HD-DVD winning?

Since I posted my predictions on the HD-DVD vs Blu-Ray war, it’s been rather hard to tell whether I was right or wrong.  One thing I didn’t count on was the combo drive makers bumbling the job so badly and taking more than a year to release.  Today there are two players, the LG BH100 and the Samsung BD-UP5000.  Both are still very expensive, which would have worked fine if they were released 6 months earlier, but now Blu-Ray players can be had for $600.

Still I have to wonder if they are part of the motivation for Paramount and Dreamworks dropping Blu-Ray in favor of HD-DVD.  The same logic stands, although I expect a good part of this decision is cost, the cost in stamping discs being higher for Blu-Ray.  I expect the way they see it, there’s not much advantage to them to produce Blu-Ray discs since that market’s probably still willing to plop down an extra $200 for a HD-DVD player if they really want a movie.  Sales of HD-DVD and Blu-Ray titles doesn’t appear to be linked to format, but content, which shouldn’t be half as surprising as it is.

At this point, I think HD-DVD has a stronger position, but honestly, both formats are doing so poorly that a third format could easily come in to trump them both if someone did something like release a greater than 1080p resolution TV.  There has to be some advantage a third format could exploit, but if such an opportunity arose, both HD-DVD and Blu-Ray would be nearly helpless to fight it off.

Another threat which could defeat both is IP based movies, which if done well, and done cheaply has a similar opportunity today.  I suppose this was what Jobs was hoping for with Apple TV, but Apple failed to do it well, and thus missed the boat.

Steve Jobs suggests abandoning Fairplay

Steve Jobs’ recent “Thoughts on Music” is a promising development.  There are a lot of ways to interpret it, but the simplest is to notice that it’s simply good business.  On the one hand, it could be a bluff, based on the assumption that the studios will never agree to DRM free music.  In this case, the message shifts the heat Apple has been drawing recently back to the studios.  In this case, Apple loses nothing and gains better public relations.

However, it may be more than a bluff.  If the studios did agree, Apple would have to give up the lock-in effects of FairPlay, but there are a number of upsides as well.  First, as far as music sales go Apple’s main competitor right now is not Microsoft or Napster, but CDs and BitTorrent.  Digital music sales would surely increase if DRM was removed.  Even in the digital music area sites like AllOfMP3.com may be more frightening than more traditional competitors.  The only reason to believe that it may actually be a bluff, is that right now, digital music players are far more important to Apple’s bottom line than digital music.  Still, better access to digital music would increase demand for digital music players, though not nearly as much as it would help digital music.

Whatever the motivation, it’s a good thing so there no reason to complain.  Beyond placing additional pressure on the studios to do the right thing, and abandon DRM on music sales, it might either be a sign that Apple is reconsidering some of their business practice problems, or at the very least, might unknowingly lead them down that path.

I’ve felt for quite some time that Apple has repeatedly made the same mistake, to their own eventual woe.  The closed system approach just doesn’t work long term.  In the beginning it might be a nice crutch, and in the middle it may seem like it’s helping, but in the long term it you’re bound to fall behind if you don’t allow your products to compete on their own merits. 

Apple has succeeded recently, and at times in the past because they were making good products.  They’ve always had blind spots, however, where they ignored certain segments of the population due to demographic studies, and since no one else was able to play in their sandbox those needs were met outside their sandbox.  The PC and Microsoft defeated the Macintosh because Apple didn’t support gamers, didn’t support people who wanted low priced hardware and didn’t support the business that … wanted low priced hardware. 

If Apple is smart and focuses on producing good products without isolating themselves, their long term chances are a lot better than with the closed strategy.  I won’t get my hopes up too much about Apple seeing the light about their own practices, but I’d certainly raise the odds on my first 2007 prediction, because if Apple does go DRMless, their pretty certain to do it with AAC not MP3.

iPhone will not sell 10 million units in 2007

I have another little prediction for 2007. The iPhone will receive great reviews (already has), huge amounts of fan press, and lots of excitement, but it will not sell 10 million units, or anything close to it. There are simply too many factors which make it a bad choice for most of the market.

The biggest problem, or at least the one that excludes the most users, is cost. The high price tag excludes the majority of the near billion per year cell phone market. If this were the only problem 1% of this market would still be reasonable, but it’s worthwhile noting how big an impact the price has on that rather large number. Consider that the average price of a phone in 2006 was $129 wholesale. SmartPhones, many much cheaper than the iPhone, and all less expensive, accounted for 15% or 123 million sales in 2005. Palm for example averaged $307 per unit in 2006.

This might not seem that far from the $499/$599 price of the iPhone, but remember, the wholesale price is likely quite a bit higher than $499 since that it the price with a 2 year contract.

