Take the iPhone application market as an example. At first, publishers were elated: at last, a content distribution platform with an embedded transaction system. They saw it as the first step to make customers pay for content. Then, another idea took over: market share. Like “eyeballs”, the old Internet Bubble de rigueur metric, market share is today’s mirage: once you get it, profit is (almost) sure to follow. Never mind there are zillions of companies that have once and for all severed the connection between market share and profit (Apple for computers, BMW in the auto industry, Nucor in steel production, name but a few).

Unfortunately, the first one who shoots for market share sets the standard, sometimes with surprising twists and turns. Take the Wall Street Journal: first-rate web site, highly successful business-wise with one million paid subscriptions (about $100/yr). When it came to the iPhone opportunity, guess what: they went for a free application loaded with pathetic ads — apparently locked on the saturation mode, the same banner kept showing endlessly. Just a few weeks ago, seeing a steep drop in profits, the WSJ.com reversed itself and restricted access to its app.

The same happened in France with Le Monde: the paper launched a free iPhone app even though some parts of its website are paid for. As a result, no one in the French market is considering a paid application. For good measure, we’ll recall Le Monde’s long history of setting costly standards for the industry. Ten years ago, when the socialist government imposed the work time reduction from 39 hrs to 35 hrs per week, Le Monde granted its employees a generous application of the law. The paper was similarly munificent when it negotiated copyrights for internet reuse of editorial production. Both first moves turned out be to costly to all publishers who had no choice but to align themselves to “le journal de référence” (not a reference in terms of business performance with years of continuous losses). As for now,  it doesn’t seem Le Monde has a plan to make a richer paid-for version of its iPhone app — even if the quality of the paper and of its web site could easily justify it.

Even if the media industry calls it a “game changer”, it appears the iPhone will be slow to strengthen bottom lines. Look at the chart below produced by the consulting firm Medialets :

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P&S cameras are the smaller (not necessarily simpler…) models you carry in your pocket and purse, as opposed to “superzooms”, bigger lenses with a wider range of focal length, or DSLR, bigger, heavier but also better, more flexible.
As discussed earlier, a look at DP Review’s excellent camera database will make the problem clearer: pixel density per cm² varies from 1.4 million, for high-end DSLRs, to 43 million for some P&S models. The smaller the pixel, the less photons received. The less photons per pixel, the less electrons they convert to in the sensor. This makes it harder to separate the “good” (picture) electrons from the “bad” (circuitry noise) ones. Everything else being equal, the result is higher pixel density means higher picture noise, that is worse picture quality, especially in low light when fewer photons fall on each sensor pixel.
(DP Review, arguably one of the 3 to 5 best photo sites on the Net, is now owned by Amazon. IMHO a smart move considering Amazon’s general reliance on user reviews to help its customers make good choices and, as a result, come back, and come back…)

So, I went out and bought one of the two cameras (Sony DSC-WX1 and Canon S90)mentioned in the August piece, the S90. Why this one? Because I could buy it locally while Amazon didn’t sell it directly, only through a third-party merchant. I pay a little more in Palo Alto, but I can walk in the store on a Sunday afternoon and get my “luser” questions answered. This saved me a great deal of time and money when I bought a Nikon D3: it mysteriously stopped displaying pictures when I moved the camera, such as in turning it towards the person standing next to me. Keeble and Schuchat features a real service department — and an amazing collection of “classics”, not limited to Leicas, unfortunately not for sale. They take the camera back, send it to Nikon. NTF, No Trouble Found. I retrieve it, the trouble starts again, demonstrated on the spot. No problem, they exchange the camera. Same problem, right in the store. All hands on deck, manual pages feverishly flipped. No solution, no explanation. I move my hand, the picture still disappears.
Finally, the most experienced sales person, who kept himself a little apart from the throng, grabs the camera and points to the source of the trouble, easily fixed.

See green circle pointing to the shutter button at the bottom right of the picture below?

This is the secondary shutter button you can use when holding the camera vertically, in “portrait” mode. Now, turn to the white dot, this is the lock/unlock indicator. When the two white dots are aligned, the button is unlocked and triggers the shutter. You turn the ring around the button, blue arrow, to lock it, to inactivate the shutter button.
We now come to the “luser” error: on most DSLRs, when you start pressing the shutter button, the display deactivates because you’re about to shoot the next picture, your face is already against the back of the camera as you peer, sorry, you compose through the viewfinder. If only I’d been left-handed… But, as I hold the camera in my right hand, the hell of said hand is dangerously close to the secondary shutter button. When I turn my hand to the right to show someone their picture just taken, I unwittingly do a pre-shoot press of the secondary shutter button, the picture goes away, the camera is “buggy”.
Unless, of course, I meet an experienced salesperson who shows how to lock the secondary shutter button…

Imagine trying to solve that problem by returning the camera to my good friends at Amazon, to say nothing of less customer-friendly e-tailers.

So, Keeble and Schuchat calls me, they got their first shipment of S90s.

In my case, I don’t like to use flash in “social photography” settings: dinners, meetings. Flash, unless you go high-end and indirect, is unflattering to people, ask your women friends. Put another way, better sensors mean more places and times where/when you can turn the flash off.

I’ll spare you more pictures here, I’ll just add it does a great job on California’s Route 1 and Big Sur as well, capturing delicate morning haze nuances.

As you can guess, I’m happy with my latest pocketable camera, a nice alternative to the big Nikon anvils. Other customers seem content as well, see the Amazon reviews.
One more thing, all picture have been taken in “executive idiot mode”, the green setting, with one nuance: Flash Off.

Before we go…

The high-ISO (high performance in low light) race could be replacing the high-megapixel wars of yore. See the newest Nikon D3S. This announced but still not available camera “sports” a high-ISO setting reaching 102,400. See Rob Galbraith’s review here. In particular, compare the 102,400 ISO picture, usable but not much more, to the 6,400 ISO shot, nice. I don’t know if Keeble & Schuchat will give me a good trade, but this new Nikon and its Canon competitor are looking real products, as opposed to markitecture.

Actually, I’m not gone yet.

—JLG@mondaynote.com

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You’ll recall I criticized the New York Times’ bosses and one of their writers, Brad Stone, in a July 2009 Monday Note titled “Brilliant insights at the NYT”. In it, as a NYT fan, I worried about the quality of reporting, concerned with the superficiality of Silicon Valley coverage, bemoaning the formulaic cut-and-past jog of quoting anal-ysts and other “usual suspects”.

Well, read this Fake Steve Jobs piece. There, Dan Lyons gives another example of the MSM missing key information, the OfferPal scams, and insights, how game companies “game” users and how social networks can put an end to such practices. For short, the scammers are companies such as OfferPal tempting on-line game users with offers for more weapons or more lives while sending a stealth tentacle into their wallets by tricking them into expensive subscription “deals”.
The NYT’s problem is it wrote a fairly positive article on the new Virtual Goods Economy while totally missing the ongoing scams controversy. See Silicon Watcher’s overview here.

Fake Steve Jobs is worth adding to your list of RSS feeds (Google Reader is a good way to manage those). Lately, Dan Lyons wrote another tart and insightful analysis of big company (IBM in this case) PR practices here. Enjoy! —JLG@mondaynote.com

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As I write this, I listen to NYU professor Clair Shirky’s lecture delivered last September at the Harvard University Shorentsein Center (transcript and Video here). Always brilliant and convincing, Shirky revisited the 1992 pedophile priests scandal in Boston, one that was heavily covered by the Boston Globe, but died out due to a lack of resonance in the public. Evidently, today, things would have reverberated very differently.  So, yes, there is a useful future for local digital media.

Having said this, allow me to express a slightly skeptical view.

First, people tend to celebrate the hyperlocal web for the wrong reasons, that is the depletion of local coverage by traditional media. Last Thursday, I was at the University of Central Lancashire in Preston (UK) for its 12th Digital Editors Network. There, the British news agency Press Association presented a “Public Service Reporting” project. The PA would recruit legions of citizen journalists, they would be asked to comply with the agency’s ethics standards as they report on local issues. As for now, the PA is building several pilots and is looking for funding. Tony Johnston, The PA’s training chief who presented the case, stated its ambition: a network of 500 to 800 journalists costing £15m to £18m a year (€17-20m, $24-29m). In a preamble, he explained that the British newspapers’ shrinking local coverage paved the way to such an initiative (details in Journalism.co.uk here).

Well. There are two ways of considering such move. One is to say: Great, community members take over the coverage that matters to them, they use all available tools: social network, live blogging, Flip-camera produced videos, to give local stuff the exposure it needs.
Another view is this: Doing local journalism is as complicated as any other kind of reporting. Poring over local financial records requires the same amount of time, dedication and expertise as digging into a national political party’s finances. Yes, citizen-like journalists will do fine reporting on “lighter” issues such as the state of schools or of the sewage system. But uncovering and preventing what really matters, such as the misuse of public funding, rigged bidding procedures for large projects and so on is a very different story.

More broadly, a professional journalist is required to avoid take sides in doing his or her job. Leaving such coverage to self-appointed journalists is opening the pandora’s box to all kinds of agenda-driven reporting. The internet already suffers from a blogosphere that is largely infected by brand-induced spinning (see our story  Rotten Apples in the Reviews Barrel), with merchants taking advantage of bloggers’ lack of training and precarious finances to blend advertisement with reviews. Chances are the same will happen with local coverage provided by brave citizen reporters who will have a hard time remaining independent.
As I write this, the situation in the South of France (the Provence-Côte d’Azur region) comes to mind. Down there, not a single large public infrastructure bid is adjudicated in a fair and transparent way. Big utility companies conspire, divvying-up markets, price-fixing multimillion deals. They do this in an increasingly sophisticated way, to the point where the judicial system has mostly given up (OK, regional governments also threw their hands up too; reasons are part incompetence, part business, …hem, pragmatism). Plus, thanks to skilled PR firms, these conglomerates became increasingly better at spinning the tale in the “right” direction.
Point is: no brigade of well-intentioned citizen journalists will have the resources to unveil what really “counts”. It doesn’t mean we have to give up the concept of public reporting; I’m merely emphasizing it won’t replace true, professional (and expensive) journalism.

When it comes to the Holy Grail of local news on the internet, the other reason for my skepticism lies into their economic sustainability. If you rely on volunteers, you get what you pay for. Should you compensate bloggers, costs will climb fast. The advertising market? Well, chances are your independence will collide with your business needs. Plus, local ads are hopelessly cheap. On the French market, for instance, multi-local newspapers know that the ratio between national ads and local ones is roughly 10:1. Apply this to the web economy, it’s unlikely you’d build a decent revenue stream.
Paid-for services? Maybe, but they require a different model. People are unlikely to pay for local news; they might, possibly, pay for data-rich packages but the free supply is already abundant. Just consider EveryBlock.com, it aggregates tons of public records (crimes, building permits, restaurant inspections, all sorts of stats) into a cleverly arranged interface. Covering 15 American cities, it collects a small audience (445,000 unique visitors in October according to Quantcast — and no growth). Aside of an acquisition by MSNBC last summer, we don’t see a business model, even though EveryBlock is just a six person operation (see the article in the NY Times).

Some pundits remain bullish on hyperlocal coverage by bloggers. In The Guardian, Jeff Jarvis recently defended (romanticized?) the idea of building “an ecosystem around hyperlocal bloggers“. He mentioned “some” (how many? 30 or 3000?) hyperlocal bloggers “serving” (what does he means by this? “Reporting“, “covering” is fine, but “serving“…) markets of 50,000 people making $200,000 in advertising revenue. With no further specifics, it sounds more like wishful thinking than facts.

Large newspapers are thinking hard about local or hyperlocal coverage and they closely monitor the “ecosystem” (see The Guardian’s topic page on Hyperlocal Media). Many, such as the New York Times, seem concerned with missing the local train (in Chicago for instance). This is actually a smart move for brand consolidation. But as far as the beef is concerned, they better get ready for a vegetarian meal. —frederic.filloux@mondaynote.com

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Earlier Android-powered phones weren’t so great, I bought a T-Mobile G1 exactly one year ago and wasn’t overwhelmed. I then called it “just a first effort” and wrote: “It’s only a question of time before most phone makers and cellular carriers offer an Android model, 12 months or less.  Motorola, for example, is building a “social networking” Android phone.  This is precisely the beauty of the Android Open Source, it lets phone makers and carriers try different implementations, specialized models, vertical applications.”

One year later, we have a new situation, a real contender for the lead position in the exploding smartphone market. How will Android impact the rest of the industry: Motorola, Garmin, TomTom, Palm, Nokia, Microsoft, RIM and, of course, the iPhone’s meteoric rise?

For Apple, the short answer is: the iPhone will continue to apply the Macintosh method, that is controlling all or most of the user’s experience, with similar results: smaller market share, disproportionally larger profits than the separate hardware-software crowd. More on this later.

Let’s start with a tip of the hat to Motorola. Last year, I questioned Motorola’s strategy and even its survival. Their “mobile devices” business was going to be spun off, the smell perhaps, from the more dignified “institutional” business, selling communications gear to government and enterprise customers. Fortunately, the new co-CEO for the mobile devices business, Sanjay Jha, came in, saw the on-going wreckage, dumped everything, starting with the Windows Mobile anchor. Then, listening to his techies’ advice, Jha bet on Google’s Android. The result is the Droid smartphone, making Motorola a strong contender again.

The same can’t said for makers of PNDs (Portable Navigation Devices) such as Garmin and TomTom. The latter company tried to dodge the bullet by announcing an iPhone application and a car kit. But the app costs $99.99 and the car kit goes for $119.95 at the on-line Apple Store, iPhone app not included. Not going to fool too many buyers, especially if, as rumored, the Google application becomes available on the iPhone. (You cam get a TomTom One for $79.99 on Amazon…)
The situation isn’t any better for Garmin: reviewers panned their Nüvifone, a Symbian-based PND + smartphone combo, now offered on Amazon with a $200 discount!
As a result, Wall Street dumped shares of these companies last week, with prices going down by 30% to 40% in a few days. Keen observers noted Google no longer refers to an external source for map data; previously, it used TeleAtlas, owned by TomTom.

We’ll quickly dispose of Palm, they’re the ones most likely to suffer from Android 2.0 running on Motorola’s Droid. Any hopes of saving the company through a Palm Pre distribution deal with Verizon are now gone. The company’s shares lost 13% since the Droid announcement. (Two months ago, I bought a Palm Pre, tried it and returned it. The Sprint people in their University Avenue Palo Alto outlet, five doors from the Apple Store, were lonely and understanding. My conclusion at the time: if you need a physical keyboard, get a Blackberry; otherwise, get an iPhone.)

Nokia is now reviewing its US market strategy, one they’ve so far treated with hauteur, secure in their leadership position in the rest of the world. They’re making up with Qualcomm, the phone chip supplier as well as attempting to restore “normal” (read subsidized) relations with US carriers Verizon, AT&T and T-Mobile. Up to now, Nokia resisted carriers dictating the features and services allowed on the handsets they distributed. Nokia wanted to sell its own Ovi Content while Verizon, for example, wanted to push its own. I was going to forget suing Apple on IP (Intellectual Property, patents) issues. As it makes new friends and enemies, Nokia is also performing a delicate platform transition dance, throwing Symbian to the curb and, how original, embracing Linux. The Symbian move is dressed up as open-sourcing the aging Psion-derived platform and spinning it to the politically correct Symbian Foundation. As for Linux, we have their Maemo platform: “Linux-based Maemo software takes us into a new era of mobile computing.”
Whether Nokia can write competitive system software and get good applications for it remains to be seen. But one thing is sure: they want to retake their “birthright” taken away by those two Silicon Valley interlopers, Google and Apple.

RIM is in similar but apparently stronger situation, and no less decided keep their standing in the race. The company has been successful with enterprise customers, less so with consumers who don’t care much for Microsoft Exchange compatibility/synchronization. But they now face their application platform’s limits: it is significantly harder to write applications for the Blackberry, it uses Java and, as a result, the applications have less “expressive powers” than with other operating systems. Think of a flute versus an organ’s many registers. For just one example, iPhones (and the iPod Touch) have become a leading gaming platform, something customers love, a good 30% of downloaded apps are games. Engaging, highly interactive games aren’t really possible on the Blackberry platform. How RIM will deal with their OS shortcomings isn’t known yet, but the two co-CEOs, Jim Balsillie and Mike Lazaridis, aren’t pushovers; actually, other, sharper epithets are often employed when referring to their fighting skills. In the last 3 months, RIM shares have gone down by 23%.

As for Microsoft and its Windows Mobile product, we already discussed their situation last week. In struggling for dominance, we know what, for them, constitutes creativity: opening Microsoft Stores next to Apple Stores or re-christening their smartphone platform Windows Phone. Emulation might be a better word. Microsoft faces a difficult problem and a tough adversary. The problem is the price of a Windows Phone license, somewhere in the $15 to $25 per handset, an enormous sum in that industry. Android is free.
Nokia writes code, the expense is part of the cost of engineering their devices, there no additional unit cost. The same is true for RIM, Palm or Apple.
For Microsoft, to survive in the fight for the really personal computers market, they’d have to give away their software. Will they? They have as much or more money than Android’s mother ship, Google; but do they have a hope of ever recouping the Windows Phone investment through advertising or Cloud services, as Google must be planning to do some day? The other possibility would be making their own Microsoft-branded smartphone. They said they wouldn’t. They also said that for MP3 players and then turned around and did the Zune. For that matter, they might emulate Steve Jobs again, not averse to 180º turns himself: remember ‘No native apps on the iPhone’. As Android keeps gaining momentum, it’ll be interesting to watch Steve Ballmer’s lips.

Which leads us to back Apple and its iPhone/iTouch platform.

Consider the past, how the Macintosh climbed back from a 2% market share nadir to its current 9% and growing faster than the PC industry as a whole. Moreover, in the “premium”, that is above $1,000 segment, consumers are said to give Apple a 91% share.
How did this happen in an industry where Microsoft provided Windows and Office applications to legions of PC makers?

