Big Data as Competitive Advantage

Today's New York Times nominates Google as the Zen Master of the Anywhere Internet era because it is using network effects like Microsoft did during the PC revolution. Personally, I like Google's chief economist's reason better: the company focuses on learning from experience:

Google, it seems, is the emerging dominant company in the Internet era, much as Microsoft was in the PC era. The study of networked businesses, market competition and antitrust law is being reconsidered in a new context, shaped by Google. Google’s explanation for its large share of the Internet search market — more than 60 percent — is simply that it is a finely honed learning machine. Its scientists constantly improve the relevance of search results for users and the efficiency of its advertising system for advertisers and publishers. “The source of Google’s competitive advantage is learning by doing,” said Hal R. Varian, Google’s chief economist.

But this isn't your father's learning by a few trials and errors. Google learns from what is rapidly becoming a new and powerful trend: organizing and learning from the petabytes of data it collects.

Apple posts another record quarter -- and it isn't even the holidays

Apple really has been on a tear lately, and I'm not just saying that because I got a new MacBook Pro for a great price. Apple just reported another record quarter of sales, including 2.3 million Macs, 1.7 million iPhones, and more than 10 million iPods. They reported more than $1 billion in profit for the quarter, but added nearly $4 billion in cash to its war chest.

Not everyone may be thinking this way, but to me, this all just shows how well a company can do when they go past selling hardware or software, and start selling Anywhere experiences.

Changing the world, one mobile phone at a time

The New York Times magazine this past Sunday took on a topic near and dear to Yankee Group's heart: "Can the Cellphone Help End Global Poverty?" And while it will take years before we know the answer, some of the data they cited was intriguing to say the least.

"Jan Chipchase and his user-research colleagues at Nokia can rattle off example upon example of the cellphone’s ability to increase people’s productivity and well-being, mostly because of the simple fact that they can be reached. There’s the live-in housekeeper in China who was more or less an indentured servant until she got a cellphone so that new customers could call and book her services. Or the porter who spent his days hanging around outside of department stores and construction sites hoping to be hired to carry other people’s loads but now, with a cellphone, can go only where the jobs are. Having a call-back number, Chipchase likes to say, is having a fixed identity point, which, inside of populations that are constantly on the move — displaced by war, floods, drought or faltering economies — can be immensely valuable both as a means of keeping in touch with home communities and as a business tool. Over several years, his research team has spoken to rickshaw drivers, prostitutes, shopkeepers, day laborers and farmers, and all of them say more or less the same thing: their income gets a big boost when they have access to a cellphone."

Working Anywhere: today it's the hospital

I'm try to take the title of this blog -- Notes From Anywhere -- seriously and blog from wherever I happen to be most days. Today, I'm in Emerson Hospital in Concord accompanying my son who is in for X-rays. The hospital accommodatingly provides guest WiFi, so I can work from the waiting area. I'm not sure this is necessarily a giant step forward, but it is handy for staying in touch.

I remember once advising a hospital client about WiFi wireless networks when they were new. Being an old radio and RF guy, I cautioned them not to introduce new wireless technologies into their environment without doing careful interference testing with life-support systems and other critical hospital gear. The guy looked at me with an amused look, and said, "You don't understand -- we already have the wireless networks; we just want to know how to manage them." Oops. So much for the all-knowing analyst.

Today, hospitals have nearly as many computers and networks as they do patients. Some patients even get WiFi in their rooms so they can stay in touch with family and friends. And visitors like me can work from waiting areas with guest WiFi. And why not? After all, you can be sick Anywhere.

Apple's Anywhere iPhone

Apple's invitations to an event on March 6 to discuss the Apple Software Development Kit for the iPhone generated several Apple inquiries around here, and Apple COO Tim Cook's talk yesterday at the Goldman Sachs event added more fuel to the story. I thought I'd take a break from my usual "Anywhere all the time" writing, and just pass on some of the data and answers I've been providing to reporters.

