Carnival of the Mobilists 98: Hey Google, Trick or Treat?

Photo by Toby Ord. License information here.

[Edited to fix a typo; I apologize if you get a second copy in your feed.]

This week's Carnival of the Mobilists comes just after Halloween, a holiday when (at least in the US) people are disguised in costumes and kids fantasize about all the great candy they're going to get.

In the spirit of the holiday, Google has been keeping its mobile plans in disguise, and many of the Mobilist authors are speculating about the candy we'll get from them:

Skydeck makes some very interesting predictions about what the Google phone OS will do, and how much Google will subsidize it. I especially like the financial analysis.

In the second part of a three-part post, Abshishek Tiwari speculates about the services that might be included in a Google phone.

John at Nellymoser gives a long discussion of Apple and Google's efforts to open up the mobile ecosystem.


Other goodies in the bag...

Taptology does a nice job of comparing the buzz-building skills of Nokia and Apple to the buzz-killing behavior of Motorola and SonyEricsson.

Barry at StayGoLinks argues that the mobile web will take off when voice can be used as an interface to it, and gives a nice roundup of some recent voice-related technology announcements. Barry, I hope you're right. But speaking as a frustrated (non)user of Dragon Naturally Speaking, I'm not holding my breath.

Tarek Speaks Mobile enthusiastically reviews the new update to the Nokia N95, and says Motorola could learn something from it.

C Enrique Ortiz discusses the US mobile industry and the power of the operators.

Mob Happy rolls out a mobile version of its site, and discusses the traffic that resulted.

Xellular Identity reviews the various pricing and service plan options for ringback tones around the world. I had no idea there was so much diversity.

Vision Mobile gives a very detailed discussion of efforts to make mobile phone software customizable and flexible. It's an excellent overview.

Should schoolchildren in New York who perform well in class be given free cellphones and prepaid minutes as a reward? Yes, says Judy at Golden Swamp. She reviews the controversial proposal in New York and gives some interesting thoughts on the potential use of mobile phones in education, based on her own experiences.

Post of the Week. It was a hard choice. Although Vision Mobile's post is very detailed and worthy of consideration, I chose Golden Swamp as the Post of the Week because it gave me an interesting new perspective.

Next week the Carnival will be at Ubiquitous Thoughts.

O'Reilly Web 2.0 Summit: No Cave of Wonders

There is so much happening in the Web world that I went into this year's annual O'Reilly Web 2.0 event hoping it would be like Aladdin's Cave of Wonders--full of bright shiny new companies that did amazing things, each more enticing than the last.

Instead, the conference was more like a United Nations conference, full of important people talking about important issues, but not a lot of surprise or dazzlement. The name "summit" really does fit. That’s not the fault of the folks at O'Reilly; their conference has just grown in stature so much that it attracts CEOs from huge companies as speakers. By definition those people are very careful about what they say, and don't make major announcement at an industry conference.

So while it was interesting to see people like the CEO of AT&T, we didn't necessarily learn a lot. But there were a couple of highlights worth passing along…

The full article is on the Rubicon Consulting web site, here. There's no registration required. From a mobile perspective, the highlight (or lowlight) is a quote from VC Ram Shriram on what a mobile software company has to do in order to get funded.

What's more insecure, the iPhone or Apple?

It's been interesting to watch the reactions to Apple's crackdown on people who hack their iPhones.

If you've been living in a cave or otherwise off the net, I should explain that Apple's latest software update for the iPhone tends to disable phones that have been hacked to undo the SIM lock (enabling them to make calls on other networks) or to install third party applications. In some cases, Apple has refused to repair the software in these "bricked" phones, forcing the user to buy a new one.

I've read contradictory reports on what level of hacking causes the iPhone to be disabled. Some reports say the update disables the phone only if the SIM lock has been broken. In phones with an intact SIM lock but third party applications, word is that the update "merely" erases the apps without disabling the phone. But the fear among iPhone users is that doing anything unauthorized with the phone, even installing an app, can cause it to be disabled. Apple appears to be feeding this fear deliberately.

This has stopped (at least temporarily) the rapid growth of third party applications that developers and enthusiasts had started creating for the iPhone. Although Apple doesn't endorse or encourage the creation of native apps for the iPhone, developers had quickly found ways to access the modified version of Mac OS X inside the iPhone, and were busily producing a series of interesting and cute add-ons.

