• Blog
• Company
• Services
• Clients
• Contact

Skype over IP

Friday, March 5, 2010

In the last few months, the telecommunication industry has changed in such a way that technology historians would probably define the year 2010 as a stepping stone of the new telecommunication era. Most of the reasons have to do with one technology that has been used for over a decade but was never implemented the mobile landscape: Voice over Internet Protocol (VoIP).


VoIP Gaining Mobile Reach in Past 12 Months


In June 2009 T-Mobile, a German telecommunication company, replaced the much-criticized Skype ban with a € 9.95 usage charge instead in Germany, offering its 39 million customers the capability to do VoIP call on their mobile phone. In Dec 2009 the Spanish Telefónica acquired Jajah, the white label VoIP service in an all cash transaction for U$ 207 million. And most recently, in a hearing before a European Parliament committee [Jan 14], Ms. Neelie Kroes, who is proposed to be the new EU Commissioner for the ‘Digital Agenda’ (the policy area formerly known as ‘Information Society’), said that “blocking VoIP violated network neutrality,” raising the hope of all European mobile users to finally be able to use VoIP service.

On the other side of the Atlantic Ocean, after a long battle with the FCC, last October saw AT&T finally opening up its data network to VoIP calls, leading to Apple to allow iPhone, iPad and iPod touch developers to build applications that can make Internet calls over a 3G cellular network [Jan 29] (VoIP calls were already possible on Apple devices using WiFi connections). In March 03, a spokesman for Vodafone, the world's largest mobile operator, said that the company “has no restrictions on its customers using Skype,” but is “looking to introduce a range of tariffs to suit VoIP users and non-VoIP users to achieve a fair balance”. The recently introduced “Vonage World Mobile” VoIP international calling plan for iPhone and BlackBerry users is a perfect illustration that US telecommunication companies are now taking VoIP customers’ demands seriously.



Skype, meanwhile, has been recently moving aggressively in many directions.

In a partnership with TV manufacturers Panasonic, LG [Jan 05] and Samsung [Mar 02], Skype is now offering video telephone call on HDTV (High Definition TV). Using the TV remote controls, consumers can create Skype accounts, log into their existing accounts and call traditional landlines and mobile phones as well as regular Skype users via the on-screen interface of the HDTV.

Avaya, which officially closed the U$ 475 million deal for the acquisition of Nortel's Enterprise assets nearly six months after making its first public bid [Dec 18], confirmed that the company is in "talks" with Skype now that they share the same private equity owner, Silver Lake.

On the mobile device front, Skype has been implementing its new strategy. Pulling out of the Windows Mobile platform due to performance issues across an ever-increasing Windows product offering [Feb 25], Skype has decided to launch instead an iPhone application [Jan 16]. At present, Skype is still waiting for Apple to clarify when the new terms of service will go into effect for current iPhone users [Dec 28] to deploy “very soon” a new software version that take full advantage of 3G network capabilities. Finally two days ago [Mar 03] Skype announced that a new application is available for all Symbian mobile phones (read Nokia and Sony Eriksson), giving the over 200 million smartphone users the ability to do WiFi and 3G calls all over the world.

But the most exciting, game-changing news came on February 17, when the US-based Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone Group Plc, in an attempt to compete with AT&T, said it will launch a Skype application in March on Blackberry and Android mobile phones that enables VoIP calls for those among their 91 million customers with a voice and data plan. The rumored 2-year exclusive deal (even limited) is an important step forward for Skype and also illustrates the recent shift in approach of the telecommunication companies toward Skype.



Verizon is now the second company embracing the Mobile VoIP revolution after the British telecommunication company 3, which already offers Skype for free in Britain, Ireland, Austria, Denmark, Italy and Sweden, and claims to have 40% market share of mobile broadband traffic in those countries with the help of their dedicated co-branded Skypephone. In UK, the free Skype service was launched in May 2009, and 3 says that users on its network make 3 million minutes of calls every day in the UK. Skype has now reached the 1 billion call milestone on 3's mobile network in the UK.


What is Skype Really?



Skype is a company that develops a software that allows users to make calls over the Internet to other Skype users for free, or to traditional landlines telephones and mobile phones for a nominal fee. Skype's software also offers additional features such as instant messaging, file transfer and notably, video conferencing.

The company was established around the former Kaazaa team, based on the same idea that Peer-to-Peer networking will lead the future of the Internet, and released its first public beta application in August 2003. Encouraged by an exponential user growth and a prominently disruptive business model, eBay acquired the company for U$ 2.6 billion [Oct 14, 2005]. At the time of the acquisition, Skype had been downloaded more than 182 million times in 225 countries and territories. 59 million people were registered, with more than 3 million people using Skype simultaneously at any one time. The company was flagged as one of the few success stories coming from Europe.

Despite a messy legal battle with Skype’s founders and political disagreements with eBay, the Luxembourg-based and Latvian-developed software company kept growing its user base and increasing its revenue, reaching in Q3 2009, 521 million users and U$185 million in revenue. But eBay finally agreed to sell 70% of its Skype shares to an investor group led by private equity Silver Lake, original Skype founders Janus Friis, Niklas Zennstrom and Skype's intellectual property owner Joltid Limited, Canada Pension Plan Investment Board and VC’s Andreessen Horowitz [Nov 19, 2009], receiving in exchange approximately U$ 1.9 billion in cash and a note from the buyer in the principal amount of U$ 125 million.




The recently independent company has lately revamped its entire executive team, naming

• Miles Flint as Chairman - former Sony Ericsson Mobile Communications AB President from 2004 to 2007 [Jan 13];
  
• David Gurle as VP of its Business division - former Thomson Reuters Corp. executive [Jan 12];
  
• Adrian T. Dillon as the new Chief Financial and Administration Officer - former Agilent EVP, Finance and Administration and CFO [Mar 03];
  
• Daniel Berg as CTO - former CTO for Sun's Global Sales and Services Division and VP of Systems Engineering for Sun's Emerging Markets Region, and
  
• Christopher S. Dean as Chief Strategy Officer - former co-founder of Texada Capital, an investment management firm [Dec 10, 2009].
  

