1 Million iPhones: Why Today?

When Steve Jobs said last Wednesday that Apple (AAPL) was on track to sell 1 million iPhones by the end of Apple's fourth quarter, 25 days away, he probably had a pretty good idea how many units the company had already sold. But he waited until today to announce some big news on that front. "One million iPhones in 74 days -- it took almost two years to achieve this milestone with iPod," said Steve Jobs, Apple's CEO. "We can't wait to get this revolutionary product into the hands of...

When Steve Jobs said last Wednesday that Apple (AAPL) was on track to sell 1 million iPhones by the end of Apple's fourth quarter, 25 days away, he probably had a pretty good idea how many units the company had already sold. But he waited until today to announce some big news on that front. "One million iPhones in 74 days -- it took almost two years to achieve this milestone with iPod," said Steve Jobs, Apple's CEO. "We can't wait to get this revolutionary product into the hands of even more customers this holiday sea- son." (link) Hmm. Color me cynical. It's possible that the price cut Jobs sprang on us on Wednesday boosted sales just enough in the four days afterward to put the iPhone over the 1 million mark on Sunday. It's also possible that the timing of today's announcement was a decision driven less by sales figures than by public relations. Why bury a piece of news like this in an event crafted to spotlight the new iPod line when you can save it for just before the stock market opens on Monday, when it will make a much bigger splash.

  • The iPhone price cut: just smart marketing

    Based upon the press today about yesterday's Apple special event, you'd think that Steve Jobs was selling Zunes instead of cutting prices on Apple's highly popular iPhone.Despite completely revamping Apple's iPod line for the holidays, the number one story today is about the $200 price cut on the Apple 8 GByte iPhone. There were more than 11,000 stories on Google News about the iphone over the past 24 hours, Apple stock dropped 5% yesterday, and pundits are claiming people who bought iPhones over the past few months are anywhere from "irked" (USA Today) to "angered" (The Boston Globe) to "screwed" (The Unofficial Apple Weblog, and it's their word not mine).Get a grip, folks. This wasn't personal; Apple simply made a shrewd marketing move. It paid off too -- to the tune of about $150 million which will fall to the profit line over the next couple years.Let's rewind a few months and review what actually happened. Apple went into its June 29 iPhone launch with a stock of about 300,000 iPhones and a manufacturing capacity of roughly 150,000 a month, give or take. It knew it wanted to price the phone at $399 for the holidays, because it expected to ramp up its production lines significantly by then. But until about September or so, Apple was looking at constrained production. Demand was going to exceed supply -- big time.Now, if Apple had launched the iPhone at $399, what would have happened? The lines at the Apple stores would have been twice as long, but there would have been no more iPhones. That means twice as many prospective customers would have been disappointed and turned away as the product sold out. Everyone and their brother would have written articles about how Apple has misjudged the market and its production. It would have been a PR disaster.Instead, Apple used the Force -- the force of marketing, that is. It signaled its constrained production by introducing the product at a relatively high price (although as we've noted previously, $499 was a price that was entirely within normal ranges for other cell phones such as the original Motorola RAZR and is still less than today's Nokia N95). In essence, it said with its price that this phone was for the cool, well-heeled person who had to have the best. And so Apple had the largest consumer product launch in history by dollar value and even so, it was often out of stock for a month.Now Apple could have continued this approach going into the holiday season, but by this time, its manufacturing partners have figured out how to make the phones and boosted production. This was a requirement for Apple to meet its goal of selling 10 million iPhones by the end of 2008 -- it had to have two to three times the production capacity by then. So with greater supply (and lower manufacturing costs to boot), Apple cut prices for the holidays. There's one other important point: Apple needed to rationalize its pricing of the iPhone against the iPod touch launch price. The iPhone couldn't carry a $200 premium over an iPod touch; too many people would have just said, "I already have a phone" and bought those products. But by bringing the iPhone price into line with the iPod touch, Apple ensured that consumers could choose whichever device met their needs best without pricing playing a major factor.We can calculate what this little twist was worth to Apple. We know based upon Jobs' statements yesterday that Apple is on track to sell its millionth phone this month. So for safety's sake, let's say that 900,000 are already sold at the higher price. Of those, maybe 150,000 will get some sort of rebate or refund through their credit cards or price protection (I don't think it will be nearly that high, but let's just accept it for argument). That leaves 750,000 phones that earned an extra $200 premium over the targeted $399 selling price. Do the math, and you discover that Apple pulled in an extra $150 million for its trouble. Not a bad business decision at all, given that that $150 million is largely profit. And that's a nice profit cushion for the iPhone business unit to have while Apple ramps up its carrier subscription revenue numbers.People in the technology and investing press need to realize that Apple is in the high-touch consumer products business. Even at its high price, an 8 GByte iPhone was still less than your average Fendi or Louis Vuitton handbag, and no one writes outraged articles when those go on sale every year. With a clever pricing strategy, Apple both garnered a $150 million premium to its normal sales, generated significant PR buzz with almost no advertising or other marketing, and now is getting even more attention from its new lower price. As Steve Jobs said today about falling iPhone prices in USA Today, "That's technology." But it's darn good marketing as well.Full disclosure: the author owns Apple stock.UPDATE: Apple announced it is providing $100 rebates to all 8GB iPhone customers who haven't received other rebates. That means it will collect only a $75 million premium on the first sixty days, not $150 million. Sounds like even better marketing since it retains both some of the premium and the goodwill of early adopters.Technorati Tags: Apple, Economics, iPhone, iPod, Manufacturing, Marketing, Pricing, Public Relations

