Web standards exist for a reason

Back at the end of the browser wars — i.e. the late 20th century — it looked like Microsoft had won and Netscape had lost. A number of Windows-centric shops designed their websites for Internet Explorer, either in terms of full functionality (“works best with Internet Explorer") or actual access (“requires Internet Explorer”). Microsoft encouraged this by promulgating APIs for Visual Basic, .Net and DirectX and the like.

Fast forward to today. Over the past five years, Microsoft’s desktop market share has been in a freefall. Statcounter — the widely cited arbiter of browser usage — chronicles how Google Chrome has come from nowhere to take share from IE and (to a lesser degree) Firefox (heir to Netscape’s customers and developers). At 55% in January 2010, the IE share is now under 22%:

When you include all platforms — tablets, mobile phones and consoles — the news for Microsoft is even worse — with an IE share of 13.5%:

Yes, as a Mac owner this was particularly galling, since Microsoft had a Mac version of IE (as one MS employee pointed out to me) only as long as it served its purposes during the browser wars. MS discontinued IE for OS X in 2003. Fortunately, with IE now a small fraction of the web audience, it no longer matters — except at one site crucial for business professors, as I discovered today working on a paper.

The Virtue of Bad Design
One of the more popular proprietary business databases is called Thomson One, from Thomson Corporation (later Thomson Reuters). For entrepreneurship scholars (like me), the most relevant content is VentureXpert, a database of investments by VCs, angel networks, corporate VC and other private equity investments. This data is used by PWC and its partners to announce their quarterly VC funding stats at the PWC MoneyTree site.

Unfortunately, Thomson One is only compatible with Internet Explorer. Worse yet, it is not supported (and doesn’t fully work) with any version of IE greater than IE 8 (as documented by IT support desks at Wharton, Harvard, Columbia, and other schools).

Internet Explorer 8 was introduced in 2009 and last updated in February 2011 (almost five years ago), just before IE 9 was released in March 2009. IE 8 is not compatible with Microsoft’s current desktops, laptops, tablets or mobile phones, which require Internet Explorer 10 or 11. StatCounter estimates the November 2014 market share of IE 6+7+8 at 4.03% of the desktop market.

For Windows users, there is an IE Tab plug-in that helps Chrome and Firefox imitate IE, but not all the Thomson One features are available in this emulation mode.

Customers Lose, and (So Far) Thomson Still Wins
So to recap, here is where we are:

• The virtue of the web (particularly HTML 4+) is interoperability between browsers.
• One or more IT architects at Thomson Corp. decided years ago to lock their database to specific features of one browser, rather than support Internet standards.
• Those features are so non-standard that they are not supported by Microsoft browsers released since March 2011.
• The company has done nothing to upgrade their site to support the 96% of the world that uses other browsers.

I'd like to think that whoever made this architecture design error was fired for his (it was most likely a he) mistake, but that would assume a level of IT competence that the legacy team of Thomson Corp has not yet demonstrated. (Meanwhile, other Thomson Reuters sites seem to work with a wider range of IE versions and in some cases even have a mobile client).

One thing that is clear is that Thomson Reuters is pretty confident of their monopoly position in this particular niche: if not, their customers would be defecting in droves, and fixing this broken IT infrastructure would finally become a priority. I’m not holding my breath (on either competence or customer orientation suddenly breaking out).

Cornered Adobe comes out swinging

While a dog that didn’t bark helped Sherlock Holmes solve a case, normally something not happening is not news. However, the saga of Apple not allowing Adobe’s Flash on the iPhone (and now the iPad) seems to provide no shortage of fodder for bloggers, reporters and industry analysts.

Adobe has been seeking a work-around by creating a cross-compiler from Flash to the iPhone. However, on Thursday Apple unveiled its new SDK with a clause that banned such cross-compilers.

As I have argued, Flash needs the iPhone more than the iPhone needs Flash. Apple wants Flash to provide portability between the iPhone and its rivals about as much as Microsoft wanted Java to provide portability between Mac and Windows.

The frustration of Adobe being shut out from the popular smartphone bubbled over a blog entry Friday by Flash platform evangelist Lee Brimelow. The headlines are over Brimelow’s final sentence: “Go screw yourself Apple.”