• Has the iPhone wave peaked? No; in fact, I would argue that the iPhone phenomenon has just gotten started. The Apple iPhone is truly an Anywhere phone, putting communication, media, and Internet content in the palm of nearly anyone's hand anywhere in the world and on (mostly) any GSM network. Despite the iPhone only being available for sale in four countries, it's being used today in more than 100. This adoption is amazing because no official native third-party apps have been released and the device is a version 1.0 device, Apple's first effort in a market most pundits said it could never succeed in. Imagine what sales will look like when there are official distribution channels in more than four countries, when third party developers can create new iPhone applications, and when Apple has version 2.0 and 3.0 devices in the market.
• Are iPhone unlockers hurting Apple? I think this idea is way overblown. Apple receives full retail price and full retail profits for every phone it sells, locked or unlocked. The device is profitable by itself, regardless of whether it gets carrier revenue sharing or not. Further, the fact that Apple is doing carrier exclusive deals now doesn't mean it is wedded to that model, a point Tim Cook made in his presentation. So everyone who is claiming Apple is "losing" $1 billion due to unlocked phones is simply noting problems with their own models of Apple's business, not Apple's. Apple of course doesn't acknowledge or report any revenues from carriers associated with the iPhones, so any numbers or losses you hear about those are inferred speculation, not facts.
• Does Apple need to cut prices on its Iphone? Not in the least. Apple has no intent of chasing Motorola to see who can lose more money on phones in a futile attempt to gain market share. Market share isn't the name of Apple's game; consistent and growing profits are. Apple's brand says to nearly everyone in the world that its products are fashionable, easy-to-use, and a bit exclusive. Apple competing only on price would be like BMW cutting prices on its cars so they can be distributed through Wal-Mart; it would be marketing suicide.
  
  In my opinion, Apple's game plan on its Anywhere phone will likely mirror that of iPods. iPods started with one model and then gradually branched out to three or four of them (depending on whether you consider the iPod touch to be an iPod or a low-end iPhone). Even today, the 16 GByte iPod touch sells for the same price as the original iPod introduced in 2001. People should expect there to be both cheaper and more expensive iPhones over time, but that the target price points for the iPhone with touch screens and Internet capabilities will remain what they are today.
• Is Apple going to make its iPhone goal of 10 million phones by the end of 2008? Yes. Apple doesn't provide goals if it doesn't think it can both make and exceed them. While the economy and consumer spending are throwing up some roadblocks, I see Apple easily exceeding that goal by about 25% by the end of calendar 2008. And in case anyone was confused, that's the benchmark that Steve Jobs set: 10 million phones by the end of 2008, not 10 million phones in the first year of sales or the first fiscal year.

The bottom line: as the buzz at the Mobile World Congress proved, Apple changed the mobile phone market worldwide with its first and uncertain effort in a new market. Just as it did with computers, Apple isn't playing a market share game; it's building mind share. And while there only officially successful in a few countries today, imagine what will happen when they are Anywhere.

Anywhere mobility transformation in Afghanistan

On today's National Public Radio Morning Edition program, Steve Inskeep interviewed former British diplomat Rory Stuart, chief executive of the Turquoise Mountain Foundation, about the transformational nature of mobile phones in Afghanistan. While this Anywhere technology is a mixed blessing -- while mobile phones connect consumers to the rest of the world, the Taliban is using cell phones to plan attacks as well -- there is no question it is reshaping Afghan culture and its connection to the world. Where Afghanistan was once one of the most isolated countries on earth, it is now just one more place on the road to Anywhere.

Epitaph to the high-definition disk war

I've been talking to a couple of reporters over at Wired lately about the aftermath of the HD-DVD/Blu-ray war (I'm waiting for a declaration that February 20 will forever be commemorated as HD armistice day). The upshot of my comments to date has been 1), that Blu-ray was crowned the winner by the studios and CE manufacturers in 2006, and 2) Apple's role in Blu-ray is more about creating Blu-ray content than playing it. But I thought Notes From Anywhere readers might be interested in some additional factors that haven't been getting as much press play.