  • Why Dan Frommer and Scott Moritz Are Wrong on iPhone Sales

    Daniel Eran DilgerSilicon Alley Insider's Dan Frommer says Apple's announcement of reaching its million mark goal in iPhone sales three weeks early is actually bad news for Apple and is convolutedly "below plan." He also says the announcement only props up the speculative conjecture by Scott Moritz of the Street that Apple's iPhones sales are somehow woefully below expectations. They're wrong, here's why.The PremiseFrommer wrote that Apple isn't selling iPhones as fast as planned and is set to only sell around half of its 2008 goal.His premise revolves around the idea that if Apple were selling iPhones at "a constant rate," a million phones in 74 days would be five million per year. However, because it sold over a quarter of those in the opening day and a half at the end of June, Frommer calculates that sales of the remainder in the 72 days since the first of July mean that Apple is only hitting a "3.6 million annual run rate."By the end of 2008, that would only result in 5.8 million units instead of the ten million goal Apple. [Silicon Alley Insider: Apple's iPhone: 1 Million Is Below Plan]Strike One: The Run Rate Myth.The most obvious problem with that idea is the fact that devices don't sell at a constant “run rate." Apple's iPhone sales took off at launch much faster than the original iPod due to the fact that a swell of early adopters were ready to buy it after being convinced over six months of anticipation. At the same time, many potential buyers held off on plans to buy the iPhone until they could read reviews and get a real sense of how it worked. Many were also locked into contracts with Verizon or Sprint. With only six months of advanced notice, it will still be a few more months before the majority of buyers who want an iPhone even get the chance to buy one without having to pay outrageous fees to cancel their existing mobile contract. iPhone sales are also now taking on the network effect of the iPod, as early adopters show their friends. All these factors have difficult to estimate impacts upon sales that make trying to figure a static “run rate? a very simplistic and pointless exercise.However, there is another factor that simply blows the entire idea of a static “run rate? out of the water. Last November, I predicted that sales of the Zune would bomb that winter because Microsoft had failed to critically examine Apple's historical sales patterns. Sure enough, the Zune was thrown against the rocks by Apple's riptide. Frommer's idea ignores that same reality by imagining that iPhone sales will schlep along at a linear pace. Had Frommer tried to calculate an "annual run rate" for the iPod based on a portion of third quarter sales at any point over the last half decade, he would never have been close to accurate. That’s because Apple’s iPod sales roughly triple every winter quarter.In 2002, it sold nearly as many iPods in its winter quarter as it did the first three quarters combined: 219,000In 2003, it actually sold more iPods in its winter quarter than in the first three combined: 733,000In 2004, it again sold more iPods in its winter quarter than in the first three: 4,580,000In 2005, it sold more than 4 million units every quarter, but still sold nearly three times as many in the winter: 14,480,000.In 2006, it sold more than 8 million units every quarter, and then sold over 21 million in the winter quarter.In 2007, it has maintained quarterly sales between 10.5 and 9.8 million per quarter.[Strike 3: Why Zune will Bomb this Winter]Strike Two: The Have it Both Ways Myth.One particularly annoying bit of analysts' talk about Apple's expectations is that they can't seem to decide if Apple's projections are bad because they are conservative lowballs, or if they are bad for being overly enthusiastic figures the company won't be able to reach. They often try to describe them as both, loading contempt on both sides of the scale. This makes them look very foolish. Do they think we have no memory, or are they just changing their stories back and forth in sheer desperation?Frommer tried to argue both sides at once in the same article. Recall that Apple only ever gave two iPhone sales goals: one million by the end of the first quarter of sales, and ten million by the end of 2008. In his piece, Frommer suggests Apple will only be able to sell 5.8 million iPhones by the end of 2008, based on that fallacious "run rate." That would be just over half of Apple's ten million goal. However, he then says that Apple's immediate short term goal was an unimpressive low ball, no doubt because Apple reached it three weeks early.Apple's stated goals must be a greatly frustrating logical conundrum for Frommer, because even at a “run rate" of one million in a quarter, Apple could only ever hope to sell six million iPhones by the end of 2008, another five quarters later. No wonder he's faced with trying to say that the immediate goal was too low and the longer term one is too high! Frommer needs to stop trying to pound round facts into square holes just so they can be stacked up like bricks the way he would like them to be.Strike Three: The Market Bearing Price Myth.While Frommer and Moritz are enamored with the idea that iPhone prices could only be cut if sales were in crisis, a variety of obvious market realities don't support that simpleton idea. Between now and the end of 2008, Apple has just two holiday seasons. If it wants to dramatically exploit its historical potential for selling roughly three times as many gadgets during the winter season, it makes sense to trade off unit pricing for volume sales, even if it could perhaps sell fewer at a higher price and make more short term profits doing so.Such a strategy isn't unique. Microsoft and Sony currently lose money on their new game consoles in desperate bids to establish their gaming and HD video playing platforms. Even so, this year they both cut prices again to accelerate volume demand. Nintendo purposely aimed low to capture volume sales using a more attractive price point. Given high demand for the Wii and extremely constrained availability, Nintendo "should" seemingly raise its console price and profiteer. It hasn't. While prices are clearly linked to demand, it is a common fallacy to think that the "right price" is always the highest the market will bear. Jobs' 99 cent pricing in the iTunes store is clearly not the top price consumers will pay for downloads. Music labels are fuming that other licensees such as Verizon will collect $2.50 or more for portions of a song sold as a ringtone. Jobs wants media prices low to induce volume sales and attract buyers to the legitimate market for music and movie downloads. Labels and studios want "market pricing," in part so they can jack up the price of popular music to exploit consumers, and in part so they can exploit artists by threatening to release their work at lower tiered prices and signal to the market that their careers are over.[Universal vs Apple in the iTunes Store Contracts][Nintendo Wii vs Microsoft Xbox 360 and Sony PS3]This All Happened Before.Dial back the clock twenty years, and you'll discover that Steve Jobs also fought with Apple CEO John Sculley over the price of the original Macintosh. The desire to use an expensive but pioneering amount of RAM and a futuristic new processor had inflated the price of the Mac, but the design team was still able to deliver it at a fairly attractive price point of $1,995. Scully determined that the Mac would still sell at $2495, delivering high profits to fund splashy advertising. Nothing on the market was really similar to the Mac apart from Apple's $9,995 Lisa. VisiOn for the PC similarly cost nearly $10,000 and did far less. Sculley thought that the market would bear anything Apple might charge. Andy Hertzfeld recalled on Folklore.org that in October 1983, "Steve Jobs strode into the software area one evening, looking angry. 'You're not going to like this,' he told us, 'but Sculley is insisting that we charge $2495 for the Mac instead of $1995, and use the extra money for a bigger marketing budget. He figures that the early adopters will buy it no matter what the price. He also wants more of a cushion to protect Apple II sales. But don't worry, I'm not going to let him get away with it!'"Jobs fought Sculley over the price increase, but Sculley prevailed. Sure enough, Macs did sell well out of the gate to early adopters at the higher price, but sales then began to stall. While Jobs couldn't cut the price for the original Mac to induce wider adoption in the mid 80s, he could choose to cut the price of the iPhone early and use interest in the iPod Touch to ramp users toward the iPhone. That price cut will dramatically boost sales this winter, just as iPod price cuts and feature refreshes do every year.Apple will earn less profit on individual hardware sales of the iPhone, and may even earn slightly less money overall this quarter than it might have selling the iPhone at $599. However, a $399 iPhone will dramatically boost the company's sustainable subscriber revenues and devastatingly cut into stationary rivals like Palm and the Windows Mobile licensees, giving them little opportunity retool and strike back with copycat products.  [Price Fight - Folklore.org][Office Wars 3 - How Microsoft Got Its Office Monopoly]Strike Four: The Myth of Unlimited Availability.Another problem with idea that iPhone sales were in crisis--and that a price cut is a conspiracy to hide the truth--is that Apple sold out of iPhones in many of its retail stores throughout the first three weeks on sale.Carl Howe of Blackfriar's Communications tracked iPhone availability every day through July, and then animated the results in a movie that depicts just how constrained iPhone inventories in Apple's retail stores were. So not only did Apple meet its 94 day goal 20 days early, but it did so despite having no or few iPhones to sell in many of its stores during the first 21 days. Price isn't just related to demand, but also to supply.That also demonstrates the fallacy of Scott Moritz' assertion that Apple secretly planned to sell a million iPhones in a day and a half, and was sorely disappointed after failing to do so. How could Apple have planned on selling a million units in one day when it didn't even have a million units on the shelves of its stores during the first month? Remember, Moritz wasn't saying Apple had a delivery problem in getting enough units to stores as Nintendo is experiencing with its constrained supplies of the Wii. Instead, he tried to suggest that interest in the iPhone was far below Apple's estimates, and buyers were leaving it on the shelf like Windows Vista. The result, he claimed, was that "rivals were rejoicing."The only real rejoicing by rivals was that Moritz was volunteering to repeat the talking points handed to him by Verizon shill Roger Entner of IAG Research. Just hours before Apple announced it had sold a million units, Moritz tried to get some traction out of the idea that Apple had dropped the price in desperation to find another half million or so customers over the next three weeks. Apple isn't the typical tech company being run by visionless bean counters. It it were, it would have continued selling $600 iPhones at least through the end of September and then announced that it had sold its million. Apple had to push out new iPods in early September and fit the iPhone into the price range because next month it will be rolling out Leopard and a series of new software updates. Apple feeds the press in small, consistent, and regular feedings so reporters know what to write. If Apple were a big stupid company such as, say HP, it would parade out a mix of dozens of consumer and business products all together in one big event, and nobody would ever hear about any of it. HP did.[Why a million iPhones in 74 days is better than you think- Blackfriars][HP's marketing this week: fashionable but ineffective - Blackfriars][Unraveling Anti-Apple Panic: the iPhone Launch Success] [More on Scott Moritz and the Jim Cramer Misinformation Engine]Strike Five: It's Too Late to Deny the iPhone.The most comical part of Frommers’ analysis is that he’s trying to stuff a cat back into a bag and explain that there was never really any cat, long after everyone in the room heard the purr and pet the thing. Sorry, but the windows of opportunity to doubt the iPhone have long since closed.Real Windows Enthusiasts were aware of the need to deny the iPhone well before its release. They all chimed in with reasons why the iPhone wouldn't work, wouldn't offer what consumers want, and wouldn't sell well, all hoping that their non-stop misinformation campaigns would act as a self-fulfilling prophesy. They failed miserably.John Dvorak began his smear campaign immediately, appearing on CNBC to say that the iPhone was "trending against what people are really liking in phones nowadays, which are those little keypads.? He explained, “The BlackJack, the Samsung, the BlackBerry obviously pushes this kind of thing. The Palm, all of these. I guess some of these stocks went down on the Apple announcement, thinking that Apple could do no wrong. But I think Apple can do wrong, and I think this is it." Reader Jim Barrow sent in a link to a MarketWatch article from March, where Dvorak scribed a rambling diatribe entitled "Apple should pull the plug on the iPhone." He offered no factual basis for worrying that the iPhone might not work out apart from the offhanded comment that "there is no likelihood that Apple can be successful in a business this competitive," words which echoed Dvorak's 1984 observation that "the Macintosh uses an experimental pointing device called a 'mouse.' There is no evidence that people want to use these things."In April, Dvorak inflamed his 'pull the plug' rhetoric further in a TWiT podcast, where he reported to an audience of hundreds of thousands that the iPhone only delivered "40 minutes of talk time" and "the interface fouls up constantly.? Dvorak said that his inside information on the iPhone came from a "guy at Cingular who’s testing the product," adding, "he’s telling me confidentially and I shouldn’t be telling anybody."[John Dvorak: How Wrong Can One Guy Be?][Readers Write: Don't Write About John Dvorak Anymore]It'll Be the Death of You.Dvorak was joined by Rob Enderle, who called the iPhone “damned? and “not a very good phone? at every opportunity in the months before its launch, despite not really knowing anything about it, or even ever offering any rational criticism. Instead, Enderle appealed to fantasy fears of sexual assault, murder, and the violent death of children, all of which he suggested might somehow be related to the iPhone. Unaware that a password protected iPhone--or even a unauthorized unit without a configured service plan--can still be used to make emergency phone calls, Enderle wrote about, "an emergency situation where, say, a woman was being raped and couldn’t call for help because she didn’t remember her iPhone password." As I understand, with a Windows Mobile phone, even if the unit crashed while trying to place the call, at least the victim could use it like a brick as a blunt weapon. Enderle also feared that being unable to take out the battery would somehow making recharging it impossible, resulting an a scenario where one might end up on “the wrong side of town? with a dead iPhone and be murdered because of it. Being on the wrong side of town was apparently the source of most murders prior to the arrival of the cell phone, which somehow made it safe to be in bad neighborhoods. For those who unfazed by the prospect of one's own own grizzly death in relation to the iPhone, Enderle appealed to his readers to please think of the children, particularly the potential for their brutal decapitation in an iPhone-related collision. "If you are buying this phone for a child or another member of your family," Enderle warned, "please emphasize that entering data on this phone while driving is dangerous." In contrast, operating the slide out keyboards of an HTC brick phone, or using both hands to thumb type on a BlackBerry may or may not save your children as they drive off an embankment, but at least you'll know they didn't die at the hands of Apple's "damned" iPhone.[SCO, Linux, and Microsoft in the History of OS: 1970s][Mac OS X vs Linux: Third Party Software and Security]Pure Concentrated Evil with a Multitouch Screen.Brian Lam of Gizmodo published an impassioned plea to boycott the iPhone shortly before its launch, due to the fact that Cingular had purchased the AT&T name, a brand Gizmodo's writer correlated with "monopoly tactics" in the late 70s. Gizmodo hasn't ever called for the boycotting of Verizon Wireless, which is well known for its anti-consumer tactics and which shares just as much blood with the old AT&T as its Baby Bell sibling Cingular, nor has it ever urged the boycott Microsoft products due to "monopoly tactics." Gizmodo also failed to boycott any other GSM phones that are tied to AT&T.Gizmodo's Lam and Enderle then teamed up with Slate's David Sessions in an article purporting to expose Apple's rated battery life for the iPhone. Sessions complained about the attention the iPhone was getting, and tried to dismiss Apple's announcement of a two fold increase in battery life over what was originally advertised. Unbelievably, Sessions and friends could only explain away the iPhone's jump in talk time by crediting its glass screen, saying that "glass transmits light more efficiently than plastic." That and some witchcraft.However, all of these individuals sharply reduced their squirt rate of false information after the iPhone's successful launch. In day and a half, Apple sold 270,000 iPhones compared to the 500,000 Palm OS Treos, 1.03 million RIM BlackBerrys, and 1.51 million Windows Mobile phones that were sold worldwide in the first 90 days of 2007.Apple has since nearly matched highflying RIM in sales during July, despite being limited to a single carrier and only offered for sale in the US. At this point, denying the iPhone is like saying the Earth is flat. It might be fun to do at a Renaissance Faire, but pretending to seriously doubt reality is not a good career move unless you work for the Street--or perhaps Rupert Murdoch, as Dvorak does.[Secret iPhone Details Lost in a Sea of Hype and Hate][iPhone Sales vs Zune, Palm, RIM, Symbian, Windows Mobile]And Now: a Warning.Let it be known that anyone who publishes further misinformation or blows out similar inanity will risk being instantly awarded a Zoon on the spot. No complicated voting, no tedious application process. New Zoon nominees will be rubber stamped with the same effortless fast tracking as the ECMA declaring Microsoft technology as an international standard.In fact, I’m going to totally Zoon Dan Frommer and Scott Moritz right now, as well as John Dvorak, Rob Enderle, Brian Lam, David Sessions, and even Roger Entner. And John Sculley. And while I’m handing out an intellectual property construct that costs me nothing to distribute, I will also award Steve Jobs with a Zoon for the whole two month “just kidding? iPhone pricing situation, although I might take half of it back if I get a $100 coupon that doesn’t force me to spend $500 to actually use it. So let that be a warning to you out there on the Tubes thinking about how to linkbait an article at the expense of the progress of technology. I have a rapid firing gun full of Zoons and I’m not shy about cranking them out. Be sure to post any nominees.What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • Will Google's Android Play DOS to Apple's iPhone?