Brimelow argued:

What is clear is that Apple has timed this purposely to hurt sales of CS5. This has nothing to do whatsoever with bringing the Flash player to Apple’s devices. That is a separate discussion entirely. What they are saying is that they won’t allow applications onto their marketplace solely because of what language was originally used to create them. This is a frightening move that has no rational defense other than wanting tyrannical control over developers and more importantly, wanting to use developers as pawns in their crusade against Adobe.

(Brimelow was told to redact the first sentence by his Adobe bosses, but it was captured by various news sites.)

The nominal reason for Apple to ban Flash is that it’s a buggy, and a resource pig. In a pointed and often funny posting blasting the “Flash Brigade,” Daniel Dilger argues on RoughlyDrafted that Flash for mobile phones requires computing power beyond 2 of the 3 iPhone models shipped to date. (Update: In another posting, Dilger theorizes that the prohibition relates to the iPhone 4.0 implementation of multitasking.)

(Flash is a resource pig even on a personal computer. My laptop browser crashed frequently until I installed ClickToFlash freeware).

Brimelow expresses surprise at the Apple move:

Adobe and Apple has had a long relationship and each has helped the other get where they are today. The fact that Apple would make such a hostile and despicable move like this clearly shows the difference between our two companies. All we want is to provide creative professionals an avenue to deploy their work to as many devices as possible. We are not looking to kill anything or anyone.

I think this is silly at best, and disingenuous at worst. Apple and Adobe haven’t been friends for a decade, and really haven’t seriously helped each other in 20 years.

In speaking to my class on Monday, Michael Mace thinks Apple has a bad taste from helping Adobe get where it is today — a company that until very recently made most of its money on Windows. (Mace was Director of Competitive Analysis and Director of Mac Platform Marketing for Apple in the early 1990s.)

Mace recalled that in the late 1980s, Apple spent millions promoting early Macintosh applications — including Adobe’s first major application, Adobe Illustrator. Then it woke up one morning and found all found these applications (and companies) that it had helped promote were now selling on Windows.

I have my own vivid memory of how Apple suffered here, almost 20 years later. In the summer of 2001, I went to the Big Island of Hawai‘i to participate in the Macintosh Technology and Issues conference. In a room full of the leading Mac developers, someone (perhaps host Jerry Borrell or co-host David Ushijima) asked who was developing for Windows: I was the only person to not raise my hand.

Almost everyone in the room had gotten into the software business as Mac developers, and (with Windows 3.0) they were all shifting over to Windows.

Apple knows that the same process will repeat itself, with many iPhone developers targeting Android as well. But Apple has no reason to eliminate switching costs to its rivals: as long as that’s Adobe’s goal, it’s childish to expect Apple will want to help someone slit its throat.

John Gruber of Daring Fireball came to a similar conclusion when he analyzed the logic of Apple’s strategy — an analysis Steve Jobs himself endorsed.

So what Apple does not want is for some other company to establish a de facto standard software platform on top of Cocoa Touch. Not Adobe’s Flash. Not .NET (through MonoTouch). If that were to happen, there’s no lock-in advantage. If, say, a mobile Flash software platform — which encompassed multiple lower-level platforms, running on iPhone, Android, Windows Phone 7, and BlackBerry — were established, that app market would not give people a reason to prefer the iPhone.

Fortunately, there are still some grownups at Adobe. Responding to Apple’s licensing move, CTO Kevin Lynch wrote:

First of all, the ability to package an application for the iPhone or iPad is one feature in one product in Creative Suite. CS5 consists of 15 industry-leading applications, which contain hundreds of new capabilities and a ton of innovation. We intend to still deliver this capability in CS5 and it is up to Apple whether they choose to allow or disallow applications as their rules shift over time.

Apple is not going to put Adobe out of business, even if it slows its growth. At best, Apple can accelerate the adoption of HTML5 as a substitute for Flash, but any significant impact on Adobe’s revenues is years off.

Matt and I agree on the Big G

After I posted last week about Google’s half-full glass openness, my friend Matt Asay tweeted a plug for my column by quoting the punchline:

"Google is a self-interested, profit-maximizing, semi-proprietary co that embraces openness when it suits its purposes" http://bit.ly/5GLF0l

Thanks to Matt and his 4,841 followers, that may be one of the most quoted things I ever say in my life.

