I guess he's trying to ride the wave as long as he can, but at 53 the eventual crash is going to come long before he reaches retirement age.