United singing the blues

The USA Today travel blog reported this morning:

The story of a Canadian musician whose guitar was allegedly damaged by United baggage handlers at Chicago O'Hare had become one of the most-talked-about aviation stories on the Web this week. Now, after going viral online, the story also has gone mainstream. The Chicago Tribune, U.S. national TV networks and a bevy of Canadian papers are among those to pick up the story during the past day. The move shows just how quickly the Internet can help a disgruntled customer can turn the tables on a company and its effort to manage its public image.

The posting about Dave Carroll and his YouTube retaliation links to stories in the Chicago Tribune, Chicago-Sun-Times, Los Angeles Times and Ottawa Citizen, while the story has also been covered by CNN, bloggers and many other sources. United is acknowledging the black eye on its Twitter feed.

When I was flying to Tokyo every few months and up to SFO almost monthly in the 1990s, I was very loyal to United. However the airline has gone down the toilet the last 4-5 years. It’s not clear whether it’s the unions, the forced givebacks, or tight management controls of every penny, but (as Carroll documents) it’s no longer a customer-focused service business.

Alas, this is not limited to United. Most of the major US carriers (possibly excepting Continental) see passengers as a revenue source to be milked and not a customer to be served.

So while Web 2.0 methods may be the feel-good consumer story of the year, all the modern methods of criticizing (or responding) to lousy customer service are not going to fix the industry’s structural problems. Chasing each possible cost savings, the once premium major carriers are eventually going to end up providing Ryanair-quality service, while Southwest and Jet Blue stick to their respective visions of airline travel.

Solving a non-problem

From an standpoint of the US free markets, we have the most interventionist government regime of any point in the past 60 years — if not ever. There have also been some spectacularly bad government interventions in the past year, as well as profligate deficit spending.

Many have these been justified (or rationalized) as being necessitated by the economic mess — or, as White House Chief of Staff Rahm Emanuel put it back in November, “you never want a serious crisis to go to waste.” Some of the micromanagement has bordered on the banal — meddling just because — which brings us to this week’s news.

A report late Monday said the Justice Department is going to investigate cellphone locking and exculisve distribution relationships, notably those of the iPhone. As one TV light-chasing senator (who served in Vietnam) begged the FCC last month:

We ask that you examine this issue carefully and act expeditiously should you find that exclusivity agreements unfairly restrict consumer choice or adversely impact competition in the commercial wireless marketplace

An economist arguing for government intervention would claim monopoly distortions of the market, information asymmetries that mislead consumers, or other forms of market failure. None of that applies here: there is no monopoly, everyone knows about the iPHone exclusive and there is no market “failure.”

Yes, if you want an iPhone in the US you are tied to a Cingularly unimpressive network and onerous service plan. I of all people would agree that it would be nice to get an iPhone without paying AT&T $700 for a data plan.

However, a cellphone is not a right (even in the 21st century), a specific cellphone model is not a right, and certainly an iPhone is not a right. Even if it were, anyone can go out and buy an iPod Touch without the carrier contract.

More importantly, this is “solving” a problem that is going to disappear on its own. The iPhone’s been out for 2 years, competitors are responding with models that have comparable features, and increasing competition will be the norm.

Apple is the only major vendor in the US who intentionally has an exclusive — eveyrone else is selling to all players or would gladly do so if the operators owuld let them. RIM is selling the BlackBerry to all the carriers (including many smaller ones) and has twice Apple’s market share in North America.

Microsoft and its Taiwanese friends are selling Windows Mobile is selling to every carrier, while Nokia and Synbian would love to sell to every GSM carrier. (OK, Palm Pre is exclusive to Sprint, but it’s no longer a major vendor and Verizon expects a comparable webOS phone early next year.)

Meanwhile, the pending explosion of Android models means that the vendors will have to seek out every carrier (including smaller ones like MetroPCS and US Cellular) to meet their market share goals. (Maybe AT&T will skip Android, but if the UK's O2 can carry Pre and iPhone, then why not AT&T?)

Four months ago I said this sort of intervention in France is terrible economic policy — but then what would you expect for France?

Even if it made sense in France, in the US have four major carriers (one more than most countries) that compete aggressively for customers. It is quite clear that in the US, this bundling increases competition among device makers — which is sorely needed in the high-end smartphone segment.

Apple decided that the best way to get its iPhone to market was through an exclusive with Cingular. This had the utterly predictable outcome that carriers serving 70+% of the US market would aggressively promote competing phones. If Verizon can’t have the iPhone, it has to promote something else, as do Sprint and T-Mobile. The BlackBerry Storm, Palm Pre, HTC G1 were among the respective beneficiaries.

