Do no evil or see no evil?

In a unanimous decision Thursday, the Federal Trade Commission ended its two year investigation of alleged Google antitrust violation, with a settlement agreement that (as several headlines put it) let Google off “unscathed.”

The FTC took almost no action on allegations that Google tied its dominance in search to support its other businesses, accepted some unenforceable promises by Google to behave in the future, and (in a separate action) set limits as to what Motorola (now owned by Google) can do to pressure rivals to license its patents.

The reactions were predictable. A "consumer" group that criticizes Google told the AP that “The FTC rolled over for Google” (perhaps the AP censors made them clean up their language). Microsoft lamented that Google’s “voluntary commitments” were “less demanding than the pledge the U.S. Department of Justice received from Apple and Microsoft nearly a year ago.”

Outgoing Republican FTC commissioner J. Thomas Rosch dissented from this approach in similar terms:

Instead of following standard Commission procedure and entering into a binding consent agreement to resolve the majority’s concerns, Google has instead made non-binding commitments with respect to its search practices. … [O]ur “settlement” with Google creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the Commission.
…
Our “settlement” with Google is not in the form of a binding consent order and, as a result, the Commission cannot enforce it by initiating contempt proceedings. The inability to enforce Google’s commitments through contempt proceedings is particularly problematic given that the Commission has charged Google with violating a prior FTC consent agreement.

Enforcement of Google’s obligations requires a Commission order, not a unilateral commitment by Google to stop its practices. If Google were really willing to abandon its scraping or its API policy, it would have tendered a consent decree to that effect instead of a unilateral commitment that is not enforceable.

Meanwhile, on the other side, Google’s head lawyer bragged: “The conclusion is clear: Google’s services are good for users and good for competition.” Former FTC chairman and part-time Google consultant James C. Miller (III) wrote in Friday’s Wall Street Journal:

The legal case against Google was always weak. Despite the rhetoric of Google's antagonists, they failed to convince the FTC that the company's policies harmed consumers. Since consumers can change search engines with the simple click of a mouse, it's a stretch to say that Google has monopoly power.

It’s surprising to hear a Ph.D. economist claim there are no barriers to entry; this is just a rock of hooey (nod to censors). Perhaps he’s just not up on current research: Network effects are a strong barrier, and in a two-sided market of advertisers and eyeballs, those that get ahead tend to stay ahead.

The decision comes as somewhat of a surprise, since the Obama administration has a 3-2 majority on the FTC and was expected to take a harder line on antitrust. Cynics might say that it’s because Google was Obama’s largest and most loyal re-election donor ($31 : $1) among Silicon Valley’s 10 biggest companies. Coincidentally, Obama’s latest FTC appointee — George Mason professor Joshua Wright — will be recusing himself on Google matters for two years because he’s taken money from Google.

However, for Google critics there is the minor matter of proof. In the US antitrust system, wanting to crush your enemies so you can extort monopoly profits from your customers is not actionable — you more or less have to do it first because it has to be proved in a court of law. The US (at least until recently) has had a greater emphasis on unfettered markets than Europe, where protecting

Instead, most of what Google conceded were items that it had already lost or was likely to lose (the ruling on licensing Motorola’s standards-essential patents is a complex one I hope to take up later).

NYU law professor James Grimmelmann blogged that the FTC didn’t say it found no evidence, but that Google is doing what is legal. His analysis of some key quotes:

• Google was pure of heart: “The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose.”
• Google helped users when it helped itself: “Notably, the documents, testimony and quantitative evidence the Commission examined are largely consistent with the conclusion that Google likely benefited consumers by prominently displaying its vertical content on its search results page.”
• The data agree with Google: “Analyses of ‘click through’ data showing how consumers reacted to the proprietary content displayed by Google also suggest that users benefited from these changes to Google’s search results.”
• Everyone else did it, too: “We also note that other competing general search engines adopted many similar design changes, suggesting that these changes are a quality improvement with no necessary connection to the anticompetitive exclusion of rivals.”

And, Prof. Grimmelmann concluded, this exoneration will make it that much harder to initiate or win a U.S. legal challenge to Google monopolistic activities in the future.

