The HDTV business is in a crisis--and Apple wants in?

Fortune is reporting that the HDTV market is in crisis mode. According to the latest numbers from NPD, worldwide TV shipments fell by 8% year-over-year in Q1 2012, the steepest drop since Q2 2009. Shipments of LCD TV sets fell in Q1 year-over-year for the first time ever. LCD shipments fell over 3% and plasma TV shipments fell 18%, on top of an 8% decline in Q4 2011.

According to the article, thanks to dramatic price drops, everyone who wants a big-screen TV most likely already has one. According to Paul Gagnon, NPD DisplaySearch's director of North America TV Research, "At present we see that 70% to 80% of households have a flat panel set." In addition, consumers have rejected 3D and connected TVs that were intended to boost sales. In general, Gagnon says that consumers aren't replacing their flat-panel TV because they've failed, but rather, because they want bigger ones. When they go to the store, they see that prices have dropped, and they can buy a bigger set for the same amount of money that they spent for their smaller set the last time. Other features besides screen size are secondary--given the same price, consumers will go for the bigger set with fewer features, rather than the smaller one with more features.

Given this environment, what's the market opportunity for Apple's rumored TV? The company can probably make a go of it with a niche product, but it's difficult to see Apple being willing to fight for market share with price-sensitive buyers, which is where the volume is. As much as Steve Jobs thought that he's "cracked the TV problem," if he were alive today, he might consider whether HDTVs have become another high-volume, low-margin business like PCs, from which Apple is weaning itself.

Be your own role model

I was browsing at my local Barnes & Noble last night, and I noticed that the Business section seems to be getting its own "Steve Jobs" department: In addition to Walter Isaacson's biography, there's "The Presentation Secrets of Steve Jobs," The Innovation Secrets of Steve Jobs," "The Steve Jobs Way," "Steve Jobs: The Man Who Thought Different," "Insanely Simple," and on and on. There's clearly a big market for books about Steve Jobs, reflecting a great deal of interest. Does that mean that you should model yourself after him?

Consider that when Steve Jobs first started Apple with Steve Wozniak, the leading company in Silicon Valley was Hewlett Packard. Company founders Bill Hewlett and Dave Packard, and their "HP Way", were the models for many technology companies in the Valley and beyond. Wozniak had even worked at HP's calculator division for a time. Yet, Jobs and Apple didn't try to emulate HP. Jobs had his own philosophy about how a company should be run and how his employees should be treated. The signature companies that were founded in HP's model, Tandem and ROLM, no longer exist.

Founders' personalities and their companies are very much a matched set--either the combination works or it doesn't. Trying to emulate a successful founder's personality rarely works; trying to model that style and then impose it on a different organization almost never works. The most successful people follow their own path; they take lessons from others, but they don't try to emulate them. That's why slavish mimicking of how Steve Jobs thought, or how he ran Apple, is doomed to failure. The best that you can possibly be is a second- or third-rate imitation of Jobs. You're much more likely to be successful by being a first-rate version of yourself.

Apple's potential defense: The publishers didn't need us to collude on pricing

I've been wondering about Apple's apparent resolve to fight the eBook price-fixing charges leveled against it by the U.S. Justice Department, states and private individuals. Apple's defense and decision not to settle have, so far, made no sense to me. The relative cost and inconvenience of settling with the Justice Department and states would be minimal compared to the potential distraction of Apple's management and reputational damage resulting from years of litigation. So, why is Apple holding out? Keep in mind that I'm not a lawyer, but here are some thoughts:

The publishers wouldn't possibly have been stupid enough to talk directly with each other about adopting uniform agency terms and pricing. Apple would have had to serve as the "switchboard", acting as an intermediary between the various publishers. The problem is that if the Justice Department charges are correct, the publishers did meet face-to-face multiple times to discuss business issues including "the Amazon problem," and also had myriad communications between each other by phone and email. Years ago, when I took a Business Law course in college, my professor said that such contacts between competitors simply shouldn't happen. Even if all the parties do nothing more than talk about the weather, the very fact that the meetings took place can be used as evidence of collusion among competitors. That may explain why, according to the Justice Department, there were never any corporate counsel at the face-to-face meetings held by publishing CEOs in various Manhattan restaurants.

