Don Dodge on The Next Big Thing

Three reasons Microsoft will not buy Nokia at any price

Nokia (NOK) stock price is dropping to historic lows with a current market cap of just $9.3 Billion. Nokia has revenues of over $38B, $6B in cash, 30,000 patents, and a great brand. Investors and sharks are circling. Microsoft (MSFT) isn't one of them. Why not? Three reasons; they don't want to, they don't need to, the FTC & EU regulators wouldn't let them...even if they wanted to. Techmeme thinks Microsoft might be getting into the hardware business, but not phones. Lets explore these three points.

They don't want to - Microsoft has strong DNA as a partner driven company. The success of Windows was driven by thousands of hardware manufacturers and tens of thousands of software companies supporting Windows in their products. For more than 30 years this has been the business model. They view Windows Phone 7 just like Windows on the PC...an operating system platform for any hardware device. They just work with manufacturers and the money pours in. They don't want to mess with the model.

It has been a great model, but it doesn't always work. Microsoft has always been the opposite of Apple (APPL). Microsoft makes software available to all manufacturers, while Apple is a closed system. For most of the past 30 years Microsoft had the better model. Not anymore. Apple has proven that a beautifully integrated (closed) system can be very attractive. Apple has DNA too. Apple products have always been integrated hardware and software. It has worked well for the Mac, iPod, iPhone, and iPad. Hmmm...maybe Apple will buy Nokia. Makes more sense than Microsoft, but I digress.

Microsoft made one exception to the model I can think of, the Xbox. And that was only because they couldn't convince the game box makers to play nice with them, and because they didn't have any partners in this space. Microsoft spent billions developing the Xbox hardware platform just so they could sell their game software. Eventually, the bet paid off. And, in the future it could be a huge home computing platform if they could shake their legacy DNA. Not likely. Microsoft might enter the Tablet space. This would mark a change in strategy, and create huge channel conflict with partners.

Smartphones are a huge market, and the future of personal computing. Microsoft is trying to use their Windows PC distribution model for Smartphones. It isn't working. Manufacturers who once used Windows Mobile have grown tired of the slow pace of innovation at Microsoft and high OEM prices. Many are now using Android. Microsoft responded by making a deal with Nokia, paying them billions of dollars for "marketing" and engineering transition costs. To date that isn't working very well either.

Microsoft doesn't need to buy Nokia - Microsoft already gets everything they want from Nokia without buying them. Microsoft wanted distribution from a big brand Smartphone manufacturer. The idea was that other manufacturers would follow after Nokia blazed the trail with Windows Phone 7 and grabbed market share. Nokia was one of the few big manufacturers that hadn't committed to another OS. It was a reasonable strategy for both companies. It hasn't worked out yet, but it still might. The Xbox strategy didn't work in the first year either. These things take years and billions of dollars to execute. Microsoft has plenty of time and money. Nokia doesn't.

The FTC and EU wouldn't let them - Almost any big acquisition by Microsoft, or any of the big players, will attract an FTC, EU, and even China review. We live in a world where government regulators decide, not the two willing companies. That is a subject for another day, but suffice it to say that government regulators would probably not allow Microsoft to acquire Nokia based on some theory of "competition" being lessened and consumers being harmed.

Nokia could still turn things around. Microsoft could pump in more money to help them out. Nokia can sell off assets and patents for billions of dollars. Nokia already announced they will lay off 10,000 employees as part of a restructuring. It will get worse before it gets better. But, the Nokia brand and asset is too strong to just totally disappear. Nokia can emerge from the restructuring as a smaller stronger company, or end up being acquired by a bigger stronger company...but not likely Microsoft.

Disclosure - I worked for Microsoft for 5 years. I don't speak for them. I now work for another large tech company. I don't speak for them either. These are my own personal uninformed thoughts...and probably wrong.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column. You can also follow me on Twitter @dondodge and on Google+

From MSFT evangelist to Mac enthusiast - the other side of the road

For five years I was a Microsoft evangelist to the startup and venture capital community. That ended a couple months ago. I am now a Developer Advocate at Google and I love it. After years of defending Microsoft against the Apple fanatics I decided to go to the other side of the road to see for myself. Microsoft frowns on employees using competitive products, and there isn't much time or budget to do it anyway. So, the move from Microsoft gave me the opportunity to try lots of new things. The move from Microsoft was complete. From Windows to Mac, from Outlook to Gmail, from Explorer to Google Chrome browser, from Office to Google Apps, from Windows Mobile phone to Android, from Zune to iPod. But this post is all about the move to Mac.