Anyone who knows Google knows that it is no more “pure of heart” than Microsoft was in the 1990s or IBM in the 1970s. Microsoft called this “freedom to innovate,” a variant of the “what’s good for General Motors is good for the country” argument.

Like Microsoft, Google pushes for self-regulation of the “trust us” variety. Unlike Microsoft, Google’s mantra of “do no evil” seems to have convinced many that it’s fundamentally trustworthy, despite their pattern of hubris (if not arrogance) and demonstrable efforts to attain Total World Domination.

The timing was particularly unfortunate. This morning's front page WSJ article documents how Google is using tying to support its once-moribund social media experiment, Google+. As Amir Efrati wrote

Google Inc. is challenging Facebook Inc. by using a controversial tactic: requiring people to use the Google+ social network.

The result is that people who create an account to use Gmail, YouTube and other Google services—including the Zagat restaurant-review website—are also being set up with public Google+ pages that can be viewed by anyone online. Google+ is a Facebook rival and one of the company's most important recent initiatives as it tries to snag more online advertising dollars.

The impetus comes from the top. Google Chief Executive Larry Page has sought more aggressive measures to get people to use Google+, two people familiar with the matter say. Google created Google+ in large part to prevent Facebook from dominating the social-networking business.

(In my experience, Google’s approach is similar to Facebook and Twitter, but for the latter it’s more obvious when you are sharing related information than with Google. Also, these firms lack the control of other Internet services such as Google’s search, mail, photos, video, news, maps, telephony, music downloads, book downloads, blogging or cloud services).

For now, the only remaining hope for the anti-Google forces is to win support from governments outside the US (as Sun fought Microsoft in Europe and Japan). As Microsoft and Intel learned, the EU can pretty much do what it wants to American tech companies.

It’s also possible that a publicity seeking attorney general in the Empire state or another state will sue Google in hopes of gaining name recognition for a gubernatorial run. Who knows, perhaps New York’s lame duck billionaire mayor and America’s 21st century Napoleon will throw his corporate empire, bully pulpit and money in support of the effort.

Trying to be the next unicorn

Cross-posted from Engineering Entrepreneurship.

Big company exec-turned-Forbest columnist Steve Faktor posted a funny column Friday that says “Shut Up, You’re Not Apple”.

The introduction is as provocative as the title:

At first, it was funny to hear insurers, IT firms, and startups with no revenues compare themselves to Apple. Since the iPod launched in 2001, I’ve seen hundreds of presentations that liberally use “learnings” from Apple. 1) The word is LESSONS, not “learnings”, my Hillbilly friend. 2) The comparison feels as fresh as that Michael Jackson impression your spouse has been doing since you started dating. 3) Drenching slides (or products) in an iconic brand’s juices won’t transmit innovation, like some benevolent plague. If that were possible, we’d never stop harvesting and packaging Brangelina extract. It’s time for an intervention. Here’s why brands must find their own voice (and scent)…and keep those synthetic Apple fumes from turning into laughing gas.

The ‘why you’re not Apple’ checklist:

I know I’m not alone. We’ve all been to the same Apple-laden meetings…er, orchards. How did those comparisons work out? Did that company become the most valuable in the world? Did that product become iconic and emulated by every company in Korea? Or, did it live and die in its sad PowerPoint tomb.

Using Apple as a model is the business version of ordering jeans after seeing them on Kate Upton. They might not look the same on you. Like Kate, Apple is a unicorn. It defies so many conventions that deconstructing its lessons is silly, unless it’s the last thing between you and a lonely Saturday night at Harvard Business School. To quote my friend and fellow innovator Stephen Shapiro’s book, Best Practices Are Stupid.

It’s not that your company can’t be Apple. It’s that your company absolutely, positively will never be Apple. I’m not discounting your skill or vision. I’m simply acknowledging that Apple’s success is a witch’s brew of leadership, timing, technology, and culture. All those variables can’t be replicated.

He then offers a checklist of factors that it would take to be Apple: a visionary CEO, iconic products, $50b in cash, a million fanboys, and #1 or #2 in most product categories. Yes you can mention Apple in your analysis of the industry landscape, but “as the unicorn in the room.”