But Matt was too modest to mention his own very similar thoughts on the subject last month on his Open Road blog. I missed the Dec 22 posting because of the hectic pace at the end of the semester and a few days before Xmas.

The title alone told me that we are on the same page: “Google--not necessarily 'more open than thou'.” He was keying off a self-interested (and self-serving) post by Google SVP Jonathan Rosenberg that defends its right to unilaterally choose what parts of its solutions are open and closed. To which Matt deliciously responded:

Am I the only one that just had Napoleon of "Animal Farm" flash through their minds while reading that statement? Some animals are more equal than others, and some companies know better than others when to keep code closed.

He also quotes a Gartner analyst as saying

The art of business in the 21st century is figuring out how to open up your suppliers' and competitors' business while keeping yours tightly sealed. And in that endeavor Google has proven highly successful.

A few excerpts can’t do the article justice, so I recommend the entire post to anyone interested in open (or semi-open) IT strategies.

Razors that outlive the razor blades (and its maker)

Everyone always talks about how important it is to create a “razor and razor blade” business model. Although business jargon is often sloppily applied, this would normally translate into “get people to use your durable base unit and then sell them lots and lots of consumables.”

Best case, you can keep a struggling Fortune 100 company alive for a decade or more. Don’t believe me? Look up the role that inkjet and laser printer cartridges played for HP during the period roughly 1995-2005 as its enterprise and personal computing businesses were plunged into commodity price wars.

Normally the razor-and-razor-blade model assumes some form of incompatibility and switching costs. After all, the worst possible scenario would be to subsidize adoption of your hardware and then have it used to pad the consumables profits of another company.

Today we found an interesting antique “razor” that outlived the razor blade maker. When we sought to get passport photos, our local Mailboxes Etc. (now a “UPS Store”) used an OER PC-10 passport camera. It appears that OER took an off-the-shelf Polaroid back and added its own optics so that a single snap would print two near-identical photos.

(Note to the Millennials: Polaroid was a film-based photography company that provided instant photography before digital cameras were invented.)

By creating instant film, getting a passel of patents — and driving the evil Big Yellow out of the market with a $0.9 billion judgement — Edward Land’s once-famous company had the instant film market to itself. Unfortunately, the film business ain’t what it used to be, and unlike their Japanese rival (Fuji), both Polaroid and Kodak went into a long decline as megapixels replaced chemical reactions.

As a result of that decline, from 2006-2008 Polaroid decided to stop making cameras and then their film. No matter how long lived the cameras were, Polaroid wasn’t going to be around to profit from selling more razor blades, leaving a bunch of angry orphans. (Of course, the current Polaroid is a zombie company that was liquidated and the remainder purchased out of bankruptcy by a private equity firm).

Fortunately for our local MBE, Fuji is selling film packs that work with the 80- and 100-series Polaroid film. So, as my dad showed me 40+ years ago, you take the picture, count to 60, pull out the picture, count to 120 and then pull the transfer sheet off.

Thanks to this trailing edge technology, the State Department has two passport-size color photos of my daughter, and Fuji made a couple of bucks off the transaction. (Due to user error, it took 3 tries to get the picture right). Alas, if we’d taken the pictures at Costco, we could have had digital photos for one-third the price.

Arming all sides in war on switching costs

This month the NYT and Walt Mossberg both mentioned TrueSwitch, a company whose services make it easy for people to switch email services. The system imports address books, mail messages and sends change of address notices.

Normally software vendors count on switching costs to encourage lock-in for their customers. People who use mail clients (like me but not our tween) find it easy to switch mail accounts since all the mail and addressbooks stay in the same mail program, but webmail users are left out in the cold.

TrueSwitch is being purchased by Google, Yahoo, Hotmail, AOL, Netscape, Comcast and Verizon. (Only SBC is conspicuously absent). People once joked about Swiss arms merchants selling to both sides in a war, but I don’t recall many 8-way wars.

The software is developed by Esaya, Inc., a 9-year-old NYC firm that specializes in “account migration.” (The stale website — with 4½ year old news articles — doesn’t make clear whether it’s bootstrapped or VC-funded).