When Steve Jobs came back at Apple, in 1997, he got rid of top managers, brought his own team in and put an end to the Mac OS licensing agreements. At the time, this was viewed as heresy. What critics conveniently forgot was that real strategic purity would have  taken Apple completely out of the hardware business, no more Macs, just Mac OS licenses, just like Microsoft doesn’t make PCs. Steve’s view was Mac clone makers were bleeding Apple’s hardware margins, taking away the financial resources it needed to invest in its future. Instead, Apple went on a campaign to more completely control the quality of the Macintosh customer experience: hardware, software, the buying experience at Apple stores, consultation, training, data migration when buying a new computer or switching from Windows, technical support and repair. Both JD Powers and Consumer Reports surveys attest to the success of such strategy, consistently placing Apple as the #1 in customer satisfaction.
A look at profits sheds further light on the respective benefits of open versus proprietary systems. In their latest quarter, Dell’s net income (profit) amounted to $472M; HP’s Personal Systems Group had an operating income of $386M, not exactly comparable to Dell’s figure; HP’s net, after-tax number is probably lower. In the same quarter, Apple’s net profit was $1.67B, that is more than twice the combined earnings for Dell and HP’s PC business. These two companies enjoy a combined 33% PC market share, versus Apple’s 9.4%. Market share and profits aren’t the same, ask BMW and General Motors.

Turning to the iPhone and Android: How will Apple deal with Android’s new 2.0 version running on a strong Motorola Droid — and with the legion of other handsets that are sure to follow?
Today, with close to 60 million devices in the market, with China distribution opening up, 100,000 applications by the time you finish reading this, Apple has momentum. Besides a good product, Apple enjoys a strong network of retail outlets, the Apple Stores, and iTunes, the King Kong of media distribution platforms with an integrated micro-payments system.
But, in a market that will eventually number billions of devices, as discussed last week, this isn’t an impregnable position.
For Apple, the temptation could be to keep rolling in cash while Android 2.0 is followed by version 3.0 and so on, garnering more and more support from handset makers and applications developers. Some pundits conclude: Eventually, Apple will be overwhelmed by a swarm of Android-based smartphones and applications. Further, just as Microsoft leveraged the OS-applications combination, the Windows-Office relationship, Google could, will use a synergistic relationship between the data in its 2 million servers and the new generation of mobile pocket computers. The power of Google data is already demonstrated by the new Android 2.0 navigation application.
Let’s address this question: will Google play its server farms and data against Apple or will it use the iPhone as well as any other smartphone to further its only cash-generating business: advertising. Or, if Google uses Google Docs to really go after Microsoft’s gold mine, Office, will it team-up with any and all devices or just use Android (and the Chrome OS) for this fight?
Put another way, with a free Android, Google isn’t in the smartphone OS business per se. Google believes in the future of these devices and, as a result of such belief, it wants to make sure to have enough influence on this emerging genre. More specifically, Google wants to guarantee all (or most) smartphones feed their Cloud Computing cash machines, starting with their advertising business.

Then we have Facebook becoming the Internet’s largest site, having 300 million users and growing fast. In a not-too-distant future, Google’s failure to achieve any momentum in this sector of Cloud Computing will reshape alliances as Facebook’s advertising business takes off. It will, see this. Google will need to keep all smartphones as “happy clients” for its services as Facebook becomes a real alternative.

Besides business model focus, advertising versus operating systems, and the shifting of Internet power centers (I spare you the “tectonic plates” bromide, this is happening much faster), we have Apple itself, its product or products, versus the Android universe.
In the end, will the swarm of Android-based phones overwhelm the monolithic Apple platform?
Drawing on the Macintosh story, the iPhone can end up selling less units than the total of Android-based handsets and yet make a great deal more money for its shareholders, its employees and its future. The significant difference between the Macintosh adventure and the current iPhone situation is the iTunes + App Store weapon. Steve Jobs understood what almost happened when Apple didn’t have the means to boost the distribution of Macintosh applications. Never again. — jlg@mondaynote.com

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This is exactly what happened in France, up to Yves Bertrand’s 2004 retirement. For 12 years, he was the director of a special branch of the French police (les Renseignements Généraux — General Intelligence). His carefully maintained and amazingly chatty notebooks have been subpoenaed in a recent slander case involving former prime minister Dominique de Villepin.

A book published last week, “Les Carnets noirs de la République“, pores over 2000 pages of the Gallic Hoover’s notebooks. The deciphering was done by Patrick Rougelet, a former deputy of this special branch who was fired when he began to investigate his boss’ financial dealings (don’t do that).

One of the most delightful chapters exposes the relationships between this police branch and the Who’s Who of French investigative journalism. The hooverish Yves Bertrand weaved close relationships with people at dailies such as Le Monde or Libération, and weeklies such as l’Express, Le Point, Marianne, to name but a few. In those organizations, regular correspondents — the book calls them “the perfused” –  traded information on a regular basis. Yves Bertrand also fed the French PR goddess, Anne Méaux (today, she advises French billionnaire François Pinault, but also Indian steel magnate Lakshmi Mittal and Banque Lazard). If that wasn’t enough, Frédéric Ploquin, one of Bertrand’s correspondent, had the nerve to be the interviewer for the self-justifying book, Ce que je n’ai pas dit dans mes carnets, published by the former skunk-police chief. Ploquin, the self-appointed “Grand Reporter”, works for Marianne, probably the most sermonizing French weekly (how come a newsroom can tolerate such a living journalistic accident remains a mystery to me).

Yves Bertrand’s former perfused are genuinely annoyed by this unpleasant coming out. But they are numerous and quite active. Actually, a good indicator of their penetration is the scarce number of reviews the book has got in the French medias. Omerta is an Italian vocable it seemed…

Yves Bertrand's calligraphy: About the Dassault dynasty (aircraft maker, media): "Father and son, people side, penny pincher and fond of blondes"

In the bad breadth journalism category, a special award must go to the Canard Enchaîné, an old-fashioned, old-managed weekly that remains a must-read in France. Not because of its investigative grasp, but because of its  capability to aggregate well-connected (anonymous) whistle-blowers and tipsters. In a nutshell, the Canard Enchaîné is the spillway for government or corporate officials’ frustrations, it carries very juicy pieces of information. If Le Canard’s “Page 2″ were set in the US, you’d read a detailed account of tensions among Barack Obama’s closest advisors: Valerie Jarrett bashing Rahm Emmanuel, Larry Summers quarreling with Ben Bernake, and the President himself, commenting one cabinet officer’s blunder with the utmost vulgarity (a Sarkozy trademark). Here, the investigation part — classic journalism footwork, is marginal. Over the years, the Canard has been able to weave a vast network of sources, fed by the endless reservoir of frustration in French politics. Of course, as the notebooks show, Le Canard Enchaîné was well-placed in Yves Bertrand’s ecosystem. Its managing editor Claude Angeli was an assiduous correspondent. The old goat must also have some kind of deep throat in the military intelligence establishment: every week, we have prurient accounts of coalition’s turpitudes in Afghanistan and Iraq, why Israel is about to attack Iran, etc.).

That’s French for “investigative journalism”. For a significant part, it relies on a great deal of passivity, on a bunch of dubious, agenda-driven sources. All that is needed is a fax machine, an e-mail address or, for the most dedicated, an expense account (French restaurant are expensive, you know). All the while, these media dinosaurs keep bashing the blogosphere, the internet pure-players, the free papers, all considered as low grade journalism.

And, by the way, this brand of journalism is a great business model : the Canard Enchaîné is the most profitable French weekly with €34m in revenue and a net after-tax profit of €7.8m for 2008 (no ads, no presence on the internet). Good for them.  —frederic.filloux@mondaynote.com

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Advertising. Whether it is measured in inches, centimeters or pixels, newspapers or websites don’t sell ad space in the most optimized way. Commercial brands and their surrogates, the media buying agencies, keep increasing the pressure on medias to get higher discounts; in a country such as France (which roughly reflects the global marketplace), the net revenue per page sold went down 20% in the last twelve months. Even though French papers and magazines depend less on advertising for their survival than their Anglo-Saxon counterparts do, it’s a matter of concern.
There is no room for finger-pointing here: media buying people are doing their job, which is getting the best bang for their client’s buck. But medias can team up and propose (or impose) advertising packages based on socio-demographic structures, for instance. To a large extent, Rolex or Mercedes-Benz don’t give a damn whether they are favoring media X or Y as long as they are sure to reach the affluent people who might turn into customers. Or Nestlé’s baby food brands looking for child-rearing couples.

Logistics. When I’m traveling to New York, I’m always stunned to see half-empty delivery trucks emblazoned with the name of prominent newspapers, criss-crossing the city, sometimes twice a day (early and late edition). At the same time, I feel sorry for French publishers who have to deal with a distribution system so inefficient that it ends up with one point of sales for 2100 inhabitants versus Norway’s one for 360 people (no wonder why Norway’s rate of readership is four time higher than France’s). Up there, a cross-brands cooperation makes it economically viable to distribute newspapers in the most northern village during winter. In Paris, finding an open newsstand on a Saturday afternoon is an achievement.

Printing. I covered a large part of this issue in describing the French Figaro’s strategy. From a pure industrial perspective, owning a printing cathedral doesn’t make any sense (even though Le Figaro had good reasons to build its own). Again: competition has to stop once the actual product is out of the newsroom process. The rest must be left to a “coopetitive” marketplace — a European one on this side of the Atlantic — with price/quality being the main driver.

Technology. A great question for the new media cohort: how to manage technology cooperation between competing entities? Let’s try this answer : tech competition stops where it no longer impacts the user’s experience.
I believe mastering technology is life and death for digital media. Designing a clever web site, a great iPhone application, doing whatever it takes to keep the reader on board as long as possible requires a great deal of tech insight. Managing databases, for instance, is fundamental. Transforming endless streams of data into a compelling multimedia experience stands at the intersection of journalism and statistics, graphic design and pure engineering. Universities should offer a “media engineering” curriculum. And news organizations should hire such graduates (I’m pretty confident it will happen).
Having said that, the same principle should apply to technology as it does to printing and logistics: there is no point in competing for the best possible way to deliver videos for instance, that’s a job of Akamaï and others; similarly, hosting, ad serving, analytical tools, payment systems should be mutualized, with clusters of media companies teaming up to get the best possible prices wherever they can.

Here in France, the government is now devising a way to manage, a posteriori, its formidable profligacy. Last winter, it committed a windfall of €600m ($900m), to be spread over three years, for ailing newspapers. For now, publishers are rushing to finance new versions of websites or sophisticated iPhone applications with taxpayer’s money (ouch!).
French officials are consulting with guys like me to find the best way to use this money and to put an end to a subsidies addiction that cripples innovation. I basically tell them: spending €466,000 ($700,000) for each union workers’ job bought off is indecent; and so is not playing hardball with press barons, not forcing them to cooperate, to eliminate inefficiencies in printing (no master plan whatsoever) and distribution (a formidable fromage for unions and a small coterie of elderly media execs). France has proportionally three times less newspapers readers than Sweden, but each French reader gets five times more subsidies. Time to take care of this. — frederic.filloux@mondaynote.com

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You might have heard Microsoft just launched Windows 7 this past Thursday, to good reviews and newish Apple ads, more installments of the ‘I’m a PC, I’m a Mac’ age-old campaign. The gent who plays the PC, John Hodgman, is much more than the character he’s become known for. See the speech he wrote and delivered at the June 2009 White House Correspondents dinner: he roasts the newly elected Barack Obama, calling him the first nerd president. This YouTube video won’t bore you, I’m not sure I can say the same for the latest, somewhat repetitious Apple ads.

As for Windows 7 itself, I haven’t updated any of the four candidate computers I mentioned last week. In part because I want to hear from early upgraders before I take the plunge, I still have the expensive and painful memories of being a Vista early adopter in 2007. I was the first one in line at Fry’s, in Palo Alto, at 8:00 am on January 30th — and proud of it. When the door opened, I turned around and saw I was also the only one in line. Instead of taking the hint, I forged ahead, bought a big HP laptop and the full Office 2007 Professional DVD. I had grown reasonably adept at running Windows Xp machines and couldn’t imagine how painful the Vista experience would turn out to be. I’m more careful, this time.
There is also the money. Upgrading the four machines, including a first install on a Linux netbook will cost me about $800, plus some application software, plus my time. Upgrading five Macs in my family cost me $49 and not too much time as the process was, for me at least, uneventful.
(This said, I plan to write a few short subjects on strange bugs, UI caprice or ergonomics non-sense in Apple’s products. Being a polite optimist, I’ll marvel: if the products sell so well in spite of these kinks, imagine what would happen if these problems disappeared!)

We’re now turning to Microsoft’s quarterly numbers. They weren’t as bad as Wall Street feared and, as a result, the stock went up. Sales (revenue) reached $12.9B, down 4% when compared to the same quarter a year ago. In a depressed economy, that’s a very decent result, especially when you consider the inevitable delay in purchases prior to the Windows 7 launch. An even more impressive number is cash and cash generation: Microsoft added $5B to its cash reserves in one quarter, not one year, to reach a total of $36.7B. For all the criticism of Microsoft “falling behind”, for all the barbs thrown at its cheerleading CEO, such numbers are the envy of the high-tech world. No matter what critics say, Microsoft is showing tremendous staying power, it has the means to weather many more storms and still come ahead.

And yet… There is this feeling Microsoft is sustained by its Enterprise franchise (Windows + Exchange + Office) but fails to make headway anywhere else. For example, its on-line activities lose almost as much money as they bring in revenue, $490M in revenue, down from $520M a year ago, with losses of $480M, up from $321M the same quarter last year. This says, roughly, that, on-line, Microsoft spends $2 for each $1 of revenue.
Even more mystifying, Microsoft’s position, real and “official”, in the Mobile Internet space.

Take a look at the following three slides from Mary Meeker’s presentation at the Web 2.0 Conference last week, full 68 pages PDF here, worth your bandwidth. (The old fogies with some memory left will recall Mary Meeker gained unwanted fame when the Internet Bubble burst. She was vilified, but not indicted, for her unrelenting promotion of Internet stocks. She recovered and stands as a very respected Wall Street analyst, a Managing Director at Morgan Stanley.)

First, the computing cycles, a quick recap:

The explosion, the number of devices involved with each cycle:

And, finally, for each cycle, the speed of adoption:

Two conclusions from these three slides (and, trust me, the other 65 are also very meaty): what Meeker calls the Mobile Internet is the fastest accelerating computing cycle the world has witnessed. Further, it’s going to be larger than the cycles before it, see the second slide, 10B units or more.

Back to Microsoft, they’ve been “at it” for more than 9 years, Windows Mobile, the child of Windows CE first appeared on a Pocket PC in 2000. (See the somewhat slanted Wikipedia history here.)
According to this August 2009 Mobile Metrics report, Windows Mobile market share went from 7% in February 2009 to 4% last August.
Last year, at Walt Mossberg’s All Things D conference, Steve Ballmer predicted a 40% market share for Windows Mobile in 2012, this after repeatedly calling the iPhone a “passing fad”.
(Bill Gates did the same for the iPod in 2005. He was a tad more prophetic, but not in Microsoft’s favor, when he concluded that “mobile phones with an ever-growing list of multimedia capabilities as being one of the biggest threats to Apple’s portable music player domination.” Right, that’s why Steve Jobs introduced the iPhone as the iPod of mobile phones.)
Ballmer keeps going: in a TechCrunch interview, he contends that “non-niche” products need to be “north of 300 million [units] a year”, explaining that iPods, for example are niche products. He then moves to making his main point: when volumes reach 500 million or 1 billion units “the software that’s gonna be most popular in those phones is gonna be software that’s sold by somebody who doesn’t make their own phone. And, we don’t want to cross the chasm in the short run and lose the war in the long run and that’s why we think the software play is the right play for us for high volume, even though some of the guys in the market today with vertically oriented solutions may do just fine.”

In other words, RIM, Palm and Apple might do fine for a while but Microsoft will win when the 1 billion unit game really starts.
How Microsoft expects to win against the free and open Android, supported by god-rich Google, Ballmer doesn’t say.
The present is unimportant, anecdotal, the future belongs to us.
In a way, I admire Steve Ballmer’s consistency, deny, deny, play the Jesuitic Holy Effrontery game, an established Microsoft strategy. Another example came up last week when Ballmer said this in an AP story:
“Let’s face it, the Internet was designed for the PC. The Internet is not designed for the iPhone,” Ballmer said. “That’s why they’ve got 75,000 applications — they’re all trying to make the Internet look decent on the iPhone.”
Insightful. And honest, yes, probably honest as a genuine reflection of Ballmer’s and Microsoft’s internal belief system. And schizoid as well, as in forgetting the state of their own Windows Mobile browser.

But let’s leave smartphones and go back to Ballmer’s prayer wheel, the “we keep trying and trying and eventually get it right” mantra.

Search. Microsoft has been trying search for how long? Five years, seven years? No, since 1998 when they announced MSN Search. The latest incarnation, Bing, after their Yahoo! deal, now gets about 9% market share while Google still hovers around 65%.

Facebook. According to Silicon Alley Insider’s Henry Blodget (another Internet Bubble repentito), Facebook is about to become the largest website on the planet, more than 300 million users, about 1 in 4 Internet pageviews. Is Microsoft anywhere in this space, other than being a Facebook minority shareholder (1.6%, $240M invested at a $15B valuation and an advertising deal)?

iTunes. Growing much beyond it early iPod supporting role, beyond giving consumers a reason to prefer iPods, iTunes has evolved into a monster digital content distribution service cum micropayment engine with more than 100 million credit cards attached. iTunes will soon be  9 years old. Where is Microsoft in that space? How do they plan to become relevant?

Microsoft has money, engineers, executives, consultants, a great Board of Directors, including a very successful and very awake Silicon Valley VC, David Marquardt of August Capital, as well as another local icon, Reed Hastings, who founded and runs Netflix.
What are they telling Ballmer, the CEO, and Bill Gates, the Chairman?
How much would you pay to be a fly on the Microsoft’s boardroom wall?