The CEOs could never agree on how to take on Amazon and force the company to increase its selling prices for eBooks; it took Apple to propose first agency terms, and then a "Most Favored Nation" clause that would guarantee that Apple would always have the lowest eBook prices. The publishers could have come up with a similar scheme and worked the details out among themselves. It was convenient for Apple to do the work for them, but Apple wasn't necessary to either create or further the collusion.

The problem for Apple is that the Justice Department appears to have evidence that the company did, in fact, act not only as a "switchboard" between the publishers, but that its role was essential to getting the five publishers on board with exactly the same terms and conditions. There's also evidence that Steve Jobs himself intervened to try to convince Random House to join the other five Big 6 publishers in implementing agency terms. That may be enough to prove that Apple was integral to the conspiracy.

Apple: Don Quixote de Cupertino?

Update, April 11, 2012: Bloomberg is reporting that the U.S. Justice Department filed suit this morning against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster for eBook price-fixing; Hachette, HarperCollins and Simon & Schuster settled with the Government.

Bloomberg reported that Apple, Penguin and Macmillan are unlikely to agree to a settlement with the U.S. Justice Department over eBook price-fixing accusations, and are preparing to go to court. The three other publishers in the case, Hachette, HarperCollins and Simon & Schuster, are said to be very close to agreeing to a settlement with the Justice Department.

Regular readers of my blog know my opinion on the subject: There's very strong evidence, even if circumstantial at this point, that the publishers imposed agency terms on all of their resellers at almost exactly the same time, including the exact same commission rate, and that all of them threatened to stop supplying eBooks to any reseller who refused to agree. Apple's precise role in the scheme isn't clear, but it's known from Steve Jobs' own words that Apple proposed the scheme to the publishers and knew that it included the part about refusing to sell eBooks to any reseller (including Amazon) that didn't agree.

Apple may believe that it didn't coordinate the actions of the publishers (or that it's covered its tracks well enough that the Justice Department can't prove that it did coordinate their actions.) It may also not want to agree to a settlement for fear of its impact on the civil price-fixing case underway in New York. However, in my opinion, Apple is taking a huge risk by not settling the case before it goes to court.

As it looks now, Hachette, HarperCollins and Simon & Schuster are close to a settlement. If they settle, they'll enter into what's called a consent decree, which doesn't require them to assume guilt for the charges. They'll be required to change their business practices, possibly pay a fine, and agree to court supervision for a limited period of time. The pain and reputational damage will be over quickly. For Apple, Penguin and Macmillan, however, their senior executives are in for months of depositions, they'll be required to provide many thousands of documents as part of the discovery process, and the court trials and appeals will likely take years to play out.

In addition, the Justice Department will be able to compel Hachette, HarperCollins and Simon & Schuster to testify against the other three companies. They'll have immunity as a result of their settlement, and they'll have no reason to protect their competitors or Apple. This is a standard part of most price-fixing cases: One or more defendants cut early deals with the Justice Department and gain immunity, and then they provide evidence against the other players in the price-fixing scheme.

The worst possible outcome for Apple would be for it to lose in court, even if it eventually wins on appeal. All they have to do is look at Microsoft to witness the damage that could be done. That case was eventually settled with a consent decree, but Microsoft was under court supervision for ten years. The company could no longer pursue the aggressive tactics that it had used in the past to suppress competition. Most importantly, it became a convicted monopolist, which changed both the public's perception of the company and the stakes for any future litigation. (When Bill Gates eventually passes away, stories about his philanthropy will have to share time with the videos of his depositions.) The press was no longer afraid of retaliation by Microsoft's public relations department for running negative stories, and Microsoft lost control of its messages.

Apple is unafraid of litigation, as witness its myriad lawsuits against Android licensees. In Walter Isaacson's biography, Steve Jobs clearly saw Android as not only a theft of Apple's intellectual property by Google, but a personal betrayal by Google Chairman Eric Schmidt, who served on Apple's board of directors for years. Jobs swore that he would spend Apple's entire cash horde, if necessary, waging "thermonuclear war" on Google and Android.