I was astounded by the speed at which iPhone applications were appearing. Usually it takes about six months to get developers cranked up on a new device, and that's when things are going well. Just three months after the first shipment of the iPhone, there were already a lot of interesting apps appearing, and David Pogue at the New York Times had even created a video celebrating them (link).

Most technology companies would kill to have that publicity and a bunch of third parties creating new software for their products. Web 2.0 companies are all adding application interfaces so they can get developers, companies like Adobe, Microsoft, and Google are competing aggressively to create APIs for web development, and even Apple invests heavily in encouraging developers to create software for the Mac.

The assault on hacked iPhones has provoked a nasty reaction online, starting among enthusiasts (check out the video here) and now spreading to the mainstream press. The latest example, pointed out to me by Chris Dunphy (an angry iPhone user), is from BusinessWeek (link):

"Wasn't Apple itself the creation of two guys in garage with a knack for making interesting ideas into real things? So why punish the people who try to create something interesting, threatening them with the prospect of an inoperative phone?....The company that styles itself as the technology supplier of choice for creative people with great ideas is insisting that to own its products is to accept a defined orthodoxy where there's only one acceptable way to do things. That doesn't sound like the Apple I know. So I'm not going to buy an iPhone. And until Apple commits to changing this ridiculous policy, I don't think you should either."

I can't remember the last time someone at BusinessWeek actively campaigned against a product of any sort.


Why would Apple expose itself to so much criticism?

The weirdest thing about this whole saga is that it's not at all clear why Apple is putting itself through it. I've been asking myself that a lot, and want to share some thoughts.

The first thing I think we have to do is separate the SIM lock issue from the applications issue. They are two very different business and technical issues, and Apple may have completely different motivations for pursuing them.

Why defend the SIM lock? Many mobile phones, especially in the US, are locked for use on a particular network. All CDMA phones outside of China are like this (because there is no SIM card), and many GSM phones in the US are as well. The excuse for this is usually that the operator paid a subsidy for the phone hardware, and needs to recover the subsidy through service charges. But the operators also achieve this recovery through big cancellation fees if you switch operators before the contract is up, so the industry has not traditionally worked very hard to defend the SIM lock. Unlock codes for many phones are available online, and many operators will reportedly unlock your phone if you call them and say that you're traveling overseas.

Apple is the first phone hardware vendor that I've seen aggressively defend the SIM lock, and I'm not sure why. The most common explanation on the Web is that Apple's getting a revenue share on the monthly billings from iPhone users, so it actually loses a lot of money when any iPhone moves to another network. There is also speculation that if iPhones can be moved into countries where they are not available, Apple will have trouble extracting lots of money from local operators who sign up to carry the phone.

The latter explanation doesn't hold a lot of water for me -- most people want their phone to work in their native language, so an English-language version of the iPhone is not going to destroy the market for a legitimate iPhone in France. Also, iPhones moved onto unauthorized networks lose some of their cool features, such as the visual voicemail function. If Apple were selling iPhones in some countries for $99 and in others for $699, I would see more of a gray market threat, but the price gaps are not nearly that large. Combine the language issue, loss of features, and low opportunity for price arbitrage, and I don't think there is enough motivation for Apple to subject itself to the abuse it's taking.

But the revenue opportunity is a different thing. If Apple got, say, 20% of the mobile billings for an authorized iPhone, that would probably be about $120 a year from an average user -- in pure profit. That's going to be similar to the total margins Apple makes on the actual iPhone, and they get the billings every year. I have no idea if Apple's actually getting 20%, but that sort of number has been rumored for some of the European iPhone deals. Even if Apple's cut is only $10%, the revenue share would be a huge part of Apple's total profit on the iPhone, and something they would be willing to defend vigorously, even if it pisses people off.

Why kill third party applications? This one is harder to understand, because I don't understand what Apple gains from it. Having applications for the iPhone makes it more popular, and also sucks up developer activity that could go to competing products. My first reaction when I heard that Apple wouldn't allow applications on the iPhone was that it was a control issue for Steve Jobs - he watched the base of cool Mac developers get sucked away by Windows, and never wants to be vulnerable to a third party again (link).

There are a lot of commentators online who assume the control freak attitude is driving Apple's behavior on the iPhone. Others speculate that Apple is planning to offer a third party applications store, in which it will take a large revenue cut for third party applications that have been approved by Apple. I have no idea what the cut would be, so it's hard to say how much it's worth to Apple. But I think if it were a big part of their plans, they would have made that store available on the first version of the device. So although I believe they might create such a store (it's an obvious thing to do), I don't think that is the whole explanation. It's hard for me to see them bringing this level of criticism on themselves just to defend that hypothetical store.