All these announcements followed the appointment of former executive from Shopping.com, another eBay company, Josh Silverman as CEO in 2008 [Feb 28].

Thanks to its proprietary protocol on a VoIP technology, Skype has been profitable since 2006 and has reinvested most of its revenue from interconnecting to the PSTN network to develop an appealing product. The seven-year-old company with more than 520 million users is the “largest provider of cross-border communications in the world, by far”, accounting for 12% of cross-border voice traffic around the world [Telegeography], and is well on schedule to generate its targeted U$1 billion in sales in 2011.


Why is Skype Popular?


Last year saw Skype servicing 100 billion minutes across the Internet with 33% of these minutes being complemented by video signal. At peak times (Christmas, New Year's or Mother's Day), video on Skype goes well above 50%. Last year, Skype was also accountable for 54 billion of the 406 billion (12%) total international voice minutes [Telegeography].

All these minutes were generated by the 520 million users that live in 225 countries, from Developed-to-Emerging countries (and to a lesser extent from Developed-to-Developed countries) and moving away from fixed line to mobile connection points. Whereas telecommunication companies are focusing generally on the top 30 and most profitable inter-country highways (called “corridors”) Skype is serving all the possible 40,000 corridors with the same ease and at a minimal cost, expanding the market by servicing the unexploited long tail.

Whereas the average Facebook contact list is flying high at 130 friends, the average contact list on Skype is in a single digit number. Skype users are stating that it is quite a difficult decision to add a new contact to their list because this means that they really want to talk to that person, thereby the setting the membership value extremely high, over that of the number one social network in the world.

Essentially targeted at Long Distance business, the most expensive call from a billing standpoint, telecommunication companies did not want to have a competitor in their backyard. But with a slow growth in volume (+4% over the past five to six years), and a declining retail price (-7%), International Long Distance represents today less than 2% of the total revenue of the telecommunication companies and keep declining steadily, minimizing therefore the impact of Skype as a business threat.

Skype has formed a different value proposition to its users: a free or marginal communication solution within a rich and intimate environment. It is important to note that most of those communications would not have happened in the first place otherwise.


Skype in the New Telecommunication Paradigm


Among the four main communication networks -- TV, Voice, Mobile, and Internet -- the latest has become the obvious choice for any exchange of digital information. Today all networks are migrating over IP, giving rightly the Internet its name of network of networks. But telecommunication service providers are still fighting to protect their core business while trying to adapt to the challenging task of maintaining a costly infrastructure.



Over the past decade, telecommunication companies have been migrating piece by piece their Voice network over to the Internet. This migration is well under its way, giving the opportunity to telecommunication companies to offer fixed line unlimited plan to local and over 40 different country destinations.

Additionally the mobile explosion, shifting more towards smartphones and fueled by the iPhone, and the ever increasing urban population migration, have made the switch from the Mobile network to Internet more difficult. The consensus among major telecommunication companies to switch over 3G-LTE (or sometime WiMax) will help resolve the bandwidth congestion while minimizing the operating expenses in relatively acceptable timeline, but still at an expensive cost for consumers around the world.

"People want to take their Skype conversations with them wherever they go, whether it’s on a PC, TV or increasingly mobile phones." — Josh Silverman, Skype’s CEO [Feb 16, 2010]

Skype made its name by initially serving the untapped International Long Distance (ILD) communication market, leveraging the PC as a communication device for consumers.

Today, by extending its strategy to new devices (TV and Mobile) the company is following the consumer trend: migrating from multiple, fixed and dedicated lines of communication to an all you-can-eat wireless content consumerism.

The battle between the Device, Pipes and Content providers has moved recently towards the application layer on the device platform. With a solid balance sheet, regulators' ears, an independent board and a strong executive team, Skype is now well prepared to take by storm their next Mobile over IP business challenge, and fight head-to-head with Google and its Google Voice offering in the consumer market space.

But this will not be the only battle that Skype will take on this coming year. By offering a new version of Skype for SIP and another for Asterix, the company is now positioning itself in the SME business and is embracing a more open and globally accepted protocol, leading the way for a future ecosystem development mimicking the ones of iPhone or Facebook.

With the help of its owners and potentially a new ally in the name of Avaya, Skype will then be able to tap into the Business market and will eventually propose to the low-end business sector an all communication service offering that could be seen as a potential rival of the major players that are Cisco, IBM, Siemens and Microsoft in the Unified Communications sector.

If it manages to stay independent until its probable IPO, Skype could arguably become a major player in the new Internet Communication sector in both the consumer and business market segments, feeding services that could make the transition from multiple connections and convoluted bills across multiple networks, to the single flat-fee and unlimited data communication line over the Internet -- what everybody is already dreaming of.

Google vs. China

Friday, February 19, 2010

It all started with a blog entry written by David Drummond, (SVP, Corporate Development and Chief Legal Officer) on January 12 warning that Google and others large companies from the internet, finance, technology, media and chemical sectors have been recent victims of highly sophisticated and targeted cyber attacks. Google itself was targeted by hackers with the goal of obtaining information from Chinese human rights activists’ Gmail accounts.

Contextualizing these attacks under the broader umbrella of freedom of speech, Google decided that they will provide an unfiltered Chinese search results in response to the attack, acknowledging the consequences and contemplating "having to shut down Google.cn, and potentially [their] offices in China". Defending their cloud computing technology model, Google has decided instead to denounce publicly the confirmed China-based cyber-attacks, stating their stance, and moving the debate over values and human rights onto the far larger political stage instead.

Largely applauded by Western activist associations as "a bold and difficult step for Internet freedom in support of fundamental human rights" [Leslie Harris, president of the Center for Democracy & Technology], Google was backed in their fight by not only U.S. President Barack Obama who is "a big supporter of non-censorship", but also by Secretary of State Hillary Clinton who "looks to the Chinese government for an explanation". Clinton later on in a longer political speech about Internet Freedom reaffirmed that "censorship should not be in any way accepted by any company from anywhere", and that "consumers want to have confidence that the internet companies will act as responsible stewards of their own personal information" (exact same words that appeared few days later on the Google Official Blog).