Unfortunately for Apple, its cases against Samsung, HTC and Motorola have been far from the "slam-dunks" that Jobs thought they would be. Apple has estranged perhaps the most important component supplier for its mobile products, Samsung, and it's being forced to bring alternative vendors up to its quality and deliverability standards. For example, Apple had planned to launch the new iPad with three LCD vendors, LG, Samsung and Sharp, but only Samsung was able to meet Apple's quality requirements and ship in the necessary quantities in time for the launch. In addition, some of Apple's own patents are being challenged and could be invalidated.

Apple, like Don Quixote in Cervantes' novel, enjoys its battles. Unlike Quixote, however, Apple's opponents fight back, and are likely to hurt Apple much more than Apple hurts them.

What would you rather have: A monopoly or price-fixing?

Last week, The Wall Street Journal reported that the U.S. Justice Department has warned Apple and five of the "Big 6" trade publishers (Macmillan, Penguin, Hachette, HarperCollins and Simon & Schuster) that it's planning to file suit against them for price-fixing as a result of their implementation of agency pricing for eBooks. Here's a brief overview (and a disclaimer: I'm not a lawyer, and this isn't legal advice):

Until 2009, virtually all publishers in the U.S. sold their books (both print and eBooks) to resellers under the wholesale model. Typically, books would be sold by publishers to resellers at 50% of their suggested list prices--the prices printed on the book covers. Resellers were then free to resell the books at any price they desired. This was the model (along with co-op payments for display locations at the front of bookstores and preferred positions on bookshelves) that Barnes & Noble and Borders used to drive hundreds, if not thousands, of independent booksellers out of business with discounting. In many cases, the "big box" booksellers sold books for less than the price that independent booksellers paid to buy them.

Amazon used the same model to launch its entry into the eBooks business. Amazon's strategy was to sell all its eBooks for $9.99 or less, even if that meant selling them below the wholesale price. Amazon quickly controlled as much as 90% of the U.S. eBook market.

In 2009, as part of its entry into the eBook business, Apple proposed a different model to the Big 6 publishers (all of the companies under investigation plus Random House), which became known as agency pricing. Under agency pricing, booksellers don't actually purchase the books that they sell to customers--instead, they act as "agents" for the publishers and take a commission on each sale, which Apple set at 30%. Since the booksellers don't own (take title of) the books, the publishers can set the prices, and the booksellers are obligated to sell the books at that price. Five of the Big 6 publishers implemented agency pricing for their eBooks (Random House waited a year before it implemented agency pricing, which is why it's not under investigation.)

The five participating publishers went to their resellers at approximately the same time, and told them that, regardless of when their existing distribution contracts were to expire, their contracts would be immediately amended to require agency pricing of eBooks. Any reseller who refused would have their supply of eBooks cut off. The first skirmish was between Amazon and Macmillan--Macmillan implemented agency pricing and Amazon briefly stopped sales of all Macmillan titles, but soon relented. That opened the floodgates, and Amazon agreed to agency terms from the four other publishers (although it has refused to accept agency terms from any additional publishers except for Random House).

So far as consumers are concerned, the net result of agency pricing is that prices of eBooks from the Big 6 publishers have gone up substantially, from $9.99 to as much as $16.99. eBooks from the Big 6 were once less expensive than paperbacks; now, in many cases, they're more expensive. In some cases, eBooks are even more expensive than the discounted price of hardcovers.

Both the U.S. Justice Department and the European Union are investigating Apple and the five publishers for price-fixing. The external evidence is that all five publishers implemented the same pricing policies at the same time, and all five threatened to cut off supply to any reseller who refused to agree to the new terms. In Walter Isaacson's biography of Steve Jobs, Jobs is quoted as saying:

"We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway.' 

Jobs continued, "They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books."

That certainly gives the appearance of an organized effort to raise prices, orchestrated by Apple and executed by the five publishers. Publishers and their defenders argue that agency pricing is necessary to prevent Amazon from getting a monopoly in the eBook market, which, while only 20% or so of the "Big 6" publishers' sales, is likely to become 50% or more in a few years. A monopoly would give Amazon control over pricing. Advocates of the government's position say that the actions of Apple and the five publishers have substantially increased consumer prices for eBooks, and that it's hypocritical for companies like Barnes & Noble to support agency pricing when they used wholesale pricing to wipe out their independent competitors.