Instead, I'm starting to suspect that they have a deeper motivation that they don't want to discuss in public because even acknowledging it could damage iPhone sales. It's better to take criticism from people who think you're evil than to admit that your device has a serious flaw, and I think maybe the security structure of the iPhone is a serious flaw.

When the iPhone was announced, Steve Jobs said it didn't allow third party apps because they could bring down the phone network. I thought that was stupid bluster at the time, because on most smartphones it's very difficult to do anything really nasty to the network. The applications and the phone run on separate processors, and given the limitations of the smartphone operating systems, it's very difficult to do anything really heinous to the network.

But the iPhone has a much more powerful OS in it, a derivative of Unix. The reports posted online by hackers who have played with the innards of the iPhone are very disturbing (link). Here's a great example:

EDGE network access is horribly slow, but it works....I made a few attempts to discover other hosts in the private address space, in hopes of finding other EDGE devices, but instead only found a few scattered routers, switches, and servers.

So the hacker was looking to hack other phones via AT&T's Edge network, and was not able to do so. That's a good thing from the perspective of the average user. But you have to wonder what those "scattered routers, switches, and servers" are. I doubt AT&T deploys switches and servers on its network just for laughs, so who knows how important they are to the functioning of the network, or how secure they are. I'm sure they were not set up with the expectation that hackers would be tickling them from an iPhone.

If you know the technical details of Edge and have any thoughts on this, please post a comment. Maybe I'm overstating the risk here. My personal reaction was that if I worked at an operator and read the quote above, my hair would stand on end (if I still had any).

Here's another interesting quote:

Every process runs as root. MobileSafari, MobileMail, even the Calculator, all run with full root privileges. Any security flaw in any iPhone application can lead to a complete system compromise. A rootkit takes on a whole new meaning when the attacker has access to the camera, microphone, contact list, and phone hardware. Couple this with "always-on" internet access over EDGE and you have a perfect spying device.

Well, that's pretty straightforward. There are already third party applications that turn a smart phone into a spying device, but you need physical access to that particular device in order to install them. The difference with the iPhone, according to this report, is that once you find a security hole you could install that sort of spyware remotely, via the wireless connection.

That led to a Computerworld article which says basically that viruses and other malware could spread from one iPhone directly to another without the user ever being aware of it (link). I'm not too alarmed by that just yet, because there isn't a critical mass of iPhones in any one geographic location to infect each other. But it could be interesting the next time there's a big gathering of iPhone users. Macworld, anyone?

To me the more troubling part of the report was the root privileges thing. I'm not a Unix expert, so I talked to someone who is. He confirmed that applications with root privileges in Unix can do just about anything. Unix is designed to empower programmers, and the assumption is that someone with root access knows what they are doing and can be trusted. (You can read some similar commentary in a eWeek column here).

There are ways to prevent third party applications from having root access, but the disturbing possibility (and I'm speculating here) is that Apple may have stripped out those protections in order to reduce the memory requirements of the iPhone and make it run faster. If that's the case, my friend said, it may be a pretty involved project for Apple to add those protections back in. Not at all impossible, but requiring a lot of work and time.

Through my years in the industry, I've done a lot of research on technology users. One of the things I've learned is that security problems are a great way to scare people away from a new technology device. If it even sounds insecure, a lot of people will stay away from it. Based on what I'm seeing online, there is a lot of evidence that the iPhone as currently structured is a genuinely insecure device once any uncontrolled third party applications get onto it. What's more, keeping third party apps off your own iPhone does not necessarily protect you, because malicious software could propagate from device to device.

If I were working at Apple, and this were the situation, what would I do? Well, first I would not want to acknowledge the vulnerability, because that itself would scare away customers. Second, I would do everything in my power to shut down all third party native application development. Squash it, kill it completely. And I'd be willing to take a lot of criticism for doing so because the alternative, acknowledging the security problem, would produce even more bad PR.

Let me be very clear here: I'm not saying that I know this is what's going on at Apple; I don't. And I'm not trying to start any nasty rumors (they are already out there). I should also point out that some reports on iPhone security have been a lot less alarmist (for example, here is Symantec's take from early July). But that was before the latest reports surfaced.