While I wonder about the long-term value of the email switching market, it seems like a clever market niche: in any market, write a tool for Company B to make it easy to steal all of Company A’s customers, and then sell the reverse direction tool to Company A when they pony up the money.

Truly open systems

Yesterday, the WSJ had a glowing article on the role that the public domain software VistA might play in the administration’s efforts to promote electronic health records.

The article highlighted a deployment of VistA by Medsphere of Orange County at Midland Memorial Hospital in Texas. The founders of Medsphere were working to land the Midland deal at the time I was a consultant to the company on its open source strategy. Promoting VistA was also the focus of the trade association I co-founded.

For hospitals that install VistA, they are not bound to any one company: as the WSJ article notes, there are multiple firms that can install and configure the VA software. Medsphere has also released some of its extensions as open source on SourceForge.
The Oracle purchase of Sun notwithstanding, I think open source has a particularly bright future in enterprise software for one reason: data portability. So much of what we do — whether memos in Word or elaborate customer databases — is reduced to information on a hard disk.

If the program that created it is open source, IT managers know they will always be able to get at the data, if by no other means than maintaining the open source code that reads it. If the format is proprietary and the software to read it is proprietary, then there is the strong likelihood that at some point the data will no longer be available — and the firm must hope that it can export or upgrade the data to some other format.

This issue also comes up at the personal level: I have PowerPoint 3.0 slides I can no longer read (which is why I save all notes in RTF format). But the availability of open source solutions is far less useful for a one-man individual or consultant as opposed to an IT department supporting a 1,000- or 10,000-person organization.

AT&T's partly unlocked iPhone

As reported by the Boy Genius Report, AT&T will be offering iPhones without the normal 2-year contract at a $400 premium ($600 and $700 vs. the subsidized $200 and $300).

The “No-Commit” policy means there is no written commitment to keep AT&T service, but it’s not clear if the phone will still be locked (from a technical standpoint) to only work on the AT&T network. If the phone is still locked, then this option is only useful with GoPhone, AT&T’s prepaid network.

This isn’t much of a breakthrough for openness, and far short of what regulators are compelling Apple’s European carriers to do.

Of course, users have been figuring out how to hack the iPhone to run on the only other GSM network in the US — the T-Mobile network. There’s a discussion thread on MacRumors with more than 400 posts just about this topic.

Lock-in isn't as bad as they claim

The Wall Street Journal mentioned this morning that French authorities are ending France Telecom’s 5-year exclusive (with its carrier Orange) for the iPhone in France. The WSJ quoted an analysts as saying the decision could cost Orange €200 million in lost revenues.

I missed the decision (rejecting an Orange appeal) when it came out last month. Some expect it will end the exclusive elsewhere in Europe. US law is different enough that (absent a socialist government in DC) I don’t see AT&T losing its exclusive, while in other countries there are multiple iPhone carriers already.

Beyond my general aversion to government meddling in the free market (except to control monopolies), there are specific reasons that the decision by French authorities is mistake. (No surprise there). Yes, I agree that the bundling increases switching costs and reduces competition between carriers — which is what the carriers are intending.

However, it is quite clear that in the US, such bundling increases competition among device makers — which is sorely needed in the high-end smartphone segment. If Verizon can’t have the iPhone, it has to promote something else, as do Sprint and T-Mobile.

In the US, this imperative for the rival carriers gave Google an entry with the G-1, as well as a channel for RIM and the Korean firms to offer their “me too” smart phones. It may allow Nokia a chance someday to become a factor in the US market. And its undeniable that the Sprint exclusive on the Pre is the only thing keeping Palm alive as a smartphone supplier.

We need competition and innovation in smartphones to spur innovation in mobile networks. Despite their denials, the network operators are just running commoditized pipes between devices and the Internet, and as long as we have enough operators competing for business, it’s worth accepting a little bit of switching costs to maximize device choices.

To be fair to the European interventionists (not sure why), the US has a more fragmented and competitive mobile phone market than in countries where the privatized government ex-monopoly still dominates the mobile telecom landscape. Thus, the concern about ex-PTT domination is a real one in France, Germany and Japan. It seems less plausible in the UK, where the iPhone went to O2, the British Telecom spinoff that is in second place to Vodafone.

