New open innovation research

At the open innovation blog, I’ve posted a series of articles on European research on open innovation, open source, and online communities. While some readers of this blog are interested in open innovation, that blog is more about academic research than the latest industry news.

The postings stem from a series of sessions at the European Academy of Management (EURAM) 2007 conference last month in Paris. I talked about the role of communities and users in innovation, the linkages between open innovation research and other forms of innovation research, and an interesting example of software open innovation beyond my earlier study of open source as open innovation. Vareska van de Vrande also posted an article based on the sessions she helped organize.

I am hoping having the separate blogs (there’s also my San Diego Telecom blog) is not a brand extension too far. I see this blog as appealing to readers of CNET or InfoWorld or Slashdot, whereas the other two blogs are more towards readers of specific books. The OI blog is about the 2003 and 2006 open innovation books, while the SD Telecom blog is about my (in progress) book Digitizing Communications.

I could see others blogging on the other sites (respectively researchers on open innovation or the SD telecom industry), whereas Open IT Strategies is clearly my voice and my own personal-professional musings.

Technorati Tags: open innovation, open source

French praise for Apple’s closed music strategy

As noted earlier, Apple uses its closed DRM and iTunes Music Store (now iTunes Store) strategy to cross-subsidize low download prices with profits from its iPods.

By creating switching costs for buyers — making it difficult to take the content to other players — strategy has come under criticism from European regulators. Apple blamed record labels for the copy protection and even offered non-DRM content with one label that would go along.

Philosophically, I still don’t buy that Apple’s plan is anti-consumer: they openly say that their system is locked, so that people who sign up do so knowing full well that their music only works with their iPods (or iPhone). But then, I’m somewhere in the middle in the US competition policy spectrum, which makes me very laissez faire by French EU standards. French competition policy (dirigisme) is pretty simple: use regulation to prop up French companies (Cie. des Machines Bull, Alcatel, Thomson, Sanofi-Aventis) that can’t complete in the market, by protecting them and keeping them French, while at the same time hobbling or blocking companies (particularly American) that succeed in the marketplace.

So it was fitting that the pro-consumer effects of Apple’s music strategy got a strong (albeit left-handed) endorsement Saturday by an executive of Orange, France’s largest (and Europe’s second largest) music service. François Thénoz — its director of strategic marketing — is a France Télécom veteran and UCLA MBA who spoke on a panel at the USC-hosted Global Mobility Roundtable conference.

I didn’t have a tape recorder — and didn’t see the tidbit coming — but here is the paraphrase typed by this formerly ink-stained wretch:

One company, Apple, decides level of prices will be less than $1. It is very difficult for [other] players to monetize the services. Except for ringtones, we don’t see enough margin [in music]. “In terms of margin, it’s [music] not as interesting as some other content.”

Translation: we’re mad at Apple for setting such a low ceiling on consumer expectations for download prices, and so we’ve decided to take our records and stay home. If low prices are pro-consumer, it doesn’t get much more pro-consumer than that.

[NB: The tone of the comment suggests there is no chance that Orange would partner with Apple — which would leave Apple without a credible European alternative to negotiated better terms with Vodafone.]

Of course, there are other business models for music than the buy-one-track-and-own-it model. There is the monthly subscription model of Live365 or Progressive Real Networks; Verizon Wireless has tried it, albeit to mixed reviews. There is offering free downloads of artists who want the publicity model, used by MP3.com, Download.com and also Live365.

This week, Lala is getting a lot of publicity for its website relaunch interesting wrinkle. They have offered CD trading, and now are offering free monthly subscriptions — subsidized by the albums (not tracks) you buy to download. Since Lala has to pay the record labels for the free content (estimated wholesale price: $6-8/user/month), they are expected to lose $40 million in VC in the next two years trying to build a viable competitor to Apple.

Even by Silicon Valley standards, the hubris is impressive:

Mr. [Bill] Nguyen — the company doesn't use titles but he is effectively chief executive — says he aims to be as big as the iTunes store in 18 months to two years.

Still, this is what we need at an early stage of a major industry transition: new entry and business model experimentation by a broad range of competitors. Despite its early lead, there’s no guarantee that Apple’s model will be the one left standing.

Technorati Tags: Apple, business models, LA GMR, mobile phones, MP3, music industry

Troubles at Verizon Wireless

This morning brings news of the Chapter 11 filing by one of the largest US MVNOs, the youth-oriented Amp’d Mobile. Why? They have high churn, high customer acquisition costs, and a high rate of deadbeats. Not a great formula. Some wonder whether the failure of a prominent MVNO will hurt the planned IPO of the most successful US MVNO, Virgin Mobile.

News reports suggest that Amp’s bankruptcy came as its network carrier, Verizon Wireless, was no longer willing to extend credit — thus forcing it into bankruptcy.