I think we need to ask whether Apple botched the security of the iPhone in the belief that people wouldn't try to add apps to it. They could easily have made that assumption; there have been comparatively few efforts to add apps to the iPod, after all. But the publicity for the iPhone, and Apple's bragging that OS X was in it, made it an irresistible target for hacking.

If Apple really does have a security problem in the iPhone, I don't think they will be able to keep it quiet. Experience shows that the best approach in this sort of situation is to come clean about the problem, take your lumps, and fix it as soon as you can. That way you at least retain your reputation for honesty. If the iPhone really is vulnerable, Apple risks ending up with the worst of all possible worlds -- it'll damage its reputation for honesty, piss off a lot of technophiles, and people will still hear that the iPhone is insecure.

It will be interesting to see how Apple handles this issue in the weeks to come.

=====

Thanks to John Hering at Flexilis for pointing me to the Computerworld story.

Who's really using web apps, and why?

In my work at Rubicon, we spend much of our time helping tech companies with strategy and product planning. One recurring theme is the impact of web applications. We help web app companies figure out their customers and product plans, and we help traditional tech companies understand web apps and what to do about them.

As we do this work, we repeatedly run into a lack of basic information about how web apps are being used -- how many people use them, who uses them, which apps they use, and so on. There's a lot of anecdotal information from individual web companies on how they're doing, but almost nothing on the usage of web apps across the industry as a whole.

So we decided to fill that hole. This summer we did a survey of about 2,000 US adult PC owners on their usage of web applications. We released the results this morning at the AjaxWorld conference. Some highlights:

--37% of US home PC owners use at least one web application on a regular basis. Usage has already spread far beyond early adopters.

--Usage varies dramatically by app category. E-mail and games are the two most popular web app categories, but some other categories (such as online word processing) have very low adoption so far.

--College students are more enthusiastic adopters of web apps than non-students. More than 50% of college students use at least one web app regularly.

To me, the study was a good reminder of the practicality of most PC users. Although we in the industry worry a lot about the technical distinctions between things like web apps and packaged applications, most users don't care. They just want to solve their problems and get on with their lives. If a web app is better or cheaper than a packaged app, they will use it. If it isn't better in some way, they won't.

If you're working at a web app company and want to create a popular service, be sure you solve a real world problem that people care about. The doors are wide open if you do that.

If you work at a traditional software company and think you're immune to competition from web apps, or that it'll take years for them to affect you, you're living in fantasyland. For about 70% of US PC owners, there are no significant barriers to adoption of web apps.

There's a lot more analysis (and graphs of the findings) in the full report on the Rubicon website. Check it out here.

And there's some interesting commentary about the study here and here and here and here.

The deceptive allure of the sub-PC

Something I wrote for Rubicon Consulting:

The cancellation of the Palm Foleo marks the latest in a long string of failed attempts to create a market for keyboard-based devices that are smaller, simpler, and cheaper than personal computers. Computer companies have been trying to make sub-PCs work since the 1980s, but the only place I know of where they have been a major success is in Japan, where the complexities of typing in Japanese encouraged many people to buy cheap word processors instead of typewriters.

Why do so many companies keep trying to get under the PC market? And do they have any chance of success? The answer is a lesson in the right and wrong ways to think about product strategy.


Listening to the customers

Anyone who has ever done research on PC users quickly notices a striking pattern--most of the features of a PC rarely get used. Here's a typical result from a research study asking US adults which applications they use at least once a week on their home PCs...

You can read the rest of the article on the company website here. No registration required.

The war between Nokia and Apple

"When two elephants fight, the loser is the jungle." --Ancient proverb

And so it begins.

The Apple-Nokia war finally got underway on August 29, when Nokia announced an array of new music-capable phones and an online music store. The two companies had been eyeing one-another like wrestlers outside the ring for more than a year. Apple entered the mobile phone market, but only in the US, where Nokia is a non-factor. Nokia openly declared that it's a computing company (link), but its non-phone products so far have been different flavors of lame.

But the August 29 announcements put Nokia and Apple on a path to direct confrontation. I haven't seen a lot written online about the importance of this conflict. I think that's probably because many of the people who follow Apple's business closely are based in the US and have trouble taking Nokia seriously because it's a secondary player here. Meanwhile, Nokia's most ardent followers are in Europe, and look at Nokia's actions in light of its regional conflicts with SonyEricsson and the European mobile operators.