Google's two sided markets

I was thinking about Google last week. One of my student teams did their report on Google (a popular topic around here). And the author of a Google book wanted to interview me about platform issues.

The students did an analysis of the search industry. Oversimplifying, they concluded that Google would have trouble making money because Google’s customers have high bargaining power due to low switching costs — because they can switch to another search engine at any time.

I had three problems with this. The obvious one is that Google is making money: last year, $4.2b net on income of $16.6b, or 25.3% net after. There are possible explanations for this contradiction, the first being that you can’t use the industry’s market share leader (and most profitable firm) as a proxy for the entire industry. We don't know what MS or AOL are making in search, because they’re too diversified, and Yahoo’s profits has shown wild swings in the past 4 quarters, from 3% to 30% net after.

Still, I always tell my students to check their industry analysis against industry profitability for consistency, so this big discrepancy was unsatisfying without being a conclusive proof of something wrong.

The second problem was that people could switch, but they don’t. Why not? Habituation — psychic switching costs — is an explanation, one consistent with the psychic costs I saw in my dissertation. But the switching costs between Google and Yahoo are 100x lower than between Microsoft and the Mac, and yet Apple is gaining share and Yahoo is not.

Which brings me to my third issue — the only one that produced a satisfying answer. Suppose users could switch — and they did? Would it affect Google’s profitablity? Of course not.

Google gets its revenues from advertisers, not users. It has a two-sided market (or, perhaps more accurate, a two-sided platform) supplying content to users and user eyeballs (or clicks) to advertisers.

So as long as Google does a very good job of delivering the right users to advertisers, the advertisers will have high switching costs and will stick with Google. So Google will continue to monetize its users better than its rivals.

Switching costs: who decides, who pays?

This weekend at a conference I ran into an iPhone-carrying CIO of a local tech company. Since he runs Microsoft Exchange servers but hates Windows (refuses to run it on his MacBook Pro), I imagine he doesn’t want to be identified. Let me call him “LT”.

LT made a very important point about the switching costs that the iPhone faces in hoping to get adopted by American enterprises. Because RIM has been providing a good solution for years, the most savvy companies have long since installed BlackBerry push e-mail. I speculated that the switching costs for the entrenched BlackBerry users could prove an insurmountable barrier for Apple.

LT was carrying an iPhone running a beta of the iPhone 2.0 software, and it will go live at his firm once the final 2.0 software is released July 11. Employees will then have a choice of using a BlackBerry or an iPhone — so employees will vote with their feet.

Why go to all the trouble? Two words: top management. In most small- to-medium sized companies, if the top executives want a new toy, the IS department has to support it, and that’s what happened to LT.

It reminds me of the pilot study I did for my dissertation: I was studying switching costs, and had to decide whether to study standards adoption by individuals or organizations. I ended up doing my diss on consumers, but I made a conference paper out of what I learned about organizational standards adoption and switching.

What I found — consistent with my later dissertation findings on consumers — is that for customer-facing technology, the psychic switching costs were more important than the costs of the software or the deployment labor. The reason people don’t switch is that it’s a pain (or you can’t make them), not that the actual cost of switching is a deal-killer.

So if top execs want the iPhone, the IS department can support an iPhone. One of the things my study (and subsequent academic work experience) has shown is that, in some environments, staff doesn’t have much say because powerful users make their own decisions. Law firms and legal partners are one example; universities and faculty are another. I could imagine at some tech companies, spoiled geeks would be a third. (Or, worse yet, if you don’t support something, engineers will spend all their time trying to make it work rather than shipping product).

So I want to thank LT for reminding me of this reality that CIOs face for switching costs: whether or not it's a good idea (i.e., economically rational), if your bosss(es) wants it, you have to do it. Thus far, the iPhone wannabes have not caught up to Apple’s software quality (particularly ease of use).

Setting a consistent DRM policy

Consumers hate many aspects of Digital Rights Management (aka copy-protection). Some hate clunky interfaces, or services that require an Internet to use DRM-controlled content. Some hate the risk that the service (or service provider) will go away, rendering the content worthless. And some just hate DRM, period.