One of the most important things to understand about U.S. antitrust enforcement is that it's illegal to be a monopolist, but it's not illegal to have the potential of becoming a monopolist. At the time that Amazon had a 90% eBook market share, the eBook market was new ("nascent") and both small in units sold and dollar volume.  The Justice Department almost never goes after a monopoly in a nascent market. Today, Amazon has between 60% and 65% of the U.S. eBook market--a big share to be sure, but not a monopoly. If agency pricing went away tomorrow and Amazon went back to its old pricing strategy, it's very unlikely that the millions of people who own Nooks and eBooks from Barnes & Noble, Apple and other resellers would throw away their eReaders, tablets and eBook collections and start buying from Amazon. So, Amazon didn't have a monopoly, doesn't have a monopoly now and isn't likely to have one in the future.

On the other hand, price-fixing is illegal, and it doesn't even require a formal agreement among the parties to prove that price-fixing exists. There's no question that agency pricing has raised priced for consumers, at least for titles from the "Big 6". (Statistics rolled out by some defenders of agency pricing that show that eBook prices have dropped also include titles from self-publishing authors, some of whom sell their eBooks for as little as $0.99.)

Publishers argue that Amazon is a very difficult company to do business with, and all the evidence I've seen supports them. However, tough bargainers are a fact of life: Wal-Mart has made the lives of vendors miserable for years while pursuing an "Always the Lowest Price" strategy, but vendors have learned to live with it. Taking illegal action to prevent a company from becoming a monopoly is still illegal.

RED, Apple and Plato's Cave

A couple of weeks ago, Jim Jannard of RED announced that the Scarlet would henceforth be called the EPIC Light, with new specifications and pricing to be announced. That set off a flurry of speculation about the new camera. The same thing is happening with Apple's Final Cut Suite, for the opposite reason--a lack of news beyond a couple of cryptic emails from Steve Jobs. There's also a lot of speculation about unannounced EVIL (electronic viewfinder, interchangeable lenses) cameras from Canon and Nikon, complete with "leaks" from unnamed sources.

You can easily find (unintentionally) funny exchanges between people who speculate about the unannounced features and delivery dates of these and many other products. It's like people looking at the shadows on the wall of Plato's Cave and debating what and who they are.

It's human nature to speculate, and I've certainly done lots of it, but at the end of the day, it's wasted time and effort. RED, Apple, Canon, Nikon, etc. will release the details of their products when they're ready, and if there's one thing I've learned after years in the technology business, it's that nothing is fixed in stone until you can actually order the product. So relax. It's fun to guess, but it's better to know.

Apple TV: A lost opportunity?

When you were a child, did you ever annoy your parents into buying you a toy for Christmas or Hanukkah, only to find that once you unwrapped it and took it out of its box, it wasn't exactly what you were expecting? I felt that way after Steve Jobs' introduction today of Apple TV Part Deux. For months, there were rumors flying around about what the new Apple TV would be able to do. Jobs himself specified the problems with the old Apple TV approach in an interview with Kara Swisher and Walt Mossberg at the D8 conference last June:

"The problem with innovation in the TV industry is the go to market strategy. The TV industry has a subsidized model that gives everyone a set top box for free. So no one wants to buy a box. Ask TiVo, ask Roku, ask us... ask Google in a few months. So all you can do is ADD a box to the TV. You just end up with a table full of remotes, a cluster of boxes... and that's what we have today. The only way that's going to change is if you tear up the set top box, give it a new UI, and get it in front of consumers in a way they're going to want it. The TV is going to lose in our eyes until there is a better go to market strategy... otherwise you're just making another TiVo."

The new Apple TV doesn't solve any of these problems. It's not a replacement for any existing set-top boxes, especially the ones from cable, satellite and IPTV operators, because the only content providers that have signed on are Disney/ABC and Fox. So, to use Apple TV, you're adding a set-top box and remote. Jobs said that the solution was to "...tear up the set-top box (and) give it a new UI...", but Apple TV is simply a smaller version of the original Apple TV, with a slightly improved UI. In short, it doesn't do what Jobs correctly said had to be done in order to change the game.

