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Courseware & Insight at the Intersection of Tech & Strategy by Prof. John Gallaugher, Carroll School of Management, Boston College

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The Week in Geek – Dec. 5, 2007

Facebook Retreats from Online Tracking
An earlier WiG, discussed the promise of Facebook-as-marketer, mentioning an effort to be called Beacon, where online firms would add your purchases to Facebook Feeds. A great idea for some – I’d be happy to share a recommendation of the operations-heavy “How Santa Really Works” to anyone looking for a good Christmas read for grade-schoolers. But the ham-handed rollout of Facebook Beacon’s feeds shows why today’s manager must be a decathlete that’s part geek, part marketer, and part civil libertarian. Facebook’s beacon was opt-out instead of opt-in, a lesson we teach our freshmen (will the Valley start hiring more Eagles, already)! This lead to Facebook broadcasting Christmas gifts well ahead of Santa’s deliveries (see “Facebook Ruins Christmas“) – ouch! With little warning, users were seeing Blockbuster rentals, Fandango movie tickets, Overstock buys, Epicurious ratings, and even NYTimes travel ratings all farmed to Facebook via the friends feed. MoveOn.org led a pile on that quickly gathered 70,000 virtual protesters. Beacon got so dicey that Coke slinked away from plans to support the service. Under the new beacon, a member will be offered the choice of having a transaction published to their feed and must explicitly opt-in. It is shocking, utterly shocking that management approved a cryptically executed opt-out policy. Was there no-one who saw this as a problem? Time to market is key, especially when establishing a new standard that could revolutionize advertising and make its backer a mint, but Facebook’s shoddy execution caused more harm than good & will likely make firms cautious of new media marketing.

Amazon: Reinventing the Book
Amazon’s launch of Kindle snagged a Newsweek cover story. At $399, the device is pricy, but Bezos is quick to point out that Kindle is a service as much as a hardware product. The reader itself sports a super-crisp, low-power electronic ink display that sips a fraction of power to redraw the screen. It weighs just 10.3 ounces, has a built-in keyboard, has a tapered width to emulate a book’s binding bulge, and doesn’t run hot, whirr, or beep like a computer. It offers 30 hours of read time on a charge, and fully charges in two hours. Perhaps most impressively, Kindle operates entirely independently of a computer. It leverages a Sprint’s EVDO Whispernet, so users can buy books and get content from just about anywhere a Sprint phone works. The thumb-friendly keyboard can be used to browse books, reviews, and personalized recommendations, as well as to post reviews on Amazon. More than 88,000 books are already on Kindle at prices ranging from $9.99 for NY Times bestsellers to $1.99 for some classics. First chapters are free. Newsweek also points out that Kindle is a newsboy, offering newspapers & magazines, including the Wall Street Journal, the NY Times, Le Monde, and The Atlantic, via subscription. Each will show up on Kindle as soon as they go to press. Popular blogs are available (although for a $1.99 a month). Send a Word or .pdf document to your Kindle’s e-mail & it shows up in your virtual library, ready-to-read. Kindle users can also access Wikipedia, Google, and follow blog links. This is a version 1.0 product, but unquestionably the best reader to date. Even if someone else comes out with better hardware, if Amazon runs the best store, does it matter? My guess is that Bezos doesn’t want to be in the electronics business and that it’s the Kindle platform that will be durable. Having others focus on hardware R&D and commoditize the market would be a blessing, if Amazon can continue to lead in eBooks as it does in online sales of dead trees. And there’s probably a Kindle market for college texts, if a firm can figure out how to make the economics work. Many of our students pay over $150 per hardcover book in business and the sciences (although my classes have been textbook free since ’98). In a semester a student could justify buying a Kindle. Go Jeff!

Verizon Embraces Google Android
Lotsa Google news to start with. First, Verizon CEO Lowell McAdam announced that as part of its “any app, any device” future, his company would support Android, Google’s emerging open mobile operating system. The big issue pushing Verizon is customer service cost. The firm currently runs 25 support call centers & 2,300 stores with 20,000 employees who spend most of their time on after-sales support. Under this model, if you add more customers you add more costs. Under the new plan, customers opting for an open phone will “have to talk to their handset provider or their application provider if they have particular issues”.