    Daniel Eran Dilger Today's broad array of smartphone operating system contenders are offering lots of potential answers to a problem that only requires one. It appears the market has two options ahead: either pool generic hardware makers behind a single operating system and deliver a smartphone marketplace that resembles the Windows PC market, or watch them fall to a dominant leader and have a smartphone market that resembles Apple's iPod ecosystem. This decision isn't going to be made by a class of intellectual elite, or by government mandate. it's going to be made by the market itself. Here are the factors that will influence the outcome, either marginalizing Apple's iPhone into a niche as the company has twice experienced previously at the hands of DOS in 1981 and Windows in 1991, or positioning it as the dominant leader as Apple has achieved for itself with the iPod since 2001. The third segment in this series looks at Google's Android and the Open Handset Alliance as a possible “DOS-attack” against Apple's iPhone. Subsequent segments will look at Nokia's newly opened Symbian and other mobile contenders challenging the iPhone. Will the iPhone Meet its Match from a Modern Day DOS? Will Windows Mobile Play DOS to Apple’s iPhone? Will Google's Android Play DOS to Apple's iPhone? Will Symbian Play DOS to Apple's iPhone? Google Acquires Android. In 2005, Google purchased a startup named Android, which had been in business for nearly two years. The secretive startup was known only to be working on software for mobile phones. It was being run by a who's who of mobile industry veterans, including Andy Rubin, the founder of Danger. Rubin had earlier worked at WebTV along with Chris White and Andy McFadden, both of whom had also joined Android. Richard Miner of Orange and Nick Sears of Tmobile also brought their mobile provider experience to Android. At the time of the acquisition, Google didn't announce any plans for Android and instead only told BusinessWeek, “We acquired Android because of the talented engineers and great technology. We're thrilled to have them here.” It appeared that Google was only going to be expanding its search services for mobile phone users, along the lines of the Google SMS answer system it had recently released. Google Buys Android for Its Mobile Arsenal - BusinessWeek Windows XP Media Center Edition vs Apple TV: The Fall of WebTV The GPhone Myth. As reports began to leak out about talks between Google and hardware makers throughout 2007, rumors began to fly about “the GPhone,” a competitive offering that was supposed to take on the iPhone. Some phone enthusiasts hoped Google would jump in to rescue the struggling OpenMoko project and turn it into a viable project that could attack Apple's new smartphone. In October 2007, I printed the Great Google GPhone Myth, taking apart the idea that Google would be directly competing against the iPhone, and describing that Google was really working on a free alternative to Windows Mobile as a conduit for getting its search and related services on a broader variety of mobiles. Google's services were already on the iPhone. In November, Google played its hand: it had organized a consortium of companies called the Open Handset Alliance to develop open standards for mobiles. The first product from the group would be Android, a mobile operating system built on the Linux kernel. Google wasn't getting into the phone handset business at all; it was only making sure that its mobile search products would not risk being marginalized by the threat of Windows Mobile on phones in the same way Microsoft had been working to leverage its PC monopoly to push Google search off the Windows desktop. The Great Google gPhone Myth Introducing Android: Leader of Linux. Two weeks later, Google released an early version of the Android software. On top of a Linux kernel, Android uses a specialized version of a Java Virtual Machine that takes Java language code and turns it into what Google calls “Dalvik bytecode” rather than Java bytecode as a standard JVM would. This allows Google to leverage existing and familiar Java language tools without paying Sun for a Java license. Like Mac OS X and its fraternal iPhone OS, Android includes a variety of open source libraries, including SQLite and WebKit. On top of that, Google developed a series of frameworks that handle the tasks Cocoa Touch does on the iPhone. Android also bundles a set of applications. While Apple adapted its existing Mac OS X to work in a mobile environment to create the iPhone OS, Android is more like a customized Java environment running on a specialized mobile Linux variant: elements of maturity in an otherwise experimental new platform. What is Android? -Google Android was by no means the first mobile OS using Linux. Both Palm and its amputated ACCESS software arm have Linux-based mobile platforms. Nokia has Maemo, which it uses in its Internet Tablets, and also recently acquired Trolltech and its Qtopia mobile Linux platform. Motorola has teamed up with MontaVista Software to use its Mobilinux. Intel created the Moblin project for mobile Linux, aimed at Internet devices. Google's OHA also isn't the first consortium to attempt to standardize a mobile Linux platform. The OSDL started the Mobile Linux Initiative to define requirements for hardware; the Consumer Electronics Linux Forum (CELF) then worked to define various phone profiles aimed at the Japanese market; the Linux Phone Standard (LiPS) Forum tried to do the same thing in Europe. In 2007, LiPS was folded into the new LiMo Foundation, along with the OSDL. All of these committees have had some overlap and some complementary features. Several of Google's OHA partners are also LiMo members, including NTT DoCoMo, Wind River, and Motorola. So why didn't Google just join LiMo? “LiMo, very candidly, wasn't moving fast enough,” OHA board member John Bruggeman told CNET. Google hopes to herd the Linux cats into a progressive, structured platform that can battle against Symbian and Windows Mobile to succeed as the new DOS of smartphones. Will Google fracture or unify mobile Linux? The Presumption of the Necessity of DOS. The previous segment examining Windows Mobile pointed out how the PC industry as a whole assumed that Microsoft's desktop Windows monopoly would easily take over dominance in the MP3 player market, pushing Apple into a niche position. This was expected because DOS had pushed Apple's early computers into a reduced role starting in 1981, and Microsoft had repeated this again in 1991 when the DOS world migrated to Windows, effectively pruning Apple's Macintosh into a Bonsai platform. The inability of one company to dominate any product category has been frequently repeated by PC industry pundits as a given, despite the fact that history is full of examples of this happening. Sony dominated personal music players for two decades under the Walkman brand even while equally large competitors tried to push it from this position; Nintendo has similarly owned handheld gaming despite ill-fated efforts to grab a piece of its pie by products running a generic platform such as Microsoft's WinCE (Gizmondo), Linux (GP32), and Symbian (N-Gage). In fact, outside of the Windows/DOS PC, there are actually few examples of a generic platform taking over an industry. Nearly every other consumer-facing product uses proprietary platforms: car makers, stereo equipment, appliances and so on typically all use designs custom to their maker. The paradox of the Windows PC market has been that Microsoft's broadly licensed software supposedly saves hardware makers from investing in software development while ensuring compatibility, when in reality it adds significant costs to PC makers while limiting their ability to differentiate themselves. That explains why PC makers have been perpetually merging together and going out of business while Microosft has rolled in money over the last two decades. Parallel efforts to copy Microsoft in broadly licensing an operating system have regularly failed: IBM's OS/2, Apple's Mac OS, Palm's PDA OS, even Microsoft's own efforts to duplicate Windows dominance in other markets, from copy machines to PDAs to smartphones to SPOT watches to music players. The closest copy may be Symbian, but its customers are partners, not simply consumers of a generic third party's operating system as Windows licensees are. That indicates it is not necessary to duplicate the dominance exercised by Microsoft over the PC industry in the smartphone market. Google's Android and Symbian exist more as technology sharing pacts among manufacturers, but both aspire to take Microsoft's DOS role among smartphones. However, the idea that Apple's iPhone must be dethroned by a modern-day DOS, whether Windows Mobile, Android, or Symbian, is not just debatable, but does not sync with the reality of more recent events. Apple's recent history of the iPod further refutes the idea that a software analog to Microsoft is needed. The iPod Emergence: Apple & Pixo vs IBM & Microsoft. Apple's iPod in 2001 made no effort to clone the DOS business model; it actually did the opposite. When Apple entered the market, there were a number of existing MP3 devices using custom software, hardware designs, and DRM codecs. The iPod used off the shelf components to deliver a custom MP3 player using third party software, but Apple also added its own technologies: easy to use sync with iTunes, a fast Firewire interface that made uploading music far faster than the prevailing USB 1.0, and an attractive industrial design. With the iPod, Apple played the role of IBM in 1981, using Pixo's embedded operating system to enter the market quickly, just as IBM had used DOS. The difference was that Apple didn't direct any market attention toward Pixo and added a lot of value on top of that core embedded OS. A modern day Compaq couldn't simply clone the hardware and license Pixo to run on it in order to compete against the iPod, because the iPod was much more than just generic hardware running Pixo software. As the iPod developed, Pixo's role diminished and was eventually displaced. Just like IBM, Apple jumped into a new market just as demand was beginning to explode. Apple made MP3 players far more attractive to a general audience by delivering greater playback capacity than most entry level devices offered, along with an ease of use that encouraged buyers to jump in at the higher end of the market. That left Apple with not only the lion's share of the market, but also by far the most profitable segments of the market. Two decades prior, IBM badly fumbled its play with the early PC and ended up irrelevant in the PC world by the late 80s, sideswiped by Microsoft's DOS and the cloners who were licensing it in parallel, notably Compaq and later HP and Dell. Steve Jobs had witnessed that happen, and was determined to not let it happen again to Apple. Rather than being manipulated by a software middleware vendor as IBM had, Apple worked to incrementally develop the iPod market itself. After consuming the hard drive-based player market, Apple took on the Flash RAM-based market with a tiny hard drive system used in the iPod Mini, and followed up with Flash-based devices of its own in the Nano and Shuffle. This allowed Apple to progressively serve an increasingly wider market, incrementally growing upon an established foundation. With the iPod, Apple became, in effect, an IBM with its own internal Microsoft. Microsoft's Failure Despite Features. In contrast, Microsoft entered the music player market by promoting music player hardware reference designs around WinCE. However, it was unable to ship a finished design until the iPod had become firmly established around 2005. Later branded as PlaysForSure, the devices were sold by various hardware makers and all purported to support the same DRM and the same music subscription services while also offering a broader array of hardware that presented video before the iPod did, supported wireless before the iPod, and so on. Despite these unique features, all of those PFS designs still failed. Microsoft blamed the failure of PFS upon its music store and hardware partners and decided to take Apple on itself in 2006. It relaunched a Toshiba PFS player as its own device under the Zune brand, adding WiFi music sharing features and a larger display than the current Pods had. It failed dramatically as well. Did Microsoft's attempts to float a new DOS among music players fail because of Apple's success, or due to Microsoft's own problems? The failure of the Zune, which followed the iPod model rather than the DOS model, seems to suggest that Microsoft itself was to blame. Consider too that Microsoft's Windows Mobile phones, which use the same underlying operating system as its failed PlaysForSure music players and the Zune, had similarly flopped even before Apple could release a charismatic phone equivalent to the iPod. Of course, when the iPhone was released, it hit Windows Mobile hardest. The iPhone made Windows Mobile Smartphones look ridiculous and underpowered, and made Windows Mobile Pocket PC phones look clumsy and awkward, despite the fact that they both supported a variety of features the iPhone didn't, including the ability to edit documents, capture video, send MMS, and so on. Simply adding on features did not enable Microsoft to compete against Apple. The only conclusion that can be drawn from all this is that competing against Apple requires more than just having a feature arsenal. Microsoft's failures in themselves do not necessarily mean that Google's Android will fail in its attempts to float its own smartphone platform. Why Microsoft’s Zune is Still Failing Microsoft’s Zune, Vista, and Windows Mobile 7 Strategy vs the iPhone Will Google Succeed where Microsoft Failed? Microsoft's demonstrated inability to successfully enter consumer markets for MP3 players and smartphones has given observers little faith that the company will somehow turn things around in late 2009 when its next generation of devices are expected to be released. However, prior to that the first fruits of Google's efforts to build its own smartphone operating environment will arrive. Will Google's Android take over Microsoft's crown as the “DOS vendor” among smartphones? Supporters of Google's Android project point to some parallels between Android for smartphones and Windows on the PC: Android will allow hardware makers to differentiate in ways that can offer features Apple can't (or doesn't want to); it should allow software developers to offer features Apple does not allow on the iPhone; it embraces open, hobbyist experimentation in ways that Apple currently isn't; and it opens the potential for content providers that Apple is not interested in allowing. Openness is Android's key competitive feature. Will all this openness allow Google to unseat the iPhone to become the primary platform developers want to participate in, and subsequently soak up the market for third party hardware makers that Windows Mobile serves? While Google currently has no market share due to the fact that no Android phones have yet shipped, it does have broad vocal support from a variety of the same kinds of hardware manufacturers that supported DOS and Windows and helped to make those platforms successful in the desktop PC market. HTC and Android. The first Android phone is expected to be the HTC Dream; Taiwan's HTC (High Tech Computer) also manufactures Palm's Treo Pro phone as well as many of the most visible Windows Mobile devices. In addition to models produced under its own name, HTC also sells Windows Mobile devices under the Dopod brand, as well as no-name phones branded by providers, such as AT&T, Orange, Sprint, T-Mobile, Verizon Wireless, Vodafone, and others. HTC will also be building the XPERIA X1 Windows Mobile phone for Sony Ericsson. HTC was quick to throw its support behind Android despite its long term alliance with Windows Mobile. Why would it so enthusiastically support an unproven platform from a company that has no experience in consumer hardware platforms? One can only assume that HTC is not happy with the current state of Windows Mobile, and desperately wants another “DOS” to succeed where Microsoft's has so spectacularly failed. As an Original Design Manufacturer for Palm, HTC watched as Palm adopted Windows Mobile in place of the Palm OS and subsequently fell even deeper into crisis. Palm's only successful phone since has been its Palm OS-based Centro. HTC undoubtedly sees Android as its ticket to becoming the next Dell, but without a similar dependance upon Microsoft. Android for mobile phones is essentially playing the role of Linux for PCs, except that it has the backing of a major company behind it. Can Android Take on the iPhone with Openness as its Feature? As great as this sounds, it's important to consider that Linux on the desktop has made no significant progress in eating into Windows dominance after a decade of trying. Being open, free, flexible, and decentralized hasn't been enough of an advantage to get consumers to migrate from Windows to Linux in any fraction of significance. Similarly, in the music business, Linux-based MP3 players have had no impact on the iPod, despite offering more features, flexibility, support for additional codecs, and so on. In the mobile phone area, Linux enjoys a sizable portion of the smartphone market, but this is almost entirely due to phones sold by Motorola in China, where the advantages of Linux' openness are void. Motorola's Linux phones offer nothing to users in terms of openness or flexibility, and are really no different in terms of features than other appliance 'feature phones' based upon closed operating systems. And again, a key problem with assaulting Apple in a feature war is that neither the iPod nor the iPhone became popular by being “highly featured.” They both delivered perhaps 80% of the functionality found in all other devices in the market. Rather than trying to match every feature and cater to every niche as Microsoft had with Windows Mobile, Apple's devices did a few things very well at launch, and incrementally developed into full featured devices that still lack some of the more unique features of their competitors. Further, in terms of openness, the demographic that embraces Linux' characteristic freedoms is not the same as the demographic that buys smartphones in quantity and then pays for data service. This is a critical fact to consider because a big part of the iPhone's success stems from the fact that it is being pushed by mobile providers who want to capture the cream of the market willing to pay a premium for data services. The Frankenphone. Combining the fractured aesthetic of HTC's Windows Mobile phone hardware with Android's software, based upon Linux' perpetually unfinished DIY openness and Google's Java-like development platform, will not result in a product similar to the iPhone. Instead, it will look a lot like phones that have already failed in the market. Apple's advantage comes from slick hardware designs with a close attention to detail, combined with