Daniel Eran Dilger over at roughlydrafted.com made some good points I'd forgotten about the HD-DVD vs Blu-ray war, among them that HD-DVD carried with it the proprietary lead weights of Microsoft's Windows Media Player, WinCE, and VC-1 coders built into the standard. And while VC-1 was supported in Blu-ray, it relied more on H.264 which was a true international standard. It should come as no surprise that Hollywood, having seen the movie of Microsoft using proprietary standards to become the toll collector an an industry before, rebelled, and therefore ended up siding with Sony, who was at least, "one of them." It also didn't help that Microsoft, in its usual inimitable development style, was consistently late in delivering its technology software to HD-DVD partners, which caused Toshiba's early technology lead to evaporate.

One other data point I'd forgotten was that Michael Eisner at Disney was originally a Microsoft/HD-DVD fan and licensee of Windows DRM, but when he left in 2004, Disney became a Blu-ray supporter. That defection may have started the stampede away from HD-DVD, and Disney's purchase of Pixar and Steve Jobs sealed the deal.

One point I had made in articles I wrote about this technology war in 2005 was the two of the big supporters of HD-DVD were Microsoft and Intel, each of whom could account for exactly zero million HD-DVD drive sales. Whenever I see "Barney alliances" -- ones where no money changes hands, but all the partners agree to love each other and their technologies --- I always consider it a sign that the partnership is going to fail. As someone once said, anything worth doing in business is worth doing for money. And when there's no money at stake, there's no business. The death of HD-DVD proved that rule again.

One final Anywhere note to this obituary: as my colleague Andy Jaquith noted in a press interview recently, DRM is the mortal enemy of Anywhere media. The HD-DVD battle taught Toshiba that lesson, but Sony has yet to learn it, despite its ATRAC defeat at the hands of Apple's less heavy-handed DRM. Sony's Blu-ray may have won the high-def format war, but there are still many battles to come to win over Anywhere consumers, who will be inundated with on demand offerings, downloadable media, and innovative media-repurposing technologies like Slingbox. In our increasingly digital world, collections of ones and zeros will become increasingly more difficult to protect. Sony should learn from Toshiba's mistake and think beyond Hollywood's demands for more and more DRM. If it doesn't, Blu-ray's victory could be short-lived.

Update: One commenter notes that WinCE and Windows Media Player were never part of the HD-DVD spec. I personally haven't read the spec, so I can't prove or disprove the assertion, but Microsoft certainly claims these are key and essential parts of reference HD-DVD implementations. I apologize for any confusion.

Amazon's service failure provides cautionary Anywhere lessons

For those who started their long weekend early last week, Amazon's storage 'cloud' service goes was offline for about three hours on Friday. When I combine this with the similarly long Blackberry outage earlier in the week, I think there are some lessons worth noting:

• Outages that seem important to you aren't important to service providers. Too many people assume that by outsourcing their technology challenges, they'll be getting world class service and risk management in return. Based on the quotes of Amazon and Research In Motion executives, those assumptions are misplaced. RIM co-CEO Jim Balsillie dismissed the Blackberry outage as "an intermittent delay, a couple of hours. It's old news." Amazon at least admitted that the downtime was unacceptable, but only did that after customers spent hours searching for the cause of the problem.
• Cloud services don't guarantee anything. No matter how good those service level agreements sound when you sign them, when the service is down, you're down as well. And if you look very carefully at most of those service level agreements, the penalties for not providing the service are limited to what you are paying that month. That's cold comfort when your business's revenue goes to zero for an unknown period of time.
• Anywhere services need more than commodity service. Many Web 2.0 startups have staked their future on the hope that cloud computing is "good enough" to propel their business models. But as consumers get used to Anywhere services -- ones that anyone can use on any device on any network -- the more they will be disappointed by garden variety, commodity service. Those companies aspiring to be the next Google should remember that Google started out by building its own massively-redundant infrastructure in closets at Stanford University rather than just piggybacking on university resources. Anywhere reliability and scale will require more than formless cloud infrastructures to work 24 hours a day, seven days a week.