We have this great company with tons of money and talent and, yet, an enterprise that seems unable to become relevant in any of the new growth engines. Something will have to happen, but what? —JLG@mondaynote.com

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In both cases, the idea is the the same: a casual blogger from the network writes whatever review he or she wants to in exchange for a free product. The item can be an electronic appliance worth a few dozens of dollars (sterling pounds actually, the company is UK based) or it can be a trip worth a thousand dollars. The brand pays FuelMyBlog 25£ ($40) per review, that’s how Dixie makes its money. (The process also results in those brands getting higher Google pageranks). With the explosion of the iPhone applications business, Dixie decided to roll out a dedicated site based on the same idea: the blogger purchases the app, tests it, writes a review and FuelMyApp reimburses him for the price of the application via its PayPal account.

I met Kevin Dixie last week at the Eurovision’s NewsXChange conference in Malta. Although I found his little system quite clever, I told him I couldn’t help but feeling queasy about the flexible ethics involved. It’s OK to get a free brand new disposable razor for a test, but staying a week in a resort for free and expecting a true and honest independent review is a totally different story.  Having lived and breathed journalism for twenty five years, I don’t buy the idea of freebies being compatible with independent reviews. It is actually a question of degree. Getting a book or a CD from a publisher is OK because it’s only a $20 item. Getting a $200 software product, or a $500 weekend for free and expecting a balanced review is questionable, to say the least.

I happened to live in a country where entire segments of journalism — I’m talking of mainstream media, here — are corrupt. I could tell countless stories of reporters covering the auto industry who call an automaker’s PR department of to get a car for a weekend escape with their girlfriend, or who are flown to Tunisia to test a new model (four days, five star accommodation); I know a journalist, working for a major women magazine, who is so deluged with free stuff that she has to organize a private sale twice a year to clear her closets; I know sports reporters who feel “so close” to their beat that they refuse to explore controversial chemistry or money issues; I know tech reporters who are literally warehousing software and computer games and who have not bought a single PC in ten years.

Of course, many an editor tried to take action against such practices. At 20 Minutes, we attached a set of rules to the working contract; those rules stated what was acceptable and what wasn’t. A book sent by a publisher or an invitation by a source in a not-too-expensive restaurant was fine, but an iPod or the test-drive in Tunisia was not. Although I could not guarantee this system has been 100% foolproof, I think it performed reasonably well. (In one instance, I had to fire a freelance tech writer who kept calling PR to request computer games for alleged tests, but resold them on eBay).

Fact is, medias are increasingly subject to a soft form of corrupting pressure by merchants. For example, as news outlets cut costs, many yield to the temptation of press junkets. And PR firms or in-house flacks are happy to fill the gaps, in a pure and disinterested way, of course. For the same reasons, a greater number of technology reviews are provided by lowly-paid freelancers instead of staff writers who are supposed to be paid enough money to be clean.

No wonder why PR, marketers, and others intermediaries are now lusting for the blogosphere. Think about it: thousands of blogs, most of them written by penniless amateurs, not bound by any ethical rules… It’s a dream come true for the flack crowd. Blogs represent a new playground in which to buy influence. Actually, the Word of Mouth Marketing Association (Womma) estimates that such spending has grown form $300m in 2003 to $1.54bn in 2008, and is expected to reach $3bn in 2013…  Beside the blogs, there are also all the spaces dedicated for reviews such as the iTunes Store. “The more positive reviews you get, the higher you rank, says Kevin Dixie. Then, for a costly paid-for application that could translate into hundreds of thousands dollars in revenue, spending big for positive reviews is worth it.  Because of this, says Dixie, the App Store review system cannot be trusted. In many cases, the first five reviews have been paid for”. (On this topic, see JLG’s take below).

This context of suspicion led the US Federal Trade Commission to issues a directive forcing bloggers to disclose any conflict of interests, a 81 pages document titled Guides Concerning the Use of Endorsements and Testimonials in Advertising (full text here). Violating these rules could bring a $11,000 penalty.  Good idea, perhaps, but poorly executed. The blogosphere and many professional technology sites erupted in anger, saying this directive was impossible to enforce. The FTC had to back down (story in Business Insider), explaining that it won’t actually fine any blogger, just fire a shot across the bow for the most blatant cases. The other main argument against the ukase was its unfairness since Main Stream Media (MSM) were not subject to the same rule.

Well, two things here.

First, whether anyone writes a blog post or a column for a MSM, I believe he or she owes readers the same disclosure. It can be pretty simple such as mentioning any kind of relationship the writer may have to the subject. By the same token, any writer should refrain from writing about a company with whom he or she has any business. These rules should be a bare minimum of commonly accepted practices. After that, the ecosystem ought to take care of the rest. I bet readers will be good at sorting the good from the bad.  Some blogs — or review systems — will fall into the fishy, corrupt category, other will emerge as trusted brands. For that matter, there is no shortage of trusted sites and reviewers on the internet; they range from pure players such as TechCrunch, ArsTechnica, Gizmodo, CNet, ReadWriteWeb, or DPreview (for digital photography), to MSM writers such as Wall Street Journal’s Walt Mossberg (see his profile published by Wired in 2004) or New York Times’ David Pogue. Both are “brands” in their own fiefdom and are paid accordingly.

Second point: this will ruffle some feathers among digital libertarians but, clumsy as it was, I think the FTC directive had the merit of shedding light on unacceptable practices plaguing the blogosphere. Furthermore, I think some version of the FTC guidelines, in the form of non-enforceable recommendations, should be considered by the European Union as well. The blogosphere is a fantastic space for free expression. It should be kept transparent and free of deceitful content.

— frederic.filloux@mondaynote.com

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The Apple Q4 (fourth quarter) 2009 numbers matter less than the volume of comments will make it appear. If the numbers are good, fans will sing ‘I told you so’ and naysayers will object the good times won’t last. If the revenue and profit indicators are less than stellar, the ‘I told you so’ and ‘it won’t last’ will switch sides.

A similar pattern applies to Windows 7’s launch: this is the greatest thing since Vista, just kidding; this is disappointing; this works; this doesn’t; this threatens Apple; this is very good for Apple. (Apparently, Apple is intent on channeling the Windows 7 noise to its own uses with an aggressive campaign, likely targeting the pain Xp users who, supposedly, will endure a particularly arduous upgrading experience. We’ll keep this for later: I’ll upgrade a few computers from Xp, Linux, Vista Ultimate and Vista Home Premium and report back.)

Sages have already offered their obligatory contributions to each part of the libretto. And, things on the Web being immortal, wags have dug up equally authoritative 2 1/2 years-old claims from the same business and tech gurus when Vista was launched. Said wags invented a term, “claim chowder”, for such an amusing or embarrassing confrontation between past and present pronouncements. If you google the phrase, you won’t get much because the ever-obliging search engine thinks you mean New England’s “clam chowder”. Fortunately, Google Reader, the blog-reading engine, is more forthcoming and offers a bevy of examples such as this one, or this one.

The confusion and contradictions are understandable: I believe the computer industry is in a transition that makes divining the future by reading today’s tea leaves more difficult than usual. For example, how and how much will Cloud Computing really change the landscape? Or, what about netbooks, a fad or a lasting trend encouraged by a bad economy pushing consumers and business towards the bottom of the price range? Will smartphones continue to eat into PC “face-time”, into out use of desktop and laptop computers and, if so, how quickly?

Let’s turn to the bit.

This is about iTunes’ App Store. We know the bragging statements: 85,000 applications, 2 billion downloads. We’ll get even higher numbers by tomorrow. After just over two years for the iPhone — and a little more than one year for the App Store, such numbers can’t be viewed as “normal”, even for an “abnormal”, convention-defying company such as Apple.

But… For many of us, the apps cornucopia has turned into a frustrating maze: with so many applications, how do we find the really good ones? Ostensibly, there is a review system where users share their “honest” opinion of an app. But the user review arrangement is deeply flawed: with the low price of apps, $.99, $2.99 or so, what prevents an author from using shills to boost the app rating? And, if you’re not happy with your purchase, good luck trying to get reimbursed. Confusion and suspicion aren’t good for business.
A few months ago, with the advent of the 3.0 (which I called the real 1.0) version of the iPhone OS, “in-app” purchases made a little-noticed appearance. This feature enables transactions from within the app. For example, you’re playing a shoot’em up game, you desperately need more weapons, click, enter your iTunes password and you just acquired the latest laser phaser. Or, as I had the experience in Paris, after you bought an Augmented Reality application, the seller will get you to cough up a few more €€ in order to get additional maps. (In that very case, I think I got royally screwed, the app name is Bionic Eye France, this is my user review.)
Strangely, Apple prevented free apps from offering “in-app” purchases. There must have been a mellifluous explanation, I guess I missed it. Developers who wanted to offer a tryout had to provide the App Store with two separate apps, a free, “lite” one and the full-fledged paid version.
Never mind, somewhere inside iTunes, one bit just flipped from 0 to 1: free apps can now offer in-app purchases. As a result, in the App Store, users see a free app with an easy paid-for upgrade path from within the tryout version.
Nice, sensible; we should never take common sense for granted. But momentous?
If limited to the smooth tryout to paid-for upgrade path, probably not, even if this removes clutter from the hard-to-comprehend App Store. On this very matter, there are more than a few iPhone apps review sites such as Appolicious, iPhone App Reviews, or these four suggested by ReadWriteWeb.

To be fair, I think the App Store does as good a job as possible with its main page. Now, if iTunes starts publishing stats of conversions from free to paid-for, such numbers might have more integrity than somewhat suspect user reviews.

There is more. For the sake of argument, let’s say newspapers and magazines are in dire straits because they have trouble getting readers to pay for their Web version. With a regularity that betrays lack of real will, they threaten to erect pay-walls, to prevent Google News from indexing their content and so on.
One big problem with the pay-wall is the subscription, its combination of amount, duration and renewal ruses. For example, The Wall Street Journal, carbon-based edition, offers a “teaser” rate of about $120/year. Then, once you’re “in”, the renewal rate is than $480/year. A similar trick applies to the on-line edition. Consumers find the joke tiresome and balk.
Now, a thought experiment: a new version of the free WSJ application: headlines, summaries of stories, some free content such as red-meat red-state righteous opinion pieces. If you find a paid-for story interesting, click, a little drop of blood, a few cents, a good parasite doesn’t kill the host and you get the juicy report of the latest hedge-fund Ponzi scheme. Instead of a “bulk” subscription to every issue, every article, you only pay, a little, but that’s better than zero, for what you actually read.
Other newspapers offer a full PDF version of the “real thing”, but by subscription. With a free app showing off the appetizing stories, they’ll be able to sell the full PDF on an impulse, one-issue-at-a-time basis.

But, you’ll object, this thought experiment is ridiculous. Yes, iPhones render PDF files, but what’s the use on such a tiny screen? True, and that’s where the larger screen of the hypothetical Jesus Tablet comes in. Newspapers and magazines could be sold piecemeal, story by story, or whole, not by subscription but by using a low, carbon-free newsstand price. In passing, the larger screen (unlike the iPhone’s) re-opens the door to some advertising revenue.

In other words, flipping the in-app purchase bit for the free iPhone apps could prepare the ground for an iTunes newsstand. Or, if you write a book, you could package reviews (independent ones, of course) with choice morsels of your Magnum Opus, give it away as free app, with the in-app option to buy the whole thing. Or… I’ll let you dream up your own example, from textbooks to movies, to games, to how-to text + video, to your daily crossword or sudoku.

Nice little bit. It’ll make it easier for us VC to fund iPhone apps, and more generally, smartphone ones, once competitors catch up and offer similar arrangements.

—jlg@mondaynote.com

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• Online gaming:         between 400 and 600 page views per person and per month
• Facebook:………………………411
• Google:………………………….260
• Meetic (dating site) :………..208
• Leboncoin (free classified):..182

That was for the top 17 French sites ; further down in the rankings, medias sites go like this:

• TF1 (n°1 television network):…39
• Le Monde (national daily):………24
• Ouest-France (regional daily):…22
• 20 minutes (national free):…….20
• Le Figaro (national daily):………20
• Les Echos (business daily):…….14
• Rue 89 (pure player):……………10
• LePost (pure player):………………8
• Liberation (national daily):……….8
  (Those numbers apply widely elsewhere as behaviors don’t vary much from one market to the other)

Well. You see where I’m going: if you set aside tricks such as massive video or slide-show contents used to artificially increase page view numbers, heavily used news sites such as Le Monde’s or Le Figaro’s get less than 5% of the monthly page views of a gaming site. Agreed, you shouldn’t compare gambling and consuming information; but in analog life, there isn’t the wide difference we observe in the digital universe, on line, between the amount of time people spend playing the lottery or betting on horses, and reading a newspaper or a magazine. In other words, the internet hugely accentuates the viewer’s “engagement” in favor of social entertainment, at the expense of consuming solid, but static contents such as news. Depressing indeed. But here is the good news: there is room for improvement.

If we take 4 pages per visit as a credible average for a news site, adding 2 more pages  per visit will sharply increase the actual advertising revenue per visit. Not by 50%, of course, since the more you add pages, the less valuable they become (CPM drop fast once you leave the hottest part of a site), but still worth the effort.

A few months ago, I mentioned the importance of recommendation engines comparable to the ones used by e-commerce sites. These engines can be algorithm-based — people who like this, like that — or socially-based such as ratings systems. Speaking of which, I don’t mean to ruin the delicious mystique of the crowd’s wisdom, nor do I intend to demean the multitude’s ability to unearth the good stuff and dismiss the bad; but, as this story in the Wall Street Journal shows, internet users tend to be generally too kind: a survey of 600 sites shows the average rating is 4.3 stars out of 5. This exuberance makes most of the rating process pointless. Better find something else.

Like the semantic web.

Last week, at the Berkeley Media Technology Summit in California, Thomas Tague, from Thomson Reuters, presented the latest developments of the OpenCalais project. In a nutshell, it goes like this:

• You have a corpus of text(s), such as the stories in your publication
• You run the whole body of content through the OpenCalais system, which extracts the following:
  • People’s names
  • Companies, organizations, publications
  • Places (all sorts)
  • Events (e.g. company X is launching product Y)
  • Quotations (great for journalists and scholars)
  • Thesaurus (to a certain extent, extracted words such as industry terms, can be re-arranged in a catalog of meaning groups)
• In addition, it connects the generated tags to sources in a position to provide further depth. These could be mainstream sources such as the various flavors of Wikipedia, Crunchbase (the business database of TechCrunch), Reuters, International Movie Database or any kind of preset databases (online retailers, catalogs, product reviews, news archives, governmental databases, etc).

To get an idea, paste text of your choice in the OpenCalais viewer here. It will generate dozens of tags that will, in turn, be linked to other sources. Pretty spectacular.

All of a sudden, a corpus of relatively inert text, becomes a set of elements that can be searched, retrieved and connected to the rest of the internet (or to your own stuff). Needless to  say, as long as any content — photo, video, infographics — is properly tagged, it can be networked to the tags generated by Calais. For instance, the Calais plug-in I installed on the Monday Note site (Tagaroo), is linked to Flickr; in practice, each tag generated by Calais gives access to a vast library of pictures available under the Creative Commons license. Quite convenient (think about the looming standardization of contents — another subject).

A question you might ask: How does this technology improve my website’s profitability? Well, one of the key differences between a real news site and a shallow blog is the depth of its data inventory and, as a corollary, the potential for a great deal of added value around themes and topics. As a example, The New York Times has been able to greatly increase its viewers’ stickiness by adding a Topic page to almost every significant piece of news (they home-brewed their system). And the NYT didn’t spare its efforts: no less than 14,000 topics have been created with archives going as far as 1981!

At the Berkeley conference Thomas Tague mentioned several cases of big websites who benefited from Calais. CBS Interactive’s Cnet, The Huffington Post or the New Republic, have seen the following improvements:

• Better search engine placement (search results land higher in Google)
• Ability to localize their content through microsites targeted to a particular community
• Cost reduction through more effective content production (once every single piece of news is structured, it is way easier to organize contents)
• Ability to create specialized “niches” based on certain topic, sector, special interests, perspectives, etc.

All of the above having a positive impact on the critical metric: the number of pages per visit.

Launched in January 2008 by Thomson Reuters, OpenCalais has grown quite a lot. Built on the principle of a free and open system, OpenCalais now enjoys the support of a community of 15,000 developers. When asked why this tool is made freely available by Thomson Reuters, Thomas Tague replies that “surviving as ‘walled garden‘ of contents” is an outdated concept.

One last thing. I asked Thomas Tague about the name “Calais” (the closest French city across the Channel); he replied that, when, in 1851, Julius Reuters decided to switch his business model from flying pigeons to telegraph, he relied on the first submarine cable than landed in Calais. That was the beginning of the Reuters we know…

— frederic.filloux@mondaynote.com

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The enemy of my enemy is my friend.

As discussed last August, Eric Schmidt, Google’s CEO, had to leave Apple’s Board of Directors because, even for a Valley used to “coopetition”, the conflict of interest became really blatant.

Both companies make operating systems for smartphones, the new wave of personal computing. There, we have Android vs. iPhone OS. For the desktop, it’s Chrome OS vs. OS X. Yes, for the desktop: Chrome OS purports to be a Cloud-oriented netbook OS but, as explained in the same August 9th MN, Chrome smuggles very substantial desktop code under the cover of “mere” browser plug-ins, this to let Chrome OS stay useful in the absence of a Net connection. Picasa competes with iPhoto, Chrome, the browser, not the OS, competes with Safari. In July, Apple bought PlaceBase, a mapping company, whose Web site is now reduced to a set of API (Applications Programming Interface) documents, very likely to gain independence from Google Maps.
The more we dig, the more we find places where both companies want to pick the same pockets. If you think about it some more, both companies behave as if they’d want all your attention and all your money. Still ruminating, could it be both companies no longer take Microsoft seriously and, having lost a common enemy must now be at each other’s throat?