software that purposely does less so that it can do what it does better. Even Apple's own conservative attempts to broaden its software capabilities with iPhone 2.0 have resulted in instability problems that can be blamed upon both Apple's early releases of its phone operating system and software from inexperienced third party developers new to the platform. Would the current frustrations with iPhone 2.0 be somehow mitigated by additional openness that also embraced all kinds of variables from different hardware makers with less quality control than Apple, a loose committee of additional cooks working to serve up operating system features targeted at every possible conceived need, and a wider third party software group with fewer constraints on illegal behaviors? The Failure of Open. While it is politically unpopular to criticize the well meaning efforts of open source contributors, the failure of Linux on the desktop, the failure of the vaporware Indrema game console, and the failure of the OpenMoko project to deliver a workable phone within a year of its deadline all underline the serious problems open development faces in the world of consumer oriented devices. Open has simply failed to deliver on its promises in the world of consumer hardware. OpenMoko was supposed to release its first mobile phone to consumers for $250 several months in advance of the iPhone. When the iPhone shipped, the group then announced new plans to get its phone out by the end of 2007. Instead, this spring the group announced new plans to move to an entirely different development platform, and ship its phone mid year for $400 with limited functionality and incomplete software outside of basic GSM phone features. Linux's notable successes, from Motorola's Linux phones to the Tivo DVR to Linksys Routers, have often come without any associated openness or freedom, and were instead delivered simply to provide their manufacturer with a free kernel to build upon. This indicates that while Linux may find its way into an increasing number of smartphones, it will likely not be accompanied by the glorious freedom of an open development environment Google has said it would offer with Android. Apple iPhone vs the FIC Neo1973 OpenMoko Linux Smartphone Can Google Succeed Where Open Has Previously Failed? Despite “openness” being Android's strongest competitive feature compared to Apple's iPhone, Google recently revealed that its wide-open development model is intentionally gravitating towards a closed association of top tier partners due to practical considerations. In July, Google accidentally sent out a notice that revealed that it had been seeding private SDK updates to only a subset of its contributors, angering those who believed that Android would be as open as Linux on the desktop or the OpenMoko project. Further, Google has restricted initial development to higher level APIs just as Apple did, further indicating that Google itself realizes that being wildly open to impress a minority of hobbyists will not result in the commercial success of its new platform. That serves to neuter Android's primary advantage over the iPhone. Without delivering on the premise of being wide open, Android is really just a less mature set of Java libraries used to create a specialized binary that runs on a Linux foundation. Unlike Apple's iPhone, Android phones won't have a slick user interface developed by professional artists, nor the iPhone's legacy of mature software development frameworks crafted over the last thirty years, nor the iPhone's tightly integrated hardware with award winning industrial design, nor its marketing power tied into the iPod and Apple's retail stores. Android won't be an open iPhone, it will only be a Windows Mobile phone with a better kernel that runs specialized Java software instead of Win32 or .NET code. Don't expect consumers to be impressed by that. The Biggest Missing Feature. There is one remaining factor that strangles to death any last remaining hope that Android might assassinate the iPhone and assume the crown of the “DOS of smartphones.” That is: Android delivers zero price advantage to consumers. In 1981 and 1991, consumers who wanted Apple computers faced the sticker shock of a somewhat arrogant price tag. Apple sold its computers, as it still does, at the higher end of the market, but there was simply far more range in prices available. In 1981, that meant the Apple II was $2600 and the new Apple III was $3500, even before you added a monitor. On the low end, Commodore sold its far less powerful, but “still a computer” Vic-20 for $300, while IBM entered the market with the IBM PC at $3000. Over the next few years, Apple focused on delivering additional sophistication at the same price, releasing the $10,000 Lisa and then the $2,500 Macintosh. IBM continued selling PCs in the same $3,000 to $10,000 range, but other DOS PC vendors began selling machines at prices that ranged as low as $1500. That left Apple with a roughly $1000 price premium over low end PCs. The products weren't really comparable, but consumers only saw the huge price difference. In 1991, Apple was still selling moderate to high-end Macintoshes for $3,800 to $10,000; the crippled Mac LC was $2500, and obsolete-at-birth Mac Classic ranged from $999 to $1500. Windows allowed PC makers to ship a functional $1500 PC and claim a rough approximation to Apple's $2500 entry level system, maintaining that apparent $1000 price premium. Today, pundits are lucky to find a Dell or HP system that is even a couple hundred dollars less than a comparable Mac. However, in the smartphone business, the iPhone 3G is now the same price, if not less, than generic competing phones on the market. Even more significant is the fact that the price of the phone hardware is nearly nothing compared to the cost of the service plan. This fact simply eases any price premium that could cause buyers to flock to a smartphone running a generic operating system over buying the iPhone 3G, regardless of whether it runs Windows Mobile or Android. 1990-1995: Planting Software Seeds Android Partners Have Already Failed. That same pricing principle similarly prevented buyers from considering many of the alternatives to the iPod. While Apple's original iPod models were more expensive than many of the first MP3 players on the market, they were price competitive with models offering similar features. By 2004, it was Apple who was undercutting MP3 competitors on price. Microsoft offered zero price advantage when it began selling the Zune, a major factor in its failure, but Microsoft simply couldn't out-price the iPod; it was already losing money offering the Zune at the same price as the iPod. Apple now has tremendous market power in buying RAM and other components that will prevent any competitors from being able to offer a huge discount over the iPhone's $199 price tag. Even if competitors were to give their phones away, they would only offer a $200 discount to users who would then still need to pay the same mobile fees to use the phone. Android's other partners, including Samsung and LG, have already failed to capture any significant market share in the music player market. Are they going to maintain their position as smartphone makers now that they face similar competition from Apple, its iPod ecosystem, its iTunes Music and Apps Store, Apple's retail store experience, and other factors that are pushing the iPhone? If they can, it is not obvious how partnering with Android will help. Other Problems for Android. Android was announced in early November 2007 and was followed with an early preview SDK within a couple weeks, a month ahead of Apple's initial announcement of the iPhone 2.0 SDK. However, between March and July 2008, Apple delivered nine progressive releases of its SDK, opened its App Store, and sold 60 million apps, raising $30 million to support iPhone software development in just the first month. It has since released three more SDK updates to developers related to iPhone 2.1, which is expected next month. Android just published its first open SDK beta update earlier this week, warning developers that “applications developed with it may not quite be compatible with devices running the final Android 1.0.” Additionally, Android still has no phones available. By the time the HTC Dream is expected to launch, Apple will have an installed base of around ten million iPhone (and iPod touch) users supporting software development through iTunes. The business model for selling Android apps is no better than that for selling jailbreak iPhone apps: there is no iTunes Apps Store to promote them, so users will have to track them down on their own. Android developers also have no real freedom that jailbreak iPhone developers lack. The only difference is that there are ten million iPhones to sell jailbreak apps to, and currently zero Android phones. If selling a jailbreak iPhone app sounds like more trouble than its worth, imagine trying to sell Android apps to a non-existant audience. Now add the official iPhone App Store into the mix, where publicity, promotion and profits are booming. What platform is going to have the most applications? How many users will flock to a smartphone platform with no apps? The wisdom of releasing a desirable phone and achieving a significant installed base before releasing an SDK makes a lot more sense in retrospect. Additionally, while Apple has a decade of experience in shipping regular updates to Mac OS X and its Xcode developer tools, Google has only shipped a random assortment of web-oriented SDKs (a number of which have been abandoned) as a tangent to its core business of selling advertisements. When the Android SDK 1.0 is finished later this year, developers will not only lack an installed base to sell their apps to, but will also have no high profile market for selling their apps in, and subsequently no financial incentive to develop applications that add value to the Android platform, just like Linux on the PC desktop. Around the same time, possibly within the next month, Apple will be shipping its second major OS release: iPhone 2.1. Apple will also be upgrading its entire user base to the new software so that developers will have a cohesive platform to target. This mirrors the efforts Apple has taken to upgrade its Mac OS X users to the same reference release. Mobile developers will be seeing money pouring in via iTunes while crickets chirp in the Android section of various mobile online stores. Apple’s iPhone Vs. Other Mobile Hardware Makers: 5 Revenue Engines Same Same, But Different: DOS Model Problems. Android developers will also have a series of other problems to manage. Like Windows Mobile, Android is intended to support everything, from BlackBerry-style keypad phones with a small touchscreen to the simple Windows Mobile Smartphone form factor lacking a touch screen to iPhone-like full size touch screens. Also like Windows Mobile, Android phone makers will have the option to leave off Bluetooth, WiFi, GPS location services, graphics hardware acceleration, and so on. Each Android phone will also have unique camera hardware, support for different video and audio codecs, and varied support for other differentiating proprietary services demanded by mobile operators. This will force developers to to make complex decisions regarding the lowest common denominator they choose to support. So while the iPhone will have a cohesive feature set, a managed software environment, and a functional market, Android will be a loose federation of hardware makers selling the same random features found on Windows Mobile today, with a chaotic development environment that lacks any central market for users or developers. And it will be run as an experiment by a company with no experience in consumer hardware or platform development. The Missing Tap. One specific example of the “DOS model problem” is that Android currently does not support multitouch. It's not touched on in the API, and Google quietly tap dances around its omission. Why no multitouch? Because multitouch screens are expensive, and most OHA hardware members are more interested in making a profit in a competitive phone market rather than impressing consumers as Apple did with the iPhone. Most existing smartphones, even those trying to directly rival the iPhone, use a stylus driven, pressure sensitive tap screen or a simpler, cheaper touch technology that lacks support for sensing multitouch. The iPhone's screen can actually sense up to five fingers at once, but the primary feature multitouch offers on the iPhone is the two fingered tapping and the pinching effects everyone associates with it. Android could certainly support multitouch if there were a demand for it, but that's the point: Google knows that its hardware partners are cheap and unlikely to put out hardware that actually competes with the iPhone. Instead of using expensive technologies that deliver clever yet largely invisible functionality, OHA members, just like PC makers, are far more likely to add flashy, impractical gadgety fluff that's cheap to tack on, such as slide out keyboards, neon tubes, and scratch and sniff stickers. That's how you impress gullible nerds on the cheap. Google itself is blowing smoke and erecting mirrors to distract from the reality that it being a “DOS vendor” means supporting bargain basement hardware from penny pinching duplicators. Android has been demonstrating some “wow” features such as a Street Maps app that pans around based on an internal compass in the demonstration phone. The problem is that that kind of thing only makes for a fun demo. Nobody needs to twirl around their phone in the air to see a view of the other side of the street, but everyone who has used an iPhone will wonder why they can't pinch to zoom out. Even worse, most Android phones aren't going to have a compass built into them, so Google is demonstrating features most Android users won't be able to use. That Sounds Like Microsoft… Google's design decisions are beginning to look a lot like Windows Vista; rather than actually working to make laptops boot faster, Microsoft came up with the idea of adding a small screen to the back of Vista laptops so users could check their email without having to wake the system up. But this was a stupid idea for a number of reasons, the most obvious being that most users just want a laptop that boots up quickly. Few laptops got the mini screen, but every user who tries Vista on their laptop will wonder why it doesn't boot up as fast as Mac OS X Leopard. In the same way, Google is advertising features for Android that most users won't ever see in their actual phones while ignoring things people will expect based on their exposure to the iPhone. Android is simply selecting the wrong features. Android will offer the advantages of supporting MMS, recording video, and the list of other features Windows Mobile already supplies. Those features didn't stop Apple from firing past Microsoft in the smartphone arena however, just as the Zune's highly touted WiFi and screen didn't phase iPod buyers. Incidentally, just months after the Zune, Apple had not only demonstrated a larger display but a higher definition multitouch screen, and not only WiFi, but functional WiFi that could be used to browse the web or check email. This suggests that Apple, with its faster release schedule, won't stay behind any of the leading features potentially offered by Android for very long. Android partners, however, will find it as difficult to catch up with Apple's unique features, just as Microsoft has been stymied to keep up with Mac OS X, the iPod, and the iPhone. The underlying reason: both Google and Microosft are tasked with maintaing support for a huge variety of hardware options demanded by all their partners. Apple has the unique circumstances to do only what it needs to do itself. Android in Windows Mobile's Shoes. Like Windows Mobile, Android faces a difficult market. In the US, it competes against the popular BlackBerry in corporate markets and the iPhone among consumers. Worldwide, it competes against entrenched market leader Nokia. The difference is that Google, unlike Microsoft, has no in. Windows Mobile was adopted by Windows-bound IT shops despite its weaknesses. Nobody has any preexisting reason to try an Android phone apart from hobbyists and open software enthusiasts, a demographic that has done little to move Linux on the PC desktop. Google also lacks Microsoft's installed base; it's starting from zero. The smartphone industry initially doubted Apple's chances of making much progress with the iPhone, despite the company having the Mac platform, the iPod, retail stores, platform development experience, marketing savvy, industrial design prowess, and so on. Google doesn't have any of those things. Mobile Providers vs Android. Apple also started with an exclusive partnership with AT&T, a three legged race that demanded effort from both. Google is hoping that hardware makers handle the hardware details and that mobile providers will be excited to sell its Android phones. While hardware makers such as HTC clearly appreciate having found a free alternative to Windows Mobile, it's not obvious why providers would be excited about Android, as it promises an openness that most mobile providers strongly oppose. AT&T took a big risk in getting behind the iPhone, as the phone encouraged users to use email rather than fee-based SMS and MMS, it supported WiFi for data access, and it bypassed AT&T's MEdia Net services to plug into iTunes instead. Verizon refused to parter with Apple and grant it those kinds of concessions. Is AT&T going to take a similar risk to partner with a phone that is not exclusive to it, and is Verizon now going to open its arms to support phones that do not exclusively support BREW, VCast and its other proprietary services? While Android may well eat into Microsoft's Windows Mobile business by stealing away its hardware makers, it seems unlikely that Android will ever serve as more than free alternative to Windows Mobile in a market where Windows Mobile is increasingly irrelevant. Android may have the dubious distinction of swallowing Microsoft's mobile business the same way Microsoft ate up the Palm OS, but even if it accomplishes that goal, Google will likely find itself unsustainably hungry immediately afterward. It will also find itself swimming in a shark tank of hungry rivals, including Nokia's Symbian, RIM's BlackBerry, and Apple's iPhone. Symbian is the final generic platform vying for the opportunity to play DOS in the smartphone market. The next article will examine Nokia's chances in its bid to match Microsoft's PC dominance in the mobile market while setting out in a new venture to copy Android's open software model. Did you like this article? Let me know. Comment here, in the Forum, or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast (oh wait, I have to fix that first). It's also cool to submit my articles to Digg, Reddit, or Slashdot where more people will see them. Consider making a small donation supporting this site. Thanks!

