iPhone OS everywhere

This week Apple is going to unveil various updated iPod models and probably some other consumer media devices. Around our house, the new iPod Touch is eagerly awaited by someone who is too old to believe in Santa but still thinks he has an account at the Apple Store.

Ryan Kim of the SF Chronicle has a great article summarizing Apple’s shift away from Mac OS X and towards iOS everywhere:

"I think the iOS operating system is so powerful for Apple, it's generating most of their revenues, between the iPod Touch, iPad, iPhone, iTunes and the App Store," said independent mobile analyst Brian Hall. "Clearly, I think Apple realizes that they want to continue down this path."

Some speculate that Macs will eventually run iOS, and Kim quotes Steve Jobs himself:

Steve Jobs has acknowledged the shift, saying the future of Apple is in lighter, non-PC devices, which he likened to cars, comparing computers to old trucks used during the country's agrarian past.

"PCs are going to be like trucks," Jobs said at the D8 conference in June. "They're still going to be around, they're still going to have a lot of value, but they're going to be used by one out of X people."

The article concludes with a quote of Jean-Louis Gasée, the former Apple VP of R&D whose stubbornness (along with John Sculley’s cluelessness) nearly killed the company:

Jean-Louis Gassee, a partner at venture capital firm Allegis Capital and a former Apple executive, said he's doubtful Apple will bring iOS to the Mac because it will add too much complexity, something Apple traditionally avoids. But he said iOS, combined with iTunes, has given the company a system it never had with the Mac.

"It's obvious from Apple's actions they believe in the future of iOS," he said. "They're putting a lot of resources behind it. With iOS and iTunes, Apple has an ecosystem with no equal."

The article is must reading — it’s about as complete a job as you could expect for pre-announcement speculation, and I can’t really add to it.

Eclipse mobility

Ian Skerrett, marketing director for the Eclipse Foundation, stopped by SJSU for coffee this morning to catch up. Ian is in Silicon Valley for tomorrow’s “Eclipse Day at the Googleplex.” (registration closed July 26)

I’ve known Ian since 2004, but haven’t seen him face to face since our honors students studied key success factors for projects in the Eclipse community.

While Ian has stayed in the same job the entire time, Eclipse remains on the move. We talked about how mobile (along with cloud) is the current big thing in software development, and so far Eclipse is doing pretty well.

Eclipse has three of the big four smartphone platforms (five if you count Microsoft): Symbian, BlackBerry and Android. Apple (like Microsoft) has its own tools that for strategic reasons parallel its PC-centric tools.

It also also is used by all five of the traditional Big Five handset developers — Nokia with Symbian and Samsung, LG, Motorola and Sony Ericsson with Android. Motorola distributes its own MotoDev Studio, which includes both a custom package of Android tools and an Eclipse-based IDE for writing Java apps. Even Samsung's proprietary bada smartphone platform uses Eclipse tools.

In response to the increasing focus on mobile, Eclipse has created yet another TLA for yet another project: TMW (Tools for Mobile Web).

All is not sweetness and light. Since Nokia has decided to create its own tools to emphasize QT APIs on top of all its mobile platforms, this means that Nokia is moving away from a shared Eclipse platform towards its own proprietary one (like Apple and Microsoft).

Also, Eclipse is not a silver bullet (or life preserver) for companies with a failed business model or struggling to survive in a commoditized market segment. (Exhibit A: Borland). So there will be a certain amount of turnover inherent in both the composition of the Eclipse community and the sponsor-members who pay the bills to keep the Foundation running.

Still, Eclipse remains the exemplar for a fully open open source community — still comparatively rate, as companies find letting go is hard to do.

Keeping secret the "secret sauce"

When talking about IP, normally tech startups and VCs emphasize the role of patents as a barrier to entry and imitation. This is understandable given that patents block independent invention, as opposed to copyright which failed miserably during the dot-bomb era as dozens of companies re-invented e-commerce and websites.

(Innovation scholars also tend to use patents as a proxy for “innovation” or “innovative output” — mainly because lots of data are available cheap.)