Then, we have Verizon and Apple. The “love” between these two has been hot since or, actually, before the very beginning of the iPhone. A few weeks before the inaugural June 30th, 2007 shipment of the JesusPhone, Verizon incautiously circulated the now semi-famous “iWhatever” memo to its troops, dissing the iPhone and its maker. 50 million (we’ll see the latest numbers in about 10 days) iPhones and iPod Touch(es) later, Verizon is more than ever dead set against letting Dear Leader have its way with its business model. To Verizon, AT&T’s fate is anathema: AT&T let Apple “run the table” for digital media sales over its wireless network. Put more crudely, AT&T bent over and became a “dumb pipe”, a wireless ISP in the service of the iTunes content distribution and revenue engine. For this unnatural act, AT&T got a $100 ARPU (Average Revenue Per User, the industry-wide average is about $50) and the use of the iPhone as a lure to steal Verizon subscribers. Verizon can’t stand that thought, they want to keep their birthright, that is a piece of every bit of digital content revenue moving through its network.

Which leads Verizon to announce their upcoming App Store to supplement their music, ringtones and video content revenue. Try any and all of these for your own edification, content and UI. Then compare to iTunes, imperfect, overcrowded and hard to navigate as it is, and draw your own conclusions. Some of Verizon’s clunkiness is cultural, the old phone company culture, some is due to the Tower of Babel of devices to have to support. Still, out of necessity, out of wanting to own media revenue the way Apple does on AT&T’s network, Verizon is hell-bent on having their own iTunes equivalent — just the way Nokia does, or tries to do with Ovi.

Now we have the “logical” alliance of two Apple adversaries: Verizon and Google.

For its iTunes executioner plan to succeed, Verizon also needs an iPhone killer. RIM with the Blackberry? These people are impossible, they sleep with every carrier, strong products but, unfortunately, stronger minds even. Surprise, RIM’s two co-CEOs, Mike Lazaridis and Jim Balsillie want content sales for themselves. Motorola? Enough said. Microsoft? Worse than RIM. Google, on the other hand, is both prosperous and needy, a company of huge means with a no less huge need to establish their Android platform. For Google, Verizon do for Android what AT&T did for the iPhone. But, of course, this isn’t how Verizon sees it: they see Android as doing for their network what the iPhone did for AT&T. A questionable start for a “beautiful relationship”…

So, last week we had a big “partnership” announcement whereby Verizon welcomed the Android platform on its network. See the two CEOs’ sincere smiles in the picture. Ribbing aside, this looks like having the ingredients of a powerful alliance: the best wireless network, Verizon, allied to the Internet search (and almost everything else) giant, Google.
But once you start looking at the “small matters of implementation”, things lose their pleasant ring of synergy. For example, Google doesn’t make the smartphones, just their Android software engine; handset makers such as HTC or Motorola “port” (adapt) Android to their hardware. But as is sadly customary, wireless carriers, Verizon in our case, decide which and software hardware features they’ll allow and which ones they’ll block. That’s how, today, Verizon channels media downloads through their servers’ tollgates. Let’s say Verizon wants to sell navigation services, they may disallow competing Android applications, including Google’s. This would further babelize the Android platform as there would be a version for Verizon and a version, or versions, for the rest of the world.
For perspective, imagine two versions of Windows, one running on Dell machines only and one for the rest of the PC industry; this would segment Windows applications, some running everywhere, some running only Dell machines and some not running on Dell machines. Bill Gates, the enforcer, would have killed such a scheme. (For another take at Android’s babelization and developer support issues, see this TechCrunch piece by Michael Arrington.)
In passing, even Apple had to bend a bit: iPhone (legal) distribution starts this month in China, after two years of protracted negotiations, and after giving up on the Holy Platform Uniformity: Chinese iPhones have no WiFi, all downloads, all Net connections thru the carriers pipes.
Back to Verizon, there is distinct possibility they don’t care about fragmenting the Android platform: with a healthy network and the largest wireless subscriber base in the US, they think they have more than enough mass to create a stable, well controlled ecosystem.
Their goal is clear, they want both monthly ARPUs: AT&T’s $100 and iTunes’ $15 to $20 (the latter number my own unauthorized estimate). In a few years, Verizon could deploy 50 million or more Android-based “iPhone killers”. Turning to monthly revenue, we’ll assume an extra (above the industry average) $70 in ARPU for these smartphones ($50 for the data plan and $20 in content revenue). The result is $3.5B, yes, billions, in extra monthly revenue. Even if we take my assumptions as a tad optimistic and cut the ARPUs down, the result remains very substantial and explains Verizon’s eagerness to replicate the iPhone + iTunes ecosystem. (Apple’s quarterly numbers to be announced next week will confirm the size of the opportunity.)
Pondering how well and, if they do, when Verizon will succeed in building such a combined client-server edifice is an exercise left to the reader. One might want to ponder Microsoft’s inability to create anything approaching iTunes, created in 2001 and wonder about Verizon’s ability to write better software than Microsoft’s.

Instead, let’s turn to Google. What’s in it for them?

It can’t be licensing revenue, Android is Open Source, free. Advertising revenue? All smartphones have a browser (and a small screen…) so there isn’t any momentous advertising advantage for Google in a Verizon partnership; the carrier possesses no realistic way to significantly impact search engine usage, especially with the FCC (the Federal Communications Commission) looking into carrier deals and Net neutrality issues. Content revenue? Not too likely either: Verizon wants that revenue for itself and content owners are even less in love with Google than they’re fond of Steve Jobs. Recall the fracas, still going on, over book rights.
Running out of other possible answers, we fall onto a rather nebulous need to create an impression of momentum for Android: Look, we’re winning, we’re Verizon’s most favored partner.
Perhaps Google sees where the FCC is going: a form of Net neutrality for cell phones, a world where, as long as it is certified by an independent authority, I can “plug” the phone of my choice into the wireless network. (As our European readers know, they’re closer to this form of Net Neutrality than us in the US.)
In this scenario, Google would indeed get momentum for the Android platform before the Grand Opening of cellular networks. Perhaps, but it sounds a little thin, especially when you see Android phones are or will be soon available on T-Mobile, Sprint and AT&T.
We’ll have to wait and see if there is some clever wrinkle to the partnership or if this is yet another announcement whose product is the announcement itself and nothing further. In today’s context, connoisseurs of such BS will recall Verizon’s mellifluous and mendacious Open Network Initiative, promptly denounced as a joke, and Google’s own pious OHA (Open Handset Alliance). (I have one such announcement on my record: the 1989 Apple-Digital Equipment Strategic Alliance which produced strictly nothing beyond sage press coverage praising Apple for recognizing, finally, it couldn’t succeed by arrogantly going it alone…)

I’m puzzled. The more I look at the alliance between Verizon and Google, the more I see something concocted by corporate PR strategists without actual regard for what moves customers. Put another way: do you create a product, or a combination of products that will excite customers and increase revenue and profits as a result? Or do you torture spreadsheets and, once they spat the numbers you wanted, do you figure out ways to foist the answer as the new and improved Open Something upon the unwashed masses?
— Jlg@mondaynote.com

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To put things in perspective, the US equivalent would be a free daily distributed in about 20 cities, with 13 millions readers. More than Japan’s Asahi Shimbun. 20 minutes is not a mere compilation of newswires. It is a “real” newspaper, with original content provided by an 80+ journalists newsroom. And readers love it. Free it is. But so costly.  When we reached our cruising altitude, we needed about €200,00 ($280,000) in advertising to break even (which the paper eventually did achieve). In Spain, too, 20 minutos, became the largest daily in its market with 14 different editions and a good profit margin — that was before the recession struck hard. (The Norwegian group Schibsted owns 100% of Spain’s 20 minutos and half of the French edition, in joint ownership with the regional group Ouest-France).  

I was then an advocate for the “free” press and I still am. Applied to the print media, the free concept brings many great things. 20 minutes’ readers turned out to be :

• New : 75% of them didn’t read a newspapers before.
• Young : they were about 10 to 15 years younger than the average French reader.
• More gender balanced: we had an equal proportion of male and female readers.
• More professionally active (almost no retired people, for instance).

This was no accident, it was the result of a well-crafted strategy. We had detailed sets of data showing, who, where, at what time of the day, people where passing by 800 points of the greater Paris; we picked the spots — entrances of subway or commuter train stations, high density street corners —  that were of the highest interest to us. For instance, shortly after the March 2002 launch, surveys indicated we didn’t have enough female readers. We conducted a point-by-point analysis and found that women tend to show up 1/2hr later than men (because they were taking kids to the day care or school — well, nothing to be proud of, guys). As a result, women found the distribution racks empty. We adjusted distribution accordingly.
After a while, our distribution and marketing team were able to pinpoint exactly where a certain category of people would show up. That proved to be of great value to advertisers; when they wanted to target a particular segment for a commercial operation, such as distributing samples of their product, the yield we delivered was unprecedented.

It the particular case of a free commuter daily, free is the tool of convenience and user-friendliness. People got quickly used to finding their paper (20 minutes and Metro were launched at the same time) without going to a kiosk, or having to look for change. Surveys confirmed that the paper’s content value was by no means undermined by the fact it was free. Readers saw our paper as their companion for the commute, or for the coffee break. And they quickly trusted the paper’s content as much as any paid-for publication. The layout was designed for a quick read, with a media mix of hard news, lighter fare, and “news you can use” — all wrapped in a neat and convenient small format.

For free newspapers, suspicion and criticism didn’t come from the public but from the media elite. Ignorance of foreign business models, ideological bias, fear of the unknown, head-deep-in-the-sand posture, all led many members of the media establishment to reject the free concept.
These doubters didn’t know most English-speaking newspapers are virtually free with 80% or 90% (a bit less now) of their revenue coming from ads. At an INMA conference back in 2006, I recall the publisher of a big regional daily in the United States telling me the cover price was essentially a way to limit the print run and to count real copies — real meaning copies picked up with an actual intent to read them.

Free press detractors were adamant in denouncing the upcoming paid press cannibalization by freebies. They forgot to look at countries such as Germany: in 2000, using mob-like methods, that country fought back free press incursions in 2000; such a visionary move didn’t prevent German papers from experiencing a massive drop in circulation. And in France, a few years after the introduction of free dailies, it turned out that in the regions where free papers were absent, the local press experienced the same erosion as in free-infected areas.

More damaging was the advertising market’s attitude. Oddly enough, the ad people didn’t follow readers’ feelings toward the free press; instead, their behavior was rather influenced by the media elite’s disdain (surprising, really?). Anyway, based on this negative perception of the free model, they applied price discounts that lowered the free press’ revenue per reader when compared to the paid-press.  Even though we provided the ad community with tons of  independent surveys, even though 20 minutes France now ranks n°2 behind Le Monde among business executives, ad prices remain low when compared to the paid-dailies. The glass-ceiling is still unbroken.

Despite this, I remain bullish on the “Free” concept for media. In normal economic times (please consider the italics), if given the opportunity, I would start a new venture in the “Free” field tomorrow. Actually, I would go for a hybrid model: a highly targeted free publication (not mass circulation, variable costs are too difficult to recoup) and a “freemium” digital version on the internet and on mobile devices (i.e. free content but paid-for selected services). That, I think, is the killer combo.

More broadly, “Free” is a powerful value destruction engine. I write this as I’m coming out of a UC Berkeley School of Journalism conference, at Google’s headquarters, in Mountain View. There, I heard countless anecdotes describing the damage caused by Craigslist to the American press’ classified revenue stream.
This is not the only business devastated by the “Free” alternative. Think about the encyclopedia business wiped out by Wikipedia. (Having said that, I always thought the old-style online encyclopedias sucked; I’m a big fan of Wikipedia to the point of making a €30 donation.)
Or think about the music industry. I won’t shed a tear for records companies: greed, lack of vision led them to dig their own graves. But contrary to Chris Anderson’s promised wonderland, artists and small producers are struggling; they make very little with concerts and ancillary products, and free streaming such as Deezer or MusicMe doesn’t bring them a dime.

“Free” is not the miraculous new model Chris Anderson hyperventilates about in his book. “Free” is a tool with which to achieve something else to be capitalized upon. With free distribution of a product, you buy an audience in an unparalleled fashion, you buy the ability to build a great brand. And, if your product is good, you buy loyalty and value. It is a complex and uncertain process, especially in these difficult economic times.  But unless, your overall strategy includes a way to monetize these assets to the full extent of their reach, free is pointless. Free is merely a part of a process. Not an end in itself.
— frederic.filloux@mondaynote.com

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Let’s not throw stones at Ms. Huberty but, instead, question her bosses’ wisdom, work ethics or wakefulness. Is anyone editing the firm’s publications? Isn’t Morgan Stanley missing the real fight, the big struggle between Apple and carriers for mobile Internet content billions?’

First, Huberty’s thesis: If AT&T no longer had an exclusive distribution agreement for the iPhone, if, for example, Verizon also “offered” Apple’s smartphone, the device’s market share would more than double from about 4.9% to 12.2%. (In passing: what’s the last digit’s significance? Those are estimates, not measurements, good within a ± 10% margin of error, at the very best. Spreadsheet follies…)
Morgan Stanley’s seer bases her prophecy on French market share numbers after Orange lost its exclusivity and the other two carriers, SFR and Bouygues, gained access to the iPhone. The legend is the iPhone’s market share shot up by 136% as a result.

I’m sorry but that’s a lot of BS; there are no facts to substantiate such a claim.Readers probably know I’m a French-born Silicon Valley-based venture investor; I travel to the old country four or five times a year and keep reasonably close tabs on industry and political goings-on there.
Clouding the discussion with facts: The iPhone has been available from Orange since October 25th, 2007. The other carriers sued and local regulatory authorities subsequently nixed the Orange exclusivity. As a result, SFR started shipping iPhones in April of 2009, about six months ago. And Bouygues did the same about five months ago. Since 2007, Orange alone sold about 1.5 million iPhones. If Bouygues and SFR sold a generous 500,000 units since April 2009, how does this constitute a 136% market share increase?

But, wait, there is more. When it comes to carrier regulations, there are huge differences between Europe and the US. In Europe, carriers can’t play data communication games. They all have to let users connect to the Net and upload/download content just the way they do it with their PC. As a result, iPhones, their iTunes client, their App Store run on unlimited data plans offered by all carriers. We tend to forget Nokia, still the king of cell phones, has been selling smartphones in Europe years before the iPhone came up. European carriers aren’t in love with the idea of being “dumb data pipes” for these smartphones but, c’est la vie, they’ve learned to love the higher ARPU (Average Revenue Per User) provided by avid pocket computer users. Euro regulations are more protective of consumers’ interests than here, in the US, where our solons are carriers’ lap dogs.

Which brings us to Kathryn Huber’s main fallacy: she says nothing of the difference between AT&T and Verizon. She seems to believe Verizon is ready to let Steve Jobs “run the table”. The latter expression means: sell all sorts of content, music, videos, applications thru iTunes without giving the carrier a red cent. In old carrier’s culture, this is the exorbitant revenue Dear Leader hypnotized, to use a polite word, AT&T out of. AT&T professes to be happy with their plate of lentils: higher ARPU, about $100 vs. the $50+ industry average, and stealing subscribers from Verizon and Sprint, all verified facts.
Verizon, on the other hand, isn’t ready for Steve’s rule; the company made it clear they want to set up their own App Store for all mobile devices they’ll bless. Understandably, Verizon want to stay in control, they don’t want their well-regarded network to become dumb pipes, a wireless ISP. Here, control means taking their god-given piece of the action for content sold thru their network, as opposed to letting Apple and iTunes do the job and keep all the revenue.

Which is why I’m very skeptical of rumors regarding a deal between Apple and Verizon when the AT&T exclusivity expires. If we follow Verizon’s “in control” logic, they’ll bet on the advent of iPhone competitors attractive enough to avoid losing subscribers to the other three carriers. It could happen: Android keeps improving and could allow smartphone makers such as HTC to produce real iPhone killers. The Wall Street Journal’s high-tech guru, Walt Mossberg, just wrote a glowing review of Sprint’s HTC Hero.
This said, the question of catching up with the 85,000 apps on Apple’s App Store and its 2 billion downloads on 50 million of iPhone and iPod Touches is left unanswered. The iPhone started as a device, its is now an ecosystem. This is precisely what Verizon must be weighing: can they build one “just like Apple’s”, or should they ride it?

My own guess is Apple will encircle Verizon by making deals with T-Mobile (no hardware modification required) and Sprint (a simple change of baseband radio, different from the worldwide GSM radio on current iPhones, see my “Steve Cuckolds AT&T column here.). At first, it won’t double the number of units sold in the US, but Apple will stay in control of content revenue, a growing part of is future - I’ll explore that very topic in a future column.
Sprint has little choice if given the opportunity, it already agreed to let Palm sell content without restriction. T-Mobile is likely to be equally obliging. Which raises an alternate possibility: Verizon, reading the field, doesn’t like what they see and decides, instead, they will take the same $100/month plate of lentils AT&T learned to love.

Will Verizon take the iTunes pill? That would be an even better title for the Morgan Stanley “research” piece. —jlg@mondaynote.com

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Five years later, doubt is setting in. Fact is: very few businesses have been able to extract money from the Long Tail. Of course, as Anderson predicted, when entire inventories become accessible online, some of the lowest selling items in catalogs do get their Day in the Sun. But, when it comes to converting exposure into cash, the result is a pitiful rounding error. Last week in Oslo, friends and I were discussing the Long Tail theory’s impact on the news business. It turned out everyone around the table shared the same suspicion. One such doubter directed me to a recently released research paper by two Wharton scholars. To challenge Anderson’s theory, Professor Serguei Netessine and his student Tom F. Tan pored over Netflix data.

For Monday Note readers outside of the US, Netflix is a (some say The) DVD rental company deploying a huge physical delivery system (2 million DVD sent each day, $300m a year in postage fees). For Anderson, Netflix is the Long Tail’s poster-child: a vast inventory made easily accessible thanks to the internet, with users smartly rating forgotten gems. Three years ago, Netflix launched the Netflix Prize, a crowd-powered contest aimed at improving its user ratings recommendation algorithm by 10% (quite a leap, actually). $1 million would go to the winner. To feed the math-freaks, Netflix opened its data vault, a boon to the Wharton scholars who hungrily dug into the 200-2005 numbers. Their study is called “Is Tom Cruise Threatened? Using Netflix Prize Data to Examine the Long Tail of Electronic Commerce,” (full text here , presentation  here). The key finding:

“The Wharton researchers disagree with Anderson’s theory and its implicit challenge to the Pareto principle, or so-called 80-20 rule, which in this case would state that 20% of the movie titles generate 80% of sales. Anderson argues that as demand shifts down the tail, the effect would diminish. Using Netflix data, Netessine and Tan show the opposite — an even stronger effect, with demand for the top 20% of movies increasing from 86% in 2000 to 90% in 2005″.