  • ★ The Phone Company

    For a long time — the entire decade of the ’90s and the first few years of this decade — the story of Apple was the story of a company searching for a way to be something other than “the Mac company”. From a financial perspective of revenue and profit, the Mac was Apple, and Apple was the Mac. This was problematic on two fronts. First, it was an “all of their eggs in one basket” scenario. If the Mac had sunk, the company would have gone under. Second, the potential for growth was severely limited by the fantastic success of Windows. The iPod was Apple’s first breakthrough success after the Macintosh. During some quarters in recent years, iPod revenue has run even with or (in holiday quarters) exceeded Mac revenue. The iPod solved both of the problems Apple faced as “the Mac company”: its eggs were now divided between two baskets, and they’d entered a field with room for significant growth. Last year, immediately after its debut, Steve Jobs began describing the iPhone as the third leg of the company. The numbers Apple released yesterday for its fourth quarter of financial year 2008 (July through September) back this up. The main thing you must keep in mind regarding Apple’s reported numbers for the iPhone is that they’re using subscription-based accounting for it. When you buy a Mac or an iPod today, Apple reports the entire sale as revenue for this quarter. When you buy an iPhone today, however, Apple reports the revenue split evenly over eight quarters. Apple’s interpretation of U.S. accounting regulations is that this is only way they can provide free feature upgrades over the course of two years. That’s why iPhone OS 2.0 was a free update for existing iPhone owners, but a paid update for iPod Touch owners. In the long run, Apple doesn’t make any more or less money from this. It’s just a method of accounting for the money they have made. (Indirectly, Apple clearly hopes that it helps sell additional iPhones, on the grounds that people enjoy getting “free” OS upgrades.) But in the short run, Apple’s iPhone revenue and profit are underrepresented in the company’s quarterly results — only one-eighth of the revenue from iPhones sold during the just-completed quarter appear in the quarter’s results. It also makes the iPhone numbers hard to compare against those of the Mac and iPod. So, Apple is now providing two sets of quarterly numbers. First, GAAP results with subscription-based accounting for iPhones and Apple TV. (GAAP stands for Generally Accepted Accounting Principles.) Second, a new set up numbers — non-GAAP results — which, more or less, show what Apple’s quarterly numbers would look like if they weren’t using subscription-based accounting for the iPhone and Apple TV. Here’s what Apple CFO Peter Oppenheimer said during his opening remarks of yesterday’s analyst conference call: As we reported in our press release, iPhone unit sales grew significantly in the September quarter, resulting in a material increase in the amount of iPhone revenue and product costs that had been deferred for recognition in future periods. Specifically, deferred revenue from iPhone and Apple TV sales grew to $5.8 billion at the end of the September quarter, an increase of nearly $3.8 billion from the end of the June quarter. If iPhone revenue was not deferred, iPhone would have represented 39% of Apple’s revenue in the September quarter. This means, I think, that Apple generated more revenue last quarter from iPhone sales than from either Mac or iPod sales. The iPhone, just 15 months old, is perhaps already the strongest of the company’s three legs. And it’s not like iPod or Mac sales are down — compared to the year-ago quarter, Mac sales are up 21 percent in terms of units and 17 percent in terms of revenue, and iPods are up 8 percent in units and 3 percent in revenue. And in terms of the momentum of the iPhone OS as a platform, keep in mind that the iPod Touch is put on the books as an iPod, not an iPhone. (And Apple does not break those “iPod” numbers out into specific models; no one other than Apple’s top executives know exactly how many iPod Touches have been sold.) Steve Jobs rarely appears on Apple’s quarterly analyst calls. I’m pretty you can count on one hand Jobs’s appearances on these calls over the last 10 years. Typically, Jobs has appeared when Apple has bad news to announce. (His appearance yesterday seems to have been about addressing Apple’s plans for weathering the current worldwide economic downturn.) Here’s what Jobs had to say in his prepared remarks regarding Apple’s revenue and profit from the iPhone: As you can see, the non-GAAP financial results are truly stunning. By eliminating subscription accounting, adjusted sales for the quarter were $11.68 billion, 48% higher than the reported revenue of $7.9 billion, while adjusted income was $2.44 billion, 115% higher than the reported net income of $1.14 billion. Adjusted net income that is more than double our reported income — if this isn’t stunning, I don’t know what is, all due to the incredible success of the iPhone 3G. I would like to now highlight two remarkable milestones resulting from iPhone’s outstanding performance last quarter. The first is that Apple beat RIM. In their most recent quarter, Research in Motion, or RIM, reported selling 6.1 million BlackBerry devices. Compared to our most recent quarter sales of 6.9 million iPhones, Apple outsold RIM last quarter and this is a milestone for us. RIM is a good company that makes good products and so it is surprising that after only 15 months in the market, we could outsell them in any quarter. But even more remarkable is this — measured by revenues, Apple has become the world’s third-largest mobile phone supplier. I know this sounds crazy, but it’s true — as measured in revenues, not units, Apple has become the third largest mobile phone supplier. Let’s look at the ranking — Nokia is clearly number one at 12.7 billion; Samsung number two at 5.9 billion; Apple is number three at 4.6 billion; Sony Ericsson, number four at 4.2; LG, number five at 3.4 billion; Motorola, number six at 3.2; and RIM number seven at 2.1. Pretty amazing. So, last quarter: (1) the iPhone was a bigger revenue and profit generator than either the iPod or Mac; (2) Apple sold more iPhones than RIM sold BlackBerrys; and (3) Apple trailed only Nokia and Samsung in worldwide mobile phone handset revenue (and they’re not far behind Samsung). Jobs followed with this caveat: Now, both of these things, beating RIM in units and becoming the third largest mobile supplier in revenues are amazing feats but part of this was the result of expanding into over 50 countries and there’s no guarantee that sustained sales will equal initial sales. And who knows what the future results will be, given the worldwide economic slowdown but we actually outsold RIM last quarter and ranked as the third largest mobile phone supplier in revenues. Not bad for being in the market for only 15 months. He’s right that no one knows what the results will be for the current quarter (which start three weeks ago, and runs through the end of December) — but we can make an educated guess. Because it encompasses the entire holiday season, Apple’s October-December quarter has always been the strongest for iPod sales. A year ago, iPod sales went from 10.2 to 22.1 million from Q4 (Jul.–Sep.) to Q1 (Oct.–Dec.). Two years ago, they went from 8.7 to 21.0 million. Three years ago, 6.5 to 14.0 million. In terms of a multiplier, that works out to 2.17, 2.41, and 2.15, respectively. I.e., Apple consistently sells a little more than twice as many iPods in the holiday quarter than in the preceding quarter. We only have one year of data for the iPhone. Last year, Apple sold 1.1 million iPhones in Q4 2007. It went on to sell 2.3 million iPhones in Q1 2008 — a multiplier of 2.09, very much in line with previous years of holiday-quarter iPod sales. So, it seems quite possible that Apple could sell twice as many iPhones during the current quarter as it did in the just-reported quarter. If they did, that would be 13.8 million iPhones. Even if they fall short of that mark, they seem poised to sell about 20 million iPhones in calendar year 2008 — more than double their oft-stated goal of 10 million. Many analysts doubted that 10 million iPhone goal for the year; Apple might in fact sell 10 million iPhones in a single quarter. Even if sales are flat in the current quarter, it seems almost certain they’ll sell more than 10 million units in the first six months after the iPhone 3G went on sale. As for where this growth positions the iPhone industry-wide, recall Microsoft’s projections for Windows Mobile licenses this year: The warning signs were there. After boldly proclaiming that it would sell “more than” 20 million licenses to its Windows Mobile operating system by the end of its fiscal year on June 30, Microsoft later scaled that prediction back to “nearly” 20 million units. This week, however, the software giant conceded it did not hit its target: The company sold just 18 million units in the fiscal year. So not only is Windows Mobile growth significantly slower than what Microsoft had publicly anticipated, but the iPhone seems set to surpass unit sales of all Windows Mobile phones combined next year. In fact, given that Apple acknowledged during yesterday’s conference call that, including October sales to date, they’ve already surpassed 10 million iPhones sold for calendar year 2008, the iPhone may well already be outselling all Windows Mobile phones combined. The entire iPhone platform is only 15 months old. The cheapest model still costs $199. The room for growth in this market is unlike anything Apple has ever seen. So the question is: Despite continuing strong iPod sales and record-breaking Mac sales, how long until the iPhone is undeniably the primary product and platform made by Apple? My answer: Not long. And I think Apple’s executive team sees it the same way.