More recently Google has decided to delay the introduction of two mobile phones in China, the world's largest mobile phone market with more than 700 million accounts, widening the gap even more with the Chinese authorities. Local media reported that some Google employees from the Chinese operation center were put on leave, while some staffs were denied access and others transferred to different offices in the Asia Pacific region. Most recently the attacks have been traced back to computers at two educational institutions in China, including one with close ties to the Chinese military, and Google close competitor Baidu.

Jiang Yu, a spokesperson for China's Ministry of Foreign Affairs responded that China "welcomes international Internet companies to do business in China in accordance with the law" and that "the Chinese government administers the Internet according to law and [China has] explicit stipulations over what content can be spread on the Internet". If the battle over the internet is forceful among the Chinese internet users between the pro-Google ("It’s not Google that’s withdrawing from China, it’s China that’s withdrawing from the world") and the anti-Google ("China doesn’t care"), the government is rather quieter on providing an official respond yet.


Google in China


When in February 2006 Google decided to open its Chinese operations and offer most of its services to the fastest growing internet market in the world, the Silicon Valley company made it clear that the company would stay there under certain conditions: disclosure to user when search was filtered, user privacy was protected and google.com was available. With these in mind, Google was entering the Chinese market with the intention of gaining sufficient market share by offering a superior technology and to ideally change later on, from within, the censorship concerns.

To justify the ideological leap between their own "Don’t be evil" mantra and Chinese censorship, Google executives at the time mentioned that their focus would be to help Chinese people first and foremost.

"We actually did an evil scale and decided not to serve at all was worse evil." – Google CEO Eric Schmidt on the company’s decision to offer a censored version of its search services in China, Jan. 30, 2006

In the year 2009, with the constant alterations of all Google services (YouTube, Google.com, Books, Gmail, Google Apps and Google Docs), China made it clear that Google should not expect a rational business environment in which to work. Despite the fact that Google managed to capture between 20% to 30% of the Chinese search engine market and shaping the market around a duopoly, the company is still a distant second to Baidu, a Chinese company that enjoys a close relationship with the government and its 60% to 80% of the search engine market share.



Google’s revenue in China, which is estimated to be anywhere from U$100 million to U$600 million out of a U$1 billion total estimated search engine market, represents a tiny fraction of Google’s entire revenue (less than 2%). But Google’s China revenue has been increasing steadily over the past few years, gaining traction with the more educated internet crowd, the business people and the expat communities.

More importantly Google is really focusing on the 600 million Chinese phone subscribers. Only a small fraction of these subscribers have access to the mobile internet today, but the market for smartphones in China is exploding, fueled by China Mobile and China Unicom 3G network expansions. With its recent acquisition of AdMob and the Android OS, Google has a unique and strong position in the mobile advertising business in which Baidu and Google both have about 26% of the mobile search engine market, estimated to be U$150 million in 2009.


The Internet Market in China

According to the China Internet Network Information Center (CINIC), the Chinese population of internet users reached 384 million at the end of 2009, putting it ahead of the United States as the world’s biggest internet country. One in five internet users in the world is living in China. Mandarin is the second most used language on the internet universe, behind English and its 478 million users around the world.

In 2009, the number of Chinese internet users grew by 86 million (29 % increase from 2008), and with 29% of China's 1.3 billion population online, the middle empire has still a lot of room to grow over the next few years. With 70% of its online population below 30 years old, the internet in China is a phenomenon dedicated to young, educated and urban individuals. It is not surprising that the top three online destinations are music sites (83.5%), news portals (80.1%) and search engines (73.3%). Access through mobile phones has risen by 120 million to in total 233 million, which represents approximately 61% of all internet users.



With such a large population of internet users and a production of over 600,000 engineers per year, China is becoming a place where hacking is now an unofficial full-time profession. Essentially targeted at collecting information from competitors and across borders, Chinese cyber attacks are becoming more sophisticated and skillfully executed. Attack on Google is one among many. Computer hacking is illegal in China. Even though last year Beijing introduced a law that makes hacking a crime with punishments up to seven years in prison, the law is very difficult to enforce just by the nature of the crime.

More than sixty internet regulations have been made by the Chinese government to regulate the internet. The Golden Shield Project, sometimes known outside of China as the Great Firewall of China, prevents Chinese internet users from accessing a list of sensitive websites outside the mainland borders. Chinese internet police, estimated to be more than 30,000 heads, is vigorously monitoring critical comments on BBS, forums, blogs, and major portals. Last June the government attempted to install "Green Dam" censorship software in every new computer. This software would deny access to sites with pornographic or politically sensitive content. The plan was postponed at the last minute after a backlash by Chinese internet users, computer makers and foreign governments, but will certainly be resumed by the Beijing authorities at a later time.

The internet in China is burgeoning on both the supply and the demand sides; there is a vast catalogue of English copycat websites translated in Mandarin and at the same time, the government closely controls not only what people have access to, but also what people are commenting on. It is in this peculiar context that every internet company there, Chinese or foreign, is evolving and competing for a slice of the next biggest internet market of today.


Other U.S. Tech Companies in China


All foreign internet companies in China have the same treatment as the domestic ones and are closely monitored by the Chinese government, but they also have been place under a lot of scrutinizes in their own countries by both government and consumers.

When in 2002, Yahoo! turned over the democratic activist Wang Xiaoning’s emails, the company was under severe pressure by Congress and the American press. After Mr. Wang was sentenced to ten years in prison, his wife sued Yahoo! under human rights laws in federal court in San Francisco. Since 2005, Yahoo! China is run by Alibaba, a Chinese internet company in which Yahoo! owns a 40% stake. When testifying before Congress in another dissident case in 2006, Michael Callahan (Yahoo!'s general counsel), explained that he could not even say how often Yahoo! provides information about its users to the authorities since the authorities are dealing directly with Alibaba and not Yahoo! China anymore, thus outsourcing not only operation but responsibilities as well. Nevertheless, a new level of tension between those two companies was reached recently when "Alibaba Group has communicated to Yahoo! that Yahoo!’s statement that it is ‘aligned’ with the position Google took was reckless, given the lack of facts in evidence," and pointing out that "Alibaba doesn’t share this view".