Design matters – The most obvious distinction between Microsoft and Apple is design. Apple is quite simply the best hardware / software design company in the world. This video "Microsoft iPod" demonstrates in a very funny way the real differences in design attitude. While funny, it is painfully true. My MacBook is sleek, elegant, fast, and efficient. The rounded edges are comfortable and smooth aluminum finish is beautiful. My Windows machine was a Lenovo X301 with Windows Vista. It was light and small for travel, but I don’t think anyone would classify it as beautiful. You see the design ethic in everything Apple does. The Mac, iPod, iTouch, iPhone and iPad are just beautiful, elegant, and imaginative designs that provide a delightful user experience. Design is probably the reason that high end buyers choose Mac.

End to end experience – One of the major advantages Apple has is controlling the end to end user experience. This means the hardware works perfectly with the software. Networks, printers, and other peripheral devices work out of the box without lots of setup, configuration, and preferences. For years this has been a major advantage for Apple. The downside was that Apple products cost more and you could only get software and peripheral devices from limited sources. Microsoft, in contrast, was the Swiss Army Knife of the tech world. It could do anything with any vendor of any hardware, software, of game maker. All these choices from different vendors caused lots of variation in design, installation, OS requirements, and overall user experience. The Apple experience was just easier and more elegant.

Functional differences – My guess is that in the early days of the PC vs. Mac wars there were big differences in functionality, software availability, and price. There still are some differences but not as vast as before. The first things I noticed about my Mac were; the touchpad, keyboard (backlit), the screen, battery life, start-up / shut down, power cord, and appearance.

The Mac touchpad is great. The best feature is the two finger page scrolling. Dragging two fingers across the touchpad makes browsing web pages sooo much easier. One of my favorite Windows features was “right click”. I used it all the time for everything. Finally someone tipped me off that the Mac does many of the same “right click” function by holding two fingers on the touchpad and clicking. Eureka!! I’m sure there are lots of other tricks and controls I need to learn, but just mastering the touchpad made the experience much more enjoyable.

The first time I used the MacBook at night I was delighted to discover the backlit keyboard. I had no idea it was there. I guess it comes on when it detects low light conditions. The light shines through all the keys so you can type in the dark. OK, you can laugh at my backward ways, but I never had a PC with that feature. Working in low light or dark conditions is now simple. I love it.

The screen on the MacBook is gorgeous. Bright and clear. Smooth edges. Just perfect. You can get beautiful screens on a PC too, but you usually have to upgrade significantly and pay extra.

The battery life is significantly better on the Mac. The Mac also starts up and shuts down faster than the PC. My guess is that because Apple designed the hardware and software they are better able to control all the variables that effect battery life, startup and shut down, and make it much more efficient.  The magnetic power cord attachment is pretty cool too. It only takes one time where someone trips on your power cord and sends your PC crashing to the floor to appreciate this feature.

Do operating systems matter anymore? You may have noticed that most of the differences I mentioned are hardware design oriented. But what about the differences in the operating systems? Perhaps the best attribute of an operating system is that it operates silently in the background organizing everything automatically without end user involvement. Ten or twenty years ago users had to deal with the operating system to do anything on a PC. Today most people spend their time in the browser. From my perspective the underlying OS doesn’t matter much. All my applications run in the browser. Web browsing, email, documents, spreadsheets, music, photos,…everything is in the browser.