One final note: one of the companies I consider to be a great Anywhere company already is FedEx. While some may argue that it isn't in the Anywhere information business, many of their executives would disagree strenuously, noting that the information they collect on packages and deliveries is just as valuable as the packages themselves. I remember one of the CIOs of FedEx commenting, "Our data center is a lot like Noah's Ark: we have two of everything." And their circa 1996 thinking about contingency planning and reliability of service as documented by Wired Magazine is a great example for companies today to consider:

Behind one of these straitlaced corporate citadels, a low-slung building squats buried under a vine-covered earthworks, shielded by walls of thick concrete. Formally known as the Global Operations Center, it serves as a subterranean command facility for the entire FedEx distribution and delivery system. Employees call it "the Bunker."

The lighting in the Bunker is subdued, and a hushed intensity crackles through the climate-controlled air. On the walls, giant flat-panel projection screens display real-time weather maps of the continental United States, while workstations around the periphery stand equipped with banks of computer terminals and heavy black telephones. A team in the back of the room specializes in domestic operations, and another behind it focuses on surface transportation. Up front is the international unit; a bevy of flight crew dispatchers are positioned off to the left, and there's a handful of meteorologists tucked off in a dark corner.

"It's pretty quiet here now," explains Bunker manager Pete Gwaltney. "But come midnight, the place will be a whole lot busier. At peak periods, we operate in five-minute decision cycles.

"Gwaltney's job is to keep the FedEx distribution network running smoothly despite the inevitable grind of glitches and failures that plague any complex mechanical system. But as he nonchalantly puts it, "This company spends lots of money preparing for contingencies."

To demonstrate the point, he explains how FedEx launches an empty jet freighter each night from Portland, Oregon, bound for Memphis. The jet tracks a course that brings it close to several FedEx terminal airports so that if one of the jets parked on the ground suffers a sudden mechanical failure, the empty freighter can swoop down and pick up the stricken plane's cargo.

The image of that empty FedEx jet streaking through the night reminds me of the old "doomsday" bombers that were kept aloft and on alert during the Cold War. "Jeez," I remark. "It's like Strategic Air Command around here." Gwaltney smiles, as if the same thought crossed his mind a long, long time ago. "Actually," he says, "it's more like Strategic Freight Command."

That's what I think of as the gold standard for Anywhere services. And for those companies who think they can bet their futures and investors' money on cloud-based, best-effort services and compete with companies that think like FedEx, good luck with that. You'll need it.

iPhone simplicity drives Google searches and Anywhere revenue

The Financial Times observed an interesting phenomenon about iPhone usage from Google yesterday:

Google on Wednesday said it had seen 50 times more searches on Apple‘s iPhone than any other mobile handset, adding weight to the group’s confidence at being able to generate significant revenues from the mobile internet.

“We thought it was a mistake and made our engineers check the logs again,” Vic Gundotra, head of Google’s mobile operations told the Financial Times at the Mobile World Congress in Barcelona.

[From FT.com / In depth - Google homes in on revenues from phones]

I completely believe the 50 times number cited in the article. In fact, my own experience last night demonstrated how much much the elegant, yet simple iPhone user experience encourages Google searches.

I sing in my local church choir, and we are currently rehearsing Paul Winter and Jim Scott's Missa Gaia, a rather interesting contemporary jazz mass. As we were listening to a recording of a piece of the work, one of the tenors commented that he wondered how the guitarists were playing these jazz chords listed in the music, especially a D11 chord. I had my iPhone with me, so I popped "D11 chord" into a Google search, clicked the top link, and showed my tenor friend the fingering shown above, all in the course of about 10 seconds using ATT's EDGE network. His jaw literally dropped.

Despite being an ex-Compaq engineer, I don't think my tenor friend expected I could display a guitar fingering on a mobile phone at all or that I'd be able to do so quickly. Yet, for people who own iPhones, the experience is fairly routine, mostly because the iPhone delivers a simple, first-class Web browsing experience. And when things are simple, consumers use them more. It's the essence on what I think of as an Anywhere experience; in this case, it's an Anywhere Web experience.

