What good is an iPad?

Friday marked the international debut of the iPad. The Apple tablet went on sale in Canada, Japan, Australia and six major European countries.

Apple drew lines in Japan, UK and France, although it was not clear whether this was due to pent-up product demand or a carefully orchestrated launch event. Still, many expect 2010 iPad sales to exceed 10 million, and one analyst claims that iPad sales will pass the Mac in Q3 of this year.

Coincidentally, during the hours leading up to the launch, two of my friends who are iPad owners reported their contrasting views of the iPad value proposition: one who increasingly can’t do without it, and one who’s dumping it.

As best I can tell, their differing reactions relate to their differing use cases, and thus illustrate both the challenge and opportunity of the iPad and tablets more broadly. They also confirm my own ambivalence about the product category.

One friend — who I’ll call “the Beav” — sent me an email asking if I had a Skype account so he could test out how Skype works with the iPad. The last time I saw him, he showed up with his new iPad, talking about how he bought an iPad only to support a client but found it to be a handy, fun device.

Another friend — who I’ll call “Anthony” — posted to his Facebook page that his nearly-new iPad is for sale because he isn’t using it. One of his friends would have done the same thing but one of his kids has claimed it as an oversized iPad Touch toy.

Although I haven’t seen him in several years, it sounds like Anthony’s use case is a lot like mine. On weekdays, he spends most of his day in one of two places — work or home — and he already has a solution for both places (a laptop at home, a desktop at work). When he’s out and about, he either doesn’t want to reach the Internet or uses his iPhone.

On the other hand, the Beav spends much of his day traveling around between client sites, and (I imagine) has a lot of brief opportunities — 2 minutes here, 10 minutes there — to check email, look something up on the Internet, read news, watch a video etc. etc.

My own story is that I have one computer that I take everywhere for everything, as I have for the past decade. Right now it’s a two year old, slow, increasingly fragile MacBook Air. It’s a nice form factor, but otherwise a mediocre computer, but due to my employer’s budget problems I am not allowed a replacement for another two years — and so have to buy my own replacement (since no lightweight laptop can survive daily use for four years).

Even with the Air, I must say I am envious of Kindle and iPad owners who can flip out their devices at the drop of a hat — as with the guy next too me in steerage on my quick trip to Europe earlier this month. When that airline seat reclines in front of you, even the smallest laptop (and probably most netbooks) aren’t going to work unless your employer paid for those cushy business class seats.

However, I’m not going to type an email of more than two paragraphs on the iPad/iPhone virtual keyboard, nor am I going to use it to edit a memo, let alone a 10,000 research paper. The iPad has a wired keyboard dock option, presumably for a desk at home or work. You can also get it to work with a Bluetooth keyboard and even (unofficially) a mouse, but carrying those around eliminates most of its size advantages.

More seriously, is the world waiting for a 3rd screen to carry around — beyond the 13-15" laptop (or 10" netbook) and the 2-3" smartphone? That was Anthony’s problem, and would also be my problem unless I spend as much time on the road as The Beav does — or have a lot of electronic reading time standing on a train, sitting in an airplane seat or by the pool.

For some, the lack of Flash (or TV video) on the iPad is a deal breaker, particularly if Time Warner and NBC (Universal) continue to hold out on doing a conversion (unlike frenemy Google). For me, it’s having a big enough screen to write something but not the keyboard or application software. (I could see using Keynote on the iPad but not Apple’s defeatured word process or spreadsheet.)

Which means I end up on the iPad — and tablets more generally — where I started. Tablets will not create a new category, but will supplant (or merge with) one or more of the current substitutes: smartphones or netbooks.

Apple and Google and now HP are betting on the smartphone platforms taking over tablets. Since Microsoft has the 5th most popular smartphone platform, it presumably hopes that Windows Vista can be successfully ported to tablets.

Here I am less optimistic about the iPhone and webOS than I am about Android. (Full disclosure: I grossly underestimated how quickly the iPhone would gain market share and transform the market, missing out on a 150% stock three year price gain that spanned the most intense recession in 50 years.)

If tablets are going to catch on, it seems as though there is another shoe waiting to drop: the oft-requested OpenOffice on Android. (Yes, Androffice allows Google docs on Android, but rarely is my Internet connectivity fast enough to make the SAAS model even remotely satisfactory.)

