The iPad: And They're Off!

Unless you were living in a fallout shelter, you know that Apple announced its tablet computer, the iPad, today. I won't rehash the features and specifications; there are plenty of places to find them. Editors and analysts are leaning a bit toward being underwhelmed by the product. Personally, I think that it's a little more expensive than it should be, although it's certainly less expensive than the "under $1,000" figure guessed by an analyst last Fall and echoed around the Internet. I also wonder why it doesn't support multitasking when the Apple-designed processor clearly seems to have the horsepower to support it. The absence of a built-in USB connector or slot for memory expansion with an SD card is also disconcerting.

Even with these flaws, the iPad is a very intriguing product. It's also very clearly a Version 1.0 product in the same way that the original iPhone was a 1.0 product. Apple got a lot right in the original iPhone, but they also missed the mark in a number of important areas, the biggest being no 3G. Apple fixed virtually all the problems over time, and I'm sure that they'll do the same with the iPad.

The best description that I've heard for the iPad is that it's the next generation of the iPod touch--a media consumption device, not a phone. I'm sure that Apple will sell lots of copies of iPad-compatible iWork applications, but the iPad is designed for content (and application) delivery, not content creation. I'll be very interested to see what application developers do with the iPad. We're likely to see a lot of blown-up iPhone apps early on, but the second generation of apps, those designed for the iPad from the start, are likely to be much more interesting.

Apple's eBook-related announcements were underwhelming, at least to me. They only have five (albeit big) publishers on board so far, Amazon will maintain price leadership, and their decision to use EPUB as their standard format negates a lot of the advantages of having a color screen capable of rendering complex images. There were no announcements of partnerships with textbook vendors, a hotly-rumored subject prior to the launch event.

On the other hand, Apple's announcement of a deal with AT&T to provide unlimited 3G digital service for $29.95/month with no contract required was stunning. Other mobile operators are going to be pressed to match or beat AT&T for competitive devices. Add VoIP to these devices and you'll have unlimited voice and data for $30/month or less.

In short, Apple got a lot of things right, but it also has some things to fix. I'm looking forward to what the iPad ecosystem will be two years down the road, and what the iPad and Apple's other announcements will do to spur even more innovation and competition.

Nexus One: First round, not the ballgame

After all the speculation and hype surrounding the launch of Google's first smartphone, the Nexus One, has come the reality: According to Flurry, which measures usage of smartphone applications, only about 20,000 Nexus Ones were sold in the first week. In my opinion, this is because customers have to purchase the phone directly from Google, even if they buy the subsidized T-Mobile version; it's not available in stores. Google's "the buck stops somewhere else" customer support plan is drawing criticism: For hardware problems, customers have to contact HTC, for software problems, Google, and for network problems, T-Mobile. Mobile subscribers are used to getting all their support from the carrier, and they expect Google to fill that role, but they're coming away frustrated and disappointed.

One one level, it appears that Google didn't think out the launch of the Nexus One very well. However, I believe that Google wants to become a mobile carrier, not just a supplier of software, services and advertising. The question is: What kind of a carrier does Google want to be?

They're probably not going to want to buy an existing carrier; that would be too expensive and carry too much baggage. Nor would they want to become a MVNO (mobile virtual network operator); at least in the U.S., no one has been successful reselling one of the major wireless carrier's services. Their best choice, and I think the one they're pursuing, is a combination of broadcast television bandwidth and the "white space" between television channels.

The FCC, which earlier was saying that it was likely to force broadcasters to give up bandwidth for broadband services, has now backed down and asked for voluntary participation. If broadcasters can see a financial upside to ceding bandwidth, they're much less likely to continue to fight proposals to use the white space between channels as well, for which they would have gotten nothing. By assembling bandwidth from existing television stations while using white space for other markets, Google and other companies could build broadband data services to rival the major mobile operators.

Google wouldn't even have to build out the network itself; it could invest in a company that plans to do it and reserve a portion of that company's bandwidth for itself. Once the network goes live, Google could sell its own wireless data service, probably at a fraction of the price of the major carriers, and offer voice as a VoIP service (which makes sense, given Google's acquisition of Gizmo5, a VoIP provider, last year.) Merging Google Voice and Gizmo5 would enable Google to offer a robust voice service without the massive infrastructure of the big mobile operators.

Once Google gets all of this in place, its own phones will work primarily on its network. It might offer dual-network versions that work on GSM or CDMA networks in the areas where Google doesn't have its own service, just as Sprint sells adapters and routers that connect to Clearwire's WiMax network where it's available and Sprint's own 3G network where it isn't.

The best way to look at the Nexus One is as the first step in a much longer-term strategy, and its customer service problems as "teething pains" on the way to becoming a mobile carrier.