Take all of that and combine it with the second problem, Cingular exclusivity. Cingular is big in the U.S., but it’s still only a bit more than 55 million subscribers or around 30% of the market in 2005. To suggest that the iPhone will convert 20% of Cingular subscribers is ridiculous.

I’d guess Apple has some international plans, but since I’m not sure what they are, but even if there was a 30% market share provider in each country, the pool of potentials is down to around 35 million users that Apple would have to convince to spend an extra $200-$300. How they expect to do this with $10 million of them I have no clue.

Add to this some the rumors that it won’t support Outlook, among other critical enterprise user features, and you start to wonder what is the target market for the iPhone.

It seems very much to me like the target market is that kid from the Mac commercials. But how many kids like that are there? Are there 10 million of them? I don’t think so. And those kids today aren’t buying $500 phones for the most part, they’re buying RAZR’s, that are $100 or even free. Maybe it’s possible to upsell them some, but at the rate of 10 million in one year? Once again, I don’t think so.

Still, the iPhone will probably end up a success for Apple overall. At $499, or whatever their wholesale price is, they don’t need to sell 10 million. Plus with Apple’s locked in, we own everything, and control all the software policy, Apple will probably make another couple hundred at least off each subscriber through iTunes sales, and software sales and licensing fees, when their users start to wonder how to get GPS support, or how to connect with Outlook, or view a Word/Excel document, or play some games. To be honest, if Apple reaches anywhere near their target, I’d expect them to come out with their own Skype-like service, and start charging a leg for it (just under the arm and leg the existing cell providers charge).

I should also mention that yes, the iPhone looks to be an excellent piece of engineering. It’s surrounded by a regular Apple sea of bad business and false idealism, but that doesn’t mean that if you find the phone itself attractive, and worth the cash you shouldn’t hop out and buy one. Just realize that in this case your not jumping into the wave of the future, like where the iPod went. Instead your jumping into a tightly regulated niche that will likely find itself sorely challenged even at the outset by the more open alternatives.

Indecision Harms Sales

Rumor is, Apple is going to start a program where you can get credit for tracks on an album already purchased when you go to purchase the album.  It’s something I’ve been saying for a while should be the norm, so it’s encouraging to see even a rumor of it.  One angle that that little CNet blurb missed is that not only does a lack of such a policy hurt the full album sales due to angst over wasted money (by paying for the same track twice), but it also hurts track sales as well due to indecision introduced into the initial purchasing decision.

Anyone in marketing knows that purchasing is influenced by a lot more than just price.  Often it’s far more important that a consumer feels they are getting a good deal.  Sure some bean counter can figure that you could in theory make more money by selling the same track twice, but reality has a habit of ruining these theories.

In general, any pricing model that takes indecision out of the process is going to yield better results, especially for small items like 99 cent tracks or even $9.99 albums.  Tracks should be as simple as yes/no.  If you have a pricing model that is designed to confuse, trick or coerce your customers into not getting the best deal unless they pay extremely good attention, then it should be no surprise to you how easy your customers are stolen by someone who doesn’t introduce negative emotion into billing, ordering, etc.

I know I’ve railed a llot about Apple in the past, but if the rumor holds, they’ll have done at least one good thing.  Though, Apple seems to be resisting the offering of a subscription based model, which other vendors offer.  Personally at the moment this is what I prefer because it takes all of the decision out of it.  I just pay a monthly fee and listen to whatever I fancy.  Or actually, I generally just listen to Yahoo Music which customizes a station for me.  I rate things every once in a while, but I don’t have to plan out playlists to get music I like to play.  Hassle free.

The Validity of Internet News

Cringley has a piece from a week ago on Internet news. I do not usually like writing retorts but this one really stirred up a reaction, and since it was something I had not thought about much before it seemed fair game.

The basic premise of Cringley’s criticism of Internet news is that it is not timely enough. He mentions, but glances over the real time nature of some news, focusing upon the mainstream news sources. It is a fair tactic since it is true most internet readers do not search out those first person sources, and instead rely upon republished paper news.

But even here the argument is quite flawed. The problem is for some reason he assumes that a shorter half-life for news is important. The truth is that the vast majority of news is not news at all, and should have a half-life of zero seconds. On the internet, it is far easier to do that. In my opinion, for the average person, news that has a half-life of 24 hours is generally worthless. It really does not matter much to me that I hear about the AMD-ATI deal within 24 instead of 48 hours. The important news is the news that has long-term effects.

Sure, there are exceptions to this, but for those that need that real time news the internet offers better avenues then print as well. Besides there is TV, which is the best place for real time, filtered news. Print is locked into a single mindset, and that mindset just does not match up with the average person. Perhaps the 36 hours half-life of news on the internet has little to do with timeliness, and is truly a reflection of what users want. Print cannot supply a 36-hour half-life, so of course it does not have one. But maybe it should.