DRM is on its way out for music, and (by extension) its future for movies has been questioned. However, DRM remains (and is increasing) in the e-Book market.

I was reminded of this by spending the entire afternoon Thursday researching the past decade of the e-Book industry, as I downloaded and skimmed more than 100 articles from 1998 to the present. This is in preparation for a class visit next week by entrepreneur Doug Klein, who for my students’ benefit will be reliving his days creating the Rocket eBook and critiquing successors like the Kindle.

There were a lot of foolishly optimistic predictions about the future of the e-Book, including by Steven Levy of Newsweek and Dick Brass, a vice president of Microsoft. Despite such optimism, E-books are not outselling paper books today, nor are they likely to do so any time soon.

Then there is the October 2000 prediction of Klein’s buyer, Gemstar CEO Henry Yuen, who USA Today reported “ gleefully forecasts that by 2002 the reader units will be so inexpensive to produce that they ‘could literally be given away.’ ” By that standard, the Kindle or the Sony Reader is overpriced by $400.

One thing that was remarkably prescient was a 2000 report in the Christian Science Manager from the annual Seybold conference. The four major problems were

1. incompatible standards
2. not enough content
3. poor display readability
4. “ineffective copyright protection,” i.e. weak DRM

Is the lingering use of DRM thus predicted by these earlier concerns? Or is it DRM that’s normal for information goods — with DRM-free MP3 format a legacy of unintended substitutes (with Napster and converting personal CDs) that the media companies don’t face in the book industry.

Consistent with this, another thread that has held up over the past decade is the publisher’s greed. In some cases, the e-books of a decade ago were more expensive than the hardback. Today it’s not so clear.

Lacking a representative book title — and with Harry Potter not available in the Kindle edition — I decided to check some of the self-help books by finance guru Suze Orman. Anyone within a range of a PBS TV station has heard Orman offering personal finance advice to the educated but economically illiterate.

I checked prices on two of her books, both of which had a Kindle price of $10. For The Road to Wealth, the hardback listed for $30 and the paperback for $18 — but the Amazon discounted price was $20 and $12 respectively. For The Courage to Be Rich, the prices are $25 (net $16.50) and $15 ($10), respectively.

So with lower COGS and distribution costs, we’d expect the list price of the electronic book to be half that of the physical book. (In this case it’s 67% and 56%, respectively). More seriously, (as with the Saturn cars) for the Kindle there is no haggling and thus no price competition. This is the dirty little secret of DRM — vendors blame media moguls for requiring it, but it creates lock-in and switching costs that reduce price competition and forestall commoditization.

The other unresolved problem for information goods is the lack of a secondary market. The dead tree Suze Orman books are available from many sources for 1¢ each (plus shipping). Right now, there’s no way to sell (or buy) a used information good, and it seems as though the publishers would like to keep it that way. That increases sales, but of course means that buyers of information goods never “own” those goods.

E-books also face their own unique problem: as Doug will attest, the demand for reading books is neither large nor growing. Movies aren’t going away anytime soon, but botching the transition away from dead trees could leave book publishers in the same spot as newspaper publishers.

Ending a 25-year business relationship

After subscribing to the daily Wall Street Journal for the first time in 1983 — and buying individual copies since 1980 — this month I’ve decided to let it lapse. (My wife will be grateful for less newsprint being left lying around the house).

I first subscribed to the WSJ as a way to follow the computer industry and business in general. In its day, it was a unique source of information about American business. But in the past five years, it has published fewer smaller pages, more soft news features (lifestyle, entertainment, personal consumption) and less real news. The slant of its news pages (not its editorial page) has come to resemble more of a general newspaper (like the NYT or LAT) than a business publication like Barron’s, Forbes, or Investor’s Business Daily.

I had planned on renewing at $99/year but since I lost the #@*(# renewal coupon, they wanted to charge me $298. Instead, I cancelled the dead tree edition but paid $79 to renew (at least for now) my subscription to WSJ.com. But this is the first and last year for online-only: if Rupert Murdoch doesn’t carry out his vow to eliminate subscription fees and follow the NYT into all-free news, then I’ll let the subscription lapse and rely on BusinessWeek.com, CNET and various specialty sites.