Commentary: With Verizon’s move, we’ll have a chance to see two fascinating business cases unfold before our eyes – one involving standards/platform evolution, another involving coopetition. While Apple has been criticized for closed networks (sometimes quite unfairly – it offered DRM free tunes on iTunes as soon as the labels complied, and the iPhone is initially closed for a reason – imagine the uproar if the iPhone were infiltrated by nefariousware), Cupertino has been growing markets share because users view Apple hardware/software combo as flat-out superior to anything else. Will Google’s open Android offer a value proposition (cheaper, more apps) with enough innovation to challenge Apple? This casts Google as Microsoftown the standard (Windows or Android) and commoditize hardware provided by someone else. Meanwhile, on the ‘coopetition’ front, it looks like Google and Verizon are likely to be competing bidders in the January auction of the “C-Block” of 700MHz radio spectrum, while Google CEO Eric Schmidt sits on Apple’s board & Google services (maps, search, G-mail) is over the iPhone.

Google’s Infrastructure is a Strategic Advantage
Om Malik points out another example of what our freshmen have been studying as a basic lesson for several semesters now, “Google’s gigantic infrastructure is the big barrier to entry for its rivals” (see “Can Yahoo Catch Google” from last December, among other WiG posts). Malik points out that Google now has 64% of the market. Google’s big, honkin’ infrastrucure helps it keep this lead. The avg. search response time smokes out somewhere between .06 and .12 seconds. At speeds like that, even if a query doesn’t give anticipated results, users just search again with refined search terms rather than jump to a competitor. Google has it’s own OS (modified from open source offerings), servers (made from commodity parts), as well as its own operational software. The firm is also rumored to be buying dark fiber to connect its data centers. Malik calls this a ‘supply chain’ play, but it’s more easily understood as a game of scale. Remember, when you search Google you’re searching one of several ‘copies of the Internet’ stored on hundreds of thousands of Google servers that are regularly refreshed with the latest snapshot of what’s online. How much does that infrastructure cost? Serious dinero. Google CapEx is roughly $3.8 billion over the past seven quarters. Stanford gave us Jerry and David, then Sergei and Larry, but with this kind of coin required to support an effort, this is no longer a game threatened by two students in a trailer.

Google Service to Store User Data
In March 2006, an Eric Schmidt presentation containing notes that were supposed to have been edited out, was inadvertently posted online. Those notes mentioned a secret product referred to as “GDrive“. The WSJ now reports that Google’s just a few months away from releasing a big net-based hard drive, where users can store docs, videos, photos, and just about anything else, in a system accessible from any Net connection. No word on pricing, but the Google system should be simpler to use than Yahoo Briefcase, which requires a multi-screen hop to get to your goods. The Journal article offer a neat table describing current competition in this space, including Microsoft’s SkyDrive beta, AOL’s XDrive, BoxNet, and OmniDrive. When Eric Schmidt was CTO of Sun, the firm’s motto was “the network is the computer“. Sun employees still use diskless workstations (Sun Rays), storing apps & files in the ‘Sun cloud’. If Google can unify its word processing, spreadsheet, presentation, photo (Picasa), e-mail, and calendar tools in one place, accessible anywhere, it will be the closest thing we’ve seen to realizing Sun’s vision (albeit without many Sun servers on the back end, or Sun clients out front). Rumor also has it that Google will soon role out a suite of apps built around the JotSpot wiki acquisition, and that all of these tools will be available offline via Google Gears. 2008 will be a year where Google unifies its fractured product lines into something users can view as a seamless, cooperative application suite.

iPhone Browser Share Beats Windows Mobile in Just 5 Months
Make no mistake – people are still doing most of their browsing via desktops. Computerworld reports that the quarterly share of iPhone browsing sessions is just shy of .1%. But compare that to Windows Mobile share of .06%, and Symbian’s share of .01%, and it suggests that the iPhone is already, by far, the most widely used mobile browser.