This isn’t the first challenge to Anderson’s glowing theory. Three years ago, two Harvard professors, Anita Elberse and Felix Oberholzer-Gee, published a study (see: Will the “Long Tail” Work for Hollywood? ) showing actual decline of the lower selling videos between 2000 and 2005. At the same time, they said, the market became more concentrated as the number of titles making up the top 10% of sales dropped by half. Many similar papers show the same concentration in local internet searches or web sites consultations (36% of users’ time is spent on the top 20 sites, and that percentage is increasing, according to ComScore).

Of course Anderson disputes Wharton’s findings. (See his blog The Long Tail). But his defense of his speaking-fees producing theory fails to convince.  Basically, Wired’s editor opposes the use of percentage versus raw volume; in the case of unlimited inventories, he says, using percentage can be misleading. What he means to say is a very small percentage, say .01%, of a very large number, say 100 million, is still substantial: 10,000 units. Perhaps. But that misses the money point when no one knows or cares.

The point is the Long Tail doesn’t work as far as revenue generation is considered. This for two main reasons:

#1: The Novelty factor. This key question is addressed on page 12 of the Wharton study. In short: the number of new items is very high (1000 new movies released every year plus 3000 older ones newly rated by users in the Netflix system). As a result, users don’t have the time/attention to discover them.

Interestingly enough, this is exactly what takes place on the biggest news websites. If we do a search on those sites and narrow it down to the last 24 hours; we get a enormous amount of new URLs:

- 45,800 for the New York Times (out of 12m total URLs)

• 37,400 for The Guardian (out of 20m)
• 21,900 for Le Monde (out of 1.05m)
• 69,300 for Aftonbladet.se — #1 site in Sweden — (out of 1.2m)

Of course, this includes all types of URLs, from new articles to the smallest items added (comments, blogs entries, graphs, automatically generated stuff…) But it has been estimated that just one week of the New York Times is equivalent to the amount of information an 18th Century human being would absorb during his/her entire life.

The new releases syndrome also applies to books. In a country like France, where writers are prolific, no less than 659 books were released this Fall only (worldwide, 3000 books are published every day). Beyond managing physical inventories, this raises the question of audiences’ ability to simply internalize such volumes of information and to derive some awareness of their preferences. (For a very contemporary example, ask iPhone users and developers how they feel about the sudden explosion of applications, more than 75,000 as of this writing. How do you navigate such a boiling ocean? With a recommendation engine.)

Hence a very distinct possibility: the next killers apps could be information-magma navigation tools: filters of all sorts, recommendation engines, social or human-powered algorithms. Indeed, these tools might lift up some long tail items, but the head of novelty is growing so fast that unearthing long tail items won’t make much of a difference.

#2: The Dry Hole factor. Granted, both as a tool for access to catalogs and as medium, the internet flattened the music industry’s landscape. In the 80’s, an artist had to sell 15 million albums to be N°1 in the US market. In 2005, that number fell to 4.5m and in 2008, the N°1 on the US charts sold only 2.7m albums. Does it mean unknown artists emerged in the meantime, thanks no newly accessible catalogs? Perhaps. But over the last ten years, the music industry lost 40% to 50% of its revenue. As for legal downloads — in theory the Long Tail divers tool of choice — those don’t count for more than 5% in an album’s P&L. (Illegal downloads are 10 times higher in volume than their legal counterpart).

This also applies to the economics of the news business. Just consider the delta between the CPM for premium space (home page, head of news sections) and for the bottom of the inventory: we are talking of a 10 to 1 ratio, here. For news, the head paid much more than the tail. Having said that, it doesn’t mean than we should not develop better recommendation engines: as I explained in an earlier article (see Recommendation Engines: A Must for News Sites ), I think recommendation engines hold great potential to increase the number of pageviews for the recent part inventory.

Let’s add three other considerations: First, physical delivery of Long Tail items costs much more than it does for the top of the catalog (think about the parcel vs. the pallet). Second, for books or news, only the heaviest users are likely to drill into the depths of a catalog; and they represent a very small percentage of the user base. Third, the internet has done miracles, but it has had no effect on production costs. Whether for a new drug or a strong original news piece, pharmaceutical companies or publishers will continue to be more inclined to promote the recent, unamortized goods rather than the older, low margin ones.

To sum up, go ahead, pour time and resources in boosting the Long Tail — as long as you enjoy a big and profitable head.   —frederic.filloux@mondaynote.com

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• We’re stuck at 3GHz, so we add more processors on the CPU chip.
• Intel continues to lead with small “geometries”, 32 nanometers today, 22 nm tomorrow.
• The company pitches its x-86 processors for mobile devices.

More processors: Once upon a time, each year brought a significant increase in processor speed. Not to be too wistful about the early PC days, but a 1 MHz processor ran “perfectly good” spreadsheets. Like many bouts of nostalgia, this one omits important bits of context such as the complexity of said VisiCalc model, what other software ran concurrently, if any, what storage and networking devices were supported, what kind of display and audio devices were offered. Still, I’d love to see the original assembly language version of Lotus 1-2-3 run on a “bare metal” DOS configuration brought up on a 3GHz Intel machine — a CPU clock 3,000 times faster than the 1983 vintage machine.

In the early 90’s, luxury was a 33MHz Pentium. Now we’re at 3GHz, apparently stuck there  for the last 4-5 years. (A history of Intel processors can be found here.).
Why?
The faster you move something around, the more power you need. Try lifting and lowering a 10 pound weight. Slowly at first, once every 5 seconds, then every second, then twice per second. Your own body temperature will give you the answer.
Inside a processor, we have transistors. These are logic gates, they open and close. In doing so, they shuttle electrons back and forth at the circuit’s clock speed. These electrons are not “weightless”, moving them consumes power, just as we do lifting weight. As the clock rate increases, more power is needed, the transistor temperature increases. There are more precise, more technical ways of expressing this; but the basic fact remains: faster chips are hotter chips. Knowing this, chip designers found ways to counter the temperature rise such as using smaller gates shuttling a smaller “mass of electrons” back and forth. Air or liquid cooling of chips does help as well. Still, we hit a wall. With today’s (and tomorrow’s foreseeable) silicon technology, we’re out of GHz.
So, what do we do for more powerful CPU chips?

We put more processors on the same chip and, voilà, more computing power to feed our hungry operating systems and applications.
Unfortunately, it’s not that simple. Consider a database search for records containing the word “epistemology”. With one processor, you start at the first record, scan and iterate until you get a hit, note the result and continue until you’ve scanned all records. With two processors, you split the database in two and get the work done twice as fast. (Sharp-minded readers will know how to build counterexamples but, for our purposes, the basic idea is correct.) This is a type of problems where more processors mean more effective computing power.
Unfortunately, many real-world problems are not “parallel”. For simplicity’s sake, take a spreadsheet. In most cases, a cell relies on the value of another cell which in turn relies on… You see the point, the computation cannot be parallelized, it is inherently sequential. As a result, it will speed up if and only if we can increase the basic calculation speed, that is if we get more GHz. To get into real-world examples, most simulations, financial or physics one are very sequential.
More bad news: you need skilled programmers to write software that really uses multiple processors. Intuitively, when you go back to the database search example, the story you tell the computer, the program, changes when you move from a single processor to two processors. You must add phrases to tell each processor what part of the task it’ll handle. And you must also add instructions on how to coordinate their work, how to avoid stepping on each other’s work. In other words: software written for single processor machines needs modifications to effectively use more processors. Further, these edits aren’t trivial at all.
In real world product terms, more processors doesn’t automagically mean faster computers. In the best of cases, we’ll need time to see applications modified to make fuller use of the new chips, four processors for higher-end laptops, eight for desktops.
This hasn’t escaped Microsoft’s or Apple’s attention. They both offer or plan to offer tools allowing programmers to make better use of the new multiprocessor chips. Apple’s solution, called Grand Central Dispatch (GCD) looks good — on Keynote slides. We’ll see how it does in user experience terms and against Microsoft’s own solution.
(Apple also has a tool, OpenCL, targeted at helping programmers harness different types of processors, such as Graphics processors and conventional CPUs. That’s for another column.) Expect benchmark wars.

Smaller geometries: Here, Intel shows its technology and manufacturing might, to say nothing of its financial strength. It now takes about $4bn to build a new generation “fab”, meaning a factory where chips are fabricated. Each reduction in the size of a basic silicon building block, each smaller geometry requires new technical feats and billions of dollars. For reference, a nanometer is one billionth of a meter, the width of a human hair is about 100 micrometers. So, a human hair is about 3,000 times the width of a 32nm silicon building block. Tom’s hardware, one of the better techie sites, offers a fuller discussion of Intel’s latest and future feats.
In practical terms, and beyond adding more processors, this means integrating more functions such as graphics and I/O (controlling Input/Output devices, peripherals). In some cases this leads to a System On a Chip (SOC), yielding another type of “more bang for the buck”. Eight processors at one end of the range, or everything on one chip at the other end, for smaller, less expensive devices. Think better netbooks.

Intel Inside Mobile Devices: This is almost becoming an old saw. Following their “Not A Single Crack In The Wall” strategy, Intel doesn’t want to miss any emerging computing genre. As a result, they’ve been peddling their mobile Linux, called Moblin, for a putative genre of Mobile Internet Devices. And they’ve been thoroughly ignored. On the one hand, netbooks have been using Windows Xp rather than Linux, or Vista. On the other hand, an annoying type of devices called smartphones have been using various flavors of the ARM processors. So far, these processors are no match fort Intel in laptops and desktops, but ARM just announced a 2GHz version. This could lead to more powerful pocket computers as Apple now calls them and become the crack in the wall Intel fears. (For the time being, we’ll leave aside Apple’s April 2008 acquisition of PA Semiconductor, a microprocessor design firm.)
Intel is making noises about very-low power x-86 chips. In the abstract, smaller geometries and lower clock frequencies could yield chips with low enough battery power requirements to fit smartphones. And then what? To run Windows? No. Apple’s OS X? Neither, they have their own smartphone OS running on ARM. The same holds true for Android, RIM, Nokia and Palm. Even if yet another genre of coat pocket computers, a.k.a. tablets emerge, it’s hard to see Intel cracking that market. In other words, an interesting transition is about to take place, a new “Intel Outside” era.      —jlg@mondaynote.com

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French  newspapers love what they call Une Nouvelle Formule. As the Fall approached, the left-leaning Libération launched its own, then Le Monde retooled its weekly magazine. “Libé” is betting on an elegant graphic redesign; fine, but this is merely a diversion, a way to avoid painful challenges such as editorship, insightfulness, content relevance.
Le Monde Magazine wishes to reconnect an excellent but elitist magazine to the advertising market and, incidentally, to its readers. To beef up its mag operation, Le Monde brought in a new seasoned editor, a new art director and relies on an abundance of journalistic or photographic talent at and around the paper in order to produce high-quality content.
How these two initiatives will fare is too early to tell. Le Monde’s mag was launched Friday, as for the redesigned Libé, it is barely a week old.

Le Figaro’s move is both more ambitious and much riskier. First, let’s have a look at the company’s fundamentals.

• Groupe Figaro is a privately held company controlled by Serge Dassault, who owns the eponymous aircraft maker Dassault (Rafale fighter jets and Falcon business jets). Being private, the company does not have to provide financial data.
• The Groupe’s main products are:
  - Le Figaro (daily)
  - Le Figaro Magazine, TV Mag, Madame Figaro, all sold on weekends with the daily
  - Le journal des Finances.
• Digital properties include LeFigaro.fr as well as many others sites in sports, entertainment, culture, services and e-commerce.
• A large classified business is built around AdenClassifieds, a multi-brand classifieds system controlled (at 83%) by Groupe Figaro and listed at the Paris stock exchange.

Key Figures (some are approximations):

• Circulation for the daily : 330,000 copies (same as Le Monde ; but non-paying end users are much numerous for Le Figaro : 28% vs. 17%, the hybrid modelis looming…)
• Total revenue (group) 2008 : €600m ($956m)
• Estimated revenue for 2009: €550m ($800m)

As reconstructed, the breakup approximately goes like this:

• Revenue from the daily: 30% (€180m) 50/50 advertising and circulation
• Online activities : 17% (€46m) ; on that, LeFigaro.fr brings €12m in revenue
• AdenClassifieds : 10% (€60m) for a €6.3m profit

The group will remain profitable this year despite a €50m loss in advertising ; 70% of the Groupe Figaro’s revenue come from sources other than its flagship newspaper. The paper itself is losing about €5m a year.

Editorially speaking, the newspaper is utterly supportive of Nicolas Sarkozy, so much so it ends up irritating segments of its own audience. As for the Figaro Magazine, it carries all the daily’s right wing values, adding a condensate of the flabbiest French conservatism. Among the group’s components, the Fig Mag is the one deserving of the deepest remodeling (it had 3,000 ad pages per year twenty years ago, now 1,000 ; as a comparison and for what it worth, the New York Times Magazine had 3,379 pages in 2008, just behind the n°1 People 3,422).
As far as business coverage is concerned, Le Figaro enjoys significant coziness with many sectors: fashion, where editorial independence is an ectoplasmic concept, is but one example. Its overall economic coverage is not as good as it should be — a widespread intellectual weakness of the entire French press.
Otherwise, the paper has a strong editorial crew, an excellent sales and marketing team and it is served by a Media House-like strategy where every brand is connected to the other, making the whole worth more than the sum of its parts.

Then what’s Le Figaro’s problem ?

Last week, I asked Francis Morel, its CEO, for the rationale supporting the huge €80M investment in a new printing plant; he answered with two statistics: in the early nineties, the newspaper’s revenue from classifieds was about €150m per year; now, it is €12m. Second data point: in the United Kingdom or in Italy, the average number of pages purchased per advertising campaign is 4.5. In France, it is 1.2 page per campaign. In this latter case, “campaign” is an overstatement: brands tend to do mostly one-shot operations in the French daily press.

The reason for these limited efforts lies in the price of a page. To put it another way: for the same target group, in order to appear in a daily rather than in a magazine, a French advertiser must be willing to pay twice the price per reader. (Of course, there are many other considerations in the choice of a media). The economic downturn makes things worse: the cheapest medias are gaining market share at the top tier’s expense.

Hence the equation that must be solved: how to manage a kind of “controlled deflation” in the advertising space in order to regain market share against less expensive magazines?  The arithmetical answer is to give more for less, that is offering more premium pages at a lower price. The new Figaro printing plants (there are two of them owned by a joint venture with an Italian publisher) will provide full color capability for all pages using an innovative waterless process delivering spectacular rendering for pictures and ads.
Eventually, the cost per copy might drop by a hefty 20% once the full impact of staff reduction is taken in account. French printing plants used to be massively overstaffed; now, the government provides restructuring help for the entire sector at the absurdly high cost of €466,000 ($685,000) for each union worker condescending to a buy back (see a story I wrote in Slate France exposing the whole deal).

Symmetrically, Le Figaro will reflect this cost improvement in its price policy by granting further discounts to advertisers who buy at least two pages (they get the third for free, as in the grocery store). Overall, the average net revenue per page sold, will be allowed to drop by at least 10% to 15% — probably more (a page in the daily is currently netting €45,000 to €50,000 on average).

To which extent, and when this loss will be offset by higher volume are two interesting questions.

Of course, there is the industrial aspect of the investment. Le Figaro’s new facilities are able to address several of its competitors’ printing needs. The most obvious is Le Monde whose printing plant is obsolete and costly to operate (too many people). The two papers now use the same page size (a “Berliner” format), and are produced at a different time of the day. A perfect fit in theory. Mr. Morel denies vehemently having any intentions of harming Le Monde. But there is no need to be a Wharton scholar to see the two torpedoes Le Figaro is firing at its competitor: one is the better looking and cheaper ads, the other a more commercially potent printing plan. At least, “Le Fig” might print the business paper Les Echos and perhaps one of the three free papers.
A timeline question remains. An investment of such magnitude assumes an amortization over 15 to 20 years. Who knows where the newspaper business will be just ten years from now ?

Evidently, “Le Fig” is hedging its bets with other sources of income. The most obvious is the online business. It currently accounts for 17% of the total revenue and is expected to climb fast : the goal is 20% in 2010 and 25% in 2012. But the group’ sites are suffering from the same headaches as everyone else does: lower CPM, competition from Google with its text ads and now with display (banners) ads. Le Figaro, who used to buy lots of traffic from Google has turned angrily against the search giant’s predatory practices.
Aside of the anti-Google crusade, the senior VP for sales & marketing, Pierre Conte, made no mystery wanting to alter the balance of power between advertising agencies and medias. His idea is to increasingly bypass advertising agencies and deal directly with brands and advertisers to better address their needs. Mr. Conte said so publicly several times. (A strategy that bears some resemblances with the radio station turned social network Skyrock we discussed in this issue of the Monday Note).

But the real potential for Le Figaro’s online revenue lies in the readership duplication rate between print and web. Today, only 20% of the print readers also visit the website, this is quite low when compared to the 30% to 45% its competitors experience. This points to the paper’s generation problem: 42% of Le Figaro’s readers are 60 years-old and above, compared to 27% for the rest of the French press; naturally, the web is expected to rejuvenate its audience. Today, LeFigaro.fr is the #1 newspaper site in France with more than 5 million unique visitors a month (OK, thanks to some questionable measurement tricks). Still, each time 10 web users are gained, this translates into 2 more print readers (along with 10-15 times more revenue per reader on paper side).