On the one hand, OpenOffice (like Android) is the open source darling of its category. On the other hand, there is bad blood between Sun and Google after the latter bypassed Java (and Java licenses and royalties) to provide its own alternative Java VM.

Still, I don’t see tablets as a plausible mass market replacement for a netbook before there is a good office productivity suite to go with email, a web browser and various e-book readers. I’ll be curious to see whether Barnes & Noble extends its Nook into this segment, or leaves the category to Dell and other Adobe tablet licensees. Conversely, perhaps the best hope of tablets is to be über-ereaders, seeking to supplant dead tree media rather than computing or communication devices.

Update Saturday 11am: Yet another iPad-owning friend, Youngjin Yoo, has responded to this post with his own blog post, in which he endorses the book replacement niche for the iPad.

REALLY scary Google privacy invasion

Anyone who uses the Internet has come to terms with how little privacy they have in the face of Google’s quest to know everything about everyone everywhere. Whether it’s IP address, or cookies, or being logged in, Google knows what you’re searching and probably can associate it to something about you.

A few of us lazy (or incredibly cheap) Internet users have consented to even more privacy invasion by letting Google read our mail in perpetuity. (If Yahoo let me use their email for POP and SMTP, I’d be using my 12-year-old Yahoo account rather than my newer Gmail account.)

However, in all of these cases there is an element of consent. If I don’t like Google’s spying, at least I could switch to Microsoft or Yahoo’s or someone else’s.

So far, I’m even willing to believe Google — even if several sovereign countries will not — when they say they didn’t do anything with all the data they gathered with their Wi-Fi wardriving that somehow got programmed into their Street View spying.

However, there’s one place where I draw the line on trusting Google: Google’s recent admission that it’s considering bringing facial recognition to its search engine. As reported in the Financial Times,

Google executives are wrestling over whether to launch controversial facial recognition technology after a barrage of criticism over its privacy policies.

Eric Schmidt, chief executive, said a series of public disputes over privacy issues had caused the management team to review its procedures and the launch of new technologies. According to Google executives, facial recognition is one of the key topics of internal debate.

Mr Schmidt said: “Facial recognition is a good example...anything we did in that area would be highly, highly planned, discussed and reviewed. When you go through these things, you review your management procedures.”

If facial recognition were integrated with free Internet search, this means that 2 billion people with a cellphone — or 300 million Americans or 5 million people in my metropolitan area or 100,000 in community — could, at any time, snap a picture and then look me up. Unless I prevent everyone I’ve ever met from putting my photo on the web — and take all the existing ones down — there’s no way to opt out of this invasion of privacy.

More to the point, half of the population (male) could look up the other half of the population (female) and then— aided by WhitePages.com or other address lookup services — become a really creepy and determined stalker. If that doesn’t creep you out, think about your sister, daughter, niece, granddaughter or someone else. In recent years, there have been too many kidnap-murders of girls and young women to ignore this possibility.

Google has had the technology since its 2006 acquisition of Neven Vision. Privacy worries forced it to back down from including it in Google Goggles last year.

Other companies — two Swedish and one Israeli — are demonstrating tools for such searches, and trying to license their technology to bigger firms. The latter claims to have identified 52 million people.

What is really troubling is that Google is demonstrating the same hubris about privacy that it did with stealing copyrighted material (whether GooTube or the book project). As the FT reported:

[Schmidt] would not rule out any eventual roll-out, saying: “It is important that we continue to innovate.”

In fact, the “continue to innovate” is almost identical to Bill Gates’ “freedom to innovate” rationalization for Microsoft being above the law during the peak of its power a decade ago.

It is this arrogance that has long worried Google observers, since the company seems so sure of its internal compass — perhaps because its employees are so much smarter than the unwashed masses — that it has tended to have a tin ear to external criticism.

Author Randy Stross confronted this very issue in a talk upon the release of his book Planet Google almost two years ago. As Prof. Stross told an San José Library audience:

The only time I am going to be most worried about what Google is doing is when they offer bland reassurances. [I’m not worried] when they agonize publicly — here are the issues for us, here [is why we] are agonizing — which is what they did when they confronted the question about what to do with the Chinese governments demand that they censor results for certain search terms.
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As long as they do that, I think they can hold to “don’t be evil” but if they revert to standard corporate speak with the rote reassurances, this is a company that as I fear will know more about us than any entity — private or public — in the world. I don’t want to hear reassurances; I want to see them worry about my worries.