Old habits die hard – We humans are creatures of habit. We get comfortable doing something and resist change. Leaving Microsoft and joining Google gave me the perfect opportunity to change everything. From a functional point of view you can do anything on a Mac that you can do on a PC…and vice versa. There are differences in approach or style, but you can get the job done with either Mac or PC. It is the edge cases that are not intuitively obvious. When things break or don’t work as expected there are very specific ways to handle it on a PC or Mac. Some would argue it is more intuitive on a Mac. Perhaps if I didn’t have 20 years of experience on a PC I would agree. My experience is that doing the routine and obvious things on a Mac are fast and easy. Trying to fix unexpected behavior on a Mac is equally idiosyncratic, and requires some experience.

My mother who doesn’t use computers, and doesn’t really understand them, asked me how the transition was going. I said “Imagine you learned to drive in the USA and had been driving a Ford Mustang for 20 years. Now imagine you moved to the United Kingdom and started driving a Jaguar on the left side of the road. The Jaguar is an elegant car, and wonderful to drive, but it takes a while to get used to the other side of the road.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column. You can also Follow me on Twitter @DonDodge .

Mac vs PC - Mac twice as expensive

Macs have always been more expensive than PCs. The Mac has traditionally had about 6% market share, and have recently "popped" up to around 8%. It is expensive to be cool...twice as expensive. Joe Wilcox at eWeek compared the prices of Apple laptops and desk tops to PCs by Dell and HP, and found that Macs were two to three times as expensive as PCs.

It is a big market and there is room for everyone, but 92% of the market still prefers the PC. Competition drives prices. There is lots of competition in the PC market place, and none in the Mac market. That explains most of the price difference.

Nothing stirs up a debate like a comparison of the Mac to the PC. The Mac fan boys come out of the woodwork anytime there is a discussion any where.

Personal preference. Some people absolutely must have a Harley, while others prefer a Honda. Some prefer a Volvo while others like a Ford. The price differences are huge, but a small portion of the market is willing to pay it.

Personally, I have always used a PC and am very comfortable with it. I have used a Mac when visiting friends and it is just enough different to be annoying. Simple things like "right click", keyboard short cuts, setting preferences, and even differences between IE and Safari browsers just slow me down too much. Mac users probably have the same hassles when they try to use a PC.

Comfortable habits - It is all about what you get comfortable using. About 95% of the market is comfortable using PCs. That is just the way it is, and it works both ways. About 70% of the market is more comfortable using Google too. Technical comparisons and price differences don't matter for some segment of the market place. It has always been that way...and always will be.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Universal Music says no to iTunes - Price and DRM major issues

Universal Music Group will not renew its contract with iTunes according to The New York Times. Universal Music is the worlds largest music company. There appear to be two big issues in the negotiations; Apples insistence on the 99 cent price for all music tracks, and Apples refusal to license its proprietary DRM to other device manufacturers.

This is a very high stakes poker game. Apple's iTunes service would be seriously crippled without Universal's vast music library. However, iTunes brought in about 15 percent of Universal’s first quarter revenue, or about $200 million.

The New York Times reported that Sony/BMG, the second largest music company recently signed a one year deal with iTunes. The previous deals had been two year agreements. Universal is under a month to month agreement with iTunes that can be canceled at any time.

The music industry has a pretty bad record  in business negotiations.  Yesterday I reviewed the Rolling Stone magazine article "The Record Industry's Decline" which suggested that the record industry should have made a deal with Napster 7 years ago. They compounded the problem by first trying to build their own digital music services, then suing their customers for copyright infringement, then waiting 2 years before signing a deal with Apple iTunes.

Universal Music has a good point about music pricing. They believe that some new hit songs are worth more than 99 cents and some older songs could be worth less, or specially priced for a promotion. They want the ability to set prices for their own product. Wow, what a concept!

The DRM issue is more complicated. Apple refuses to license its proprietary DRM software to other device manufacturers. This DRM ties iTunes to the iPod creating a virtual monopoly. Apple argues that licensing the DRM to other manufacturers might result in someone hacking the code. The record companies argue that if Apples DRM was available on other devices it would create a bigger, more open, market for their music. It should be noted that Microsoft and other vendors license their DRM to other companies and there have been no instances of hacking or compromising the DRM code.