Of course, newspapers have been losing readers for decades, and dead tree publications have been losing readers to their online editions for a decade, cannibalizing their own paid customers with free online ones. Trade journals have already stopped killing trees, and six months ago Business Week speculated that San Francisco would be the first city to have its main daily newspaper go all-electronic.

But the WSJ was different, in that it was one of the few major newspapers to gain subscribers over the past decade. My own experience suggests that Rupert Murdoch faces a tricky path if he decides to abandon online subscriptions (and presumably print ones someday, too).

I was very loyal and habituated to the WSJ; both the act of subscribing and the cost created real switching costs. If it goes free, it will be just another free site, and my loyalty to WSJ.com will be not much more than to the 167 different RSS feeds in my RSS reader. If it doesn’t go free, then at $80 year I’m history. So I’m not sure what the profit-maximizing strategy is.

Interestingly, the WSJ’s only real English-language competitor, the Financial Times, has a range of prices from $0 to $400/year. The FT is also between a rock and a hard place. It’s hard to see why I’d take the main ($109/year) online subscription given all the alternatives out there, while at the same time the FT is cannibalizing paid subscribers by giving out 30 free articles a month.

Graphic credit: Crotchety Old Bastard web log.

A blow for cell phone freedom

A momentous story moved late yesterday afternoon on the AP wires. Sprint has agreed to allow its customers to take their phones with them if they switch to another carrier.

As part of a proposed class-action settlement [Sprint] has agreed to provide departing Sprint PCS customers with the code necessary to unlock their phones' software.

That would allow the phones to operate on any network using code division multiple access technology, or CDMA. Competitors using that technology include Verizon Wireless and Alltel Corp. ...

Sprint made the offer as part of the proposed settlement of a California class-action lawsuit, filed last year, accusing the company of anticompetitive practices. The plaintiffs claimed the software "lock" forced anyone wanting to switch carriers to buy a new phone, throwing up a barrier to competition.

The settlement covers phones purchased between August 1999 and July 2007. It is not clear whether Sprint will implement this as a policy going forward, but that would be a reasonable guess.

Similar suits are pending against T-Mobile and Cingular (over the iPhone). I'm surprised no one has sued Verizon yet.

Unless I misread the report of the ruling, the impact of this should be minimal. If you have a contract that says "pay for 2 years of service or pay a $300 early termination fee," then you wouldn't be able to unlock your phone unless you settled those terms. I would imagine all the carriers have contracts that recover the $200 handset subsidy if you leave early (and perhaps also the $50-200 cost of customer acquisition that amortizes their large ad budgets). So this would mainly cover people who were willing to pay the full price of the phone, or had a two-year-old phone they wanted to carry to another carrier.

Still, this would be a start in a shift of power between carriers and customers. It would also disproportionately hurt Apple (if they eventually lose), since -- unlike other carriers -- their business model assumes an ongoing revenue share by the carrier. I wonder if Apple can get the NPV of their revenue share built into the early termination fee.

iBrick fiasco

Still badly behind on grading, but wanted to quote a few quick articles.

The successful efforts to unlock the iPhone (by George Hotz and others) did not go over well with those that did the locking.

On Sept. 27, Apple released its innocuously-named iPhone 1.1.1 update. I don’t have an iPhone, but as I understand it, iTunes (on the Mac or PC) reports the availability of the update and recommends that users install it. It was nominally a security update with some small feature enhancements, but it also broke all the hacks that allowed the iPhone to work on networks other than AT&T.

I’m of two minds here. That Apple would respond should not be surprising, so it seems silly that people are shocked! SHOCKED! that Apple would try to disable these hacks. (Some are already trying to reverse the update, while others will eventually find ways to unlock the updated phones). It’s also unclear whether Apple is passionate about locking people in (not implausible) or if they have a contractual obligation to Cingular (now AT&T) to use all possible technical means to enforce such locking.

On the other hand, this is terrible PR for a company and a product that has enjoyed a charmed existence this year, earning the nickname “JesusPhone.” This includes:

• an online video mocking Apple’s image campaigns
• a new reluctance by iPhone owners to take security updates
• a new nickname — iBrick — that is being attached to Apple and the iPhone, potentially nullifying the 9 months of fawning PR.