But when you stand back and look at what's happening in the industry worldwide, it's clear that Apple and Nokia both want very badly to be the dominant mobile computing company for young adults. That makes a huge, relentless conflict between them inevitable. They're like two armies trying to take the same hill. One's coming from the west, the other from the east, so there's not a lot of fighting at the moment. But as soon as they reach the hill, there's going to be an explosion.

I don't know who will win, but I'm pretty sure that the main losers will be all of the other device companies and mobile operators who happen to be hanging around on the hill.

My advice to them: Run.


What Nokia announced, and why it matters

On the 29th, Nokia announced four phones, two new data services for its phones, and a new brand. Let's start with the services.

The Nokia Music Store is just what the name says, an online music store run by Nokia. It'll be accessible by both PC and selected Nokia phones. The N81 and N95 will be able to talk to the store directly, while for a number of other Nokia phones you'll be able to buy music on your PC and sync it to your phone (Nokia calls this process "sideloading").

Nokia will offer more purchase options than iTunes does. You can either buy and download individual titles (for one euro a song, a euro cent above iTunes), or you can subscribe to the store and stream all the music you want to your PC (but not save it) for ten euros a month.

Nokia positions the streaming service as a way to discover new tunes, after which you're supposed to buy and download the ones you want to keep. I can understand the practical reasons for not streaming from the store directly to phones -- there would be issues with data charges, network capacity, latency, and so on. But I don't know how users will feel about that. If I had a streaming account on my PC, I think I'd expect to have the same service on my Nokia phone. And why wouldn't you want to discover new music while you're on the go?

The bigger problem is that the 120 euros you pay a year for a streaming service is 120 songs you could have bought and kept forever. That's one new song every three days. For comparison, the average iTunes user buys three songs a month. A music subscription service is a great way to get access to a lot of music quickly, but unless you want a colossally large music collection, it's a huge financial drain in the long run (I wrote more on the economics of it here). No wonder the music industry loves the idea of subscriptions (link).

The re- rebirth of nGage. The other new service Nokia announced was a mobile game store. You'll be able to try games for free on your Nokia mobile or PC, and then after purchase you can use them on the PC or sync them to your phone (curiously, Nokia calls this process "installation.") Nokia also promises multiplayer and community features.

Price per game will be six to ten euros, and Nokia says you'll be able to pay by credit card or through your phone bill if the operator enables that. No word on what the revenue split is.

The service sounds pretty interesting to me. The most confusing thing about it is the name. The nGage service won't work with all of Nokia's N-series phones. I know there's no official tie between N-series and nGage (the names were apparently chosen separately), but try explaining that to a typical customer in a store. Nokia has struggled and failed for years to explain to customers the S60 platform that it uses in a lot of its phones; picture adding yet another layer of confusion on top of that (link).

I think the other important challenge to nGage is flash. There's a huge supply of free flash-based games on the web, and a lot of them are the sort of quick-reward, easy to use games that seem to do well on mobile devices. The biggest barrier to using them on mobiles is that Adobe charges for the mobile flash player, and so relatively few mobile phones have it installed. A small installed base of phones means that most developers don't target mobile flash. If Adobe ever drops the charge for the flash player, or if a free flash-equivalent comes along (perhaps a mobile version of Microsoft Silverlight), it might become very difficult to convince people to pay for nGage games.

I know nGage provides a higher-quality gaming experience than flash, but I'm not sure most mobile users will care enough to pay.

Ovi is a new brand that Nokia will use as a wrapper for all of its mobile services, including games, music, maps, photo sharing, and presumably more to come (link). I guess that makes sense from a convenience standpoint -- there will be one website (ovi.com) where you can go to discover all of the Nokia services (Nokia employees say that it will also be a gateway to the services of other companies as well ). Unfortunately, Ovi apparently won't work as a compatibility mark: the phones that can use one Ovi service can't necessarily use another. For example, many of the phones that can run nGage games can't directly connect to the music service. A brand is most effective when it represents a coherent idea or consistent product. I think Ovi creates an expectation of coherence but doesn't deliver it. It just says that Nokia's in the service business, which Nokia cares about but is not something that concerns users

If Nokia doesn't make all the Ovi services work on all its data-capable phones quickly, I think the varied incompatibilities between the Nokia services and devices are going to be a nightmare to explain at retail.