But Verizon Wireless has much more serious problems. As the Wall Street Journal reported this morning, the stock has run up due to speculation it might be broken up:

Vodafone's shares also have enjoyed a bounce in recent weeks amid speculation that AT&T Inc. could be considering a bid for the company, a move that would likely mean at least some breakup of Vodafone, particularly a sale of its stake in Verizon Wireless. AT&T has said it may pursue smaller, strategic acquisitions abroad, but a person familiar with its thinking says the company isn't likely to make a major move so soon after its purchase of BellSouth Corp. at the end of last year.

Some analysts think Vodafone could have a higher valuation if sold or split up. Vodafone's shares currently trade at about six times earnings before interest, taxes, depreciation and amortization for the fiscal year ended March 2007. But recent sales of some telecom companies — such as Alltel Corp.'s agreement to be taken over by private-equity firms — have fetched as much as nine times.

The company’s $170 billion market cap makes it a difficult takeover target. AT&T is one of the few possibilities, with a $250 billion market cap.

Such a merger would reunite (however temporarily) Vodafone CEO Arun Sarin with some former Pac Bell colleagues. In 1995, Sarin helped organize the spinoff of the cellphone assets of Pacific Telesis to form AirTouch, which was acquired by Vodafone in 2000. (Meanwhile, Baby Bell SBC bought Pacific Telesis, Ameritech, Bell South and then AT&T).

However, any AT&T acquisition of Vodafone would require dumping its US affiliate, Verizon Wireless. Combining the Cingular 27.1% market share with Verizon Wireless’ 26.3% would not pass antitrust scrutiny. (Ignoring the GSM-CDMA incompatibility).

Last year, Verizon bid $38 billion for Vodafone’s 45% share of the joint venture. This morning, the Breakingviews column of the WSJ estimated that the going price would be closer to $66 billion — up by 65% over the $40b estimated value. The Verizon’s shares are up 48%, so the shares have inflated almost as much.

Technorati Tags: mobile phones, MVNO, Vodafone, Verizon

Prize-winning smartphone research

I’m still trying to catch up explaining all I learned at the LA Global Mobility Roundtable conference.

However, I want to mention Friday’s surprise announcement. The “best industry paper” award went to my co-author Michael Mace. (Mike & I presented a paper on the iPhone, but this was a separate paper).

The paper was entitled “Segmenting Mobile Data: The myth of the smartphone.” Mace is currently with Rubicon Consulting in Los Gatos, but first immersed himself in the smartphone market as chief competitive officer for PalmSource.

I heard a number of positive comments after his presentation Friday — people found both the ideas and the data provocative. However, neither Mike nor I knew that there was an award, let alone that he was in the running.

I can’t claim any credit (I didn’t even see the article before it went in), but I thought some of my readers might be interested in the article since it’s available free online.

Technorati Tags: LA GMR, smartphones

Other shoe dropped at Palm

After Palm’s less than impressive debut of the Foleo, I wondered what was next.

This morning brought news of the $325 million sale of 25% of the company to a bottom-fishing private equity firm, Elevation Partners. The investment firm is best known as the $2b fund with rock star Bono as one of five partners.

The best news for Palm, however, is that Jon Rubinstein will become executive chairman. Even better news is that he takes the board seat long held by 3Com chairman Eric Benhamou (a networking guy who was co-founder of one of 3Com’s predecessor companies).

Rubinstein has been (somewhat misleadingly) described as an ex-Apple executive and the iPod Pioneer. Instead, he was the Nextie who as Steve Jobs’ right hand man for hardware (as Avi Tevanian was for software) was part of the management team imposed upon Apple as part of the NeXT acquisition of Apple.

Rubinstein was certainly capable, disciplined and worked well as part of Jobs’ team. My one personal interaction with him was at an Apple party (ca. Jan. 1998) arguing for a subnotebook successor to the Duo and 2400 series laptops. His answer was: it’s a niche outside Japan, and our small run rates don’t justify making one. (Ironically, today many Mac owner are holding off buying their next laptop, waiting for Apple to ship its first subnotebook in a decade, rumored to be due in late 2007 or early 2008).

However, it’s hard to measure Rubinstein’s contribution to Apple’s success. The Jobs II management model seems to be that low-level contributors and managers (such as Tony Fadell for the iPod) champion an idea, middle managers help vet and prepare the ideas for a Jobs interrogation, and then Steve makes all the final decisions. Still, Rubinstein was part of a spectacularly successful team, and Palm could use more product success right about now.

Rubinstein will be joined on the board by Fred Anderson, who as Apple CFO from 1996-2004 shepherded the company through its darkest hours. Anderson’s star has been tarnished by his association with Apple’s problems backdating stock options, but from my 2002 study of Apple’s turnaround, it was clear he was the fiscal and operational sanity that the company needed across three CEOs.

Twenty years ago (back when MTV was on free cable), Sir Paul David Hewson famously sang “I still haven’t found what I’m looking for.” Let’s hope that Palm employees, users and shareholders won’t say that in 6 months about Bono’s investment and the management team that he brings to Palm.

Technorati Tags: Palm