Competition and economic interests will drive the right answers. There is more competition for iTunes now than there was 2 years ago. The record labels have other options. But, Universal Music and the other labels need to consider how quickly they can replace the lost iTunes revenues. The playing field is leveled now to the point that the answers are not obvious. That is a good thing for consumers.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

EMI offers higher quality, DRM free music for $1.29

EMI, one of the largest music labels in the world, today announced higher quality, DRM free, music for just $1.29 per download. Standard MP3 downloads are usually encoded at 128 kbps, but the new premium quality downloads will be twice the quality, at 256 kbps. By comparison, CD quality is around 320 kbps. The big news is that by dropping DRM the music can be used on any music player and copied to any device. TechMeme has lots of blog posts on the subject. Here is my short analysis.

DRM (Digital Rights Management) is a technology that can be "wrapped" around a digital file. It allows the owner to control how the file is used. For example, DRM could restrict copying, or it could restrict the number of times the file could be accessed, or it could cause the file to expire after a certain time period. Apple has it's own proprietary DRM system for the iPod. Microsoft, Sony, and others have their own DRM systems as well. The various DRM systems only work with specific devices that have special software to decode the DRM. This has caused lots of incompatibility issues.

EMI has addressed both issues; premium quality sound, and DRM free usage, all for the reasonable price of $1.29. EMI is making their entire music catalog available under the new system, but will continue to offer the existing 128 kbps, DRM version for $.99.

EMI will make the new music available in all the popular formats; AAC, WMA, MP3, and others, and the music can be sold through any of the music retailers including Apple, Microsoft, Sony, and others. The other music publishers will be under pressure to follow EMI's lead if this new initiative is as successful as expected.

Napster proposed a similar system more than 7 years ago. We suggested free file sharing of 56 kbps files that were good enough for "sampling" and probably analogous to AM radio quality sound. We would offer higher quality versions in 256 kbps format for sale at $1.00 per download. This way Napster could continue to offer free downloads of low quality files and sell high quality music. The Napster system could filter out other bit rate files so only 56 kbps files were available for free download. It was the best of both worlds. Sadly, we were ahead of our time and the idea never had a chance. For an inside look at Napster and what we tried to do, see "How Napster Changed the World - A look back 7 years later".

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Apple proprietary closed boxes Mac, iPod, iPhone

Apple creates brilliant designs with elegant user interfaces that work intuitively. I wrote a glowing report about the iPhone yesterday. Today I started thinking about how they do this. The answer is that Apple controls the whole experience from hardware to software to peripherals. Nothing bad about that, it is just a trade-off Apple makes to ensure everything works together seamlessly.

Jupiter Research says "What's missing from the iPhone"

1. It's not extensible by third parties, only Apple. The means at the moment no RSS readers, no Slingplayers.

2. There is no support for Microsoft Office attachments.

3. Not clear how well Exchange will work with calendar and contacts

4. No 3G support. (WiFi makes up for this in some ways.)

Engadget says "The iPhone is not a smartphone" because "smartphones" are a platform that allows third party software applications to be installed.

The Apple Mac has a small (about 5% market share) but loyal following of users. I never got into using Macs but the users I talk to always marvel at how everything works together. Yes but, everything has an Apple logo on it. You buy it from Apple, and pay a 20% premium price for it.

The iPod and iTunes work the same way...it is a closed, all inclusive experience. People love the iPod but they grumble about not being able to get music from other sources.

Apple builds closed proprietary devices. The larger marketplace wants open devices (computers, music players, phones) built on industry standards, or at least "de facto" standards. They want to be able to buy software, peripherals, and hardware upgrades from a variety of sources. This competition keeps prices low and drives innovation.

Apple users are very happy to make the trade-off from "open" to "closed", presumably for the ease of use. Ease of use and elegant design is very important in consumer devices. Most computer users want more power, options, and flexibility. Perhaps this is why Apple has been extremely successful in the consumer space, and modestly successful in the computer business.

Apple users are loyal and dedicated. I expect to hear all sorts of defenses of Apple's approach and how they are way better than the PC and anything Microsoft does. OK, no problem. For some segment of the market (5%) Apple fulfills all their needs beautifully. It just occurred to me today that the way they do it in computers, music players, and phones, is by controlling the whole experience.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.