And if they don’t worry about my worries, what then? Depend on some foreign government or a grandstanding congressperson or attorney general to do the right thing? Hardly a comforting thought.

iPhone paper in print

I got notice Tuesday that my iPhone paper is finally in print with Telecommunications Policy. Here’s the cite:

Joel West and Michael Mace, “Browsing as the killer app: Explaining the rapid success of Apple’s iPhone,” Telecommunications Policy, 34, 5-6 (June-July 2010): 270-286. DOI: 10.1016/j.telpol.2009.12.002

I summarized the paper for blog readers back in January, and it proved to be one of my most popular posts on Seeking Alpha.

While I try to mention these things on my blog, frankly this is just an update that takes 5 minutes to write because I’m still swamped, and don’t have time to comment on the Google developer conference, etc.

Hal and Eric want to save journalism

Author James Fallows has a long Atlantic feature story on why he believes Google is sincere in wanting to save journalism from its business models. (OK, long Atlantic feature is redundant, but at 9,000+ words it’s longer than most academic papers.)

While the author’s friend (and Google CEO) Eric Schmidt plays a central role, so too does chief economist Hal Varian. (Somehow Fallows doesn’t mention that Varian wrote the best-known information economics book and was the founding dean of Berkeley’s information school.)

Two excerpts from the article:

[P]eople inside the press still wage bitter …debates about whether…customers will ever be willing to pay for online news… But at Google, I could hardly interest anyone in the question. The reaction was: Of course people will end up paying in some form—why even talk about it? The important questions involved the details of how they would pay, and for what kind of news. “We have no horse in that race or particular model in mind,” Krishna Bharat, one of the executives most deeply involved in Google’s journalistic efforts, told me, in a typical comment. His team was already working with some newspapers planning to put their content behind paywalls, others planning to remain free and hoping to become more popular with readers annoyed when paywalls crop up elsewhere, and still others planning a range of free and paid offerings. For Bharat and his colleagues, free-versus-paid is an empirical rather than theological matter. They’ll see what works.

Some insights from Hal Varian:

…“Unbundling” is an insurmountable business problem for journalism. “Bundling” was the idea that all parts of the paper came literally in one wrapper—news, sports, comics, grocery-store coupons—and that people who bought the paper for one part implicitly subsidized all the rest. This was important not just because it boosted overall revenue but because it kept publishers from having to figure out whether enough people were reading stories from the statehouse or Mexico City to pay the costs of reporters there.

“Newspapers never made money on ‘news,’” Hal Varian said. “Serious reporting, say from Afghanistan, has simply never paid its way. What paid for newspapers were the automotive sections, real-estate, home-and-garden, travel, or technology, where advertisers could target their ads.” The Internet has been one giant system for stripping away such cross-subsidies. Why look to the newspaper real-estate listings when you can get more up-to-date, searchable info on Zillow—or better travel deals on Orbitz, or a broader range of movie showtimes on Yahoo? Google has been the most powerful unbundling agent of all.
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Burdened as they are with these “legacy” print costs, [dead tree] newspapers typically spend about 15 percent of their revenue on what, to the Internet world, are their only valuable assets: the people who report, analyze, and edit the news. Varian cited a study by the industry analyst Harold Vogel showing that the figure might reach 35 percent if you included all administrative, promotional, and other “brand”-related expenses. But most of the money a typical newspaper spends is for the old-tech physical work of hauling paper around. Buying raw newsprint and using it costs more than the typical newspaper’s entire editorial staff.

The article also talks about Google’s ideas about changing the substance of journalism via Google News. Its head, a Bangalore native, hopes to reduce pack journalism and provide a more multicultural perspective for Americans and other English-speaking people around the world. (Sorry, it’s hard to take seriously any search engine that promotes RT — Pravda on TV — as co-equal with CBS or the NY Times.)

Still, Fallows does a good job of capturing the “deeply symbiotic relationship” that Google realize it shares with quality content provider. He also lists a range of initiatives, big and small, that Google is taking to help newspapers make the inevitable transition from dead trees to online as their primary source of revenues.