Some carriers and handset vendors may just think that delivering a simple Anywhere experience is just a nice to have. But I think both Google and AT&T are starting to recognize that Anywhere is actually money in the bank, based on figures cited later in the same article:

If the trend continues and other handset manufacturers follow Apple’s lead in making web access easy, the number of mobile searches will overtake fixed internet searches “within the next several years”, Mr Gundotra said.

Google’s comments echo figures released recently by AT&T and O2, which carry the iPhone exclusively in the US and UK respectively.

In the US, AT&T said average revenue per user for iPhone users was nearly double the average, because iPhone users took large data packages on top of their voice calls.

Said another way, mobile phone companies have two choices: deliver great Anywhere experiences to mobile customers or see consumer dollars flow to competitors who do. It's really that simple.

The Microsoft-Yahoo deal: price matters Anywhere

MSFTextrememakeover has a nice financial analysis of the Microsoft-Yahoo deal suggesting that this hostile takeover bid is more ego than rational investment. Read the full analysis, but I think the conclusion is right on.

[From MSFTextrememakeover: Having Fun Yet?]

...there is no way that YHOO on paper is going to be worth this price. So at some future point, MSFT is going to have to take a huge charge to write down the "goodwill" difference between what they paid, versus what YHOO was actually worth. I guesstimate that that charge will be at least $1/share, and it could easily be $2 or more depending on what the final price is, how the integration goes, etc.. Needless to say, a $1-2 charge in some future fiscal will have the effect of wiping out a large part of MSFT's overall earnings for that entire year.

As I said in the last post, if you're a MSFT shareholder you should be hoping this deal gets kiboshed by either YHOO or regulators (however unlikely). Alternatively, you should hope that MSFT and YHOO come to some other accommodation. The best option there would be a standalone entity (either under the YHOO listing or a new one), into which both YHOO and MSFT contribute and MSFT shareholders get stock.

Putting on my Anywhere hat, I can understand Microsoft's need to buy a credible mobile content creator to be relevant to Anywhere consumers. But Microsoft's claiming that this deal makes sense is a bit like saying that I need to buy a $313,000 Lamborghini Murciélago to commute to work. I can understand the need, but the price really is over the top.

Notes From Anywhere

Welcome to Anywhere™. That's the theme we at Yankee Group are currently using to describe our research into how we will communicate with anyone, anywhere, and on any device. It's a vision, not a reality yet. But it is this vision that shapes how we look at the technology landscape today -- and it informs the changes we see on the horizon. My name is Carl Howe, and my day job is Director, Enterprise Software Research, at Yankee Group on the 27th floor of the Prudential Tower in Boston. Read my bio if you want more background, but I spent the first 18 years of my career in Internet research and development, while I've been a professional technology and marketing analyst the last 10 years or so. I spent the last three years or so writing a blog over at Blackfriars Marketing, where my business partner Joe continues helping technology and other companies communicate better. But nowadays, I spend a lot of time in Anywhere. I commute a couple hours a day, and I travel all over the world, both for business and pleasure. I use a Macintosh PowerBook at work in a PC-focused environment, and I do the same from the gaggle of computers in my house. I read my email, check traffic, and browse the Web on my iPhone pretty much everywhere I go. I work in Anywhere just as much as I work at work. This blog is my unedited personal journal as I move around my personal Anywhere world. It's not an official publication of Yankee Group nor does it reflect the official positions of my employer, but it will include my viewpoints and counterpoints on some of those topics and positions. The blog will allow me to put out opinions on events in the news long before Yankee Group formulates an official view or publishes an analysis -- that means we're not always going to agree. Take it all as one person's opinion, not a corporate position. To those of you who come here after reading my work at Blackfriars Marketing, you'll find many of the topics I write about familiar, but I hope you will see a somewhat more mobile focus. All that said, I reserve the right to go off-topic periodically; this is a blog, after all. But best of all, this blog, unlike my Blackfriars one, should be able to support features that many people have requested over the years like in-line comments and perhaps some widgets. I'll know more as I get into it. So if you like this new focus, update your newsreaders and bookmarks because this is where I intend to spend my blogging time from now on. I hope you enjoy my notes from Anywhere.