The four new phones
The N95 8GB adds more memory to Nokia's flagship Swiss army knife phone, which includes a 5 mp camera, improved 3G, WiFi, and GPS. This is the one that online reviewers always compare to the iPhone. It works with both nGage and the music store, and its base price is 580 euros before subsidy.
The N81 is a slider phone with WiFi and 3G, and has dedicated buttons to access both nGage and the music store. It'll sell for 430 euros pre-subsidy.
The 5310 is a slimline candybar phone that can play music synced from the Nokia music store. It cannot access the music store directly. It has dedicated music controls next to the screen, and its base price is 225 euros.
The 5610 is similar to the 5310, but adds a slider and built-in camera. Its base price is 300 euros. A lot of online reviewers have been comparing this and the 5310 to the SonyEricsson Walkman phones, and I think that was probably Nokia's thinking. But hold that thought because it's not necessarily how things will work out.

What's the impact? A huge amount depends on execution. How well will Nokia's new services integrate with the phones? How easy will it be to play songs and games? How many titles will be in the Nokia stores, and how good will they be? Services and mobile devices often live or die on the little details of usability, and we can't judge that for Nokia yet because we can't play with the new products and services.

But Nokia's direction is very clear. It wants to be in the mobile Internet services business, as both a developer and publisher of content and services. It's going to tie those services directly to its phones. And knowing Nokia, it'll keep iterating on both the phones and the services until it gets them right.

That's why Apple and Nokia are now at war. Even if Nokia's current products turn out to be lame, it's going straight into the territory that Apple has been pursuing ever since the first iPod shipped.

Apple's new products. I should add a little context on Apple's recent product announcements. In September, Apple made a lot of changes to the iTunes and iPod lineup. The move that got the most attention was the price cut of the iPhone from $599 to $399. I'll write more about that below. The other changes that stood out to me were:
--iTunes can now be accessed via WiFi on the iPhone and iPod Touch. This corrects a glaring weakness in the original iPhone. It's interesting that Apple apparently hasn't enabled the iPhone to talk to the store over a cellular connection. That may be because the network the iPhone uses in the US is too slow to easily download music, or it may be that AT&T doesn't want a lot of data traffic going over its network when the phone's data plan is flat-rate.
--The video version of the Nano, starting at $199, is a heck of a lot of technology in a very cute little package.
--The iPod Touch is basically an iPhone without the microphone and cellular radio. It makes a really interesting PDA for people who want to buy a basic voice phone and carry their entertainment separately. It's priced at $299.

(As an aside, I have a request: Once the iPod Touch starts selling like gangbusters, would someone please go find the person at Sony who decided the Clie handheld business was a dead end, and kick them in the shins?)


Relative strengths of the competitors

Or, how to piss off both Apple fans and Nokia fans in the same post.

Apple and Nokia are very different companies. Here are their relative strengths:



Resources. No contest. Although Apple is a very successful company, Nokia has vastly more financial resources.

Logistics. Nokia is one of the greatest logistics companies on the planet. It churns out hundreds of millions of phones, changes models frequently, and almost everything works properly. If Nokia were running the US Federal Emergency Management Agency, New Orleans would be 20 feet above sea level by now. Apple, by contrast, does a very competent job of managing contract manufacturers in Asia. Advantage Nokia.

Telephony experience. Another huge Nokia advantage. Designing phones and getting them qualified on networks is really tricky, and Nokia knows how to do it better than anyone else.

System design skill. This is Apple's core competence; it knows how to design hardware and software together to create a beautifully integrated system. Nokia's phones often appear as if their hardware and software were designed by completely different groups and slapped together at the last minute (because, in many cases, that's exactly what happened). This works great in commodity phones, but if the competition is for who can create the most elegant data experience, Nokia is at a huge disadvantage.

Brand power. Wow, this is a tough one. Apple has one of the coolest brands on the planet. Nokia's brand is beloved in Europe, and in most of the world it personifies upward mobility (except in the US and Japan). I call this one a tie.

User interface. Apple knows how to design these. The kindest thing you can say about Nokia's interface designs is that they're better than many other phone manufacturers. But that's like comparing a three-legged dog to a two-legged dog. Nokia's trying to get better -- at the announcement event, it showed video of a forthcoming device with an iPhone-style touchscreen (link). But for now, this one's clearly a strong Apple advantage.

Cleverness. Hey, it's Steve. Nokia's management is extremely smart, but you look to them for great operational execution, not brilliant strategy. After all, this is the company that brought us the original nGage.

Industrial design. I'm going to get flamed by the Nokia fans for this, but Apple has a clear advantage in design. The comparison: Nokia sometimes creates a great design. Apple rarely creates anything less than a great design.