And more generally, Fallows and Google offer a more nuanced and sophisticated view of Web business models for the coming decades. Given the high failure rate of Web 2.0 business models, I were leading an online startup I’d make it a must read for my entire staff. The ideas about bundling, cross-subsidies, scarcity and pricing are also ones that are broadly applicable to any class on business models or information economics.

Total Eclipse of Sun

InfoWorld chronicles the technological brain drain at Sun Microsystems after it was gobbled up by Oracle:

Key departures have included Java founder James Gosling, XML co-inventor Tim Bray, and Simon Phipps, Sun's chief open source officer. After serving as CTO of client software at Sun, Gosling worked for a couple months with the same title at Oracle before leaving in April under what appears to be acrimonious circumstances. Bray, who was director of Web technologies at Sun, also quickly left Oracle, becoming a developer advocate at Google. Phipps, never offered a job at Oracle, is open source strategy director at integrator and identity platform vendor ForgeRock.

Other departures include Sun engineers Charles Nutter and Thomas Enebo, who shepherded the development of the JRuby programming language at Sun but joined Engine Yard last summer several months after the Oracle acquisition of Sun was announced. A key developer on the open source Hudson continuous build project, Kohsuke Kawaguchi left in April to form a company to continue working on Hudson.

In his blog, Gosling even notes that he needed a lawyer to resign from Oracle:

Between all this [answering emails] and spending quality time with my lawyer, resigning has been a full time job (before I quit, several friends said I'd need a lawyer because "this is Oracle we're talking about"... sadly, they were right).

It is a sad commentary to say that Oracle is more bureaucratic than Sun, given Sun had become one of the most bureaucratic, least entrepreneurial tech companies in Silicon Valley.

It’s also telling that Oracle shareholders got a lot less technology than they were promised from the acquisition.

I wonder how much of a loss it really is to Oracle. First, while these were very capable people, they obviously weren’t enough to make Sun successful anymore. Was it because of a bad strategy? Lack of marketing? Or have the returns to innovation disappeared in the mature enterprise IT segment? I don’t know, but if the strategy had been working, Sun wouldn’t have needed to sell itself off.

Also, what use does Oracle have for innovation? Their focus is service, support, scope, reach, control, perhaps reliability. Again, the entire segment seems to be rewarding turnkey solutions — or successful lock-in strategies — rather than new technology.

Finally, I can’t say I’m all that surprised. Big acquisitions nearly always add revenue and destroy value.

Why Meg will fail

Despite the efforts of SnapTrack billionaire Steve Poizner, it looks like this time next month Meg Whitman will be the GOP nominee for governor. Winning the general election against (ex-governor) Jerry Brown will be a dual-negative campaign of Whitman and her allies attack Brown and his allies — and vice versa.

But suppose that Whitman won, and turned her eBay/P&G experience into becoming the head government executive of the world’s 8th largest economy with 37 million people (more than 21 of the 27 EU countries)? In a state trying to rival Greece for deficit spending, Whitman promises her business experience will bring fiscal sanity and solve the intractable structural budget problems. Instead, what I think will happen is that — given hostile legislators and state employees — the bureaucracy would outwait her, if not destroy her.

Instead of real reform, we’ll get the classic “Washington Monument Syndrome,” the ability of a bureaucracy to make highly unpopular and visible cuts rather than getting rid of waste or reducing the size or scope of government.

This was brought home by two utterly transparent (and largely successful) efforts here in San Jose. The city parks managers are cutting park hours with orders from on high to make them as visible as possible — despite open skepticism about the logic of the cuts.

Meanwhile, the San Jose Unified School District is putting employees on unpaid furloughs, totaling one week next fall. The union (which reluctantly agreed to the cuts) wanted the furloughs to be held on Wednesdays — the most visible and inconvenient possible time for parents. The school board said no, but they did give parents a week of furlough/student vacation in October — rather than starting school a week later (Aug. 23 vs. Aug. 16).

San Jose is blessed with one of the most competent politicians I’ve seen in 30 years of following politics, Mayor Chuck Reed. He is largely respected by friends and foes for doing what he said he would do and showing real budget discipline. (He doesn’t appear to be running for higher office, which is always a good sign.) While not business as usual, Reed is no outsider: he lived in the city for 20 years and a council member for six years.