Apple has a different approach in China. Most of its manufacturing is done there where over 200,000 contractors (through Foxconn Electronics) are assembling almost all of Apple’s products, including the recently announced iPad. But the company has decided to not focus on the Chinese market where counterfeit iPhones, the prohibition of WiFi, the fear of downloading applications and the lack of credit card usage are major obstacles to the high-end Apple customer experience and business model. Despite being taxed at 17%, since the Chinese government considers Apple a foreign manufacturer even though all of their products are built in mainland China, the company has already sold 200,000 iPhone units in partnership with China Unicom. In 2008 a large public campaign against poor working conditions in Apple’s factories in China took the company by surprise and damaged the iconic brand image in the West. Even though Apple has since introduced a new regulation and monitoring procedures, doubts are still lingering.

Microsoft owns the desktop market in China, yet earns little money from it because 80% is illegally copied. Nonetheless, Microsoft is injecting millions of dollars in aid into China, on top of its annual operating expenses to help develop infrastructure for the software industry via joint ventures, academic research center and training facilities. Disassociating itself from Google, Microsoft has reportedly said that it has no plans to pull its operations out of China and that censorship is part of everyday business in the ICT business globally. "The U.S. is the most extreme when it comes to free speech," said Steve Ballmer, noting however that even the U.S. bans child pornography, while France bans internet access to Nazi pictures, refocusing Google’s challenges to a mere business decision rather than an ethical compromise.

"On a business level, that decision to censor... was a net negative" Sergey Brin, Google co-founder [27 Jan 2007]

Afraid to be turned into a Danone Case, many foreign companies are witnessing that their previous partners are changing into ambitious predators, and that their own expertise and technology is "coming back at them globally in the form of cut-price products from subsidized state-owned behemoths" to which GNI would have a hard time to propose a solution.


CasB (China as a Business)


The unique Chinese market is defined along the below four major characteristics:

Structural: The Chinese government does not allow direct foreign investment, but rather permits joint venture partnerships when a majority ownership is held by the Chinese company. This business practice helps to retain capital gain and investment within mainland China, but also favors technology skills and savoir faire transfer while keeping economic and job growth inside the country. The recent ban from investment in China's online game operations through setting up wholly owned enterprises, joint ventures and cooperatives is the latest example of a tightening potential foreign gain in the Chinese market.

Technical: Over the past 10 years the state-driven telecommunications industry has built sufficient network capacity to create a self-sufficient ecosystem around a Chinese private internet where supply and demand are locally driven by government incentives. With hundreds of thousands of engineers manufacturing all the devices and equipment for the rest of the world, China is not lacking any capacity and competence any time soon. The recent rumors, confirmed by Rod Beckstrom (ICANN CEO), who accuses China (and Russia) of developing alternative internet roots to separate from the rest of the internet, is an eloquent example of how China is technically advanced in applying its goal of building the ultimate Great Firewall.

Political: The multi-tiered Chinese government has also built sufficient technical capabilities to be able to monitor first, and control second, all conversations on the internet. China’s Golden Shield, developed with the help of Western corporations like Cisco, Siemens-Nokia and Nortel, is a virtualization of the political behavior that exist in mainland China where control and order have brought economic growth over the past 30 years. Censorship has been the Chinese way to keep "harmony" in the middle empire for decades. The government leaders are afraid that it could set a dangerous political precedent should they compromise on Google’s request, and will not therefore take the risk to loosen their tight control over the information flow.

Cultural: Chinese business behavior is essentially driven from relationships, local Chinese preferences, harmony built over time (as opposed to disruptive) and respect of public reputation ("losing face"). Any private or public misbehavior is severely punished with social rejection at least and annihilation at most. The way Google handled the crisis is breaking each and every cultural norms with an almost a certainty of not turning back. By threatening publicly and not using back channels for influence and communication, Google did not leave any room for negotiations or for the government to not lose face, with the only choice for them to reject this Google menace.


What’s Next?


Google is executing its exit strategy, leading the way to a new type of moral behavior when it comes to foreign businesses in China. Neither China nor Google can find a satisfying compromise that will allow both of them to manage their home reputations.

"We continue to follow their laws; we continue to offer censored results. But in a reasonably short time from now we will be making some changes there." Eric Shcmidt, Google CEO [25 Jan 2010]

Google’s business model is based on encouraging consumers everywhere to exchange personal data and store private information into the cloud, in return for some online advertising. This relationship is based on the fact that consumers entrust Google with their personal data. Any private data threat (like the cyber attack that happened to Google) is not an attack on consumers’ data but on Google’s business model itself, which is intolerable and unacceptable from the company’s standpoint.

To protect their current market and to avoid a meltdown of their cash-cow business, Google had to take a major step by withdrawing from an overexposed market like China. Unless the Chinese government can guarantee that Google would not be attacked again, Google will move out of China. At the same time the Chinese government cannot allow Google to be different from any other companies without creating a risky precedence that could impact their political stability.



Clearly Google will leave China, and will try to address the Chinese market from outside using different tools, and will be eventually blocked. Chinese internet companies will pick up the remaining market share. Chinese government will be strengthened from this episode. Google will ultimately turn this security breach into an ethical business dilemma, reinforcing its already-strong corporate brand perception around the world. Cyber attacks will continue in the world of internet. And with Google’s disclosure, other U.S. technology companies will have a harder time to explain why they are still doing business in China.

The true negative impact is that the growing Chinese internet community will be more isolated from the world, which is what Google came to change in the first place.

iPad, or Apple’s Connected Consumer Strategy

Friday, January 29, 2010

On Wednesday, January 27, at the Yerba Buena Center for the Arts in San Francisco, Apple revealed the latest product from its collection of consumer electronic devices [Video]. Qualified by Steve Jobs himself as the "most important thing [he has] ever done," expectations were quite high for a company that has been considered by many has a market leader in consumer electronics.