Music solution. You'd think this would be an overwhelming advantage for Apple, but its arrogant handling of the music companies has made them even more desperate to tear Steve Jobs' throat out. They're anxious to work with someone like Nokia. Apple still has an advantage, but it has opened the door to competitors more than it had to.

Breadth. Nokia can fight on more fronts, and might be able to outflank Apple. For instance, Nokia's revived nGage game service gives it a second interesting offering for young people, whereas Apple is limited to just music and video. This is why I think Apple's decision not to open the iPhone to third party app developers is a huge mistake. If Apple had the help of third party developers, it could more easily fill out its software portfolio.


How they'll fight

Nokia wants a war of attrition. It will try to force Apple to compete on more fronts than it can afford to cover. I think we should expect to see a broad array of services added to Ovi quickly, aimed at enticing young adults in all sorts of different ways. Nokia will probably also launch a blizzard of media and entertainment phones with varied features, in the hope that a couple of them will hit sweet spots in the market.

Apple's game is to keep Nokia off balance and grab the most important opportunities. Think of a fencing expert: dodge, feint, and then stab the other guy in the heart. Apple currently has a product advantage -- its music service is already working. So it will try to capture as many customers as it can before Nokia gets its act together.

Apple can also use Nokia's size against it. Nokia has a huge product line and has to position each product carefully within it. Apple has only one phone, so it doesn't have much to protect. That's where the iPhone price cut comes in. The iPhone had been positioned against the n95, at the top of Nokia's product line. With the price cut, the iPhone is now looks much closer to the middle of Nokia's line, the phones that were supposed to be aimed at SonyEricsson.* Nokia can't slash the pricing of the n95 without screwing up the prices of its entire line, so with one price action Apple accomplished two things -- it can reach a lot more customers, and it forced Nokia to go back and rethink its competitiveness.

We should expect more surprise moves from Apple. It's more important for them to keep Nokia off balance than it is to please every customer. I think that's why Apple was willing to piss off the iPhone loyalists with a sudden, large price cut.

*Because of varying subsidies, it's hard to tell what the actual street price comparison between the new n95 and iPhone will be. The current n95 sometimes gets subsidized down by several hundred dollars if you buy a multiyear service contract. Maybe the new n95 will be subsidized down below iPhone prices. Maybe the iPhone will be subsidized too. Or maybe now that Nokia's offering its own services the operators will refuse to keep subsidizing the n95. We need to wait until the iPhone and Nokia's new services premiere in Europe this fall.


Impacts of the war: Alas, the innocent bystanders

The common denominator between Apple and Nokia is the imperative to move quickly. Nokia wants to broaden the competition fast, Apple wants to keep surprising Nokia with new features, products, and other changes. That's going to accelerate the pace of change in the mobile industry. And the accelerating pace of change, rather than anything in particular that Apple or Nokia have done today, is the biggest challenge to the rest of the industry. The other players have been struggling to keep up with the current rate of change; what will they do when Apple and Nokia step on the gas?

I've seen these situations before. You think you're just about keeping up with a competitor, and suddenly they disappear in a cloud of dust. I believe that's about to happen in mobile phones.

A shift from hardware design to systems design. Let's look at which companies have been most successful in smartphones: RIM creates e-mail phone systems that combine hardware, software, and services. DoCoMo and the other Japanese operators drive systems designs that combine hardware, software, and services. The iPhone does the same. Previously, those competitors were confined to particular countries or relatively small vertical markets, but now the world's biggest phone company is trying to do the same thing. That raises the competitive bar for everyone else in the industry.

What are companies like Samsung and Motorola supposed to do? They don't know how to create their own services, let alone integrate one well with a phone. In the music market, there are a lot of third party services out there, but none of them have been effective so far at challenging iTunes. I think they're not strong enough to change the competitive situation. Same thing for the operator services.

So the music phone market looks ugly. What's worse, if Nokia and the systems companies extend their new design approach to other data markets, the traditional mobile phone companies might be cut out of most of the big growth opportunities. They need to learn a new set of skills instantly, and they're far behind the curve.

The interesting potential exception to this situation is SonyEricsson, the leading vendor of music-enabled phones in Europe. Their hardware's nice, and they have a clean user interface that looks inspired by the iPod. Because I'm in the US, I don't have a good read on how smoothly the SonyEricsson phones integrate with operator and third party music stores. Is the experience as easy as using iTunes?

The Register says that Omnifone's Music Station is a promising possibility (link), but it's a subscription service costing 3 euros ($4.11) per week. For that same price you could buy 216 songs on iTunes per year, and at the end of the year you'd actually own something.