As someone who’s studied Apple for almost 30 years, the reality is not just that Apple is one in a 100 million companies: it’s that Apple’s run from 2001 (the first iPod) to 2007 (the iPhone) to 2010 (the first iPad) — will never be repeated in the company’s history. (Or as Faktor put it, “Even Apple won’t be Apple forever.”)

I remember when Neil and I started our company in 1987, we wanted to be the next Hewlett-Packard. Instead, we never got more than 15 employees, a few million in revenues and lasted only 17 1/2 years. Wanting (or posing or emulating) doesn’t bring success: satisfying some need better than anyone else — in a way that’s hard to copy — is what bring success.

When they started in a Los Altos garage in 1975, Steve Jobs and Steve Wozniak didn’t imagine they would have a market cap bigger than IBM. Instead, they were just trying to bring a better PC to market than any of the other hobbyist-hackers out there. Customers didn’t flock to the Apple II, Mac, iPod, iPhone or iPad because Apple wanted to change the world, but because they had a product that no one else had.

Does ease of use matter? Amazon hopes not

During the peak of the Steve Jobs era, Apple’s competitive advantage was a unique combination of three factors:

• creating or re-inventing product categories, whether the GUI PC, MP3 player, smartphone or tablet
• elegant industrial design; and
• superior ease of use.

The goal, of course, has been to sustain the obscene gross margins that have been part of the company’s DNA for 30+ years, enabling it to plow back money into R&D to create the next great thing.

Of course, neither its competitors nor customers are content to let it enjoy those margins in perpetuity. Windows 95 was demonstrably inferior to Mac OS, but it was good enough and ran on cheaper hardware available in a wide range of models from dozens of companies. The "good enough" knock-off nearly killed Apple until the late great Steve Jobs came back and saved the company.

The company still loses its way now and again, as when I try to get its buggy mail client or crash-prone web browser to work in the real world. (The company is best when it controls the end-to-end experience and worst in the wild-and-woolly world of semi-open semi-standards.)

Still, I get reminded now and again how terrible its competitors are. Last year, I spent a week as an Android user before giving up, while my teenager still has a love-hate relationship with her Android phone (to the point that she uses her aged iPod Touch more than the newer and nominally more capable phone).

And then there’s my awful experience with Amazon today and their special Xmas Eve sale on a slew of MP3 albums — $1-2 each for album downloads by Legend, Red, greatest hits by Abba, Carpenters, Johnny Cash, Hall & Oates, Bob Marley, Simon & Garfunkel, Taylor Swift.

I’ve been buying (or at least downloading) Amazon MP3 files for four years, and the experience on the Mac has always had its quirks. The initial model was pretty simple: click and download an MP3 file (like you’d download an installer or PDF). But for multi-songs, they made you install their downloader to parse .amz files, which generally worked well once you had it — at least until today.

Then I spent my $3.98 for two albums (Johnny Cash and Simon & Garfunkel) and still have no songs to show for it. The web client insisted that I install their super-duper special downloader, even though the downloader was currently running on my machine.

In the old Amazon model, tech support would show you a hidden back door to re-download your songs. Now, all your songs become part of the “Amazon cloud player” and you have to manually select each song (not an album) and then apparently register any device to download the songs. As I write this, I’m still waiting to hear from Amazon tech support as to how to get my songs — it’s a busy day for digital downloads, so I may not get an answer before I leave home to start our family celebration.

As with most users, I don’t care whether I get my songs (if I can get them) between Amazon or Apple: it's the same content either way, just delivered in a different format via a different channel. So that leaves price and (at the margins) ease of use.

Apple still has a superior experience for music downloads, although their commanding lead for US music downloads probably has more to do with their head start and dominant MP3 market share. Conversely, Amazon’s dominance in book downloads is more likely due to its readers than a superior product or ease of use.

So Apple’s opportunity is to keep (or gain) market share based on ease of use. Amazon got me to try their MP3 service by offering free songs, and I will continue to take their free songs (as with the dozen free Xmas song I downloaded in the last hour). But if the price is the same, I’ll go with ease of use, and for downloading songs Apple still has Amazon beat.

Whither public higher education?

On Saturday the Wall Street Journal ran an article that uses the sticker shock faced by parents of a CU Boulder freshman to illustrate the broader financial pressures on U.S. public universities and their students.