As I said back in March:

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.

Making Microsoft miserable

On the questionable Google Chrome OS plan, Mike Mace says it’s about making Microsoft miserable:

That helps to explain why Google would be pushing both Chrome and Android at the same time. If you're really serious about running a logical OS program in its own right, you'd try to rationalize those two things. But if your top priority is to commoditize Microsoft, then you don't mind pushing out a couple of overlapping initiatives. The more free options, the more pain caused.

Even more revelatory than the article was how I found it: this is the first blog post generated based on something I learned via Twitter.

I subscribe to Mike’s blog via an RSS feed to NetNewsWire, but it’s only one of 230 feeds and I’m not currently caught up (even with my two-dozen favorites).

However, on Tweetie I follow four friends’ tweets (all tech veterans), and 50% of them promoted Mike’s column. If half my tweet network thinks something is interesting, I’m gonna read it.

Update, Thursday 8am: The Merc now reports the utterly conventional wisdom that this is “a direct shot across Microsoft’s bow” but doesn’t quote Mace.

Google gets into the OS business

Google has been a platform and systems company but now they’re officially an OS company. From the official Google blog:

[T]oday, we're announcing a new project that's a natural extension of Google Chrome — the Google Chrome Operating System. It's our attempt to re-think what operating systems should be.

Google Chrome OS is an open source, lightweight operating system that will initially be targeted at netbooks. Later this year we will open-source its code, and netbooks running Google Chrome OS will be available for consumers in the second half of 2010. Because we're already talking to partners about the project, and we'll soon be working with the open source community, we wanted to share our vision now so everyone understands what we are trying to achieve. …

Google Chrome OS will run on both x86 as well as ARM chips and we are working with multiple OEMs to bring a number of netbooks to market next year. The software architecture is simple — Google Chrome running within a new windowing system on top of a Linux kernel. For application developers, the web is the platform. All web-based applications will automatically work and new applications can be written using your favorite web technologies. And of course, these apps will run not only on Google Chrome OS, but on any standards-based browser on Windows, Mac and Linux thereby giving developers the largest user base of any platform.

Does the world need another operating system? No. Are netbook users more operating system independent than other computer users? Google, Apple, Nokia and several other firms are betting this is the case, but this thesis is yet to be proven.

When I did my dissertation in 1998-1999, I was just seeing a glimmering of the idea that Internet access (then web and email) was more important than locally hosted applications (and thus application variety was an attribute to satisfice and not maximize).

Google has been trying for years to encourage this trend to commoditze the OS as a means for Internet access. Apple tried it for a while on the iPhone and then gave up, which brought them the world’s leading mobile app store.

Further evidence of newspaper decline

On Sunday, the SF Chronicle stopped printing its paper, laying off 200 union printers and shifting the work to an outside contractor. Compared to going out of business, it’s small potatoes, but it’s one more data point in the long secular decline of newspapers (not to mention unionization of non-government workers).

By going to the market (rather than vertical integration), the Chronicle was able to not only save costs but get more up-to-date printing presses. The Chronicle does not see printing as a core competency, and thus abandoning the traditional vertical integration (at least in a large metropolitan area like SF) makes sense. Still, the in-house story seemed slanted towards the nominal benefits (“wrinkle-free era begins”) rather than the cost savings.

Still, this is fiddling around the margins. The real issue is (as with record companies) how to charge when everyone expects to get it for free.

Eric Etheridge of the NYT summarizes the latest hopes of newspapers to be able to increase online revenues to replace disappearing printed paper revenues. One of the newest briefs in support of the newspapers comes from Richard Posner, a law and economics guru who is perhaps the most influential US judge today who will never sit on the Supreme Court. And The Newspaper Project keeps grasping at straws that it hopes will someday mean “Happy days are here again!”

On the other hand, Kevin Kelleher thinks efforts to impose a pay wall after all these years are doomed to fail. He opens in dramatic form:

Dear reader, the newspapers are sorry. They made a terrible mistake that drove you away: For years and years, they let you read their stories online for free. And so in the depths of the worst recession of our lives, they are now going to make us all pay.

If that sounds at all illogical, there's an excellent chance you are not a newspaper executive. It makes sense to Les Hinton, CEO of News Corp.'s (NWS) Dow Jones & Co. and publisher of the Wall Street Journal, who not only acknowledged the mistake in a recent speech but credited it with feeding Google's (GOOG) vampyric "lust for newspaper blood." Hinton said all those free news stories on the Web "gave Google's fangs a great place to bite."

I think the jury is still out, but if I had to bet whether the average (not top 5) US newspaper will be able to institute a pay wall, I’d put the odds south of 4-to-1.