Le Figaro’s strategy faces two main challenges. First: will lower printing costs and a higher volume of (cheaper) ads succeed in recouping a huge industrial investment. The money is poured into a dying model. Le Fig’s people do discount the potential residing into a much smaller print press perimeter five to ten years from now. (On the future of print, see also our story on digital presses and about the DIS (Daily Information System) concept parts 1 & 2.)
Second: the appalling inability for the two leading national French newspapers (Le Figaro and Le Monde) to work together on critical issues. These are, in no particular order: how to handle Google, how to better deal with advertising agencies, the unions, or devising a smart paid-for internet… And the French government, usually prompt to jump into every industrial issue, shows no leadership in this particular field (too bad for the taxpayer who is picking up most of the French press’ restructuring tab).

Otherwise, with planets properly aligned, Le Figaro’s grand plan could fly — without the help of Dassault’s Rafale wings.  —frederic.filloux@mondaynote.com

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The previous sentence introduces a segment of the February 2009 Stanford lecture, see here for the event’s full video.

It’s not the first time some killjoy predicts the end of tech fun: in 1899, a Charles H. Duell, none less than the Commissioner of the US Patent and Trademark Office, the USPTO reportedly said: “Everything that can be invented has been invented”.
There is a distinct possibility the infamous quote is nothing but an urban legend but, time and again, some sage comes to a forum and tells us the great times are behind us, the tech industry has now entered a grey era of incrementalism.
I’ve personally heard it a few times. In the early 1970s, at Hewlett-Packard where Bill Hewlett told such skeptics where to file their predictions away. In 1985, when I moved to Silicon Valley to take over Apple’s Product Development. I was told Silicon Valley was doomed, it was becoming a ghost town as unheard of layoffs were taking place. In the early 90’s, when the first Gulf War and a bad economy emptied shopping centers and restaurants.
Soon thereafter, the Internet came out of the research lab closet, the browser was invented and yet another wave of innovation came about.
As for Tom Siebel, his background makes the gloomy prediction more puzzling: he’s not part of the kommentariat, he is an industry mensch, the inventor of CRM, rising to the industry’s firmament and later selling Siebel Systems to Oracle for $5.8 billion. Perhaps he was merely trying to arouse his audience and start a reaction.

Still, is he right? Have we entered an era where all of the great technological advances and development of great companies are behind us – and where the growth rate for the tech sector is just on par with the rate of current economic growth?

Absolutely not.

Take bandwidth. Fiber or air, landlines or wireless. Getting 100 megabits per second with FTH (Fiber To the Home) will change the way we communicate, entertain, work, manage energy, provide healthcare, education or just physical security. If this sounds a little broad, take Skype Video today, using DSL. Now, think of the image quality and conferencing features we’ll get with our dispersed families or coworkers. Today, Cisco sells high-end telepresence systems for enterprise customers, tomorrow, just as we went from mainframes to personal computers, we’ll have personal telepresence. No real insight here, just history repeating itself. Speaking of which, the incumbents will keep being dislodged by interlopers: AT&T, when it still was Ma Bell, predicted the advent of the home videophone, but didn’t get to deliver it, leaving it to Skype, iChat and many others riding the Internet.

Moving to wireless, a widely quoted statistic says there are about 4 billion cell phone subscriptions. How many of these will benefit from the faster “4G” networks being deployed? In the near future, a small minority in the more sophisticated, richer markets. Longer term, cell phones will mutate into smartphones or, more accurately, really personal computers, or pocket computers, as Apple begins to call its smartphones. These new computers will have more “organs”, that is sensors and communication channels, than our PCs. Going back to the Skype example, we’ll have pocket videophones RSN (Real Soon Now). Next year?
These new devices will have a similarly profound impact on the activities (work, entertainment, healthcare…) mentioned above. Profound impact seen in substantial new economic activity.
Here, too, incumbents are and will be dislodged. When it comes to the new pocket computers, Microsoft no longer dominates. RIM, Google with Android, Nokia, Apple, of course, are driving progress; Microsoft follows.

Then, we have the “New Microsoft”, an admittedly lazy and unfair way of characterizing Google, save for its size, for its impact. Google, for all the fear it will put newspapers or book publishers out of business isn’t a convicted monopolist. But tower they do and their size could lead them to do very bad or very good things. Take Cloud Computing, a still evolving concept as intermediate implementations debug our thoughts. And couple it with what some call the Web of Objects. Here, the assumption is everyday objects will “steal” smartphone technology, acquire sensors and wired or wireless communication capabilities. Now, “visualize” (we’re in California) a future of everyday objects always connected together, hence the web word, and to the Internet, hence the capital W. (Even if wireless communication chips are bound to become commodities, I would not sell my Broadcom or Marvell stock, the volume and diversity will more than compensate for the downwards price pressure. This is a figure of speech: I don’t own any of these stocks, I don’t play the stock market.)
Even more seriously: the Web of Objects will be a major source of Cloud Computing applications such as managing these objects, cars, heating and security systems, mobile medical devices, power distribution networks. Or, forgive the lopsided metaphor, mining the sea of data generated by these sensing and communicated objects. This will have a major impact on the environment, and the economy, making it easier to monitor how we distribute and spend energy.

Other than seeing very positive development in harnessing together computing and genomics, I’ll stay away from biotech, regrettably not my area of experience. In another life, perhaps. Google, as I did, “the future of biotech” and you’ll see plenty of reasons to be confident biotech isn’t about to enter a “grey ear” either.

In 1986, I added one chapter to the US translation of my book, The Third Apple. In it I dreamed of sitting under a tree and, with a portable computer, enjoying access to what I called “Ten Thousand Libraries of Alexandria”. This was a wild underestimation of what technology and culture would bring about. I trust I’m still being a little timid, derivative, unable to see beyond evolutions of what we know and do today.

And, as a venture investor, I look forward to the disruptions. — jlg@mondaynote.com

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Google was slow, but it finally got it. It understood that its position — “Thank us to the billion clicks a month we send to your sites, we bring value to your businesses, the rest is your problem” — was no longer defendable. Google can no longer ignore the dramatic deterioration of the news media sector. 
Here are key figures for the US market:
- The best recent period was 2005 ; that year, US newspapers reported a total advertising revenue of $49.4bn. 96% from print (35% from classifieds) and 4% from online. Since then, between 2005 and 2008, things changed dramatically :
Total ad revenue :…….. -23.4%
Print:………………………..-26,7% (and a drop in classifieds of -42.4%)
Online:……………………..+53,4%
It looks like this :

Now, to get a more precise and recent representation, let’s compare the last available quarter (Q2 2009), with the recession’s impact, to Q2 2005. Here is the evolution over four years :
Total ad revenue:……………-44%
Print:…………………………….-47% (classifieds dropping by : -64%)
Online:………………………….+30%

An important precision for the online ad revenue: it peaked in Q4 2007; since then it has dropped by 23% in Q2 2009. As for its share in the total revenue stream, it felt from 14.7% of the total for Q4 2007 to a mere 10.5% of the industry’s total advertising revenue. (Source : NAA). In a nutshell, American newspapers have invested quite a bit in a sector that is losing both in terms of absolute amount and percentage contribution to the revenue stream. OK, a large part of it  is due to the recession, but no one knows exactly how much of the decline is structural (due to the exponentially growing inventory among other factors).
European newspapers suffered less, mostly because of their limited dependency on advertising. Also, the economy’s downturn was less brutal. But seeing down here a soft “L” shaped economic cycle, while others will more likely endure a hard “U” curve elsewhere is a meager consolation. Speaking of the impact of the recession across all medias, watch this chart from Business Insider, which shows the “advertising apocalypse”.

In itself, this deterioration explains the rehabilitation of the paid-for content idea. Fact is : advertising doesn’t work as expected for news websites. Everywhere in the world, volumes dropped (that’s the recession part). But more worrisome, prices dropped as well (consensus is around minus 30% over the last 18 months), with a “ratchet effect” that will make it difficult for prices to come back to the pre-crisis level. Google bears some responsibility in this state of affairs: it forced a large chunk of the advertising market to shift to text-ads with the G-model built on large volumes and low per unit cost. Of course, Google got used to saying that, with 25,000+ sources of information on Google News worldwide (talk about information overload…), the company could afford to lose a few. But it finally yielded to facts and decided it should come up with a way to monetize online news. Well, It helped when the Newspaper Association of America issued a Request for Information, for third parties willing to create a centralized payment platform.

The first respondent was Journalism Online, a New York-based venture that media entrepreneur Steven Brill created a few months ago in association with Gordon Crovitz, the former Wall Street Journal publisher. These are high-caliber people. Journalism Online’s idea is erecting well-designed pay walls for news content, and “Preserving Valuable Journalism by Restoring the Value Proposition”. (Read Steven Brill’s interesting keynote speech at the last online publishing and marketing OMMA conference). Journalism Online’s full response to the NAA’s request is available here.
The second response came from Google with a platform based on its Checkout payment system. Google enters the fray with an impressive line-up: its huge, globe-spanning server infrastructure, technical expertise, economies of scale and, probably, a cheaper alternative to Journalism Online’s 20% fee. (Google’s full response to NAA is here).

Let’s summarize the key components of a modern paid-for system for news sites. The list below is based on the two proposals, on other papers addressing the issue, and on discussions I had with publishers:

• Single sign-on system. Forget about a proprietary transaction system. There is no room, nor time, for reinventing the wheel here. Actually, the only viable option is mutualizing the “wheel”, with broad multi-publication passes and proportional revenue redistribution. Hence the question : who will be the grand consolidator? We better keep a choice of platforms — as long as they are linked.
• Diversity of models. We need the ability to handle subscriptions and paid-per-article models as well as packages and bundles. Flexibility, adjustability will be key (and yes, it complicates the system, but that’s what we have computer systems for).
• A unified, “Friction free” micropayment system. The best examples are well-known: Amazon’s or iTunes’ “one-click” option allows impulse, hassle-free buying. To be asked for a password when you want a special report, or access to a special part of the site is out of question. We can even dream of cross-connected platforms: my subscription to Le Monde.fr tied to The New York Times’, and the system allowing the occasional purchase of a 5000 words feature in Vanity Fair. To those who roll their eyes thinking this is too convoluted, think about the Sabre or Amadeus  airlines reservation platform that makes possible to book a flight from San Francisco to Kirkenes (Norway) across three different airlines: that  is complicated.
• A cross media brands consolidation system. It aggregates micro-transactions (down to one cent) into monthlies and annuals.
• A database system. It provides multi-support subscription management, print and online, allowing combined marketing operations.
• Flexibility in pay-wall options. Publishers should be able to decide almost on the fly which content lives in the paid-zone system. Some will go for a package policy (x articles for y dollars or euros), other will charge on a per-view basis. Everyone should have the leeway to organize promotions and special operations based on news cycle or predictable events in sports or politics for instance.
• Ability to decide the criteria upon which some readers will be charged while others won’t. This goes well beyond the simple basic vs. premium concept; at some point usage intensity will have to be factored in, meaning the first taste is free but you must pay of you  keep coming back. Weirdly, all the papers I’m reading on the subject don’t do much to explore this notion; it is crucial to readership segmentation.
• Search engine management. For pay walls, the most quoted inconvenience is this: the huge traffic sent by search requests (frequently 40% of the total) ends up at the “subscription only” wall. Publishers must be smart in dealing with this fact: a reader who lands on their site doesn’t have to be rejected simply because he’s a first time visitor. Quite the contrary, actually. There are many ways to go around this obstacle, we’ll explore those later.
• (Most probably) An advertising management system. It will have to be embedded in the transaction system because the CPM structure is different between free and paid zones. Experience shows that an ad behind a pay wall commands a higher price: a 30% premium doesn’t seems overly optimistic.
• Integration of mobile terminals. Ignoring or treating separately eBooks, iPhone or Blackberrys would be a terrible mistake. That’s were the real money is.

Today, we just scratched the payment question’s surface. In the coming weeks we’ll explore realistic news consumptions patterns and see how those could translate and define a reliable transaction system. It will also be quite interesting to see how publishers will deal with the two proposals (so far), from Journalism Online and Google. —FF

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Working in Paris in the seventies, I struck an acquaintance with a Gideon Gartner analyst called Aaron Orlhansky. He came to lunch with a bunch of markitecture papers from IBM and I had fun untwisting the real meaning behind sonorous statements coming from “The Company”. That was my amateur kremlinology stint. One day, he casually mentioned his acquaintance with Tom Lawrence, Apple’s top gun in Europe. And he added: ‘Tom’s looking for someone to start Apple France’. I said I was that man, an introduction was made, Tom and I “clicked” immediately and I was hired on December 12th 1980.
Almost three decades later, I’m in the Valley, a kid let out in the candy store, watching wave after wave of exciting entrepreneurs, ideas, technology, products, cultural changes…

On to a bit of Apple kremlinology.

The biggest news was Steve’s appearance at the iPod event last week: ‘I’m vertical’, he said and proceeded to acknowledge his gratitude to the liver donor who allowed him to be there. He also thanked the Apple teams who kept the ship going while he wasn’t so even-keeled. And he encouraged us to become donors. In California, you do that with a code on your driver’s license. Nothing to decode here, everyone is happy to see Dear Leader back in the saddle. He was met with a heartfelt standing ovation.
Now, we hear complaints he’s back lording over details, putting people under tremedous pressure. Good.

Let’s turn to the iPod announcements and to the howls of disappointment over the lack of camera in the new and improved iPod Touch. How could He do this to us, His faithful followers? When questioned, the spinmeister lets its be known the absent camera makes a lower entry price possible, $199. The iPod Touch has emerged as a major game console, you see, and you don’t need a camera on such a device.
I’d say two out of three.
Yes, the games on the 20 million iPod Touches (and 30 million iPhones) shipped so far surprised everyone, Apple first. Games aren’t a side show on the platform, they’ve become a big money maker for developers and a threat to the likes of Nintendo’s DS and Sony’s PSP. Commenting this graph, from Apple’s presentation, Business Insider says ‘the iPhone platform has almost five times the number of game and entertainment titles that Sony and Nintendo’s portable systems have combined.’
Removing the camera to get to a price point? Not convincing, camera modules cost very little, they’re everywhere on cheap cell phones.
No camera on game devices? The $169 (on Amazon) DSi sports a camera.
Further, iFixit, one of the usual i-pathologists, promptly dissected a new iPod Touch and found room for a camera. They also found a few networking goodies such as 802.11n hardware, not activated.
For the missing camera, there is a simpler explanation: money. For $299 you can get a 32Gb iPhone 3GS or a 32Gb iPodTouch. Same price, very different function set. The iPhone is a phone, the networking function (Web, email) works on AT&T’s 3G network, and it sports a camera, stills and video, all functions missing on the iPod Touch.
The answer simply lies in Apple’s per device revenue. The posted $299 price for the iPod Touch is it, no carrier revenue sharing. For the iPhone, the actual revenue, with carriers’ subsidies or revenue sharing, is more like $850, as discussed in an earlier Monday Note.
Now, there is talk of an accounting rule change that would stop the practice of spreading iPhone revenue over two years. The new rule would make it easier to assess how much money Apple really makes with its smartphones; it would make a clearer connection between Apple’s declared profits, growing nicely, and its cash balance, growing much faster.
We’ll assume there isn’t a large difference between the respective manufacturing costs of the iPhone and iPod Touch, the delta being the camera and the phone chips, both inexpensive commodities. Then, for Apple, the iPhone generates about $500 more than an iPod Touch does. Q.E.D.: no iPod Touch camera, this will drive more customers to the iPhone.
This isn’t the end of that story. Let’s assume for a moment Apple renegotiates its loving AT&T relationship; what could they get in exchange for not straying? Something like no questions asked voice and video over IP, perhaps? In practical terms, this means Skype video, with a second camera on the next iPhone, facing the caller this time. For such fun-ction, one easily sees iPhone fans springing more $$, or renewing their carrier contracts. If  something like this happens, then the iPod Touch gets an iPhone hand-me-down single camera.

When it comes to the iPod Nano, there is no such internal competition. Throw everything in and help the iPod Nano keep its best-seller status: FM radio, a previous no-no, a clever video camera, a pedometer, a surprisingly good (for the size) speaker, neat tweaks all over, but no more than 16Gb of storage, that would compete with the iPod Touch. This said, it’s yet another well-executed product, I bought one and feel the video camera alone will “make the sale” for the Christmas season. What Cisco gets out of its $590M purchase of the Flip camera remains a mystery. The video on the iPhone 3GS had started the trouble, the iPod Nano could finish it: smaller, strong integration with iTunes, multi- versus mono-function. $129 vs. $149.