  • Todd Sullivan: Round 2

    On his own site now, Todd Sullivan fires back at the Macalope, asking Is That The Best You Got? Well, the Macalope doesn't know about "the best". It was OK, he supposes. Good for a Wednesday night. But "best"? Hmm. That's kind of asking a lot, Todd. It's not like yours was very good. Why should the Macalope have to do all the work? But if you want to go another round, the Macalope's got the time. His nightly frolic with the nymphs doesn't start for another hour. Sullivan's site, incidentally, has those awesome keyword ads that everyone loves so much that pop up all over the place like whack-a-moles that just hit a vein of underground crack. As Merlin Mann has noted, they are really useful for first-time visitors to the site because they're a quick way of knowing you won't ever be back. So, now it is CNET taking swipes at yours truly for having the audacity to doubt all things Apple (AAPL). Actually, CNet takes no responsibility for the Macalope's writings. They were really clear about that! So, the Macalope's words are his own. As for doubting all things Apple, please note that the Macalope has been known to agree with criticism of the fine folks in Cupertino from time to time. He just asks that it make sense. This one is priceless..... Well, thanks, Todd. That's really nice. He then cherry picks sentences from the post to make the math seem impossible. The Macalope's not sure how that would be possible as you didn't actually do the math in your post. More to the point, though, what he said was that the particulars of the math didn't even really matter, because the underlying premise stinks. Where did the number come from? Apparently he has never heard of these little publications called the New York Times, or CNN or MSN Money? Too bad because had he even attempted to read them, he would have found the sources of the numbers and save a whole lot of typing and embarrassment. Uh, yeah, see the thing is, Todd, if you click through to those links you provide, they don't show the math either. Or even name a name. The New York Times: For Apple, the booming overseas market for iPhones is both a sign of its marketing prowess and a blow to a business model that could be coming undone, costing the company as much as $1 billion over the next three years, according to some analysts. "Some analysts". Hmm. Well, that's not terribly elucidating. How about CNN? The growing usage of unlocked phones could cost Apple $1 billion in lost revenue over three years, analysts said. "Analysts". Huh. OK. MSN Money? This could cost the company about $1 billion in lost revenue over the next three years, analysts estimate. Yeah, OK, starting to see a trend here. Well, "analysts", whoever you are, as the Macalope's 9th grade chemistry teacher Mr. Robinson was fond of saying, "Please show your work. Because it's bound to be pretty funny." It is unfortunate but he based the whole article (rant) on the flawed assumption I made the number up. Todd, Todd, Todd, Todd, Todd, Todd, Todd! The Macalope did not. He based the whole article (rant) on the assumption that the number is based on crappy assumptions. You didn't make it up, you just took it at face value because it fit this preconceived idea you've been humping for the last year. Let's move on: Yes, let's. Responding to the Macalope's example of unlocked phones in China, Sullivan says: Well, or maybe China mobile has figured they can put 400,000 iPhones on their network without paying Apple a dime, why negotiate a deal and start paying them now? Todd, this actually proves the Macalope's point, not yours. If there's no way they can get the favorable revenue sharing they get from AT&T then how is Apple supposedly forgoing it? Is this thing on? Test. One, two. Check. Check. Check. Then he moves on to question (mock) my thought that Apple's cutting back on component orders can only mean sales are going to slow. Can we be clear on what the Macalope was questioning (mocking)? He was questioning (mocking) the implication that this is somehow surprising. The first quarter is always slower than the fourth quarter and, yes, Apple has cut that already lowered estimate even further. Of course, you can't tell how much of that is because of iPods and how much is because of iPhones, but the Macalope fully admits that iPhone orders might be lower than hoped for in the first quarter. It's not exactly like the economy and/or the tech sector is going gangbusters. Timing is everything in life and had he waited 2 more days to post, he would have again saved himself the inevitable embarrassment of this being affirmed on Thursday. See, you're still acting like this is "news". It's not. Again, this recent report confirms the previous report which confirms what Apple said in its conference call with investors in January. To quote: "Apple has slashed its 2008 NAND order forecast significantly and has informed suppliers that its demand growth will slow in 2008." OUCH... Yeah, and that's all got to be the iPhone, right? It's not like Apple makes anything else that uses flash memory. He then goes into some wandering diatribe about Research in Motion (RIMM) or Google (GOOG) coming out with new products somehow does not matter or should be dismissed? I can't figure out what the point was. The point is, Apple will also come out with new products. Everyone will come out with new products. The fact that one phone maker will come out with a new product means nothing unless you know something about those future products that makes them inherently better than the other company's future products. And, as you admit, you know nothing. As for the gPhone which you spookily allude to, the Macalope will just quote Panic Software's Steven Frank: Hm, a 34-company committee overseeing an open-source suite of mobile software. What could possibly go wrong. Now, some of the Macalope's antler scratching over Todd's "analysis" probably stems from the fact that he says he was only considering the U.S. market. Frankly, the Macalope didn't catch that assumption, probably because it's not spelled out anywhere. It does explain why he said RIM was #1 and it conveniently allows him to dodge the embarrassment of having to explain why he thought all 10 million iPhones had to be sold to existing AT&T customers. (And even then, he got the number of AT&T cellular customers wrong, saying it was 47 million in May of last year. At the end of April of 2007, AT&T had 62 million wireless customers. But that's really beside the point.) Comparing Apple sales that until recently were only in the US would have been unfair. And you certainly wouldn't want to be that! The irony here is that had I done a post that claimed Apple was a distant third in market share, I am sure his response would have been to attack me for an unfair comparison. See, the Macalope used to take a somewhat U.S.-centric view and a number of readers outside the States wrote in and said "Hey! Goober! What are we, chopped liver?!" And the Macalope said, "No, indeed, dear international readers. You are not chopped liver. You are fois gras." And they said "That's better!" Then a couple of days later they wrote back and said "Hey, that's just a fancy way of saying 'chopped liver'!" And then we all had a good laugh. Ha-ha! But, anyway, Todd, the fact of the matter is, the Macalope can't ignore the rest of the world, scary numbers or not. And your contention that while the Macalope pointed out that Apple was third he would have said it was unfair if you had done so really doesn't hold any water. Because, you know, it was the Macalope who pointed it out. See? Is there something wrong with selling phones in only a handful of countries and still being third in the world? That sounds pretty darn good. Why is the horny one supposed to have some kind of problem with that? All cell providers have revenue share agreements. They have them with software developers, providers, wireless companies etc.. it is the way the industry functions. It is the degree of the revenue share that dictates the exclusivity in Apple's case. The Macalope knows that other firms get revenue sharing, but that's not even the point. The point is, as you note, that Apple gets more revenue sharing because of exclusivity. What the Macalope is saying is that the $1 billion figure is simply a bogus multiplication of the revenue Apple gets from AT&T times the number of unlocked phones times the number of years. You can't do that. If you open the phone up to multiple carriers in a single market, the revenue sharing number is going to drop like a rock. If there's another way to come up with such a ridiculously large number, the Macalope is all ears and antlers. If only we could track down "some analysts"... There are two ways to play this game. One is to open up your phone to every provider, sell a mess of them but get very little extra per phone sold. The other is to lock it to one provider, sell fewer phones but get a whole lot extra per phone. Apple's predilection when entering a market is lower volume and higher margin. And when you're a company that puts emphasis on selling products that "just work" (or, at least, "just work" better than your competitors' products), starting with one provider makes more sense. None of this discussion takes into account the changes AT&T needed to make to enable visual voicemail and, more importantly, the control over the user experience it ceded to Apple (activation alone was a huge sea change -- moving it from the store to the customer's home). Other carriers were reportedly not willing to make such concessions, but it was critical for Apple because ease of use is one of its primary differentiators. One last thing... he has not mentioned in any of his "posts" that my call before the first phone was sold on the need to drop the price of it was DEAD ON.... Well, the Macalope wasn't aware it was his job to run around patting you on the back for your brilliance. Why is he supposed to keep track of all of your posts when you clearly don't keep track of his? See, you wrote: A $599 phone will not gain mass acceptance no matter what it does... To which the Macalope responded: Like a monkey typing on a keyboard, you've finally typed something that's true. Looks like the Macalope actually agreed with you on that particular point! Yay! We both win! High fives all the way around! Long-time readers may remember that as the post you're referencing as the one where you also said that no one wanted an all-in-one device and that you wanted to be able to drive your family down the highway, listen to music and talk on the phone all at the same time. Yeesh. Are you sure you really want to call attention to that particular oeuvre?