Apple has been here before — they’ve overreached in their efforts to exploit their lock-in of loyal customers. Will they pull back from the brink? Can they? Or will they become even more aggressive (and even more Microsoft-like) in pushing around their customers?

The price of Apple’s closed iPhone strategies

Apple’s been showing its true colors this year with the iPhone and iPod Touch. While most of the songs on a typical iPod are using the (patent encumbered) “open” MP3 format, the new Apple products derive more of their value from closed, proprietary choices made by Apple.

Probably the most controversial choice is Apple’s decision to give Cingular (now AT&T) a reported five year exclusive in exchange for control of the experience and a share of the ongoing service revenues. This week, the WSJ interviewed a number of Mac fanatics (like me) about why they won’t buy an iPhone, and top of the list was unwillingness to switch carriers. In some cases, people are enduring terrible phones rather than incur the switching costs.

In the same article, AT&T bragged that 40% of its iPhone buyers switched from other carriers. OK, so let’s do the math:

• 600,000 customers from AT&T (which has 27% share overall)
• 400,000 customers from everyone else (which have 73% share)

That’s a high school algebra problem: 600,000 is to 0.27 as X is to 0.73.

Solving for X gives 1.6 million — so Apple would potentially have sold another 1.2 million phones if it weren’t exclusive, or more than twice as many as it actually sold. Would such openness have been more profitable? Right now we don’t know what % of Apple’s iPhone profits come from the undisclosed share of AT&T’s service revenues.

The other openness complaint this week comes with the release of the iPod Touch (the iPhone Lite). Beyond earlier complaints, there are additional complaints that Apple deliberately crippled the product to avoid cannibalization.

For example, the iPhone syncs calendar and contact information in both directions, but the iPT won’t allow you to create a calendar item on the device. A decade ago, a Palm Pilot would do this, and obviously this feature was in the iPhone. So what’s the point of taking it out of this PDA-MP3 player combo device? (Of course, since AT&T isn’t dictating terms for the iPT, it should be more open than the iPhone, not less.)

It’s not clear that potential buyers will notice these restrictions, or if they will hurt sales of the iPT. (Or if the people who care will find hacks to work around these restrictions). Apple has had some flops in the past, notable the Newton and the Cube. Usually these happen because it has overestimated either the market size or its ability to price gouge its loyal customers.

Apple gets one tiny bit of praise for openness from NYT columnist and Mac loyalist David Pogue. Pogue reports that Apple’s policy of $2 per cellphone ringtone is less exorbitant than other alternatives, and the prices seem to be set by the record companies. Like Pogue, I don’t see the reason to buy ringtones but obviously we’re both outside the target demographic.

Technorati Tags: AT&T, business models, iPhone, switching costs

WiFi trapped by its own success?

WiFi (aka 802.11a, b, g) has been a tremendous success. In fact, given its modest goals as a way to connect handheld computers in a warehouse, it widespread adoption in every laptop and an increasing number of PDAs an cell phones is remarkable.

If anything, it’s been too successful. Too successful, you say? Isn't that like being too rich or too thin?

The problem is that a large installed base creates an upward compatibility constraint that can be irresistible. Inertia for an existing standard is the cumulative effect of the number of customers times the individual switching costs (plus producer-related switching costs — in this case the base station and chip makers). As Brian Dipert of EDN reports, the committee took its time in standardizing, and meanwhile various greedy and impatient vendors shipped so many “draft 802.11n” products, that no one would vote for a final standard that was incompatible with all the nonstandard product in the field.

Meanwhile, George Ou has a provocative post where he argues that the 802.11n standardization committee wimped out, deciding to create something that's not really all that much better than 802.11g. As Ou tells it, the problem was that rather than spend a few extra bucks (initially) on a chip that also supported 5 GHz, they stuck with the crowed 2.4 GHz band. The existing 2.4 GHz spectrum only supports 3 (or 4) simultaneous channels and are already crowded, so (my reading of it is) unless you’re on a deserted mountaintop you’ll never see the claimed 100 Mbps throughput.

If I were the Enhanced Wireless Consortium, when the final standard gets blessed I’d get the press some sample units to demonstrate actual performance.

Technorati Tags: IEEE, infrastructure, standards, switching costs, Wi-Fi