There is more. For the first time, Apple’s propagandastaffel used the term pocket computer  affixed to the iPod Touch. And, from there, Phil Schiller, Apple’s Marketing VP, proceeded to diss netbooks again, showing a picture of a Dell Mini tearing open a jeans back pocket. This is certainly a way to address the iTablet rumors without using the T-word. ‘We have a nice pocket computer, thanks, and we won’t make a device that tears your pockets.’
To this, I’ll start by saying there is room in my jeans back pocket for a larger device, not a Dell Mini netbook, but, still, something with a bigger screen than what iPhone users enjoy today. The current iPhone measures something like 2.5” by 4.5” (6.35 x 11.43cm). Does this leave room for a viable form factor between today’s size and the Dell Mini’s approx. 9.25” by 6.75” (23.5 x 17 cm) ?
My jeans back pocket are wider than they’re deep, approx. 6” by 5” (15 x12.7). On men’s jackets, side pockets are about 5.5” (14cm) wide…

Speaking of size, I just flew from Boston in the back of the bus, that wasn’t too hard, I’m “economy-size”, but using my 15” MacBook Pro was a problem. So, I got myself a Dell Mini and, pardon the sacrilegious intent, planned to make it run Apple’s OS X. The end result is known as a hackintosh, a relevant moniker, as I found out.
Such a project breaks Apple’s licensing agreement and cannot be recommended. So, what follows is purely hypothetical, science-fiction, if you will.
Should you Google “hackintosh”, you’ll find the Dell Mini 9 is the more amenable netbook, the more likely to run Apple’s OS. Ironic when you think Michael Dell once, in 1997, said Apple should shut down and distribute the money to the shareholders.
Once you get your netbook, you need to add SSD storage, the Dell machine comes with 16Gb, a little too little. That’ll set you back about $100, plus $20 for an additional 1Gb of RAM, not absolutely required, and $35 for a 16 Gb thumb drive, a must, much better than an external DVD-ROM drive. And a Philips 0 screwdriver, preferably with a magnetic tip to keep errant screws from lodging in the wrong, inaccessible places.
Then the fun starts. See directions here or here. Either way, it’s a long, complicated, klutz-entrapping sequence of operations.
How did I do? Not so well. My first hypothetical attempt used an external DVD-ROM drive, my next two used a USB thumb drive. But I always ended up with a message mentioning a missing mach kernel. The only way for my fictional hackintosh to work is to keep the USB thumb drive attached.
If there was a need to be reminded of the benefits of hardware/software integration, such an expedition would serve it.
This said, it’s nice to have a tiny Mac. To me, I was a happy Toshiba Libretto user, size matters. Big size on my 24” display on my desk at home and at the office, small size when I travel.
I respect the need for touch-typists to get a proper keyboard. But others, the three fingers halfwits, might be willing to trade down a couple of sizes for the convenience of a tiny but functional machine.
How about a MacBook Mini “For The Rest of Us”?
The entry level, white plastic 13” MacBook is now $999, $849 “refurbished”, it’s an IQ test, the sexier aluminum model costs $50 more, still “refurbished”. With this in mind, would I pay the same price for a 9” MacBook Mini? Yes. Would I be alone? That’s for market researchers to ask the right question, to the right audience. The good news is smartphones have introduced a new permission in the culture: you’re no longer a lesser man for using a small keyboard. And many consumers understand miniaturization comes at a premium. —JLG

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• the top 10 in-demand jobs in 2010 didn’t exist in 2004
• today’s learner will have had 10-14 jobs… by the age of 38
• new CEOs landing in a “great” company will devote most of their time, months or years, to placing the right person in the right slot.

How does the media industry react to such facts? Well, each time I’m pitching this question to a group of editors ad publishers, in Europe, India or in the US, the discussion reaches the same conclusion: insufficient training is our biggest collective failure. (There is the notable exception of Nordic countries. I’m fairly familiar with them: over there, the very notion of education and continuous training is deeply rooted in the national and corporate culture — but they are not immune to inefficiencies either).

Everywhere else, we witness two major impacts on organizations.

First, on human resources management. In most cases, there isn’t anyone tasked with taking care of careers. No one wonders: What is this individual good at? How can this person improve and, therefore, derive more psychological, not to say spiritual satisfaction from his/her professional life? How does he sees himself five years from now? And so on.
At the same time,  real compensation policy is almost nonexistent, except for a salary scale, the misbegotten result of painstaking negotiations between management and union representatives. Carved in stone, these Tables of The Law shield everyone from responsibility. Which leads to talk like this :  “— I can’t give you a raise, pal, you’d be out of the scale. But, by next year, I can promote you to Deputy Assistant Managing Editor in charge of such and such… — But I’m not interested in managing anyone, I just want to do the reporting job I’ve been doing for seven years now, but for a better wage, that’s all. — I know, but it’s the only way…”
No wonder layers of accidental managers have built up over the years — and, of course, without any training to handle such responsibilities. In French newspapers, it is not unfrequent to see 12-16 org chart layers. In some instances, to keep notoriously misanthropic reporters motivated, the title of “Grand Reporter” was created. This ended up as a license to get the best assignments — and some of these grandees got very selective, very careful not to spoil their finely honed talent on no more than ten stories a year — leaving ample time and energy for book writing, TV documentaries for other organizations.
Of course, in such a cushy system, nobody get reprimanded, let alone fired. Actually, the weapon of choice for staff reductions is the big voluntary buy-out package. Of course, more often than not, the best and brightest get the joke: being certain (although less now) to be in demand elsewhere, they take the package. As a result, instead of shedding fat, most news executives end up giving away real muscle. In another perverted twist, some not-really-useful individuals are placed in what we call in France a placard doré (golden closet). In many news outlets, these closets are well populated. (A few years ago, a friend at RadioFrance explained the “two jacket tactics”: one on the back on the chair — I just stepped out of the office for couple of minutes — and one for, well, going out).
In his controversial but revealing story in The Atlantic, former New York Times editor Howell Raines recalled the first management coaching session he participated in when he became one of the top editors of the Times. The topic was : How to fire someone. A consultant explained the way to decently terminate someone (usually, something you should have done years ago).

I asked why we were being given this exercise, since at The New York Times we never fired anyone.
Wesley [the consultant] seemed surprised. What do you do with unproductive employees? he asked.
We just give them less work to do, I said, to a laughing burst of assent from the other editors in the group.
Wesley was puzzled, seeming to me at that moment like a new employee encountering the series of culture shocks that come with being hired at the Times. For people who have worked at other newspapers, the biggest shock upon coming to the Times is that the level of talent is not higher than it is. Actually, it would be more accurate to say the level of applied talent.

Which leads us to the second point. Lack of training has had a effect on the organization’s overall level of competency. And today, expertise is more needed than ever. Like or not, with the explosion of blogs, a vast pool of expertise has come to light. Whatever you write about, economics or science stuff, you can trust a highly competent detractor will pop up at the foot of your story. Better getting ready for a vibrant debate. What was the counterattack in most newsrooms? Nothing. Logically, this newly unleashed knowledge competing in the same electronic page, or just a click away, should have been a call for action. It wasn’t. The sad result is that, in many fields, the relative level of expertise of a media has decreased. Needless to say, this also impacted the overall “value proposition” for the — hem, customer (you know, the little guy who is expected to buy our dead tree product at the kiosk or to click on our URL…).

To sum up, in most old news organizations (I don’t want to overgeneralize, some will blast this column with eagerly awaited counter examples):

• talent is not rewarded
• incompetence is not penalized either
• therefore people tend to be demotivated
• which in turns leads to moonlighting (usually in broad daylight)…
• …to the benefit of other news outlets gladly relying on a dynamic phalanx of non-permanent, flexible staff
• all of the above takes place within a rapidly changing context: increased pressure from previously buried expertise such as highly knowledgeable bloggers, as well as from audience demands and challenges.

Try to migrate toward the digital era with such deadweight.

In such turbulent times, the bean-counter approach is staff trimming, more in an Excel kind of way, than based on the assessment of core competencies needed today and tomorrow.

There are other ways. Consider the following: a massive and systematic (re)training program at every level of the company. The goals for such effort ought to be increasing one’s ability to fulfill a given function as well as broadening the organization’s core expertise. In the process, we would prepare for jobs that don’t exist today.
Such overhaul requires a significant investment. Not easy to justify in today’s dire straits. But this should be engineered as a major trade-off: a deep down restructuring of operations, processes, revising the way we have been doing things for the last two decades, in exchange for an unprecedented training program. Everyone (among the survivors) will gain in the process. Organizations will be leaner, stronger and more effective; people will feel rewarded and motivated.
This is the best way to emerge from this this crisis. The way up.  —FF

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(For more on the the GDP threat and other toxic issues see my January 11th, 2009 Monday Note here.) And, on the unproven assumption we have a heart and soul, how could we like the spectacle of close to 50 million (this is likely to be the 2009 number) uninsured people?

With this out of the way, on to the debate.

First, I see a terrible error in reasoning: we can’t keep treating healthcare like a business. We’re not dealing with the financials of Boeing, Walmart or Apple. Once upon a time, an aspiring executive, I wanted to be initiated into the brotherhood of executives. Knowing my pangs and playing on them, McGraw Hill,

 the publishing giant now trying to get rid of Business Week,
 sold me a subscription to management books series. Luckily, these were good books, I fondly remember Robert Townsend’s Up The Organization! and, to today’s point, Peter Drucker’s
 The Practice of Management.

 Take a look at the enthusiastic Amazon reviews. More than thirty-five years later, one idea from the book still sticks to my mind: the difference between businesses and institutions. The Army, Congress and, according to the great management sage, hospitals all are institutions; they shouldn’t be thought of, or managed like businesses. (I won’t get into the “business” of Congress with lobbyists.)
To our now costly regret, we’ve allowed medicine to be run like a business. When doctors mortgage themselves to buy expensive imaging equipment installed right into their office, guess what happens? Medicine leaving, rightly, much to the doctor’s judgement, a doctor now motivated to run expensive diagnostics, just in case.
If you have the time and stamina, read the great New Yorker article on a Texas town, McAllen, featuring the highest per capita medical costs in the entire country. Why? The equipment and a culture of treating medicine as a business, of milking/bilking patients and, in most cases, their insurance companies. The latter always have the solution of raising premiums on customers who can’t go elsewhere for fear of being denied coverage because of a pre-existing condition.
If you want an even more disheartening read on the state of healthcare in the US, versus the rest of the world, grab T.R. Reid’s The Healing of America. 
Again, take a look at the Amazon reviews. The subtitle reads: A Global Quest for Better, Cheaper, and Fairer Health Care; it foretells the awful story inside, not by a left-wing firebrand but by a moderate soft-spoken scholarly but readable writer.
In a nutshell: We, the US, are number one (we always like the sound of that) in per capita spending; but, depending on the way outcomes are measured, we rank something like thirty-seventh on the quality/efficiency of our healthcare.
To quote the author: “You don’t need an advanced degree in yajnopathy to recognize that the stars are aligned and the timing is propitious for the United States to establish a new national healthcare system.”

Yet, we’re mired in heated controversy and ugly lies. See Newsweek’s article here, or CBS’ Katie Couric’s thoughtful “notebook” here. I like our president, I trust him. But, as a growing number of us do, I’m disappointed by his lack of clarity in describing his proposed solution, by his failure to use the “bully pulpit” to rise above the din.
The sorry, expensive and somewhat corrupt state of our healthcare system is easy to document in compact, unarguable ways. The march towards an unbearable GDP burden is well understood.
Our “no-drama-Obama” president is highly intelligent, hard-working, well-surrounded by high-caliber advisers and, above all, he is a Great Communicator of Reaganesque proportions.
How come President Obama let rabid opponents take control of the debate? How come he can’t say simple things like: My program is Medicare For The Rest Of Us? Steve Jobs wouldn’t sue him.
Or: My program is giving you the same benefits as your senators have. No playing rescission or pre-existing condition games.

But he doesn’t. Why?

Here again, the simplest answer is likely to be the real one.
He can’t tell the truth. We’re not ready for it.
This isn’t to say he’s lying, I don’t run with the crowd that call him names and draws Hitler mustaches on his pictures; I just saw a group of such nuts in Harvard Square last week. No, the truth is too ugly to be told, it has to be obfuscated. Or, more likely, introduced in small mithridatizing increments.
As I did in January, let’s use (with license) Mancur Olson’s metaphor in the introduction to his book The Logic of Collective Action. The four of us go to dinner. As we sit down, we agree: Let’s order as we please, we’ll split the check four ways. Decorum prevails: I’m not going to order Dom Perignon and filet mignon if I see you’re inclined to go for beer and a hamburger, that would be gauche. Now, visualize a huge tent, a banquet with 1,000 diners. The MC comes to the microphone and says: Order as you please, we’ll split the check one thousand ways. Care to guess what happens? Not seeing what the other guy hundred tables away is ordering, I’ll make sure to get my filet mignon and my champagne. I don’t want to be “had” ordering Sam Adams and cheeseburger while others are swimming in expensive French bubbly and prime beef cuts.
This is what happens with mutualized systems, there is little incentive for moderation. In other  words, a national healthcare system covering everyone encourages consumption.
Here, our President hasn’t been able to offer much solace to those who fret about escalating healthcare costs.
Going back to the banquet, the MC might have to go back to the microphone and set some limits, no Dom Perignon, only Budweiser and “wine in a box”. In other words, rationing, the terrible accusation. Save for the fact today’s insurance companies game their customers and ration in ugly ways. I don’t know anyone around me who hadn’t to spend hours on the phone fighting insurance company decisions. This month, it cost my spouse 8 hours of her time to fight a rejection, finally reversed as there was no rhyme or reason to the earlier denial. They just try.
A doctor I know had trouble getting payments from the insurance company, they were very, very slow. One day, he gets a call from an expediting firm, they were in the business of accelerating insurance company payments - for a fee. The good doctor did a little bit of digging and discovered the business in question was, in fact, an accomplice to the insurance company, getting target names from it and probably splitting the loot with it. Easily done, just buy a list of doctors from the insurance company. Lovely.
So, yes, there will be rationing of some sort, like today, only more honest. But those words can’t be uttered.
Going back to the banquet and its cost escalation pressure, we’re in a bind: we want universal coverage and we want to put the brakes on the GDP percentage escalation. This gets us into another truth that can’t say its name: doctors, hospitals, drug companies, insurers will have to make less money. Yes, that’s simple arithmetic.
That’s how it’s done in Western Europe, the better outcomes for patients are amply documented.
With Congress largely bought and paid for by industry lobbies, telling the paymasters they’ll have to make less money for The Greater Good is worse than useless, it generates the kind of anger and lies we’ve witnessed this Summer.

Where does this leaves us, the US?

This coming Wednesday, President Obama addresses a joint session of Congress. At one level, his goal is simply stated: refocus, retake control of the debate.
Mark Shields,

 the moderate-Left PBS commentator, called Obama a mountain goat, 
this is no insult, au contraire. Shielded admiringly referred to BHO’s unerring balance while negotiating the most treacherous political terrain. Regrettably, our president hasn’t been so sure-footed this Summer. Fortunately, he hasn’t lost another of his skills, his preternatural “no drama Obama” calm. He knows he’s been wobbly, what can he do now?
Can he tell the Ugly Truth: In order to avoid another American bankruptcy, by way of GDP percentage escalation, in order to cover everyone, in order to become the best healthcare nation in the world, we need to take money from your pockets, you know who you are.
Of course not. This, he knows it, is political suicide.
We can dream all we want of some Arthurian hero, so pure-hearted that He and only He can pull the sword from the stone.
But, in this reality, stone-hearted lobbies have more power than America’s CEO.
So, hypocrisy will prevail, the great lubricant of social intercourse. Moving from nimble feet to deft hands, going back to just the right dose of mithridatizing truth, or soothing untruths, we’ll watch how our president regains his balance.
In other words, being a practical politician, as opposed to a holy fool, he’ll advance an imperfect “universal” system. There will be lots of bugs, he’ll know it and have a plan, hypocritically but safely unsaid, to introduce fixes in future legislative battles/releases.

We, Silicon Valley types, are thoroughly familiar with the pantomime: this is always what we do when we introduce a new product.  —JLG

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That question led to a heated debate at the last INMA South Asia Conference, in New Delhi. (INMA is the International News media Marketing Association). I was invited to talk about the migration from print to digital  — which, let’s face it, is not on the top of the publisher’s mind in a country where internet penetration is about 7% of the total population (details here) –  but India media moguls are keen to prepare their industry’s future.

The Indian press is staring at a difficult question. A few years ago, when we met for the first time in Chicago, Times of India’s CEO Ravi Dhariwal explained its newspaper was virtually free, with a price (3 rupees, $0.06) carefully adjusted to be slightly above the price of the scrap paper collected by poor people in the street of Delhi or Mumbai. Things have changed. As one of the publishers explained last Friday in Delhi: “We have built a bubble which is about to burst. Against all fundamentals, we have been pursuing circulation figures at any cost. Our model no longer works”. Around the table, the consensus was the price of papers had to go up significantly, probably by a factor of 2 to 5.

Well… Let’s consider a few impressive fundamentals. Circulation numbers are commensurate to India’s 1.2 billion population.  According to the Indian Readership Survey, Dainak Jangran, a newspaper unknown to Western radars as it is published in Hindi, has 55 million readers in 19 editions. The Times of India is the world’s biggest English speaking newspaper, with a circulation of 4 million and a readership of 14 million.

Most of the industry is quite profitable. Until recently, gross margins of 60% were not uncommon. As shown in the chart below from Price Waterhouse Coopers, the Indian print press, all confounded (advertising + sales) has grown by 13,4% between 2004 and 2008. It is expected to grow by 5.6% per year over the next five years (how PWC can come with such precision in the decimal remains a mystery to me. Let me take this back: if they say 5%, its looks less scientific, meaning less expensive, than 5.6%). The  reason for the slowdown lies in the development of television and, to a lesser extent, internet, both offering much better bang for the rupee.

In itself, the chart pretty well illustrates the Indian press cover price problem. Structurally, because of the GDP growth, advertising revenue is likely to rise eight times faster than copy sales. Hence the worrisome conclusion drawn by some publishers : “We are reaching an unreasonable level of dependency from advertising”, said Tariq Ansari. Tariq is the managing director of Mid-Day, a modern quality tabloid. Mid-Day was first launched in Mumbai where the group is headquartered and has since spread to several more cities.

Mid-Day front page after the Mumbai attacks

I’ve known Tariq for years, (we share a common interest in snobbish magazines such as Wallpaper or Monocle). Tariq isn’t exactly an anti-free market crusader: he’s also the president for INMA South Asia. But, at the conference, he rather vehemently made his point: “Advertising tends to be more and more intrusive in our papers. Media buying agencies are squeezing us. It becomes impossible to say no to those guys. At some point, they will shred every piece of our credibility”. Part of the problem is the Indian’s traditional closeness to economic (and sometimes political) power. This intimacy now seems to backfire. Indians tend to do business as they drive (which, at peak hours, confines to a near-death experience): speed and efficiency first, other considerations optional.

Take the Private Treaties, for instance. In a previous Monday Note, I explained the mechanism. Quickly: a newspaper takes stake in a private company, usually a small startup. In exchange for the cash infusion, the startup is obligated to buy advertising pages in its shareholder-benefactor’s publication; the ad purchase is adjusted to offset the cash infusion over a period of 3 years. Clever mechanism. For the publication, it is almost risk-free: cash is converted into a balance sheet asset, which in turn generates cash, thanks to the ad purchases (which, in addition, can be exclusive, i.e. no money spent with competitors…) In the process, the publication acquires a nice portfolio of companies from which the initial investment is recouped after three years. After that, hopefully, the startup will have grown its cash-flow and valuation. In fact, the only risk is the startup becoming bankrupt before the three-year reimbursement term ends.