Further, Apple TV is closed. It apparently doesn't use iOS, it doesn't allow developers to create apps that extend its functionality, and it doesn't have a web interface or other means to access content on the open Internet. Many people, myself included, were hoping that the new Apple TV would be iOS-based and would run iOS apps. Apple may have decided that the living room TV would stretch the iOS user interface so much that it wouldn't make sense to try to run phone- and tablet-based applications. They may have also believed, as Jobs said today, that consumers don't want to deal with a computer when they want to watch television. However, they still could have opened up Apple TV to content from third-parties. With the exception of Netflix, YouTube and Flickr, Apple TV is a walled garden and other content providers need not apply.

The only real improvement that Apple TV brings to the table is price. The box and the content are less expensive than in the first version. However, much of that same content is available for free from other sources, and other solutions provide far more content overall.

At the end of the day, I don't know why Apple and Jobs bothered to release this iteration of Apple TV. It doesn't do what Jobs himself said that it had to do in order to be viable, it doesn't have a critical mass of content partners, and it provides only small incremental improvements over the product it replaced.

Apple's opened a hole wide enough for Google TV to drive a truck through...if Google has the talent to take advantage of it.

Apple TV won't be another set-top box, it'll be your ONLY set-top box

Steve Jobs was interviewed by Walt Mossberg and Kara Swisher yesterday at the D8 Conference. He was asked about Apple's plans for TV by someone from Hillcrest Labs, and here's what Jobs said (from Engadget's liveblog):

"The problem with innovation in the TV industry is the go to market strategy. The TV industry has a subsidized model that gives everyone a set top box for free. So no one wants to buy a box. Ask TiVo, ask Roku, ask us... ask Google in a few months. So all you can do is ADD a box to the TV. You just end up with a table full of remotes, a cluster of boxes... and that's what we have today. The only way that's going to change is if you tear up the set top box, give it a new UI, and get it in front of consumers in a way they're going to want it. The TV is going to lose in our eyes until there is a better go to market strategy... otherwise you're just making another TiVo."

That quote has been read by some people as a refutation of last week's story that Apple is working on a $99 next-generation Apple TV based on the iPhone OS, but I think that it in fact supports it. Word has been spreading for some time that Apple has been negotiating with broadcast and cable networks to get VOD rights to all their programs (or as many as they have rights to supply.) Apple already sells episodes of many programs in the iTunes store and makes other video content available for free. The twist that has been talked about for this new initiative is that Apple would offer monthly subscriptions in addition to selling individual episodes.

Now, put this together with the $99 Apple TV rumor and what Jobs said about TV last night. Here's what you get: Apple's idea is not to become another set-top box, but to become the only set-top box. With the new Apple TV, you'd cancel your cable TV or satellite subscription because you can get all the shows you want, whenever you want, from Apple. If you're leasing a HD set-top box from your cable operator, you could pay for the Apple TV in less than a year from the savings alone. If you want live events and local news, sports, etc., you can get them over the air or via the Safari browser in the new Apple TV.

I don't think that Apple will announce the new Apple TV until it has all the content partnerships in place to make Jobs' vision workable. He'd rather forgo the set-top box business than launch an add-on device. The next Apple TV might be launched with 80% of the necessary partnerships, on the assumption that customer takeup with drive the remaining 20% of content providers to sign up, but it won't launch if it doesn't have an attractive lineup of content from day one.

H.264 now comprises 66% of encoding.com's videos

In response to Steve Jobs' open letter about Flash last week, TechCrunch contacted encoding.com, a video encoding service, to get their statistics on what formats their clients are requesting. In Q1 2010, 66% of all videos that encoding.com processed were encoded into H.264, while On2 VP6 and .FLV (which could be any codec supported by Flash, but in this case probably means Sorenson) together add up to 26%. (Ogg Theora is barely 2%.) Here's the chart:

Keep in mind that encoding.com has encoded 5 million videos over the past year for a variety of clients, but it in no way represents the majority of video sites or content. Also, these numbers represent new or transcoded files, not the huge number of legacy video files that still exist on the web. Nevertheless, encoding.com's numbers suggest that H.264 has got major adoption momentum. However, that could change.