  • Scott Woolley Attacks Apple TV in Forbes, Gets the Facts Wrong

    Daniel Eran DilgerScott Woolley of Forbes tried his best to paint Apple TV as a colossal failure, but his article is based on supposition and false comparisons, and demonstrates he doesn't know much about the video distribution industry he writes about. Woolley described Apple TV as a flop, comparing his own unit sales estimate against the record breaking sales launch of the iPhone. Of course, lots of successful products might look like a flop compared to what appears to be the most successful consumer electronics product launch in history. Apple TV Sales.Woolley estimated sales of 250,000 Apple TVs, but he really doesn't know how many have sold, because Apple doesn't isolate sales numbers and it counts revenues of the Apple TV over a subscription basis like the iPhone. Apple rarely isolate product sales for any individual items, a competitive game played by most manufacturers. Instead, the company has typically reported revenue buckets for computers and iPods, and only occasionally breaks down sales for specific models or classes of models, such as laptops and desktops. It's therefore no surprise that Apple isn't publishing Apple TV figures. Woolley is doing his readers a disservice to speculate that "apparently the truth is too humiliating." Either he doesn't understand basic marketing, or he knows he's presenting a false angle to whip up a frenzy of ignorant sensationalism. As evidence of the Apple TV's "lack of sizzle," he only cites the fact that some Circuit City employee had "trouble locating the product's small kiosk," and that at a nearby Apple Store, the Apple TV had been "shoved aside" to make room for more iPods. Hobbies and Jobs.Jobs has described the Apple TV as a 'hobby' several times, once in talking to employees about his vision for Apple's future business. He described the Mac and iPod as two legs of a chair, and hoped the iPhone would act as a third leg. The Apple TV, he noted, might work out as a fourth leg in the future, but until then it was being run as a hobby and the focus was on establishing the iPhone.A hobby is something you do primarily for fun or experience, not as a profitable exercise, although hobbies can turn into big business. Thirty years ago, Steve Wozniak's hobby was wiring together electronics. Steve Jobs' hobby seems to be taking ideas and turning them into profitable businesses, as he did with Woz's computer design (Apple is now worth $120 billion), NeXT (sold to Apple in 1996 for over a half billion), and Pixar (sold to Disney for $7.4 billion in 2006). So when Jobs says he has a hobby, he's not talking about painstakingly putting ships into bottles. Lots of people dismissed the iPod in 2001; that product did take a few years to get established, but has since attained explosive growth. Many pundits also announced that Apple would become the iPod company and let go of its Mac sales, but Apple has also dramatically increased Mac sales over the last two years, in large measure due to the move to Intel processors[Inside Apple TV]Success Is Failure, Up is Down.Woolley says Apple execs ignored the product in its last quarterly earnings reports. Apple did spend its time talking about the iPhone, record Mac sales, and improved gross profit margins. Apart from the highlights of what it wants to talk about, what Apple executives say in earnings reports conference calls is largely based on what analysts on the call ask them.In the previous quarter, Tim Cook answered a question about Apple TV sales by saying, "we just started shipping on the third week in March. We're off to a very good start and we're going to continue investing in this area. We're very, very excited about the long-term potential of the product," but added, "we're not releasing the exact unit shipments."Apple never bragged that it would sell millions of Apple TV units per quarter, as it did with the iPhone. The company isn't making big money on the Apple TV. Its price--compared to the components inside it--indicates Apple knew the box wouldn't be a high demand seller, or it would logically set a higher price target. There's little money to be made in selling and supporting a $300 box full of nearly $250 in hardware. Instead, Apple offers the unit as an alternative way for consumers to make use of the developing video market in iTunes. [RSS: How Apple Will Change TV in 2007]Sustainable Platform Development.This slow growth strategy requires the playback pieces to be in place while the content lines up. Assembling both ends of a platform and distribution chain is the classic catch-22: which comes first, the eggs or the frying pan? Do you crack open eggs and let them sit out while you set out to obtain a frying pan, or put the pan on the flames and then go to the store to find eggs? Ideally, you have them both lined up before things get cooking.Apple had already added TV content to iTunes, and was selling respectable numbers of shows to users with 3" iPod screens or hunched over their PC. When it added movies, it couldn't really market the idea of rapid growth in iTunes without a TV-centric playback system. Apple is still working to add movie content to iTunes, but now it has a marketable way to sell them. [Brent Schlender's Apple TV: Fortune Dud or Fortune FUD?]Measuring Success By Accomplishment. Apple doesn't have to make fantastic money on the Apple TV for it to be a success, just as Sony and Microsoft can afford to actually lose money--billions in the case of Microsoft--if only sales of their game consoles take off at some point and establish a critical mass of a platform. That being the case, why would Forbes tear into Apple TV for not outselling the iPhone? The simple answer is that finding problems with Apple's ongoing strategy is so difficult that only a cheap shot that skirts reality can even hope to make the company look bad.Apple TV exists as a product to legitimize the company's movie strategy. Expanding sales of movies and TV content will help sell the iPod and retain a commercial availability of legal content for Mac users. Really, the main point of the iTunes Store is to save Apple from being ostracized by Microsoft in a dystopian world where all media is tied to Windows. Apple didn't have to destroy the market for Windows Media to establish iTunes as a success; that was just a nice bonus. After just short of a year of existence, iTunes certainly isn't the best movie selection on the web. However, while its easier to find more movies elsewhere, those sources don't offer the benefits of Apple's tightly integrated and well conceived ecosystem. [Universal vs Apple in the iTunes Store Contracts]Apple TV vs Netflix.One of the best options today is Netflix; it has nearly everything, but it involves waiting for days to get the DVD you request. If you get an unplayable DVD, you have no recourse but to wait out a few more days to get a replacement. Netflix has recently moved to offering subscribers instant playback over the web for a good variety of titles, but the service is Windows only and offers very low quality. It's a great way to watch a documentary or slapstick comedy, but it's not a cinematic experience, it's a YouTube experience. That leaves Netflix a very good option for people who like to watch lots of movies. For less than $20 per month, you can cycle through several movies a week and always have at least a couple DVDs available to watch. You pay a monthly fee whether you use the plan a lot or not, so if you go without updating your queue or are busy with other things, you pay for content you're not watching, just as with a cable subscription.The downsides to Netflix--and DVD rental in general--is that DVDs can't easily be accessed on demand, or kept in a digital library that's available to any TVs in the house or any iPods for portable playback. [Apple TV: Using DVDs and other Video Sources]Pulling the Woolley.Forbes' Woolley didn't mention Netflix. Instead, he boasted up TiVo, the Xbox 360, Slingbox, a yet to be delivered product from Poloroid, and Vudo, a small startup that sells downloadable movies for $20 each. All are apparently in far better shape than the Apple TV hobby, which is a great flop of a failure, according to Woolley. Except that he withheld the truth:the staggering, multibillion dollar losses of Microsoft’s Xbox every year over the last half decade.the regular, multimillion dollar losses at Tivo over the last several years--it lost $52 million last year, and another $19 million in the most recent quarter ending in July.Polaroid Corporation went bankrupt half a decade ago. Its name is being licensed by a holding group.
Vudo is an interesting box offered by a group of WebTV and TiVo refugees. It's a $400 box with very similar features to the Apple TV. It also features rentals and has hardware support for 1080p and Dolby Digital surround. It demands a 3 Mbit Internet connection. 
Slingbox is a streaming device that transmits a video signal over a network. It has nothing to do with Apple TV.So Wolley paraded out some real failures, some vaporware, a promising potential rival, and something completely unrelated. That's proof of the Apple TV's great failure? In contrast, it looks like Apple is among the few companies with a viable plan for video distribution, and stands among the minority who can actually earn any profit at all.[Ten Myths of the Apple TV: 5.1 Audio][Ten Myths of the Apple TV: Xbox and Hardware][Apple TV: Turn DVI into HDTV; HP Drops Microsoft]Wholly Weaselly Woolley.Not content with simply blowing out some ignorant misinformation, Woolley then went on to castigate Jobs for choosing to "shut out millions of Web downloads on YouTube" with the release of Apple TV in a "parochial and proprietary approach" that forced users to get all their content from the iTunes Store. Except that isn't the truth at all. Is every feature Apple adds to is products now going be described as a "freedom previously withheld by Jobs' arrogant tyranny" in retrospect? What a weaselly, desperate spin! Woolley also stated that "NBC Universal scrapped its deal to sell movies and shows via iTunes, making Apple TV even less appealing." While admitting that Apple backed out of negotiations with NBC Universal after the studio made absurd demands, Woolley called Apple "sulky and pious" for doing so. Sounds like Woolley couldn't find a story and had to make one up with the help of a thesaurus. One should expect more from Forbes. For his sloppy efforts in crafting a sensationalist headline, Scott Woolley gets a Zoon.What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • All Eyes on Apple Today

    Eight days of anticipation and frenzied speculation come to a head today. At Apple's (AAPL) invitation, thousands of technology analysts and press will gather in San Francisco's Moscone Center for an event about which the company has said only four words: "The beat goes on." What does Steve Jobs have up his sleeve this time? Nobody outside Apple knows for sure, of course, but that hasn't stopped -- and may have only encouraged -- Apple watchers from trying to guess. Over the past week, the rumor sites have settled into something that resembles a consensus opinion. They're expecting: A new generation of iPods: It's been nearly two years since the line was refreshed and it's badly in need of an overhaul; sales have been drifting south since last Christmas and profit margins are shrinking. Most Apple watchers expect three new products: A wide-screen, touch-sensitive iPod that looks like the iPhone and runs a miniature version of OS X. Some reports say it will be Wi-Fi enabled to download music and video wirelessly; most expect it to have a hard drive rather than flash memory to hold down costs. A new iPod nano with a larger screen, a clickwheel and a "CoverFlow" interface like the iPhone. Based on spy photos that have been floating around for weeks, this squat iPod has already acquired several nicknames, among them the bilbo, the fatty (or phatty), and the Danny DeVito of iPods. A (PRODUCT) RED iPod Shuffle with more memory for the same price; reports that Apple will discontinue this popular line of iPods have mostly been dismissed. An iPhone update: Jobs has said he expects to sell 1 million iPhones by the end of September, and if he has reached that goal early you can be sure he will let us know tomorrow. (iSuppli reported yesterday that the iPhone outsold all other smartphones in July.) Rumors that Apple has signed three European cell phone providers to carry the device overseas have been knocking around for several weeks, waiting for Apple to make them official; that could happen today. Apple is also widely reported to be working on a lower-cost iPhone nano. A few rumor sites suggest it could be unveiled tomorrow, but that is not the consensus opinion. iTunes news: The image above, which accompanied the press invitation, looks like something out of Apple's iTunes Music (and Video) Store, and there has been no shortage of speculation about what changes might be coming there. Everybody expects Apple to announce downloadable ringtones for the iPhone, something that should have been available from day 1. More speculatively, some expect Apple to announce a wireless iTunes store that would permit iPhones (and, if they exist, wireless iPods) to download music and video without going through a computer; there's even talk of a digital radio service that would allow users to buy and download songs as they hear them broadcast. The Beatles. The easy consensus is that it's got to happen sometime. The minority opinion is that today is the day the beat goes online, perhaps with a live performance by Paul McCartney. Tune in at 10 a.m. (1 p.m. ET) for live blogging from Jon Fortt at The Utility Belt and instant analysis here at Apple 2.0.

  • Let the Chips Fall

    Last week I wrote about Apple's impending 3G iPhone and people got all worked up telling me how I was wrong. But since I KNOW that 3G iPhones are AT THIS MOMENT being tested in Florida by AT&T there has to be more to this story -- and there is. Since last week's column there have appeared elsewhere a flurry of iPhone stories mainly attributed to Apple suppliers in Taiwan. There is supposed to be a Nano-sized iPhone, which of course would have no video or web browsing, an enterprise-quality iPhone (this sounds like a software upgrade to me) that will link with your Exchange server and various corporate apps, an iPhone minus the phone, which is to say a larger screen video iPod, and various souped-up GPS iPhones reportedly aimed at foreign markets. My experience of Taiwanese manufacturers is that they don't blab this much and especially don't blab about the vengeful Apple, yet a lot of this sounds perfectly logical -- over time. The key question for me is still the 3G iPhone and did I have it wrong? Certainly I was wrong about my hopeful prediction that Apple had 3G hidden inside the current iPhone and could simply wake it up with a firmware change. The people who have been tearing their iPhones apart have confirmed that's not the situation. In my defense you'll note that I only said that I "hoped" this was the case, not willing to believe that even Steve Jobs would sell us $600 mobile phones and make them obsolete overnight. The internal story at Apple about why the company didn't go straight to a 3G phone comes down to chips and batteries. A 3G phone would cost more to build, run hotter, and have less talk time. Apple reportedly intended to go to 3G eventually, but that might be dependent, they alluded internally, on a new generation of chips or a new generation of batteries. I DON'T BUY THIS ARGUMENT. Apple has had the iPhone in the works for three years and 3G had to have been on the drawing board for that entire time. If you run a company with the manufacturing clout of Apple and you have a device you are projecting will sell 10 million units in its first year then you can TELL chip manufacturers to make what you need and they do it. This is to say Apple probably could have had its 3G iPhone and its battery life, too, but for some reason that didn't happen. I have to wonder why it didn't happen and what Apple intends to do about it. I think a lot of this comes back to that 10 million unit sales estimate for the iPhone's first year. In its first year on the market, the original iPod sold less than one million units, total. The iPod was in its third year before sales even approached a 10 million unit run-rate. What this shows us is that the iPhone is an iPod and not some new category of device. However accurate or inaccurate are the analysts at JP Morgan about the timing of next iPhone release, the gist of what they say is correct: the iPhone is the new form-factor high-end iPod and it will cannibalize current iPod sales if Apple doesn't carefully manage customer expectations. The technique they'll use for this management of expectations is one my Mom refers to as "lying." All Apple stories are true, which means we will see a 3G iPhone, Nano iPhone, etc., etc., etc., and it is only a matter of timing that's in question. Will it be for this Christmas or early next year? I know AT&T is talking internally about a fall 3G iPhone rollout, but maybe that has solely to do with the network support, rather than the phone, itself. If the network is iPhone-ready in October or November, would Apple and AT&T still wait for January to ship the 3G phones? I am beginning to think they might. Here's my thinking. Apple has worked hard to become a company not solely dependent for its success on Christmas sales. For years Apple would run at break-even for three quarters then make nearly all its profit for the year in the Christmas quarter, which used to be the fourth quarter and was later changed to the first fiscal quarter for exactly this reason. While monster quarters are nice, what's even better is selling huge numbers of units all year long, which much more efficiently uses infrastructure and results in stock prices that go up, up, and up. Apple has lately done a pretty good job of smoothing earnings thanks to the iPod and iTunes, which has grown so fast that holiday sales have become almost inconsequential. But in order to make this work Apple has to deliver new products all year, they have to exceed customer expectations on a regular basis and, of course, they have to manage those expectations so they'll have a benchmark to exceed. That's the lying part. Apple will announce Christmas products in August and September. The company tries to announce products that are actually available but sometimes that doesn't work, generally for reasons of strategy. While it was important to Apple to pre-announce the iPhone, it is easy to argue that pre-announcing another iPhone would be more dangerous to Apple's own sales than it is worth. That's why I tend to believe a lot of this stuff is going to come in January. I could be wrong of course. Maybe a Nano iPhone for Christmas makes tons of sense, but with the first iPhone suffering some quality problems (variable battery life, faulty volume controls, bad screens, etc.) Apple will have more than its hands full with one absolutely new product, much less two. Then there's the phoneless iPhone (big screen video iPod) which I firmly believe WILL be here for Christmas because it is sorely needed, places the iPhone squarely within its iPod heritage, and ought to be less of a support headache being a derivative product. I still think we'll see an iPhone firmware upgrade, if only to support all the iPhonic goodies that appear to be built into OS X 10.5 (Leopard) due to ship in September. Remember how Leopard was delayed from May until September with the excuse that programmers and QA people were being shifted temporarily to the iPhone? I'm still scratching my head over that one, but with all the Leopard-specific iPhone additions I'm hearing about (file browser, disk mode, iWork, file search, copy & paste, better e-mail, REAL applications, and -- here's the one I like best -- iChat) it seems evident that a lot of the good stuff didn't make it to the 1.0 release. Enough stuff that maybe the Leopard iPhone upgrade will, by itself, be able to keep us all enthused enough to keep buying iPhones through Christmas. Yeah, but what about the 3G iPhone? Say it ships in January. Does that really mean the early iPhones will be obsolete, offered on eBay for $0.30 on the dollar? That could be, but in my heart I hope it isn't. In my heart I hope that Apple's silly decision to make the iPhone battery not user-replaceable is actually a ruse for slipping in a 3G upgrade in early 2008. Or maybe I am wrong about that, too. And speaking of making bad predictions, several months ago I boldly wrote that Apple would be adding hardware H.264 support to virtually its entire product line. This made sense to hardly anyone at the time, though the ability to support H.264 video ENCODING could have brought dramatic service possibilities to the Macintosh line (HD iChat anyone?). Well call me stupid, but at this point I'd like to specify exactly which H.264 chip I still expect Apple to use. It's the Type A H.264 Codec LSI from NTT Electronics, presumably a consumer version of the broadcast H.264 chip NTT Electronics introduced at the NAB show in April. This consumer chip is sampling now and will be in mass production in October, which makes it too late for any Apple Christmas products but just right for a very interesting Macworld show in January.