Review: Speaking of the iPhone, even though the press has been flapping about a 3G iPhone next year, I went ahead and bought the current model last week & love it. More speed would be nice, but for e-mail the AT&T EDGE data rate is solid. I get more than a screen full of e-mail headers in under 5 secs, and each message loads without much delay – and this is on the “T” (Boston’s trolley) in & out of notoriously spotty Chestnut Hill area. Web pages loaded at a decent speed, too. Most BusinessWeek, Wired News, and NY Times pages were also readable in 5 seconds or less, although graphic rich web content, like BusinessWeek slideshows, are way too slow via EDGE to enjoy. Some sites are standouts. Amazon & Facebook already have impressive iPhone-ready sites that load automatically when accessing each firm’s standard URL. The optimized sites are very perky, and expect more custom content in the next few months, particularly after Apple releases an iPhone SDK in February. iPhone regularly & efficiently prompted me to replace EDGE with a single screen tap when higher-speed WiFi was available from my home, at BC, and on the road in Brookline. I’ll be able to use my iPhone in China & Hong Kong when I take students this May, but it won’t work on Japan & Korea’s Verizon-friendly networks. My biggest frustration is that the calendar feature doesn’t integrate with the Oracle system used by BC (and many other organizations). But overall, iPhone has been startlingly impressive. The screen is super-crisp and easy to enlarge, so I can read everything, even with my “so bad I can’t drive” eyesight. The bouncy, finger-wipe interface is addictively fun to play with, and save for an iTunes login prob, all functions are “don’t need a manual” easy (tip: if you get the login error when using iPhone’s iTunes app, logout of iTunes on your PC or Mac, then re-login to iTunes, verify your ID, and connect your iPhone). iPhone typing is quick to master. The keyboard is also more readable than any other smartphone, and smart enough to enlarge the key target area of letters if it determines that adjacent keys are unlikely in a typing sequence. For example, when typing ‘time’, the invisible target area for the keys around the ‘e’ gets bigger since there are no English words that are ‘timw’ or ‘timr’). iPhone also guesses at gaffes made by pressing adjacent keys. Type ‘ouzza’ and it’ll prompt you with ‘pizza’ in a bubble below the word. Just press space to accept the usually spot-on corrections. I was worried about having just 8GB of memory, but found that I can pack a whole lotta tunes, podcasts, and family photos onto the device without hitting the limit. If you want to carry bit-burley movies or TV shows with you, you’ll fill up your iPhone slightly quicker than a new nano. Writing as someone with lots of idle commuter downtime who reads a lot of web news, suffers from e-mail overload, and needs maps & directions while traveling, iPhone is a winner.

All Eyes on Apple
The guys at Apple have a heck of an act to follow. In the latest year of the greatest comeback the tech industry has ever seen, sales are up 24%, earnings up 75%, margins topping 30%, stock price up 146%. But while the FastCompany story makes a solid case that it’ll be tough to keep pushing share price higher, I’m not sure I see signs that Apple’s on the verge of losing market share. FastCompany quotes an analyst favorably comparing the firm’s products to SanDisk – no way this is a threat. Apple relentlessly updates the iPod model, killing best-sellers with new models at a rate worthy of an SNL parody. How many times have we read ‘iPod killer’ in a headline, only to see Apple extend its 6 year run as the undisputed king of portable music? In music Apple’s got sharp software, a huge, loyal user base, and the only one with marketing dollars to match Apple is Microsoft. In phones, Apple got the pricing wrong. While iPhone won’t land an iPod like share among all phones, among smart phones there’s nothing in stores that compares to iPhone – nothing. Digital video and AppleTV will be tougher. The studios are wary of losing pricing power to Cupertino after seeing what’s happened in music. Apple has scored a #3 position in total music sales (after WalMart & Target), with a digital market share so big that no one else can be credibly discussed as a threat, not Sony, not Microsoft, not Yahoo. There’s a reason Fortune named Steve Jobs the Most Powerful Person in Business.

eBay to Try Again in Japan, with help from Yahoo
Five months. That was the lead Yahoo Japan had over eBay in the local auction biz. And that’s all it took for Yahoo to lock up a market that yields over $2 billion a year. eBay fared so poorly that it eventually backed out of Japan altogether (eBay dominates the remaining 9 of the top ten global auction markets). Now eBay and Yahoo Japan have reached what they hope will be a win-win, linking their auction sites to make cross-border bidding easier. The companies will call the effort Sekaimon or “gateway to the world”. But Asia’s been tough for Yahoo. In China, dismal results following the acquisition of EachNet led to a partnership with Hong Kong’s TOM Online to compete against Alibaba. In Thailand, eBay plans a joint venture called Sanook, with help from a local partner.

AOL to use Amazon’s Unbox
AOL launched pay-per-download movies in October, but already abandoned it’s effort in favor of an Amazon partnership. Nearly all NBC shows have now been removed from iTunes, but Amazon has them on Unbox. By leaving iTunes, NBC has effectively abandoned the market for portable video. The move shows studios fear Apple’s growing clout in movie downloads. NBC is pressuring Apple now, while the market is small, and before Cupertino can call the shots in music pricing.

Half of Japan’s Bestsellers Written on Mobile Phones
This one’s pretty hard to believe, but the Sydney Morning Herald is reporting that half of the top 10 fiction bestsellers in Japan – honest to goodness novels – were written primarily using mobile phone keyboards. Remember, while most English speakers are frustrated by mobiles that require multiple key presses for a letter to appear, users of character-based languages, where there are many more symbols than keys on a conventional keyboard, have always had to do this on their computers. While mobiles are awkward, it’s not as much of a stretch. Still, literary wonks lament that mobiles force writers into shorter sentences with basic words. At least these weren’t written using emoticons.

Here Comes another Bubble
The Richter Scales have put together a hilarious video on Valleydom to the tune of “We didn’t start the fire”. It’s brilliant, and yes, I will ‘blog about this song’.

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