Google's rumored announcement later this month that it will make On2's VP8 format available as open source may change the balance, especially if YouTube starts encoding its videos in VP8. According to ComScore's traffic numbers for March, YouTube had more video viewing traffic than then next ten sites put together, so as YouTube goes, so goes a large part of the market.

Steve Jobs goes on the record about Flash

Apple's position on Adobe's Flash is well-known, from the company's new iPhone Developer Agreement, Steve Jobs' remarks at an Apple "Town Hall" meeting, and a series of emails between an iPhone developer and Jobs. However, Jobs has now gone "on the record" with an open letter explaining Apple's decisions.

I've linked to the open letter so you can read it yourself, but here are the key arguments:

1. Despite Adobe's claims of openness, Flash is a proprietary platform and format controlled by Adobe. Apple's approach is to use HTML5, CSS and JavaScript, all of which are open industry standards controlled by standards committees.
   
2. Adobe claims that 75% of the video on the Web is in Flash format, but an increasing number of sites (including YouTube) also supply video in H.264 format that iPhone OS-compatible devices can use, so the problem is getting smaller every day. Jobs admits that Flash games won't run on iPhone OS, but there are over 50,000 games and entertainment titles already available for the iPhone, so the lack of Flash hasn't caused a problem.
   
3. Flash is the number one reason that Macs crash, and Symantec has reported that Flash had one of the worst security records in 2009. Flash doesn't perform well on mobile devices, and Adobe has been promising to deliver a full version of Flash for mobile devices for almost two years and still hasn't shipped. Apple doesn't want to subject iPhone OS users to these problems.
   
4. Most Flash video uses a Sorenson or On2 codec that requires software decompression, while H.264 can use hardware decompression. In Apple's tests, videos that can use H.264 hardware decompression play for 10 hours on an iPhone before the battery runs out, while viewing videos that require software decompression cuts battery life in half.
   
5. Flash was designed for keyboard and mouse interfaces, not touch, and the iPhone, iPod touch and iPad rely on touch.
   
6. Cross-platform development tools like Flash can't take advantage of new features as quickly as Apple rolls them out, so Flash developers can only use these features after Adobe supports them. Also, cross-platform tools encourage development of  "lowest common denominator" applications.

You may disagree with some of Jobs' arguments, but his open letter is the most comprehensive and clearest presentation I've seen of why Apple has decided not to support Flash.

Steve Jobs to speak at D8: All Things Digital, not Web 2.0 Expo

Dear John Battelle and Tim O'Reilly,

As you probably know, Kara Swisher announced today that Steve Jobs will be appearing at the D8: All Things Digital Conference in Rancho Palos Verdes in June. Apparently, he won't be attending the Web 2.0 Expo that you tried to get him to attend in San Francisco next month. Far be it from me to suggest that your press release promoting your conference thinly disguised as a call for more openness from Apple didn't have exactly the result you intended. Jobs will be interviewed at a conference...just not by you or at your conference.

As I said in a previous blog post, your open letter would have had a lot more credibility if you had just stuck to pushing Apple to be more forthcoming instead of trying to sell your conference at the same time. It also would also have had more credibility if you had shown the same backbone standing up to Microsoft in the 1990s that you showed in your letter to Apple. But, just like then, this was all about economic self-interest, wasn't it?

Better luck next time.

Burn the boats, and don't use the iPad as a life raft

An interview that Marc Andreessen gave to Erick Schonfeld of TechCrunch on Friday is causing much discomfort in the "old media" ranks. In essence, Marc said that the only way for newspapers and magazines to save their businesses is to fully commit to digital media, instead of taking halfway measures designed to protect their print businesses. It's the cannibalization argument--it's much better to cannibalize yourself than to allow competitors to do it for you.