Who Can Still Afford State U ?
By Scott Thrum
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Public-college enrollment exploded after World War II and the adoption of the GI Bill. As recently as 1951, more Americans were enrolled in private universities than public ones. Sixty years later, more than 15 million students were enrolled at the nation's 678 public colleges and universities, nearly three times the number attending private ones…

State subsidies for these public colleges and universities fell 21%, on a per-student, inflation-adjusted basis between 2000-01 and 2010-11 … Over that same period, tuition at two- and four-year public colleges rose an inflation-adjusted 45% to $4,774 in 2010-11, according to the association. At public four-year colleges this year, tuition averages $8,655, according to the College Board.

But education experts say wrenching decisions on the state level about how to allocate limited public resources are having a very big effect.

"Over the last 25 or 30 years, public higher education has lost out in the competition for state funds with Medicaid," says Cornell University professor Ronald Ehrenberg, director of the Cornell Higher Education Research Institute. "There's so much pressure to spend money on other things."
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State funding for the University of California system has fallen 25% over the past decade, to $2.4 billion from $3.2 billion, triggering tuition increases and student protests. At the University of Michigan, state funding has fallen 26% in the past decade. The state now covers 17% of the university's budget, down from 33% in 2002-03.

"The state obligations in Medicaid, prisons and K-12 education are just swallowing up state budgets," says John Vaughn, executive vice president of the Association of American Universities, a group of 62 research universities, public and private.
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The financial pressure on CU isn't expected to subside soon. A 2010 study by the University of Denver, a private school, projected that Colorado, given its other funding obligations, might run out of money for colleges and universities within a decade. "We think it's sooner than that," says CU President Bruce Benson.

The article highlights a phenomenon long-visible here in California. When it comes to politicians getting elected to state office — whether measured by popular votes or campaign donations — public higher ed is near the bottom of the list, after transfer payments, K-12 teachers, prison guards, general state bureaucrats, even home care workers. At the same time, administrator salaries (and non-instructional spending more broadly) has been exploding at these universities.

As in other states, CU is pushing politicians to limit the cap on foreign students, so they can aggressively recruit full-fare enrollees at the expense of state residents. I suspect such a philosophy this would be anathema to those who founded these public universities or the national Morrill Act land grant college system that made many of these universities possible.

Open platforms enable open competition

The Twitterverse last night was agog with the breathtaking news that Google Maps would be returning to the iPhone any minute now. Sure enough, the app was released at the end of the business day and an iPad version is due Real Soon Now.

This brings some closure to the whole painful episode for Apple. Apple's execution, QC and timing were badly flawed but the strategy was basically sound. Meanwhile, Google gets a badly needed PR win and causes the million of iPhone and iPad owners to trust Apple just a little less.

The whole episode shows an essential attribute of open platforms: enabling intra-platform competition. Openness has many dimensions [link] and degrees: normally pundits focus on whether the core code is available to rival companies (Android vs. iPhone) or the IP is free (Linux vs. Windows), and occasionally whether the platform control is shared, permeable and transparent (Linux vs. Android).

As I noted in my 2007 book chapter on openness, nearly all platforms are open to third party applications: they're essential to the value of most (but not all platforms). There are exceptions, as when Microsoft used selective access to technical information (as well as superior execution) to help Word and Excel crush WordPerfect and 1-2-3.

In practice today, openness for third party applications is rarely a technical or contractual, merely one of business models. Healthy, open platforms give customers access to the widest range of choices, as when Google’s Chrome browser allows users a choice of search engines.

Competition is what gives customers efficiency and choice. It's as essential in platforms as in politics. Even government competition is healthy for society — as is sometimes found within the US, German or Canadian federal systems — at least until such time as all regulators become omniscient, infallible, incorruptible and selfless.

While iPhone users will no longer get lost, Apple still needs to release its own updated Map application. Apple’s app may never be as good as Google’s, but the availability of its own map but it will keep Google honest. Already it seems to have worked, with the new Google app providing the features that Google once held exclusively to Android to provide its own platform an advantage.

As long as Google controls a rival platform and can use its apps for differentiation, Apple still needs to develop its own map application. Meanwhile, giving its users the choice of two (actually three) serious map applications supports a key aspect of the iPhone/iPad value proposition: having the widest variety of third party software.