I am not sure how Cringley jumps from the statistic on half-lives to the conclusion that we read less, or the successive jump that reading less means we learn less. If you spend your day scanning through a newspaper, you are bound to read more, but did you actually learn anything? Anything valuable? A lot of this is bound to be fluff or sensational.

I can understand where his bias comes in. Cringley is a professional writer, for him it is all about gathering up arcane facts to make a compelling case for some audacious declaration, so suckers like me will feel compelled to respond. He needs masses of seemingly useless facts to do this.

For the average person, I think we would do better to spend a bit more time thinking about news, rather than constantly trying to “keep up to date.” It is a pointless game, and unless you are going to use this information in the next 24 hours, it really does not matter.

Where print and internet journalism really add value is through analysis, and in this arena the internet wins hands down as a source. Why? Because news does not decay like paper. When you are doing analysis, you do not limit your sources to the last 24 hours. That would be crazy. The internet offers a much better forum for criticism.

In truth, I cannot see any advantage to print journalism that stems directly from its distribution model. There are some advantages, but almost all of them are the result of social factors. Why don’t’ all of the New York Times stories make it to the Internet? Is it because the Internet is not big enough to hold them? No, it is because the Times is trying to hold on to its print customers. That is because they have had very little success selling online subscriptions. No one ever seems to consider that the people still paying for the print subscription might very well be the same kind of people who would pay for an online subscription. No, it is simply assumed that if these people had the option of getting that news online, they would convert to non-payers like the majority of the internet population.

Journalistic organizations will always exist. They are a very necessary part of the news cycle, but the idea that they need to be founded upon print publications is as wrongheaded as the idea that music must be based upon physical CDs. In both cases, the ancient organization would be best served by taking the plunge and providing something better on the new medium, rather than consistently delivering watered down versions of their bread and butter. Internet music should be higher than CD quality, not lower, and online new sites should have more information, and more timely information, not less.

Would I subscribe to such an online news site? Maybe not, but then again, I have never subscribed to a newspaper anyhow. But by not providing comparable or better coverage online, print publications are playing a dangerous game. If they provided as high quality or better coverage online today for the same price, many paper subscribers would switch. However, by not doing so they risk those users switching to an internet alternative that is as good as the watered down version. One thing any good sales manager will tell you is that acquiring a customer, or winning back a lost customer, is far more expensive than keeping an existing one. So when the day comes that the online concept is embraced, that former subscriber will be far more difficult to win back then they would have been to keep with a pre-emptive strategy.

An Inconvenient Probability

Earlier this week, I saw “An Inconvenient Truth”. In case you have not heard of the movie, it is a documentary on global warming, featuring Al Gore. There were parts of the movie that I really respected, and parts I did not. It is unfortunate, but I get the feeling that many theories that would have been better labeled as “maybe”, were not, for dramatic effect.

For me, I see global warming as a real threat that we should take seriously. This is in spite of not yet having seen anything that 100% conclusively proves the theory. 100% is a high standard, and when the down side is global catastrophe, action is justifiable at a much lower standard, and a few very basic facts can establish that standard.

One fact is that humans are changing the atmosphere by contributing additional CO2 gas. We may not absolutely know what the effect of additional CO2 gas is (I’ll get to this), but we do know we are producing it. You can measure the amount of CO2 emitted from a cars tail pipe, a power plants smoke stack, etc. The production of CO2 gas is a measurable, identifiable and provable fact that even I think everyone should be able to agree on without much controversy.

In 2002, worldwide 32 billion metric tons of CO2 were emitted. The atmosphere itself, has a mass around 5,000 trillion metric tons. By mass, this is a contribution of 6.4 ppm (parts-per-million). Ppm is usually measured by volume and at atmospheric conditions CO2 is 1.5 times denser than air, so we reduce that to 4.3 ppm by volume. Atmospheric sampling, has shown that the actual concentration of CO2 in the atmosphere has been raising by about 1.5ppm since 1978. Sure, the environment has natural fluctuations of its own, but if we are producing 3 times the observed fluctuation, it is likely we are having an effect.

We also have data that shows over long periods of time changes in CO2 concentration and average temperature have occurred at the same times. This data does not prove that CO2 causes global temperature increases (though there are plenty of valid theories that suggest it). What it does prove, almost beyond any possible doubt, is that the two elements are related. It is possible that temperature changes caused the increased CO2 levels.

You could create a theory stating that when temperatures rise, vegetation suffers, thus causing less CO2 conversion, and allowing global CO2 levels to rise. If you, and others, could not disprove this theory, you would have a second option.

Even if you did have an alternative theory, that you could not disprove, that would not disprove the global warming theory, which has stood up to a great deal of scrutiny. Unless I missed it, no one has provided any data disproving the theory of global warming, skepticism has focused on the lack of absolute proof. With a question as big as the climate of the planet, an absolute proof is currently beyond our means.