Those thoughts were interpreted by some to mean that he was suggesting that publishers should get out of the print business, but what I believe he meant is that they should be prepared to give up their print businesses, once it becomes clear that those businesses are no longer sustainable. However, what Marc said about the iPad is even more interesting. Rather than paraphrase, I'll quote the article precisely (with my apologies to Mr. Schonfeld and TechCrunch for the length of the quote):

"With all the recent excitement in media quarters recently over Apple’s upcoming iPad and other tablet computers, and their potential to create a market for paid digital versions and subscriptions of newspapers and magazines, I wondered if Andreessen still felt the same way. Does he think the iPad will change anything?"

"Andreessen asked me if TechCrunch is working on an iPad app or planning on putting up a paywall. I gave him a blank stare. He laughed and noted that none of the newer Web publications (he’s an investor in the Business Insider) are either. 'All the new companies are not spending a nanosecond on the iPad or thinking of ways to charge for content. The older companies, that is all they are thinking about.'"

"But people pay for apps. Wouldn’t he pay for a beautiful touchscreen version of a magazine? Maybe, if it were something genuinely new that blew him away. It would have to be more than an article with video and graphics though. (I agree, otherwise it’s no better than a CD-ROM)."

"Oh, and he points out, that the iPad will have a 'fantastic browser.' No matter how many iPads the Apple sells, the Web will always be the bigger market. “There are 2 billion people on the Web,” he says.' The iPad will be a huge success if it sells 5 million units.'"

Last week, Penguin showed a number of iPad applications based on its books; only one of them looked like a conventional eBook. However, all but one of them could easily be written in Flash and run in any modern browser, and the one that required use of the compass and accelerometer could probably be customized to use those features without having to be a completely native app. The problem, of course, is that Flash doesn't run on the iPad and won't run in the future, not for any serious technical reason, but because Steve Jobs hates Flash.

Writing applications for the web allows them to be used just about anywhere, on any device; writing them for the iPhone/iPod touch/iPad means that they can only be used on those devices, in the Apple environment. Time will tell if Marc's prediction about iPad sales will pan out, but why would a publisher lock itself into a single platform from a company that has a history of dictating terms to its content partners?

If you talk to executives from the record companies, they would probably say that they turned Apple into an 800 pound gorilla in the media business by ceding pricing control. The book publishers have apparently just done the same thing, in part to attack Amazon's pricing model, but at the price of giving Apple pricing control at slightly higher levels.

My opinion is that the iPad is going to be successful, more for its applications and user interface than simply for media consumption. Nevertheless, Marc's comments are on target. Publishers should build their digital businesses sustainably rather than defensively, and they shouldn't depend on the iPad to save them.

Motivation vs. fixation

Steve Tobak of BNET wrote yesterday about Steve Jobs's remarks about Google last week at Apple's post-iPad "town hall", and used them as an example of the value of having an enemy in order to motivate the troops. As someone working at Netscape when Microsoft declared us Enemy #1, I saw just how motivating having an enemy can be. At the same time, it's extremely important to differentiate between motivation and fixation. Microsoft focused so hard on killing Netscape that it repeatedly crossed the line from honest competition into using its monopoly position illegally. That decision brought both the U.S. Justice Department and European Union down on the company. The result is that Microsoft finds its hands tied whenever it tries to exercise its power.

It's also important not to fixate on a single competitor and ignore other risks. While Microsoft was pounding Netscape into the ground, Google was just getting started. Microsoft ignored Google, but Google's plan from the beginning was to eventually take on Microsoft, which it's successfully doing. Now, Google is too big for Microsoft to kill, and Microsoft's playbook, which was written in the Netscape days, is out of date and ineffective.

My last point is that it's better to fixate on customers than competitors. If you consistently satisfy customer needs, anticipate their future needs and are responsive when they have problems, you're going to be successful. I think that's the real secret of Apple's success with the iPod and iPhone. While competitors were focusing on adding more codecs to their MP3 players, Apple was focused on the user experience. Instead of trying to improve on the BlackBerry model as other smartphone companies were doing, Apple again focused on the user experience.

In short, it's important to understand your competitors but not fixate on them. Fixating on customers will almost always result in a better outcome.