However, there’s more to innovation than just patents. (Tacit knowledge, for one thing.) The “secret sauce” for sustainable competitive advantage will vary based on the industry.

In mature industries, efficiency often comes from process innovations that may not be patentable, but could be trade secrets. It may not be protectable indefinitely if you have your entire strategy visible to your supply chain — as with Dell — but the less you reveal, the longer you can protect it.

On the way home from work tonight, I stopped at TJs, our family’s favorite grocery store. Then I read the interesting profile by Beth Kowitt published in Fortune over the weekend:

Trader Joe's is no ordinary grocery chain. It's an offbeat, fun discovery zone that elevates food shopping from a chore to a cultural experience.
…
The privately held company's sales last year were roughly $8 billion, the same size as Whole Foods' (WFMI, Fortune 500) and bigger than those of Bed Bath & Beyond, No. 314 on the Fortune 500 list.
…
You'd think Trader Joe's would be eager to trumpet its success, but management is obsessively secretive. There are no signs with the company's name or logo at headquarters in Monrovia, about 25 miles east of downtown Los Angeles. Few customers realize the chain is owned by Germany's ultra-private Albrecht family, the people behind the Aldi Nord supermarket empire. (A different branch of the family controls Aldi Süd, parent of the U.S. Aldi grocery chain.) Famous in Germany for not talking to the press, the Albrechts have passed their tightlipped ways on to their U.S. business: Trader Joe's and its CEO, Dan Bane, declined repeated requests to speak to Fortune, and the company has never participated in a major story about its business operations.

The article uses interviews with suppliers, ex-employees and others to summarize its sourcing, pricing and merchandising processes. It captures some of the reasons why our family has preferred TJs to its rivals for nearly 20 years.

Meanwhile, British grocery giant Tesco is failing badly in its efforts to dislodge Trade Joe’s with its Fresh & Easy chain.

Of course, much of this would be impossible if TJs were a publicly traded company. Even if you’re close-lipped like Apple or Google, being public requires a minimal amount of transparency and clarity that even Amazon will someday have to emulate.

For any long-term California resident, a discussion of a homegrown, secretive, privately-held, cult favorite store brings another chain to mind: the In & Out hamburger chain. Unlike TJs, they have a book about them. Also unlike TJs, I think their niche is sustainable indefinitely — in part because the fragmented fast-food restaurant supports niches better than groceries (or department stores), where economies of scope are a crucial factor.

The actual “secret sauce” at In & Out may not be all that secret or valuable, but its unique culture and processes may remain a competitive advantage for as long as it remains family owned, with branch locations directly controlled by the company rather than franchisees.

Mark Hurd for CEO

Levi Sumagaysay of Good Morning Silicon Valley (the Merc) has a wonderful summary of Dell’s many woes, including unhappy shareholders, a $100m fine to the SEC, allegations of shipping defective computers and a recall of servers infected with malware.

Some of this is just normal bad news and some of it suggests a lack of attention to execution that was once Dell’s hallmark and source of competitive advantage.

However, the revelation (and SEC fine) of Dell’s financials from 2002-2006 were inflated by $1+ billion in “loyalty payments” (kickbacks?) from Intel suggests that the core business has been in trouble for a while, as rivals like HP have copied Dell’s once-unique operational efficiency (and as the model has broken down with the rise of laptops).

Michael Dell’s return as CEO in 2007 was assumed to be the solution to the company’s post-bubble woes, but so far the second time around has been much harder. Given the no-confidence vote in Mr. Dell by 25% of the company’s shareholders, perhaps it’s time to find a new CEO.

If they need a commodity IT turnaround specialist, I know just the guy: Mark Hurd. He’s turned around two companies already — NCR and HP — and now finds himself unexpectedly with time on his hands.

Yes I know that Hurd probably has a non-compete clause, but under California law (where HP has its headquarters) it’s difficult to enforce them except under very narrow circumstances. (Ex-Compaq CEO Michael Capellas — jettisoned by Carly Fiorina after the acquisition — is also available, but nothing in his resume suggests he is prepared for today’s brutal commodity price wars.)