  • What's Next from Apple: New iPods Sept 22, iPhone OS 2.1, iTunes 8.0

    Daniel Eran Dilger Kevin Rose has been trying his hand at making broad sweeping generalizations about the next generation of iPods, but sorry, no digg. Most of his predictions are not even original, and those that are are so vague that they're really just worthless. Here's what you can really expect. Rose likes to suggest what's next from Apple, but his guesses only approach reality when they're based on leaks that occur days prior to an announcement. His flat out guesswork tends to be yet far further removed from reality, indicating that he has no special inside track on things at Apple, nor much of an imagination tempered by realistic appraisal. A month before the iPhone was unveiled, Rose predicted it would be available from CDMA providers, have a pull out keyboard, and sport two batteries, one for music and one for the phone. Of course, splitting a battery in half is not really a brilliant solution to prevent music playback from running down your phone, but the simple fact that Rose didn't know about the exclusive deal with Cingular (come on, it was Apple's only mobile partner to date) and the unlikelihood of Apple tacking on an HTC-esque keyboard makes his guesswork easy to dismiss. I had imagineered the iPhone as a web browsing iPod (“based on Nokia’s mobile contributions to Safari”) with SMS messaging features, contacts, calendar, and a camera… six months earlier. And CDMA? I recommended Apple “leave Verizon alone and partner with Cingular, TMobile, and MetroPCS using GSM technology.” The difference between my ideas and those from Rose, apart from mine being six months earlier, is that I presented mine as only reasonable ideas with some rationale behind them; Rose insisted he had special knowledge from reliable sources. Generation 6 iPods An iPhone Worth Talking About The Real iPod touch Deets. Now he's predicting new iPods. The iPod touch is supposed to get “fairly large price drops to distance itself from the $199 iPhone.” Sorry, wrong. The iPhone is only $199 in the minds of consumers. It gets a subsidy from AT&T, which is why you can't just buy one for $199 and walk out the door without signing a phone contract. The iPhone's $2,000 service contract offers plenty of distance between it and the iPod touch. The iPod touch is not possibly going to get cheaper than the iPhone for a couple reasons. First, obviously, it costs nearly as much to make. The lack of a subsidy pretty much balances out its lack of mobile radio components. Second, Apple isn't desperately trying to sell the iPod touch. It exists as a product to sell to users who can't or won't buy an iPhone because they're tied to Verizon or don't want a phone. Rose worries that the iPhone is “cannibalizing sales of the iPod,” but there's nothing more Apple would like to do than to feed every iPod user an iPhone. Sure the bonehead analysts will have another field day complaining about how there's only minor growth among iPod sales while they ignore iPhone numbers, but these guys aren't easy to reach with basic facts. Apple has been giving away the $300 iPod touch to students buying a laptop; that looks like an effort to broaden the iPhone platform. Apple wants college kids playing iPhone games and interested in creating their own iPhone software. Left to their own devices, most kids would buy the old hard drive iPod Classic because they think they need to walk around with their entire torrent library of stolen music. (Get off my lawn!) In any case, we all knew the iPod refresh was coming. I'm pretty sure they're coming on September 22. I'm also pretty sure that the 8GB iPod touch is going away, making the 16GB model the new $199 version. That outrageous price drop, facilitated by today's cheaper Flash RAM, would kill the remaining market for the hard drive-based iPod Classic, converting Apple's entire lineup to Flash RAM. Additionally, it would migrate even more iPod buyers into the installed base of iPhone App Store users and hasten the cannibalization food chain that leads toward the iPhone. The 16GB iPod touch will be sold next to the existing 32GB model, which was just released earlier this year. For that reason, I don't see a larger capacity model being introduced now. I don't see tremendous demand for carrying 64GB of music from people who are also ready to pay for 64GB of Flash. Nano 4: Zune 2007? Rose says the Nano will get a redesign that makes it look like last year's Flash RAM Zune; iLounge already predicted this a month ago, although Rose embellished his version with the idea that “the actual plastic on the outside will be curved,” presumably like a TV from the 80s. How nostalgic! I miss having a wildly distorted tube picture, almost as much as a scratchable plastic iPod screen. Oh the good ol' days. Will Apple expend significant resources to make the Nano 4 into a widescreen tall/long player and define a new 4GB hardware model to fit into a niche that is only $50 less than the new 16GB $199 iPod touch? How much room for differentiation is there under $200? Seems more likely that Apple will instead only release a cheaper version of the existing 4GB Nano that's closer to $99, leaving room for a $149 8GB Nano in between. That will pull Shuffle buyers up into splurging on a full video Nano. If you want to watch video sideways, you can get an iPod touch for $199. What kind of widescreen cinematic experience can you get with a long/tall Nano/Zune? When I reviewed the Flash Zune, one of the complaints was that half (but only half) of the controls reconfigure when you hold it sideways. Plus, existing iPod Games wouldn't work in the widescreen orientation; both the display and the controls would be messed up. On top of that, regular video playback would be forced to play back wide, and/or look bad because its stretched. Microsoft has no qualms with playing video in an odd aspect radio, but the iPod is made by Apple, which has some aesthetic boundaries that constrain its behavior. Winter 2007 Buyer’s Guide: Microsoft Zune 8 vs iPod Nano iPhone 2.1 Rose says Apple will also release “iPod touch 2.1 software, iPhone to get update very soon after.” We already all knew the iPhone 2.1 update was coming, and that it's going to be significant, and that it is due for release around the same time as the new iPods. Whether the new iPod touch will ship with it in advance of the iPhone would depend on whether iPhone-only features in the release hold it up, but Rose doesn't suggest any special knowledge or rationale behind this claim. iPhone 2.1 is supposed to usher in new GPS features and the push Notification system, but the real demand for downloading it will be that it fixes a major problem that currently causes third party iPhone apps to crash on launch and randomly when running. Apple needs to get this out quick before it blows the reputation of iPhone software stability in the minds of users. That's reason to believe that iPhone 2.1 might ship even before the new iPods, rather than the other way around. Because software developed using the iPhone 2.1 SDK won't run on iPhone 2.0.x, expect everyone to need to update their software to download a new generation of 2.1-only apps. This will be free for iPhone users, but might incur a nominal fee for iPod touch users due to accounting rules. Myths of Snow Leopard 3: Mac Sidelined for iPhone Ten Big New Features in Mac OS X Snow Leopard iTunes 8.0 Rose says iTunes 8.0 “it's a big update with new features,” but doesn't say what they are. He also says it will be “a real point upgrade” deserving the 8.0 name. However, there is little rhyme or reason to Apple's iTunes version numbering, and no real correlation between the amount features introduced and the version number increment. iTunes 2.0 added iPod support after ten months of iTunes 1.0, but iTunes 3.0 only added minor features the next year. It was replaced by iTunes 4.0 a year later, which added the Music Store and AAC support. Two years later, iTunes 5 introduced some cosmetic changes and was immediately replaced with iTunes 6.0 only a month later, without any major new features. Another year later, iTunes 7.0 arrived with a new look, video game support, and Coverflow. It has since seen loads of new features, from support for Apple TV to the iPhone to new iPods and new movie rentals, all of which were only numbered as minor updates. We've had iTunes 7.x for two years now, so iTunes 8.0 is not really ballsy prediction at this point. Of course, Apple is just as likely to skip ahead and release iTunes X. And if iTunes X isn't ready, we can might even get iTunes 7.8 and 7.9 over the next couple years. Oh my sides. With the likelihood of entirely new iPod touch or Nano models being quite low (after all, the Zune isn't going to get a refresh until late next year, and Apple isn't facing any tough competition at the moment), Apple's iPod announcement might end up more about a new iTunes than the iPod. Rose doesn't make any iTunes 8.0 feature predictions, instead jumping ahead to suggest that Apple is working to make sure Mac OS X 10.5.6 will provide support for Sony's BluRay, the competition to iTunes that nobody cares about. Hmm. Steve Jobs has so little regard for optical discs that he basically shunned iDVD last year when showing off iLife 08, but now he's going to resurrect BluRay and excite customers by including it on the company's laptops, where any resolution advantage it offers over DVD would be nearly invisible? Oh ho ho my sides. iTunes Unlimited? The rumor mill is talking about subscription music in the next iTunes. Steve Jobs has opposed subscription music since iTunes got started. He worked for years to convince the labels to let go of the dream of billing users to essentially listen to the radio. Subscription music has always revolved around outrageous DRM that requires the (historically Microsoft PlaysForSure) player to sync up and check in every month or lose its music. I've written up lots of reasons why subscription music was an awful idea that wouldn't fly. I doubt Apple will actually float it as rumored (“iTunes Unlimited” for $129 sounds awful). However, enough has changed in the last two years to reconsider how subscription music could be delivered. For starters, the iPhone and iPod touch are now wireless, so they can both stream and verify exploding media DRM. Apple's iTunes, modern iPods, Apple TV, and the iPhone also now already handle exploding DRM for movie rentals, which blew over last year without any complaint, although it doesn't look like iTunes' movie rentals have had a massive impact on the world due to their relatively high price point. Offering movie rentals appeared to be a requisite concession leading up to convinc