Alleged end of the PC era

On Sunday, AP reported from Japan that declining Japanese interest in PCs marked the beginning of a global trend. Balderdash.

Sure, I'm biased. I made my career and reputation in the PC industry — first in industry in then in academia. And that by my family members, I'm considered one of the fastest touch typists they know (from spending several years as a teenager touch-typing conputer programs). Even allowing for that, I think the evidence suggests this claim is overblown.

Here's what the dispatch claims:

Japan's PC market is already shrinking, leading analysts to wonder whether Japan will become the first major market to see a decline in personal computer use some 25 years after it revolutionized household electronics - and whether this could be the picture of things to come in other countries.

"The household PC market is losing momentum to other electronics like flat-panel TVs and mobile phones," said Masahiro Katayama, research group head at market survey firm IDC.

Part of this is just arithmetic sophistry. Certainly I could understand if (worldwide) PC replacement rates slow down — that doesn't mean that their installed base or importance as an access terminal has gone done. Someday, everyone will have a flat panel HD television and the run rate for flat panel TVs will go down, too — but that won't mean that television is no longer important as a medium, or that people no longer value their flat panel TVs. (Remember color CRTs were a mature category for 25 years, but they certainly were important).

More fundamentally, Japan is an atypical market on several fronts.

I am willing to concede that part of the world loves QWERTY (or AZERTY) keyboards and part does not. Until we get portable voice recognition, there is no speed comparision for Western languages for data entry on a laptop vs. a mobile phone. For Japanese and Chinese, the keyboard is not nearly as efficient and thus the mobile phone is a bette substitute. That's not true for large amounts of text production in Western countries.

Finally, we've been hearing for years that the Japanese will waste money on electronic gadgets rather than saving for a house, because they have no hope of ever owning one. Does this presage a global trend of consumers uninterested in home ownership? I hope not, as home ownership proved to be the bedrock of economic and political stability during the 20th century.

The key question to me is: how far off is true speech-to-text, as in the Asimov Foundation novels or 2001? Once I can dictate to a portable device instead of clacking at a keyboard, I'm outta here. My hunch is that this is at least a decade off — my retirement is set for somewhere around 2025, so it may or may not arrive in time to do me any good.

It's the APIs, stupid!

One way to make lots of money is to create and control a popular platform. But sometimes it's possible to control a platform without creating it, often by creating an abstraction layer to unify previously disparate APIs.

Such is Google's soon-to-be-announced "Open Social" initiative, covered today by Business Week, O'Reilly, Wired, and the WSJ.

The idea that the Google APIs will provide commonality (and thus direct network effects) by combining a range of 2nd tier social networking sites, including Friendster, LinkedIn and Google's own Orkut. Noticeably absent are the US market leaders, MySpace and Facebook. (This confirms the point I made a few years back that shared or common APIs are always a strategy of losers trying to catch winners).

As Business Week reported:

If the plan is successful, Google could bring its leverage to bear on the social networking market and potentially slow the momentum of high-flying Facebook. "This is an open version of what Facebook has done," says Marc Andreessen, a co-founder of Ning, which provides tools for building social networks. Andreessen was the founder of Netscape Communications in the '90s. ...

For Google, OpenSocial is the first step in a plan to hit back at Facebook and Google's chief rival, Microsoft (MSFT), which on Oct. 25 announced a $240 million investment in Facebook (BusinessWeek.com, 10/25/07), beating out Google for a stake in the fast-growing company, now worth an estimated $15 billion.

Today was also the day that Google's march to world domination reached another milestone with a $700+ stock price and a $220 billion market cap that left America's largest banks in the rear view mirror. Only four US companies have a larger market cap: Exxon Mobile, GE, Microsoft and AT&T.

A pretty good week for a company that still has yet to announce its major platform initiative of 2007 (the gPhone).

Who's ready for the mobile web?

In January, Mike Mace and I both had an intuitive feel that the iPhone was going to change the mobile phone industry. Four months after the first iPhone shipped, I think our intuition has been born out to a greater or lesser degree.

Aided by very satisfied customers and the consequential word of mouth, Apple sold nearly 1.4 million iPhones in the first 94 days. This is AT&T's top selling phone (at 13%) and 4th overall in the US. Of course, Apple is not #4 overall since most vendors sell dozens of models.

In particular, one thing came through loud and clear last week at the CTIA Wireless IT conference (the premier mobile web conference in the US). Admirers and rivals admitted that Apple finally did a mobile browser right, and that accounts for much of its success (an advantage emphasized by their current advertising).

Web browsing solves the fragmentation of the US market, and provides a least common denominator between desktop and cellphone. If all app developers, content providers, cellular operators and mobile phone makers all agreed to use the web -- based on W3C and IETF open standards -- then the mobile Internet couldn't be any more open than that. This openness and ubiquity would eanble all sort of positive network effects to spur adoption, and leverage off the installed base of the wired Internet. Another factor for openness is that Apple's iPhone browser is based on WebKit, the open source project Apple created (from KHTML), which in turn reduces the barriers to imitation for its web browser. (In case web apps aren't enough, this month Apple adddressed the criticism about a "closed" iPhone by announcing it will release formal software development kit for native apps in February.)