For once, the frenzy was fueled by the company executives themselves on various occasions. Apple’s official and consistent reputation for never talking about unreleased products was broken during the quarterly revenue announcement on Monday, January 25. This is quite unusual for the most secretive company of the Silicon Valley, which generally manages product launch hype through controlled leaks.


" Is There Room for a Third Category of Device in the Middle? "
[Steve Jobs, Jan 27, 2010]


Apparently Yes. The iPad is a 9.7-inch (diagonal), LED-backlit, sleek, widescreen Multi-Touch display with IPS technology. The new product weighs 1.5 pounds (0.68 Kg), has Wifi and Bluetooth technology built in with optional 3G connectors. The 9.56 inches (24.28 cm) by 7.47 inches (18.97 cm) device supports a 1024-by-768-pixel resolution screen. Powered by a new proprietary processor called A4 (certainly built by PA Semi which was purchased by Apple for U$278m in April 2008), the Apple’s gadget with its 10 hours of battery life, 16-64GB of Flash memory storage and starting price at U$499 is on par with current major competitors in the market.

The tablet is running the new, yet-to-be released iPhone OS 3.2 and is coming with iWorks, photos, videos, music, emails and Internet browsing applications; App Store and iTunes compatibilities and a new iBooks store for buying and reading eBooks.

AT&T will be offering for the American market a 250MB data plan for U$14.99/month, or unlimited data for U$30/month, without an annual contract, giving nationwide access to all their Wifi hotspots for free. Most international connectivity plan offering will be in place around the time of shipping, in April-June 2010.

Apple highlighted during the presentation that the New York Times has designed a new application for the iPad; that Electronic Arts and Gameloft have also already ported some video games to the tablet and that five major publishing companies have already signed a deal with Apple to give access to their catalogue: Pearson’s Penguin Group, News Corp.’s HarperCollins, Hachette Book Group, CBS’s Simon & Schuster and McGraw-Hill’s Macmillian. All eBooks will take full advantage of the official EPUB standard from the International Digital Publishing Forum (IDPF).



Some commentators are already pointing out the missing components that would have made the tablet a truly revolutionary all-in-one device. But even without a camera, a handwriting recognition software, Flash support, few USB ports or a controversial name, the iPad is already a well designed and interesting content consumer device, at least on video.


Remember Newton


This is not the first time that Apple (along with AT&T) tried to launch a device in the middle market, (between the phone and the computer). In 1983, Apple and AT&T already teamed up to work on a touch screen device and asked Frog Design to prototype it. Steve Jobs was Apple’s creative director at the time. The "bashful" (named after the Dwarf in Snow White story-book) was a tablet computer prototype developed in various versions, one including an attachable keyboard and a stylus, one with a floppy disk drive and handles for limited portability, and another one with an attached phone (sound familiar?). Greatly influenced by Jef Raskin and his "information appliance" concept, Steve Jobs decided to create a radically different kind of computer, one that was designed from the start to be easy to use.



A few years later in 1989, Apple concentrated some of its development forces to create a line of Personal Digital Assistant (PDA). The idea behind the PDA's Newton hardware and software platform was to create an electronic gadget that could recognize your handwriting, act as your diary and offer very basic computer applications. Ultimately most MessagePad devices released from this Newton platform were pre-loaded with proprietary software (Notes, Names, and Dates) to manage personal data and organize information.

Unfortunately during its almost ten years of existence, Newton was a compilation of hardware failure, software inaccuracies, and slipped shipping dates. Bad press, awful market penetration and a too-high price point surely lead to the end of its production in February 1998, killed by the returning CEO... Steve Jobs himself. Newton was spun off into an Apple subsidiary company, Newton Inc., and reabsorbed several months later when Steve Jobs fully resumed control of Apple. It could be interesting to note that two ex-Apple Newton developers founded Pixo, the company that later created the original iPod’s Operating Software.

In 2005 FingerWorks, a gesture recognition company, was acquired by Apple. The company produced a line of multi-touch products including the iGesture pad and the TouchStream keyboard, whose technology has been re-used since then in the latest version of the iPhone. Over the recent years numerous rumors mentioned that Apple was really close to offer the long-awaited tablet computer, but nothing materialized until this week.


Not the Only Tablet Company Out There


Tablets have been around in various forms for two decades now, and Apple was not the only company working on the tablet concept. Palm Pilot and Microsoft were at the forefront of the innovation curve on this particular product line.

Tablet is "a PC that is virtually without limits and within five years I predict it will be the most popular form of PC sold in America" – Bill Gates, ex-Microsoft's CEO [Apr 21, 2006]

Unfortunately, Microsoft Windows tablets were not a commercial success, and only found its niche with health care and insurance practices. In reality the device never took off because consumers didn't see any advantage of using an expensive replica of their laptop, simply to use a finger or a stylus as an input mechanism.

But still, manufacturing companies such as Sony [VAIO Tablet PC], HP [Pavilion TX2500Z], Lenovo [ThinkPad X200 Tablet], ASUS [Eee PC T91], Dell [Latitude XT2], Wacom [DTZ Series], Samsung [Q1UP-V], Fujitsu [LifeBook T5010 Tablet PC], Toshiba [Portege M750], and Panasonic [Toughbook T8] have offered many different versions of the tablet PC over the years based on a modified version of the Windows OS. The user interface was merely migrated over from the Windows PC world to tablet computers.

Today the tablet computers are a niche product, sold mostly to industrial and commercial buyers. They account for less than 1% of notebook PCs sold worldwide annually, or 1.3 million out of 140 million [Gartner]. But Apple is a different company altogether and can navigate where so many have failed before, finally providing the ultimate device to all Americans who spend 11.8 hours per day on average receiving information at home [UC San Diego's Global Information Industry Center].


Apple the Company


It would be difficult to tell the story of Apple without mentioning Steve Jobs at one point. Today Apple is much more working for Steve Jobs, than Steve Jobs is working at Apple. Since his return in 1997, Steve has managed to turn around an engineering company into a business empire, moving from a high-end product company to a high-end customer experience design and service company.