If Reed is unable to prevent the Washington Monument Syndrome in a city of 1 million that he knows so well, what hope does Whitman have? She has no government experience, no allies, no way of reaching down through the layers of the California bureaucracy — and, of course, a hostile media that will amplify the attacks on her reform efforts.

So while it’s nice to believe that a knight in shining armor will ride to save California, it isn’t going to happen. And if someone can get elected but not fix things, I’m not sure what other path out there is.

Update, Tuesday 9am: From the Lex column of the Financial Times, May 18:

Always eager to deflect blame for fiscal lapses, state officials have pointed the finger at a small but growing market for municipal credit default swaps. … The first and loudest protests have come from – surprise, surprise – the state with the highest CDS prices, California. Treasurer Bill Lockyer has expressed indignation that prices imply California is riskier than many developing nations. With its intractable deficit, dysfunctional politics, powerful unions, inability to devalue and taxpayers who can decamp to states with lower taxes and better services, the CDS market may be right.

Plugging chronic deficits with bonds carrying the lowest credit-rating of any state has forced California to accept yields implying a default risk mathematically equivalent to the CDS prices Mr Lockyer considers inflated. But they are, of course, two sides of the same coin.

An end to Grove's law?

As part of my reflections on the news of SAP spending $5.8 billion to buy Sybase, I wonder whether we will finally put an end to a piece of self-serving theorizing by Stanford adjunct professor Andy Grove.

Like so much in enterprise software nowadays, the deal is big, expensive, plays to gargantuan egos and does little to increase customer value. (At least this story has one happy ending — the bailout of Sybase shareholders who finally get what the stock was worth back in 1994.)

Apparently I am not the only one questioning the business logic of the deal. The Register headlined their story “SAP buys Sybase - but why?” while the MarketWatch headline said the acquisition “draws mixed reviews.”

One possible explanation is the standard one that I give my strategy undergraduates for most multibillion dollar acquisitions: the desire of CEOs and other execs to run a bigger company. On MarketWatch, a self-identified “SAP Insider” offered a similar explanation:

SAP is simply buying revenue. Their boards technology strategy talking is so inconsistent: they praise their own in-memory DB development, then the Sybase acquisition is mainly about the mobile business while widely avoiding the DB question which is still Sybase's main business. This proves inconsistency all over the place, maybe even panic. I think that SAP as a company is not at peace with itself. They don't trust their own potential anymore. The changes in the board haven't changed anything. Maybe the problem is beyond the board.

Buying revenue is common in mature industries, where firms unable to grow their core business buy other companies so the market cap and revenue graphs show an unbroken string of increases, in an attempt to hide that the core business has simply run out of steam.

However, there is another, more substantive possibility: an end to Grove’s law, which has been offered as a maxim of IT industry strategy for almost 20 years.

Everyone knows Moore’s Law, the 1965 prediction that the number of transistors will double every 18 months (at least until we get down to atom-scale transistors.) But his successor as Intel CEO, Andy Grove, claimed a new pattern of industrial organization in the IT industry, in which horizontal monopolies of components (such as x86 microprocessors) supplanted go-it-alone vertically integrated winners such as IBM and DEC.

In our 2000 paper on PC architecture, Jason Dedrick and I cite Grove’s 1996 book Only the Paranoid Survive (esp. page 44), but other data suggests that Grove was giving speeches to this effect at Harvard b-school during the early 1990s. (As a sidelight to his day job, Grove later became a lecturer at the Stanford Graduate School of Business.)

One of the problems I had with Grove’s claim was that it was so incredibly self-serving: the same claim by (say) Carliss Baldwin would be much more credible than coming from the CEO of a company accused of monopolistic behavior in restraint of trade.

Was the Wintel duoopoly a natural outcome of economies of scale, network effects and other “increasing returns to scale” (as might be argued by Brian Arthur)? Or was it merely two lucky companies that found a window (sigh) to dominate a market niche through a combination of normal and aggressive business practices?