I really have trouble seeing the long-term economic benefit of a music subscription service for a user. If you subscribe to one, please post a comment and educate me.

SonyEricsson's management hinted to Time Magazine that it may create its own music service (link). If so, it had better hurry up. I have a lot of respect for SonyEricsson's hardware designs, but if it's limited to music stores with weird business models and ones that don't integrate seamlessly with its phones, it's going to have a very hard time outcompeting an accelerating Apple and a Nokia that's learning to integrate solutions.

Microsoft: Reverse course, again. This is the situation in which Microsoft could have stepped in to offer a music service to the phone companies challenged by Nokia. But in an exquisitely ironic move, Microsoft basically shot its licensed music store initiative last year in order to support the proprietary Zune. Now it can't step up to the opportunity.

Oops.

Microsoft is probably too late to recover in music, but as Nokia adds new services there should be a lot of opportunities to license equivalents of them to Nokia's competitors. Microsoft should focus less on selling its own OS, which scares the phone companies, and more on delivering services they can build into their phones.

And oh by the way, it's time to bury Zune. The iPod Touch just lapped it. If Microsoft wants to lose money on proprietary hardware, it should focus on Xbox. At least there it's buying market share for its money.

The operators lose control. They were struggling to establish their own services suites back when things were moving slowly. Now that Apple and Nokia are shifting into high gear, I don't see how the operators can keep up.

You can find very different scenarios online for where this will lead. Andrew at the Register predicts that the operators may strangle Ovi by refusing to sell any phones that support it (link). He has a good quote from someone who knows both Nokia and the operators:

The operators own the relationship with the customer. They're not going to allow Nokia to own it.

On the other hand, Richard Windsor, the excellent telecom analyst working for Nomura Securities in London, said in an e-mail brief that the operators are doomed:

Through their inaction, mobile operators have squandered the opportunity to be the service integrator for mobile and are left with the prospect of offering nothing to users except commodity data packets.

Who will be right? It depends on Nokia's ability to generate user demand for its services. If the users want the services, the operators will have to go along with it. I assume Nokia understands this and is prepared to do a big marketing push. Unlike Nokia's previous efforts to set up content portals, this time it has to succeed or it surrenders the future to Apple. So the conflict with Apple also locks Nokia into a war with the operators.

Isn't this fun?

If I were running a mobile operator, I'd stop trying to create my own services bundle, and focus on enabling as many Internet companies as possible to deliver services on my network, in exchange for a small cut of their revenue. An operator with the innovation of the open Internet behind it might be able to keep up with Nokia and Apple. But an operator working alone will be very lonely indeed.

What does it mean for users? You'd think that all this new competition would be good for users, and in many ways I'm sure it will be. But Apple and Nokia are both showing a disturbing tendency to keep everything proprietary. The iPhone is not open to third party developers, and at this point Ovi appears to be about marketing Nokia services, not opening up the richness of the Internet. (To be fair, Nokia employees say that will change, but I'm not sure if they mean that they'll offer access to any Internet service, or just to some selected ones that they cut a deal with. I suspect it'll be the latter.)

Welcome our new Apple and Nokia overlords. There's a disturbing possibility that we may end up exchanging one set of walled gardens for another. They'll be lavish, beautiful gardens, far better than the operators' truck farms for data. But we may not get the open data marketplaces that a lot of people have been hoping for.

If you want to read other perspectives on Nokia vs. Apple, check these out:
-A confident view from Finland (link)
-A cautious view from Jupiter Research (link)
-An outstanding article by Mark Halper at Time, with quotes from Nokia and SonyEricsson (link).

This is what happens in technology price cuts

I want to write some more about all the recent mobile product announcements when I get more time, but tonight I have a chance for only a brief comment on Apple. I can't speak for Apple's motivations, and I know they pride themselves on thinking different, but no one I know in the tech industry -- and I mean no one -- cuts the price of a consumer tech product two months after launch unless they're seriously worried about demand. It's just not done, because it pisses off your early buyers, trains customers to wait a few months before they buy, upsets the channel, produces a lot of returned products, and distracts people from your other announcements.

If current iPhone sales are okay, the only other reason I can think of to cut prices this soon would be if you're worried about a competitive situation. Let's see, what competitive announcement could have possibly spooked Apple? Could it be Nokia's announcement last week of a music phone priced at 225 euros ($306)? (Link)