At the time of his return, the company had captured U$7 bn in revenue and was losing U$1 bn. The company was worth about U$4 bn, and competitors like Dell and HP were worth about U$8 bn and U$62 bn respectively. The last financial year 2009 saw Apple capturing U$36.5 bn with a net profit of U$8 bn. The company is worth more today (U$182 bn) than HP (U$118 bn) and Dell (U$27 bn) combined together.

The Fortune magazine's CEO of the Decade has managed over the past 10 years to re-center a troubled company around the idea of the "digital lifestyle" strategy. Along the way, Steve changed, besides Apple's original market play (the computing business), three other markets: the music business, the movie industry and the telecommunications business.



The most recent "all-time highest revenue and profit" quarterly release is a perfect example of what a device technology company can achieve with a marketing guru at its reigns. Over the past 33 quarters (since Q1 2002) Apple sold 50m Macintoshes, 250m iPods and 42m iPhones (which is the equivalent to what Nokia sells in a month), accumulating U$160 bn in revenue. The 283 Apple stores around the world saw 50m visitors in the past quater. iPhone owners downloaded 3 bn applications in the past 18 months and over 12 bn downloads were done through the iTunes software in the last eight years. With U$39.8 bn in cash and short-term investments on its balance sheet, and a single digit market share outside MP3 players and SmartPhones (with plenty of growth), the company is ready to tackle any market it wishes to venture into.


iPad Market Outcome


It is quite astonishing to witness Apple entering another overcrowded device market, and the skeptics of this world have sufficient ammunition to propagate their rightful doubts around the planet internet about the feasibility of this latest tablet venture.

On the other hand, some more optimistic analysts predict that with the accurate service offering and the low price point, the Apple tablet could easily capture U$3 bn in its first year of launch, pointing at the competitors who are rushing today to get out on the market their own production [PlaysForSure players, the Zune, the LG Prada, and the Palm Pre].

For sure, if there is one company who can succeed in such a market that would be Apple, because the company [1] did already successfully capture the majority in an already crowded MP3 player market after a very late entry; [2] has enough brand appeal (if not brand lust) with consumers for another success story after the iPod and iPhone; and [3] has enough cash on its balance sheet to market any product, anytime, anywhere to anyone.

Only time will tell if Apple has managed to crack the middle device paradigm, and even if they did not at their first attempt, you can be sure that the Silicon Valley company will correct the trajectory soon enough to become a dominant market player, if consumers would want another electronic device in their lives. But the truth resides somewhere else.


Apple’s New Digital Strategy


What Apple is doing is not merely launching a tablet device, but is finishing its digital strategy execution that started 10 years before, which is to connect high quality digital contents and experiences to Apple devices only, becoming the ultimate middleman between the media cloud and Apple consumers.

In its early attempt in 2001, Apple managed to create a direct experience with consumers in giving them a unique music paradigm through the iPod device, with which fans could store high quality songs accessible through an easy-to-use, secure and economically priced iTunes. With the iTunes software, Apple helped music labels to understand what the digital music retail potential could be, and to realize the limitation of DRM encryption to restrict piracy.

In 2007, the second attempt was with AppleTV, with which the company managed to distribute high-definition digital movies and TV shows to consumers' TV through a single equipment, finally converting Hollywood to digital world in people's homes. Consumers purchased the movies and TV shows via iTunes, where iTunes could be their single point of media acquisition.

The same year, the third attempt was done with the iPhone, with which Apple managed to align large telecommunications companies around the world to offer an appealing service plan, and offered a great user experience and functionality, switching many consumers to mobile data connectivity.

In 2008, the fourth attempt was with the iPhone Application Platform, with which the company was the first to open the application platform for the mobile industry, following the successful open application platform by Facebook for social networks. This gave a place for developers to build and sell their own applications to the iPhone users.



With the launch of the iPad, Apple is not going after the device market itself, but rather the missing content that has not been captured so far by the company: Books, Games, and soon Newspapers.

Apple is now bringing the content rights owners to the iTunes retail mechanism under the "Agency Model". Contrary to the Amazon.com wholesale model, Apple is letting the content rights owners to sell directly their content at the price they want, with Apple taking a 30% commission on the transaction. The business idea is more appealing to content rights owners because they can now control the price, the time of the distribution and the quality of the content while relying on Apple's high level of customer experience for the payment, delivery and management (customer service) of the content.

At the same time Apple understands that a non-connected device is a dead device, and has managed to force AT&T to propose an all-you-can-eat, pre-paid mobile data plan similar to what Internet Service Providers have been proposing for years, moving away from the locked-in two year plan. The recently announced lift of the ban over 3G VoIP service on the iPhone (and therefore iPad) could be the stepping stone for free phone calls for everyone.




By creating a seamless, high quality customer experience 'one stop shop' for all digital entertainment content, Apple is creating a marketplace in which all content compete with each other, eventually forcing by “network effect” the remaining content rights owners to give access to their catalog.

Thanks to Apple's vertical integration across the entire stack (hardware and software), its intuitive and consistent user interface, highly attractive designs and ubiquitous presence in the consumers' life, Apple consumers can choose with which devices the content will be consumed, when and where they want.

What's Next?

With the launch of the iPad tablet, Apple has managed to offer to a small consumer segment (the early adopters) all digital content across all consumer devices, charging a high price for hardware, software and content. Apple has managed to become the ultimate digital go-between company for high quality and high price content in a small yet very affluent segment of the population.

Apple’s digital lifestyle strategy could easily be seen as a central piece of hard drive (AppleTV or Macintosh), a home remote control (iPad), an internet connection, a voice device (iPhone), portable music device (iPod), and retail mechanism (iTunes), creating the ultimate connected consumer of the future. The next steps will be for the company to bring more digital content and increase its market share, and we know that Steve Jobs can deliver on both of these.

Apple with its both closed and integrated business concepts has successfully managed to convince major content providers to finally move safely to the digital world. Even though history is telling us that closed and expensive digital solutions have difficulties competing in the long run with more open and collaborative systems, at least we can recognized that Apple is the first mover with the competitive advantage to aggregate all media for consumers… at least for these first few years.