If Apple establishes the browser as the key enabler of the mobiler Internet, how well situated are the major handset vendor? Based on Q3 2007 sales estimates, here's the list and my prediction:

• Nokia (38.6%). It ships more smartphones than anyone, owns S60 and the largest share of Symbian Ltd. It has been taking more risks with software than any other cell phone company, including its Maemo web tablet platform. Even if we worried about Nokia falling behind, they are already ready to match Apple by porting WebKit to S60.
• Samsung (14.7%). Has a wide range of software strategies, including Symbian S60, Windows Mobile and its own OS. Historically the Koreans don't grok software, but S60 will have a good browser and Windows Mobile could too (assuming Mobile IE is a fully compatible browser) -- so it may depend on the mix of software platforms they are selling.
• Motorola (12.9%). Like Samsung, Motorola has a mix of platforms: Windows Mobile, Symbian UIQ and its own solution (now shifting towards mobile Linux). Although in principle Linux should have a great browser, Motorola once said that the browser choice was up to the carrier.
• Sony Ericsson (9.0%). SE's smartphone strategy is tied to UIQ -- a Symbian OS layer that it used to own but is now going to share with Motorola. Since UIQ 3.0, UIQ has depended on the Opera browser, which has yet to inspire the enthusiasm of WebKit.

Any others? I think HTC will do well, because it thus far has made its impact with Windows Mobile, but now also has the prospect of the Google phone. On the other hand, while RIM has always understood software and has done well with e-mail, it is not known for its browsers.

Of course, this is a very US-centric view. For Europe, I expect browsers to be important too, but the smartphone market is much less fragmented than the US and much of the market can be reached by writing a native S60 application. Meanwhile, in Japan, the mobile Internet (as Jeff Funk as noted) is whatever DoCoMo says it is.

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.

The rewards of platform control

This semester, my MBA students have become familiar with Symbian and its relationship with Nokia. Although little known on this side of the pond, Symbian is the leading supplier of operating systems for those high-end cellphones that are most driving development and adoption of the mobile Web.

At Monday's Smartphone Summit, Symbian's Executive VP of Research David Wood delivered an important keynote on Symbian's plans and expectations for competing with mobile Linux and other platform rivals. I'm sorry I couldn't hear my friend talk, but this fall I'm spending Monday and Wednesday morning's imbuing 20-somethings with the tools and techniques of competitive strategy. Fortunately, the talk was covered by one of the two main US cellphone trade journals, RCR News.

Seeing the dead tree version of RCR News was one of the highlights of my visit to the CTIA conference, as it brought back memories of my subscription to RCR 12-13 years ago when I started doing research on the cellphone industry. Reading the articles from the RCR weekly (and show daily), it was interesting to note that the "reporters" were quite opinionated (if not caustic) in their interpreting of the news. The coverage of David's talk by Phil Carson was no exception:

With no authoritative, tech-savvy rebuttals to slow Wood’s steamroller, the all-roads-lead-to-Symbian view may have carried the day for the uninitiated.

To be fair, Wood’s data on Symbian’s current market dominance may be irrefutable—even if his rhetoric would have you believe that market trends spell nothing but doom for competitors. Smartphone sales now outstrip laptops, seven of 10 smartphones run Symbian and the latter has successfully defended its market share against rivals for two years. One can understand how Symbian’s most fervid evangelist would declare: Game over!

Except that the market clearly demands diversity and the forces arrayed to compete with Symbian, particularly in the United States, are among the toughest competitors in the business. It might have been more entertaining if representatives for those camps suddenly popped out on stage to rebut some of Wood’s rhetoric—a sort of OS cage match. But, of course, that goes with the territory here at CTIA I.T. & Entertainment 2007.

Symbian's high market share worldwide has not translated (yet) into success in North America. Certainly Carson is right that Symbian faces more competition here, with the onetime dominance of Palm that's now been supplanted by RIM. Of course, the real problem is that carrier control determines which mobile phone technologies get in customer's hands, and for a GSM-based technology (like the Symbian-enabled Nokia phones), access to the US market means cooperation from AT&T, which thus far has not been forthcoming.

In between the sarcasm, Phil did seem (somewhat) persuaded by Wood's belief in the future of convergence mobile phones:

The smartphone, Wood predicted, will become life’s remote control, handling home functions and financial matters as well as stodgy old communications.

The upshot, according to Wood, is that smartphones are becoming a matter of lifestyle.

“You don’t have to be smart to use them and the device makes you smart,” Wood said.

And with 25% of all network operator revenue derived from smartphones that run Symbian—Wood’s figures, not ours—then Symbian is destined to rule!