Whatever the explanation, the stylized world described by Grove is just about gone, as IT companies integrate up and down the stack, vertically integrate along the value chain and otherwise increasingly pursue strategies of related diversification. Microsoft, Google, Sony and Nokia are just a few examples of such strategies, as are (to a much more mundane extent) the three enterprise software giants: IBM, Oracle and SAP.

Would it be more efficient to stick with modular component specialization and interoperability, rather than gathering more and more technologies under one roof? I don’t know, but the latter strategy is what firms are doing now, rendering Grove’s law now effectively obsolete.

Scientists of the Future! Thursday Only!

This week, the annual Intel International Science and Engineering Fair is at the San Jose Convention Center. The fair brings 1,500 high school students from 53 countries who compete for $4 million in awards and prizes.

The fair is open (free) to the public on Thursday 9am-9pm, with student contestants present at their projects from 10am-2pm.

I spent Tuesday night and Wednesday morning judging science fair projects, as one of 100s of special judges (not counting 1000+ regular judges). Although I have judged county science fairs for the past 22 years, I found the projects really fascinating.

In the best projects, the students were completing what could be a senior (undergraduate) thesis, or even a master's thesis. Even for the ones that don’t reach that level, the sorts of problems they choose — and the solutions they found — are stimulating in a way that you can’t get by looking only a products that make it to market.

The fair is run by Science for Society and the Public (a DC nonprofit) with named sponsor funding by Intel as part of its (admirable) education initiatives. However, Intel was almost invisible: beyond some Intel T-shirts it otherwise lacked an obvious presence.

Instead, the company that was most prominent was the “premium sponsor", i.e Google. It was showing one of their (once top-secret) Street View cars at the center of its booth, as well as peddling various software (Apps, SketchUp) and SaaS offerings.

Overall, Google’s presence suggested a calculated effort to convince these smart kids that working at Google is the ne plus ultra. Was Intel absent because it’s not hiring? Because it no longer has the slack resources to be actively involved? Or because it was outmaneuvered by Google?

The awards are handled out Thursday and Friday, and then the kids fly home. Next year, Los Angeles will host the fair, as part of a three year rotation with Phoenix and Pittsburgh.

Borders in search of e-book strategy

Borders has announced that starting June 17, its online e-bookstore will go live and it will be distributing a range of reader solutions that include software for PCs, smartphones and the iPad.

It will also be distributing the Kobo eReader — from Toronto-based Kobo Inc. — a $150 stripped-down e-reader. The technology got a glowing review from Wired last December, although it’s not clear how much is applicable.

This is Borders’ attempt to remain relevant and earn a seat at the table before physical bookstores go the way of physical record stores. AFAIK, the company has released nothing about the platform — only the physical device and how it will be used — but here are some random thoughts:

• The $150 price point is going to put pressure on Amazon, Apple and Barnes & Noble, even if nobody is going to buy an e-reader that can’t even surf the web. 
• On that point, what’s with Bluetooth instead of WiFi? Do we want it to dictate books via our headset rather than connect to a WLAN? Or is this for the really clueless user who doesn’t know how to use a hotspot at the local library?
• Is the market consumer impulse buyers, or does Borders (HQ a few miles from U. Michigan) understand the potential for the education market? A $150 list price might mean a $100 price in bulk, and $100 is where basic e-readers start to become common in K-12 and higher ed. It seems likely that we’ll see a Nook and/or Kindle below $200 by Christmas, even if the iPad remains overpriced for now (or Apple tries to get people to settle for an iPod Touch).
• Amazon and Apple have successfully created proprietary reader platforms, but why are the others using anything but Android? (as Barnes and Noble is…)
• Borders seems to realize that the world doesn’t need another book format, so it seems to have turned control of its platform (and thus switching costs) to Adobe, who appears to provide the DRM for the otherwise open-format EPUB book format.
• I’m guessing the content will be readable 5 years from now, but otherwise this has “angry orphan” written all over it — once Borders figures out its long term strategy.

Now what? If I were Borders, I’d ally with Bertelsman or one of the Japanese publishers.

The company is a distant third in the US market — and probably 4th or 5th in eBooks — so it will have little to say about the eventual platform standards and format wars. Allying with Adobe provides good technology but is a very risky business move (about like allying with Google for smartphone OSs).