Facebook and The New Age of Privacy

Saturday, January 16, 2010

Five months after the first announcement, Facebook has decided to implement on December 09, 2009 its new privacy setting policies for its now 350 million users worldwide.

In this latest setting, this popular Social Network Service (SNS) rolled out a new Publisher Privacy Control tool to let users share their personal information updates to Individuals (Customizable), Friends, Friends of Friends or Everyone (removing at the same time the confusing “regional networks”), and recommended that people should choose the most open setting (Everyone) to increase information sharing.



In addition, Facebook’s latest privacy policy, indicates that certain basic information such as Name, Profile Picture, Gender, Current City, Networks, Friend List, and Pages would be categorized as “publicly available”. These information will be now visible to profile page’s visitors, and “Facebook-enhanced applications”. The privacy settings can still allow users to avoid being found in searches or prevent being contacted from non-friends.



These changes followed two business agreements Facebook signed with both Google [Dec 07, 2009] and Microsoft’s Bing [Oct 21, 2009] to allow people’s public status updates to be real-time indexed by both search engines, similar to what Twitter had signed a few days prior.

On Dec 17, 2009, the Electronic Privacy Information Center (EPIC) filed an official complaint to the Federal Trade Commission (FTC) to examine Facebook's recent privacy changes, alleging that “these changes violate user expectations, diminish user privacy, and contradict Facebook's own representations”.

The next day Facebook’s spokesman Barry Schnitt declared that the company has gone to lengths to inform users of the company’s new policy, and he had also discussed the changes with regulators, including the FTC, prior to the implementation. “We've had productive discussions with dozens of organizations around the world about the recent changes and we're disappointed that EPIC has chosen to share their concerns with the FTC while refusing to talk to us about them” he concluded in his public statement.

On Jan 04, 2010, Jon Leibowitz, chairman of the FTC, declared that the commission did not greenlight the changes, and that the complaint is now being reviewed by the commission, adding that “online privacy will be among the agency's top priorities going forward”.

Last Friday, Jan 08, 2010, Facebook founder and CEO, Mark Zuckerberg, made one of his very few public appearances on the stage of the Crunchies 2010, at which he received later the Best Overall Startup Or Product Of 2009. Zuckerberg defended the changes made by Facebook and argued that they were in line with the new social norms, pointing that now The Age of Privacy is over in the social network world.

“People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people. That social norm is just something that has evolved over time.

We view it as our role in the system to constantly be innovating and be updating what our system is to reflect what the current social norms are.

A lot of companies would be trapped by the conventions and their legacies of what they've built - doing a privacy change for 350 million users is not the kind of thing that a lot of companies would do. But we viewed that as a really important thing, to always keep a beginner's mind and what would we do if we were starting the company now and we decided that these would be the social norms now and we just went for it.” — Mark Zuckerberg, Facebook’s Founder & CEO [Jan 08, 2010]

Where’s Facebook Now?


Facebook is the world’s largest social network with over 350 million active users as of December 2009 (one in five internet user is an active user of Facebook). Originally founded by Mark Zuckerberg in February 2004, it was initially designed as an exclusive network for Harvard students, but was rapidly extended to other American Ivy League universities. Students used Facebook as a platform to stay in touch with each other, uploading photos, sharing links and videos, and learning more about the people they met.



The original name came from Zuckerberg’s high school book The Exeter Face Book, which was passed around as a way for students to get to know their classmates for the following year. Over the years Facebook to capture over US$ 716m in various rounds of funding, and turned down many deal proposals, earning Zuckerberg an instant notoriety as the "kid" who turned down a billion dollars [Sep 21, 2006].

On May 24, 2007, Facebook launched Facebook Platform, providing for the first time in the internet history a framework for developers to create applications that could interact with the core platform by using a new language called Facebook Markup Language (FML). The inventive idea gave an instant credibility among the developer community and created a large base for new functionality and half a million applications, fueling in return more people to join the social platform.

Facebook outgrew its original American college base long time ago and has embraced more people around the globe than any of the other social networks all put together, except MySpace. Back in January 2009 the number of active Facebook user was just peaking at 150m; three months later it had reached 200m users worldwide. In July, CEO Mark Zuckerberg said that the SNS has passed 250m users, and he confirmed that December saw the 350m bar topped, making Facebook a platform that grows at 50m users per quarter. This constant inflow of newcomers has moved the original median user age from 26 years (May 2008) to 33 years (Oct, 2009) in the past 15 months.




In November 2009, the company created a new class of stock, which carries additional voting power to current shareholders and Zuckerberg, similar to what Google did prior to its IPO. The company with its new status of cash flow-positive can wait for the optimum economic conditions to try to top Google’s U$1.9bn offering in 2004, the biggest internet IPO so far.

Today, its impressive statistic sheet with billions of photo uploads, status updates and user connections each month, only equal the notoriety of the platform and its deepening roots in today's global social interactions, be it virtual or real. The SNS is so prevalent in our lives that in the UK, Facebook has been referenced in 20% of all the divorce petitions.

The secretly-guarded company's revenue has been estimated for 2009 to range from U$300m to U$500m. Private share marketplace (SharesPost, SecondMarket) and recent common stock purchase by Digital Sky Technologies have valued the company close to US$11bn. Today Facebook's mission seems more obvious to give all people on the internet the power to share, and make the world more open and connected.


Facebook's Competitive Landscape


Out of the 1.8 billion internet users (Sep 30, 2009) Facebook has managed to capture a staggering 20% (one in five). The SNS platform became in September 2009 the leading US social networking destination, with 105.4m unique visitors, growing 170% year-over-year [Nielsen]. And it has continued to conquer new territories from its competitors (Orkut in India, Hi5 in Latin America, Odnoklassniki in Russia, Maktoob in the Middle East, Cyworld in South Korea and Skyrock in France). If Facebook were a country today it would be number three in terms of population after China (1.4bn) and India (1.2bn), and before the USA (300m).





The number of total minutes spent on social networking sites has increased 83% year-over-year in the US, and close to 700% year-over-year on Facebook alone, growing from 1.7bn minutes in April 2008 to 13.9bn in April 2009, making the SNS the number one online destination overall when ranked by total minutes per month [June 02, 2009].