Taking the competition to the next level

A few posts ago, I wrote about the difficulty that IPTV operators are having with differentiating their services from cable, satellite, and (in some markets) over-the-air broadcasters. Triple-play packages (landline telephone, high-speed Internet and video) are old news in most markets, and cable operators are using VoIP to compete head-to-head with the telcos. Quadruple-play packages, adding mobile service, are less common, and are more difficult for non-telcos to compete with. In order to get access to mobile services, cable and satellite operators usually have to resell services from a telco, which puts them at a pricing disadvantage.

In most places, even when you buy a triple- or quadruple-play package, you get a bundle of services that don't talk to each other. Consumers purchase on the basis of price and features; brand loyalty doesn't exist. In this situation, you can get a runaway "race to the bottom", as is happening in several countries in Western Europe, with France being the best example. There, operators are piling on more and more features while maintaining the price at 30 Euros a month. Packages that would sell in the U.S. for $99 a month or more are going for the equivalent of under $45 at current exchange rates.

The real opportunity is in what I call silo-busting--tearing down the walls between services in order to unlock consumer value and provide the opportunity to increase prices (or at least maintain prices in the face of competition.) Telcos are just now starting to let consumers get Caller ID on their television when the phone rings. Instead of running to the phone when it rings, your television can tell you who's calling, so that you can make the decision of whether or not to take the call. If that service has value to you, and the competition doesn't offer it, you're more likely to stay with your service provider. Let's take it to the next step: Add a speakerphone to the set-top box's remote control, and you can take the call without picking up the phone. Now the television and the phone service are tightly linked. That adds value and increases differentiation.

Let's take a quad-play example: PCCW in Hong Kong enables consumers to look up movie showtimes and buy tickets, right from their televisions. The tickets are sent to their mobile phones in the form of a barcode. At the theater, the barcode is scanned for admission. PCCW can do this because they control all the elements. They're now the biggest seller of movie tickets in Hong Kong. They not only generate transaction fees every time they sell a movie ticket, they offer a desirable service that their competitors can't match.

Or consider a location-based service that ties the television and mobile phones together: A parent can see where her children are by plotting the position of their GPS-enabled mobile phones on a map on her television. It's a service that non-telco competitors can't match, and it's of considerable value to a section of the market.

The last point has to do with paying for these new services. In highly price-competitive markets, there's a fear that telcos won't be able to increase their prices, and these new services will simply get sucked into consumer expectations. Most video providers, whether IPTV, cable or satellite, package their services into tiers: For the basic price, you get a basic tier. If you want more channels, you have to buy another tier at a higher price. If you want premium channels, you pay even more. Consumers are familar and comfortable with this model. The integrated (or converged) services that I'm proposing can be priced into service tiers, just like video programming. Service providers can offer a basic service at a low price to retain subscribers, and offer unique services on tiers to bring in more revenue.

In short, I believe that the real key to unlocking value is to integrate services through applications. As consumers see the power of tying these services together, they'll migrate to the service providers that let them do the most, not just to the providers that are the cheapest.

Comcast limits bandwidth

Comcast announced today that starting October 1st, it will limit bandwidth usage for its high-speed Internet customers to 250GB/month. The first time that a subscriber exceeds the limit, they'll get a warning; if they do it again within six months, their high-speed Internet service could be turned off for a year. That's right, a year.

It's no surprise that Comcast is implementing bandwidth caps. The company was penalized by the FCC for interfering with BitTorrent traffic, so it's looking for alternative ways of limiting its network load. However, its decision raises two issues: First, is 250GB/month an appropriate limit, and second, how will consumers measure their bandwidth use to make sure that they don't use more than the maximum?

Comcast's press release gives examples of what can fit into 250GB: 50 million emails or 124 standard-definition movies. The problem, of course, is that people don't use their Internet connections for only one purpose, such as email--they use them for many different things. Someone who uses an online backup and restore service for their hard disk could use up most of their monthly limit in one session. If you use Vonage, Skype or some other VoIP service, that's going to count against your monthly limit. (One assumes that you'll be able to use Comcast's own VoIP service as much as you want, however.) And, if you've got something like a Slingbox or AppleTV, you could use as much as 15MB per minute of video. So, 250GB could get used up very quickly.

That brings us to the second issue: Comcast is providing no way whatsoever for subscribers to see how much bandwidth they've used. They recommend that customers install bandwidth monitoring software on their computers. That's all well and good for PC applications, but it won't track usage by a TiVo, Squeezebox, Slingbox, Vonage VoIP adapter, or similar devices. Mobile phone companies can tell subscribers their phone usage down to the second--why can't Comcast provide a webpage that tracks subscribers' bandwidth usage? After all, they have to be measuring it in order to enforce their 250GB limit.

Perhaps Comcast thinks that so many people will complain about this limit that they'll get the FCC to agree to content-based throttling. I think that it's more likely that the reverse will happen--Comcast will tick so many people off that the FCC will once again intervene and force the company to adopt a much higher limit. When subscribers who are using their Internet connections for perfectly legitimate purposes start to see their service cut off, the feces will hit the fan.