So hiring the now-tarnished Hurd might be seen as risky, but desperate times call for desperate measures. He’s still as talented as he was a year ago, and the 134% increase in share price during his reign is unmatched by big tech CEOs not named Steve.

Perhaps the outside directors of Dell should give Mr. Hurd a call: he lives in Atherton, Calif.

Google joins the world of patents

Since Oracle sued Google over Android’s alleged infringements of Java IP, there’s been a lot of speculation about what Oracle really wants. Perhaps it’s just that under new management, Sun is no longer interested in open source (as in the death of OpenSolaris) or any other form of openness.

But no matter what the motivations or how the case turns out, Google will be changed forever.

Google is being dragged kicking and screaming into the world of patents. Welcome, Larry and Sergei, to the mess that is our 21st century intellectual property system.

Google's founders had a vision of a world where superior efficiency and scale provided unchallenged market position and competitive advantage.CEO Eric Schmidt joined after being at two companies that lost such a game: Sun and Novell. (Am I the only one who sees an irony in Schmidt being beaten over the head with a club he helped make?)

Unfortunately, the world is not so simple as to say that the company with the largest market share gets to keep all the spoils. Just ask Bill Gates — or perhaps Lou Gerstner of IBM or Steve Jobs or the folks who sued Rambus.

For this technology-trumps-all, rude shock #1 was its disputes with content owners: not just Viacom vs. YouTube — but also Google books and Google news. As Randy Stross noted in his 2008 book, Google had a painful adjustment when it could't understand why it couldn't go and do whatever it wanted to do. (Again much like Microsoft in the 1990s or Apple today)

In reaction, Google had to hire a lot of copyright lawyers to represent its interests in disputes over fair use, compulsory licensing and incentives for creativity. Within the next 3-12 months, I suspect Google will similarly bring a world-class patent counsel in house.

As it so happened, the Oracle/Google lawsuit came up Friday in a previously-scheduled meeting with an industry insider. Without any direct personal knowledge, he attributed it to Google’s naïveté:

As far as I can tell, I don’t think Google cared [about the risk of patent litigation].

1. They assumed we’re a big company and nobody’s going to sue us.

2. They assumed “nobody is going to sue a GPL distributor, because the FSF and free software advocates are going to be behind us.”

Can you get out of paying patent royalties just because you distribute GPL code?

He then drew an analogy to a mythical “Free Car Company.” Can the car company get out of royalties on engines or wiper blades just because it gives away cars?

He also noted that the lawsuit may be about more than just Java middleware. A decade ago, there were four major patent holders for operating systems: IBM, Microsoft, HP (probably from its acquisitions of Tandem and DEC) and Sun. James Gosling (of Java fame) notes that Sun armed itself with patents to defend against IBM.

Now Google is shipping one of the most popular operating systems ever invented, and being challenged by the firm that holds one of those four major patent portfolios.

In the world of high stakes cross-licensing, Google needs a friend among those Big Four. A year ago, it looked to be HP, but since they bought Palm they’ve turned a cold shoulder to Android.

Once upon a time, list price for a mobile phone OS royalty was $5/unit (for something like Symbian or Windows.) If Google shipped 10 million units in Q2, then (even with the Christmas rush) a whole year’s royalties would be less than $500m, perhaps (depending on the per unit price) under $100m.

Still, if Oracle can extract a billion or two from Sun’s patent portfolio — without having to reinvest in actually inventing anything — the $7b purchase price is going to look cheap.

Last gasp of Sun's semi-openness

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

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

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

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

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

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

The Merc sees it as a negotiating ploy:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Week of open innovation

This week I’m at the annual Open and User Innovation Workshop, this year at MIT. See my open innovation blog for more updates.

I’ve been having trouble keeping up with blogging this summer due to many obligations, including the new Solar Workforce Project which has caused me to pay more attention to cleantech business issues.

I still intend to update this blog with news about the mobile industry, Apple, standards and open source, even if I can’t react to the news of the day.