Some dominant overseas publisher will decide that it does not want to accept marching orders from Amazon, Apple or Adobe, and will come up with a strategy that gains traction in its home market. Borders could gain traction there, sell to their tourists and also perhaps (if the copyright agreements allow it) sell US content to that market.

Attacking a non-monopolist

On a day that should have been a happy day for Apple, the press is breathlessly covering a leaked story intended to put its tail between its legs. As the WSJ.com reported Monday:

Apple Draws Scrutiny From Regulators
FTC, Justice Department Discuss Possible Inquiry Amid Complaints From Application Developers, Advertising Firms

By THOMAS CATAN And YUKARI IWATANI KANE

WASHINGTON—U.S. antitrust enforcers are taking a keen interest in recent changes that Apple Inc. made to its licensing agreement with iPhone application developers and are likely to open a preliminary investigation into whether the company's actions stifle competition in mobile devices, according to people familiar with the situation.

Or, as the FT reported Tuesday:

US authorities have signalled an interest in a potential antitrust probe into whether the software underpinning Apple’s groundbreaking iPhone unfairly locks out competitors, according to a person familiar with the matter.

There’s only one problem with this story: “unfair” is not against the law. Anti-competitive monopolistic practices are.

As experienced antitrust economists noted last summer, there’s no way Apple (with its minority iPhone market share) could be found in a court to have violated antitrust laws:

As [Former FCC Economist Michael] Katz himself noted, “This is notion that iPhone is dominant handset … is just wildly overstated.” He predicted that a claim of a violation of an antitrust law “would never hold up in court” and thus the Justice Department won’t even investigate it.…

In other words, there’s no justification for government intervention if there’s no market failure.

To its credit, ComputerWorld found the story

Antitrust charges against Apple over its decision to ban rivals' development tools from the iPhone would likely fail because the company doesn't have a stranglehold on the mobile market, an expert said today.

"It's going to be difficult for the government to prove antitrust allegations," said Hillard Sterling, an antitrust attorney at Chicago-based law firm Freeborn & Peters LLP.

"The government has to show that Apple's conduct is adversely affecting competition for consumers, and that requires that it show the absence of choice."

So why is it making news? As lawyers like to say, cui bono? Did the leak come from competitors, hoping to tarnish the Apple brand? From regulators, hoping to intimidate Steve Jobs (fat chance) with a case they could never win in court?

Monday’s news was otherwise great for Apple. Apple announced it had sold 1 million iPads in 28 days. (I’m still waiting to hear how many units of the Amazon Kindle and B&N Nook have been sold.)

Also Monday, Canalys released Q1 estimates of worldwide smartphone sales that made Apple look good:

Nokia: 21.4 million, 38.8% share, 56.6% YoY growth
RIM: 10.6 million, 19.2% share, up 45.1%
Apple: 8.8 million, 15.9% share, up 130.8%
HTC: 2.8 million, 5.1% share, up 105.8%
Motorola: 2.6 million, 4.7% share, up 136.8%

So while Apple’s share has risen from 11.5% to 15.9%, it still has a long way until it can earn the title (and the scrutiny) of a “monpolist.”)

More and worse government

From Peggy Noonan’s WSJ column Saturday:

We are at a remarkable moment. We have an open, 2,000-mile border to our south, and the entity with the power to enforce the law and impose safety and order will not do it. Wall Street collapsed, taking Main Street’s money with it, and the government can’t really figure out what to do about it because the government itself was deeply implicated in the crash, and both political parties are full of people whose political careers have been made possible by Wall Street contributions.

Meanwhile we pass huge laws, bills so comprehensive, omnibus and transformative that no one knows what’s in them and no one—literally, no one—knows how exactly they will be executed or interpreted. Citizens search for new laws online, pore over them at night, and come away knowing no more than they did before they typed “dot-gov.”

It is not that no one’s in control. Washington is full of people who insist they’re in control and who go to great lengths to display their power. It’s that no one takes responsibility and authority. Washington daily delivers to the people two stark and utterly conflicting messages: “We control everything” and “You’re on your own.”

All this contributes to a deep and growing alienation between the people of America and the government of America in Washington.
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Why does the federal government do this? Because so many within it are stupid and unimaginative and don’t trust the American people. Which of course the American people have noticed.

The latest in outsourced political criticism, as a cost saving measure in these difficult financial times.