Without disproof, you are left with a significant probability the theory is true, and since the downside is a smaller car, and the upside is saving the human race from extinction, it feels like we should be doing something about it. If someone proves that global warming, and all other negative effects of pollution, are not threats, then I will reconsider. “Skepticism” seems woefully inadequate to justify our current actions.

The movie actually makes this point, but it jumps past it too quickly, and goes on presenting possibilities as certainties. This is unfortunate, because while it may initially feel more persuasive to present a unified front of certainty, it opens you to attacks from the skeptics. The skeptics distract from the real question of probability and the tradeoffs, with controversy, and alternative theories, for which they are no more able to prove, and are far less tested.

Statistics don’t lie?

A long time ago, I posted about why HD-DVD was, in the long run going to beat out Blu-Ray. Well it appears as if it is possible my theory will never be tested, because it is based upon the concept that Blu-Ray would actually offer higher quality, even if marginally so, than HD-DVD. Surprisingly though, the word from users who are testing both, is rather bad.

Of course, there is a survey that claims 58 percent of consumers prefer Blu-Ray. But that survey is completely bogus, not just because of the obvious bias of those conducting it, but because parts of the results just plain do not make sense. For example, the survey claims that one of the reasons Blu-Ray was preferred was because of better backwards compatibility and compatibility with computers?

There are several problems with these comments. First off is that Blu-Ray does not have better backwards compatibility, or computer compatibility. Quite the opposite. HD-DVD is the format that allows a double sided disk to have one side in standard DVD format and one side in HD-DVD, meaning that you can buy an HD-DVD disk like this today for your DVD player, and buy the HD-DVD player later. In terms of computers, Microsoft plans to include HD-DVD support standard with Windows Vista (the exact level of this support I am unsure of, but whatever it is, it is more than Blu-Ray is getting).

The second problem is besides these being totally contrary to fact, they are also totally contrary to what you’d expect an uninformed consumer to think. If you had zero facts, and someone asked you whether HD-DVD or Blu-Ray was more compatible with DVD, which one would you guess? Duh, the one with DVD in the name. The press has also been reporting the stories in the same way. So basically there is only one way a surveyed would get the impression that Blu-Ray was more compatible. Yes, you guessed it.. the surveyor.

Nice try Sony, but at least make your lies believable.

Another Nail

EMI has announced they will open a free advertising supported legal peer-to-peer service later this year. You can read about the service on hypebot, so I will not rehash the whole story. One bit of commentary I thought I would add is to draw attention that Apple, unless it begins licensing its technology, cannot participate in services like this.

So, this is yet another expansion of the market rules, which Apple’s closed market strategy will have a hard time keeping up with. It is so odd to be making the same arguments against Apples business strategy that I made almost 15 years ago in relation to Windows vs. Mac. I wonder how it will turn out…

Part of why the IPod is doomed

As this list should show, the iPod simply has too much, and too diverse of competition to be able to cover ever users wants/needs. My personal favorite, which I’ll probably buy rather soon is the Sandisk e270. Basically as light, and almost as small as the Nano, it has a 6GB plus a SD slot for expansion. Right now these max out at 1GB, but they’ll probably grow to 4GB before you decide to buy another player. Adding to the longevity is the fact that the battery is replaceable, which is an uncommon feature for MP3 players (and not something any iPod I know of does).

Yahoo Music is better than iTunes, especially the almost unique Launchcast Plus service (there is also Pandora, which was created by the designer of Launchcast). iTunes has nothing like that last I checked. Also, your not locked into only a purchase plan but can do a subscription as well (it is your choice).

So what is Apple best at? Oh yah, locking your hardware and software up into a inflexible system, giving you no options for buying, browsing, listening to music except for their limited choice of hardware, and their inferior software.

Opening up DRM.. Kinda.. Maybe

I do not completely understand how this company Navio’s software works, but the basics sound like a good idea. The basics of it seem to be that they have a way to sell licenses to DRM content without selling the content directly. This supposedly means they can sell licenses for WMA, Fairplay or OMA, or better yet, allow delivery of all three licenses in a single package.

Like I said, I do not really understand how it all works yet, but an even bigger question is if they can sell Fairplay licenses without being sued. Either way however, it is a good step forward for users in general by in theory unbundling your rights from any specific technology, WMA included. WMA may be a lot better than Fairplay in terms of being fair and open, but going one level above that would be a good thing, because once you get to this level, the technology is decoupled from the sale. I would be a bit more thrilled if Navio was licensing their technology, rather than setting up storefronts, but if they can do it, I suppose anyone else can too, right?

I first heard about this from this CNN article. If anyone has a better idea of how this stuff works, let me know.