Facebook may be ranked fourth in unique visitors, but it has captured the largest amount of time users spend on the site, topping any other website in the world. The SNS checks in at a bit over 6 hours per person, on average, for the month of November 2009 [Nielsen].



In other words, Facebook is the world's leading SNS with the biggest online growth (adding 50m users per quarter), global dominance (the SNS leader in 110 out of 123 measurable countries), the largest developer community (500,000 active applications), the stickiest platform (average user spends more than 55 minutes per day), the most connection of the SNS planet (45.5 billion friend links), and is set to beat MySpace in number of users by mid-2010.


Redefining the Social Network Privacy Problem


Social Networking Sites account for more than 20% of all US online display Ad Impressions, but has only managed to monetize them at a fraction of other online activities, capturing only 5% of the total online US revenue (2009 SNS Ad revenue in the US was U$1.2bn out of 2009 Total US Online Ad revenue of U$22.4bn). This can not be justified by the novelty of the social network platform, or the difficulty to intrude a social activity, or the less Ad-permissive mindset of users, but rather by a lack of marketers to pour their billion dollars in any of the Social Networking Sites, which don't provide sufficient user information for marketing.

Facebook has so far been a nominative (versus anonymous), private, and social service preventing marketers from invading users’ private social place. By forcing everyone on the platform to reveal their basic marketing demographics and potentially disclose their full profile to third party applications, Facebook has given the best marketing tool ever on the planet to segment the now only nominative, fast-growing, global, soon largest, stickiest and most affluent (over 30-year-old) online community in the internet history.

Combined with its now real-time search status update, Facebook is also giving marketers a tool to not only measure and monitor brands (and therefore measure and monitor Return On Investment dollars), but also understand real-time consumer needs. This new real-time information pull, combined with large computer storage capacity is giving any marketing company a unique tool to identify the “right people” to send the “right message” at the “right need” immediately, at a very minimal cost.

That would be sufficient to have any online marketer anywhere to start redirecting some of their money to the number one SNS platform, but Mark Zuckerberg has decided to give them another gift for Christmas. In forcing the Social Graph [List of Friends] to be publicly available, Facebook gives away the only competitive advantage that the SNS has against any other online real estate, whether it be search engine, email platform, content provider. Facebook gives the method to identify, reach, engage and monitor social influencers of the online world, a powerful and unique tool to anyone involved in the new fields of word-of-mouth marketing, social group-purchasing and other macro marketing campaigns. Who would you rather trust, an anonymous ad on a search results page or Steve, your best friend from college?

Facebook with its new privacy policies has made a strategic defensive move to eclipse Twitter, the fast growing startup, in the real-time conversation race; and another strategic offensive move to give marketers the best online community to spend money on. In the world of "winner takes all" and "grow fast, monetize later", the social platform has decided to aggressively go after against all competitors and satisfy online marketers at the risk of having to manage at least bad PR, certainly regulator sanctions and at most their own users departing the now public platform to a more private one.

Facebook has once again pushed the privacy boundaries, and its previous debacles would definitely be a legacy when time comes to face its responsibility in front of the FTC.
Going along the memory line:

• In September 2006, personal information were leaked through the “News Feed” program, leading to massive controversy; Facebook quickly removed the functionality from the platform.
  
• In November 2007, personal information were also revealed through the “Beacon” program, but this time the program halted after litigation and a U$9.5m for lawsuit settlement.
  
• On May 30, 2008, the Canadian Internet Policy and Public Interest Clinic (CIPPIC) filed a complaint with the Privacy Commissioner of Canada concerning the “unnecessary and nonconsensual collection and use of personal information by Facebook”. Subsequently on July 16, 2009, Facebook was found “in contravention” of Canada’s Personal Information Protection and Electronic Documents Act, and forced to change third-party applications' data collecting behavior.

The Real Privacy Issues


Laws on privacy may vary from country to country, but the laws of economics in the information age do not. Information has value and therefore is traded like any other product or service on the planet, following the basic law of supply and demand and under the supervision of local and global regulators.

Selling personal information to a third party without the person’s knowledge or consent is considered in the US to be an unfair trade because it "causes or is likely to cause substantial injury to consumers, which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition" (FTC v. Reverseauction.com). The injury could be defined as "substantial" (monetary harm), but also as "unwarranted health and safety risks" causing a breach of privacy.

“Privacy is the desire by each of us for physical space where we can be free of interruption, intrusion, embarrassment, or accountability and the attempt to control the time and manner of disclosures of personal information about ourselves.” — Robert Ellis Smith, editor of Privacy Journal (2000)

Facebook, in changing the privacy rules, not only misled its user community by promising an initially moral contract (private personal information) and reversing it later on (open public content), but also trapped users by not giving any option to control the disclosure of information. EPIC, by engaging the FTC to regulate privacy policies for social network sites, is moving the battle to the legislative courts, counterbalancing the aggressive and repetitive steps Facebook is taking towards personal content disclosure.

“You have zero privacy anyway, get over it” — Scott McNealy, former Sun Microsystems CEO (Jan 25, 1999)

Asymmetric information gained by companies or governments thanks to their large capacity and resources, is once again the issue for today's internet consumer. Individual privacy has always been defended across continents and at times at a heavy cost by consumers and citizens alike, and has consistently been a rule of exception, not one of the majority. Furthermore, no one company or government could define what social norms are, but could only influence it a little (or be a victim of it a lot). Technology has helped government first, companies later and now free social networks to gain intrinsic knowledge from their consumers, citizens or users; regulators and social activists so far have helped to counterbalance the dominant position heading towards lack of privacy.

Certainly the privacy advocates and regulators must continue to press on not only the immediate social networks platforms' privacy litigation but also the future privacy challenges in the arenas of privacy at work, with health data, regarding marketing to children, at school, under the name of national security, for a unique national ID, around biometrics, with DNA databases, using RFID, on CTTV network, and any other Location-Based Services that will flourish soon in the mobile smart phone era.

The Age of Privacy has just started.

© 2009-2010 NQ Logic | All Rights Reserved