Another ridiculous Apple rumor, and how to stop them

Today, someone spread a rumor that Steve Jobs had a heart attack, and the price of Apple's stock briefly tanked until the company made a statement that Jobs is fine. Spreading false rumors is a time-tested way for short-sellers to drop the price of a stock without actually selling it. I don't know if Apple is on the "no short sales" list, but if it is, this may have been someone's way to get around the SEC rule.

The problem is the belief that if anything happens to Jobs, Apple is doomed. That's silly, of course--Apple has thousands of very talented people, and the product design, development and marketing process will continue. However, what Apple doesn't have in place is a visible line of succession, which makes the company vulnerable to rumors and manipulation. To squelch these rumors, Apple needs either to appoint a President as a clear successor to Steve Jobs, or to make Tim Cook, Apple's COO, a lot more visible. I don't know Cook, but from his background, he's an operations guy (which is what makes him a good COO). It would help Apple to make him more visible, or to promote someone from inside the organization to the President position. The key is to make it clear that Apple's design, engineering and marketing, as well as its future product planning, is in safe hands.

The one thing that's going to be very difficult to replace under any circumstances is Steve Jobs's ability to present, and sell, his products. There is virtually no one on the planet who is as good as him at making a presentation. (The ones who are couldn't run a major corporation.) Whether it's Tim Cook or a new President, they need to share stage time with Jobs at new product introductions, to show that they share his vision and have his confidence.

Any CEO can get hit by a bus--s**t happens. One of GE's great strengths over the years has been its ability to develop managers and deal with succession. When Jack Welch was preparing to retire, he had several highly-qualified and highly-visible candidates to replace him. (The highly-visible part can be a drawback; after Welch chose Jeff Immelt to replace him, most of the other candidates left GE to run other companies.) I think that it's time for Apple to deal with these recurring rumors by making its line of succession clear and visible.

The Real News from Apple

Today's announcement of the iPhone 3G at Apple's Worldwide Developers' Conference has been rehashed and dissected by reporters and news anchors all day. However, the iPhone announcement itself was fairly anticlimactic; the new features had been well-covered in leaked reports prior to the announcement. (In fact, the lack of new features beyond 3G and GPS was somewhat surprising.) Even the dramatic price drop had been foreshadowed by widely-publicized reports.

I think that the real news wasn't the iPhone announcement, but what came before: A slew of application demos, plus the announcement of Apple's MobileMe service. Let's take the applications first: While they were being demonstrated, some of the live bloggers griped that they were tedious and just went on and on, but that was the point: In just a few months, Apple has built a bigger, more productive developer ecosystem than Symbian has been able to do in years, and no one else (including RIM, which just recently launched its own developers' program) is even in the same ballpark. Even Microsoft's smartphone platform can't deliver applications with the quality of experience of those designed for the iPhone.

Over and over again, the story was: "We've covered all the bases." Enterprise applications? Check. Exchange integration? Check. Desktop application support? Check. Location-based applications? Check. Games? Check. All of this was on top of the basic capabilities of the iPhone, now fortified with sufficient 3G speed to make heavily data- and media-centric applications work.

The other part of the story is MobileMe. At its heart, MobileMe is a centralized storage and synchronization application that allows iPhones, Macs and PCs to be synced to a single, central database that's managed by Apple. Now, all of the capabilities of MobileMe are available in some form from a variety of vendors, but they don't necessarily work very well. As a long-time ActiveSync user, I can tell you that getting my PC notebook to stay in sync with my old Windows Mobile PDA and current Windows Mobile Smartphone (let alone my MacBook) can be an exercise in frustration.

MobileMe is aimed at two targets: The large body of Windows Mobile users who are frustrated to death with ActiveSync, and everyone who has held off on buying an iPhone because it doesn't have the "it just works" syncing capabilities of RIM's Blackberry. It's far too early to tell just how well Apple has implemented MobileMe, and it may very have its own frustrations and limitations. However, it has the potential to be a very appealing alternative to Microsoft's and RIM's offerings.

The one big frustration that I have with the announcements is that the iPhone 3G still doesn't have video camera capabilities. A 3G iPhone with the video capabilities of, say, a Nokia N95, would be a multimedia killer product, and I'm still not giving up hope that Apple with do something in this space in the future.