The Times of India is the inventor of the private treaty system (official site here). Because of its size, it practically owns the market. TOI executives are short on details about the scope and financials of their private treaties operations. They say it’s too recent to yield a real idea of the portfolio’s value. (A year ago, the business daily Mint — a JV with the Wall Street Journal — estimated the value of Times of India’s privates treaties assets to about $1bn.)
They also deny any potential conflict of interest. Still, if a startup in which the Times of India has a stake releases a lousy product, we don’t see how a bad review could find its way in the Times of India or in the tech section of the Economics Times. Ethics collide with business at the Times of India. That very paper isn’t overly sensitive to advertising’s intrusiveness; actually, it’s part of the revenue stream. The Times of India does sell advertorial which, unsurprisingly, blends seamlessly with the rest of the editorial content. (They don’t mess with “serious” subjects, though). This product is actually pretty well valued: it costs 50% more than traditional advertising, and there is quite a waiting list. Of the $400m in ad revenues generated by the Times of India, paid-for editorial represents about $20m, which is not negligible.

The Mumbai group Mid-Day is testing its own flavor of the private treaty scheme but it chose to prevent the conflict of interest by limiting its investments to real estate companies in which it actually buys properties. In a booming city such as Mumbai, Mid-Day is likely to find itself with a nice portfolio of tangible assets: apartments or offices buildings.

Ingenious as they might be, private treaties are a small part of the solution for India’s press to maintain its financial performance. The most efficient leverage remains an increase in newspaper cover prices. As the Hindustan Times saw for itself, it’s easier said than done: when the HT decided to go from 2.5 rupees to 3 rupees (from $0.05 to $0.06), sales dropped by 10% — it later recovered. But, in the Indian Press’ fiercely competitive environment, no one wants to give a inch to the competition. The solution? Raise paper prices in concert. After all, recalls INMA’s managing director Earl Wilkinson, this is what Australian newspapers did to prevent a drop in advertising. Time to think like a cartel, guys. —FF

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First, a bit of history: the Minitel. Once upon a time, a rather statist country, France, decided to equip telephone subscribers with a home information terminal. Merchants of various persuasions were invited to connect their servers to Transpac, the backbone network. Sellers could tout physical, groceries, or logical, entertainment, information, goods and services. For the logical kind, the phone company graciously did the billing and the collecting for the merchant, taking a courtesy 25% fee for its pains. The buyer saw a new section at the end of the phone bill, everything automagically deducted from the subscriber’s bank account — after a legally mandated 10-day bill presentation delay.
Effective and efficient.
This reduced the overall cost of doing business for all, sellers, buyers, the phone company, that’s the efficiency part. And effectiveness manifested itself in a huge spurt in new enterprises. So much so the network, Transpac, initially underwent several major outages because buyers and sellers had much more fun than expected. For several years the French phone company would rather forget, it became the largest pornographer in the Western world.
I won’t dwell into the phone company’s initial resistance to the Yankee invention, the Internet, but all is well now: French netizens now enjoy very good broadband services, and the Minitel is largely forgotten.

But the micropayment lessons shouldn’t be discarded. And, in a way, they aren’t: Look at Amazon.

Imagine a purely hypothetical situation: someone wants to add SSD memory to a Dell Mini 9 netbook. The additional memory would help build what is known as a Hackintosh, that is running Apple’s OS X on non-Apple hardware. This hypothetical situation would happen in violation of  the EULA (End User Licensing Agreement) and is therefore discouraged. Moving on: the SSD module is found on Amazon but sold by someone else, TigerDirect. Never mind, one click and we’re done, Amazon will oversee, you can even write “police” the transaction, vector the information and the money. All TigerDirect has to do is what’s known as the “physical fulfillment” — in English: ship the goods.
For music or e-books, we’re getting closer to Ye Olde Minitel: small transactions, less than one dollar sometimes but the phone bill is now my credit/debit card statement, autodeducted.

Moving to Facebook. What’s their current business model?

Non-believers (in dwindling numbers) contend it has none. I try to think of Facebook using the following metaphor: Facebook is a forum, a “paseo”, a promenade, a huge one, where users socialize in a (growing) number of ways. When you have lots of people walking around a reasonably well-policed forum, you can set up stalls, you can rent those to people who want to sell cotton candy (“barbe à papa” for French readers), palm reading and the like.
Climbing down into reality, Facebook will probably exceed $500M in revenue this year, mostly from advertising.

 Not yet profitable, not yet cash-flow positive but not gasping for green either.

One of Facebook’s remarkable achievements has been watching and learning from Google. That is keeping the UI simple, or even, recently, simplifying it. And making sure the nascent business is backed up by a muscular (and scalable) server infrastructure. Think of Yahoo’s, MySpace’s and eBay’s sins in both UI and infrastructure regards.
Now, imagine a new version of Facebook’s Terms whereby you supply a credit card and/or a pipe into your bank account. This enables you to buy goods and services offered on the Facebook promenade stalls, as opposed to clicking on a link and being “taken” to a merchant site.
Just as Amazon (and Apple) do with credit card companies, Facebook would make it its business to manage sub-dollar transactions. Regrettably, this is something an independent merchant can’t realistically achieve because of the onerous terms imposed by the credit card issuers and processors.
“Walled Gardens” micropayment systems such as Amazon’s (its main store one as well as its Flexible Payment System), iTunes’ and, I believe, Facebook’s will keep growing. This, I hope, will force the “Old Guard”, today’s issuers and processors to react.
Speaking of incumbents, we have PayPal. So far a successful system, working hard to spread beyond the mothership, beyond eBay. But, if you ever compare a Buy Now transaction on eBay with a one-click purchase from TigerDirect via Amazon, you’ll see how cumbersome, rigid PayPal still is. This is a great opportunity for Facebook to implement something simple and safe at the same time. And immensely profitable.

Some say, jokingly, that Facebook will ultimately turn the Internet inside out. In other words, Facebook will become the Internet as users will enter the Net through, after, Facebook. That’s a stretch, of course. But watch Mark Zuckerberg’s interview here,
 
 it’s short and to the point: Facebook isn’t a web site, its a platform. While the p-word has been much abused, here it really means something. Facebook’s Applications Directory isn’t the iPhone’s App Store, but it’s real and, if you browse it with a Facebook PayPal-killer in mind, you might get a sense of the possibilities.

Before we go… I’m puzzled by Google’s perceived inertia. The search giant missed the social networking wave, with the exception of Orkut’s success in Brazil, perhaps. Also, it’s reasonably competent Google Checkout payment system shows little sign of gaining traction in the marketplace. Once touted as a PayPal-killer, it has achieved nothing of the sort.

We’ll see if Facebook succeeds where Google seems to have stumbled. —JLG

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The biggest stimulus for such creativity is the collapse of the internet advertising model. On average, CPM (cost per thousand viewers) have dropped by 30% - 40% during the last twelve months and very few expect a recovery.  As far as booking rates are concerned, they are dropping as well. It is frequent to see only a mere 30% of pages inventories actually sold to advertisers. Unlike prices, this latter percentage is likely to bounce back at the first sign of economic relief.

But the classical advertising model’s weakness is more structural. The “old” banners / display stuff doesn’t fly as expected. People simply don’t click enough on those items and even sophisticated targeting yields minor relief. The only “healthy” segment is search ads, but it is dominated by the Google Way — a massively deflationary one. Successful medias will be the ones who manage to shake off the old cobwebs and proceed to rethink their relationship with the advertising sphere. It will be fairly easy for social or non-hard news sites, but true information content vehicles are likely to struggle with ethical issues…

As far as platforms are concerned, last week, we looked at smartphones: they’re on their way to become the main vector for news, whether it is for text or video. Numbers looks good: last year, according to IDC, on the 1.19 billion mobile phones sold worldwide 155 million (13%) where smartphones. In 2013, says IDC, 1.4 billion handsets will be sold, among them 280 million (20%) smartphones. And if anyone harbored any doubt regarding the ecosystem’s health, just consider the 65,000 applications available for the iPhone and the state of the competition. As explained in this Fortune magazine story, the sector is red-hot: since the iPhone introduction in june 2007, Blackberry quarterly sales have more than tripled. Even Google joined the fray with Android phones — and following a trajectory than will put the search engine to a collision course with Apple (see Jean-Louis’s column War in the Valley; Apple vs. Google).

Coming back to the title of today’s column, let’s talk about paper, the pulp, dead tree version. I can see many reasons why some sort of paper version can help.

1 / The “tangible” effect. To spread ideas, a blog works phenomenally well; it’s fast, dynamic, flexible, work bidirectionally; in other words: it’s necessary. Now, let’s be honest: every blogger wishes, deep inside his/her brain amygdala to be published on print — not giving up the the blog, of course, for all the reasons mentioned above, but they would be thrilled to have some kind of column on pulp. I have seen it many, many times. The same applies to books, by the way. Like it or not, paper still carries a feeling of authority, permanency (even if this is the web that keeps memories of everything). Plus, the paper has interfaces features that have yet to be matched by portable digital devices (think of breakfast reading for instance).

2 / The “object” dimension. Thanks to the Quark Xpress generation, design of print products has dramatically improved. And since design still sells (and for long, see Apple), there is no reason to spare efforts to achieve the best possible product.

3 / Reinforcing identity. Whether you call it areas of excellence or competitive advantage, the print product, because of its selective nature, must reflect the editorial team’s core competencies. It can be politics, business, arts. But the print has to carry this identity, even if it leads to a niche product.

4 / Reaching a different audience. In the media business, popular success often flows from a clever balance between necessity and attraction. Such balance is the combination of news I want to have when I need it, and the news I’ll be happy to find (serendipity), or that will capture my attention by being staged in an attractive fashion (seduction). If the internet is unbeatable for the first part, especially in its mobile dimension, print can be better at seducing. The audience segment extracted as a result will be specific, and in many ways, different from the bulk of the online readership.

5 / Monetizing the segmentation. To maximize its value, this specific audience deserves the white gloves treatment. We mentioned the importance of combining design to usefulness, let’s now focus on distribution. Again, think the hybrid way. Something like a paid-for-free. Let me explain. Since we are into image enhancement, having a price tag makes senses. It projects the idea of value. Falsely by the way, since the mainstream press — dailies or magazines — has been almost free (just consider the subscription price of a newsmagazine for instance) for quite a long time. Still. It is more a question of perception than of reality here. So let’s settle for a price tag. But the bulk of the print run will me made available for free.
This is one of the key breakthroughs of modern quality free press: non-paid distribution can be targeted with a unprecedented level of precision. In a city like Paris, if you want to target 40-something single mothers or upscale business people, you can. By crossing various publicly available databases, you know where they live or work, how and when they are on the move, how they entertain themselves, shop, etc. In a near future, thanks to the data collection made possible by mobile phones, such mappings will be dynamically updated (you’ll know exactly where “your” crowd is and what it does at a given moment).
Should you make this precious audience pay for your product? Probably not. You make it available for free. Others, those who want your paper (whether it is a weekly or a multi-weekly) will have to pay for it at newsstand or “selected” selling stations. The axiom is: for the audience that I see as valuable, the product is free; the audience I care little about but wants to read my product has to pay. (Spare me this stern glance, we all know many products working that way). From a business perspective, presenting to the advertising community a well-designed niche product, targeted to a solvent (and captured) audience should translate into high CPM — that’s the goal.

Today, the poster child of the hybrid concept is the American website Politico. Its flagship news product is a great website manned by a staff of a hundred highly skilled professionals. It drills the political niche down to the bone. The effort yields a 30,000 copies multi-weekly, twenty pages newspaper (mostly a reprint of internet stories). The paper is, in theory, paid-for ($3.50), but practically distributed for free in strategic places such as Congress, selected offices buildings (lobbyists of K street in Washington DC), and executives branches. Although Politico doesn’t disclose any financial figures, a recent article in Vanity Fair states that Politico’s paper edition accounts for half of of the $15m revenue projected for 2009.
Politico exhibits all the genre’s ingredients: a must-read for a precisely defined audience; exclusive stuff (read New Republic’s excellent story The Scoop Factory ); and the thrill of an obsessively updated website. Such journalistic quality allows Politico to become a trusted source for other media through an ambitious affiliation program which combines content and ad programs. The print edition relies on a selective (read: elitist, valuable) distribution.

Sure, Politico’s niche is a large one, encompassing the huge Washington food-chain. But now, let’s look beyond mere clones of Politico’s formula. Consider the flexibility of modern publishing — lightweight setups, the ability to pinpoint target groups — and think of the diminishing reach of mainstream media. For well-adjusted hybrid products, these factors open many new opportunities all over the marketplace. —FF

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So far, the selling argument has been more pixels equals better pictures. A higher number conveys an image, so to speak, of higher quality. This is not entirely untrue: it’s nice to have lots of pixels when you need to “crop”, to throw out a large fraction of the original image in order to concentrate on a key detail, a face for example. If you have enough pixels left in the “crop”, it will print or display with good detail.
But there is an important downside: for a given sensor size, more pixels means smaller pixels. In turn, this means each pixels will receive less light energy, less photons to be converted into electrons. The smaller number of electrons will have to “fight” against the background electrical noise in the sensor. The lower signal-to-noise ratio means lower quality pictures. This is particularly true in low-light situations where, to begin with, the number of incoming photons is smaller.

Go to the excellent Digital Photography Review site and try one of the Camera Database pages such as the one for Nikon cameras. 
There, for each camera, you’ll see a very useful number: pixel density. It varies from 42 MP/cm2 (megapixels per square centimer) for a low end camera, to 1.4 MP/cm2 for the top-of-the-line D3, both for the same pixel count: 12 million. (You’ll find similar results for Canon cameras.) The ratio is more than 30 to 1 between the low-end (compact) machine and the big DSLR (reflex) camera. As a result of its fatter pixels, the higher-end camera doesn’t need a flash to get remarkably good pictures at night, on the street or in “social” context, the latter meaning people at dinner parties.

But for compact cameras, ‘social photography’ equals flash. Go to Flickr or Facebook and see how many pictures involve a social event, a party, a dinner, and how many of those are taken at night, using the camera’s flash. With less than flattering results. The faces closest to the camera are often flattened, overexposed, the rest of the scene is in the dark because the camera’s flash is too weak to illuminate the breadth and the depth of the recorded scene. If you don’t use the flash, the small, high-density sensor produces noisy, muddy images. If you use the flash, you’re likely to get partially illuminated and unflattering pictures.

The “obvious” solutions involve using higher-end cameras with or without their sophisticated flash systems. This isn’t practical for most of us: these cameras are big and expensive. (Paradoxically, the latest big anvils are extremely easy to use, often easier than “consumer” compacts. You get very good pictures in “Idiot Mode”, just point and shoot, trust this klutz.)

Enter the Sony WX1 and Canon S90 “less is more” cameras. These are two new compact cameras, good for social photography, with less pixels for better low-light performance. Using the Canon camera as an example, previous models sported 12 megapixels sensors, the new one offers “only” 10 megapixels. Using a slightly larger sensor than before, pixel density is now 23 MP/cm2 vs. 43 MP/cm2 in models such as the SX200 IS. The result is, we’re told, usable images at 3200 ISO. Coupled with a more “open” lens, one that takes in more light (for geeks: max. aperture is F2.0), we now have a camera that will take really good dinner party pictures without flash.
Sony’s WX1 uses what they call a new “Exmor R” sensor to produce similar results in an equally compact camera, with a wider (24mm min. focal lens) but less open (max F2.4) lens and a clever panorama capture mode.

These cameras are said to be available in October for less than $400.

If we know anything about the digital camera industry, it’s that it’s a fiercely competitive one. We can be sure to see Panasonic/Leica, Casio/Pentax, Samsung and others follow suit with similar “less is more” compact cameras. This might take a little while: Sony and Canon make their own sensors, I don’t believe the other manufacturers do or that they have the advanced capabilities the two leaders enjoy. (Interestingly, Sony supplies the sensor for the Nikon D300/D300S models, see the dpreview.com camera database. When, for a given camera, the database says “unknown” for the sensor manufacturer, you can be sure it’s not the camera brand.) — JLG

Bonus feature for geeks:
Automatic twilight flash photography

The problem: You take pictures of your friends, in a street, at dusk. Your camera’s flash “correctly” illuminates the group but the stores in the background, a few meters away, don’t get enough flash light. As a result, the background looks unnaturally dark, the picture doesn’t reproduce what your eyes (or, rather, your brains) saw.

The solution: Modern cameras use one number, one pre-flash exposure and on-board software.
Let’s say the distance between the camera and your friends is two meters. The background lies four meters further away, for a total distance of six meters. Physics say illumination falls with the square of the distance. So, the background being 3 times (6 meters) further away the your friends (2 meters), if your group is correctly exposed, the background will get 9 times (3 times squared) less light. That is why, with old-style flash exposure the background looks bad. Or why using a compact camera’s flash on a distant scene, such a sport stadium or a concert, is totally useless.

Now, on higher-end cameras, the on-board computer knows how far your friends are, it has access the lens’ focus distance. Then, when you press the shutter release, the camera fires a pre-flash before the actual flash. It most cases, the whole sequence is so quick your won’t see it. The computer “looks” at the scene and the software detects a bright foreground, your friends, and a dark background. This uneven illumination wasn’t present when the software was looking at the scene’s light values before the pre-flash: your friends and the background, without flash, showed approximately equal light values, low, perhaps, but comparable. Having compared the light values in the scene with and without the pre-flash, the next step is for the software to try and balance the background and the foreground exposure.
The source of light for the background can’t be changed, it’s ambient light. The source for the foreground can’t be modified: you need this much light at this distance for correctly illuminating your friends.
What’s left?
Shutter speed.
The camera’s computer opens the shutter for a long enough time to let enough non-flash (ambient) light produce a correctly exposed background. Sometime during that exposure, the computer fires the flash. The result combines a pleasantly exposed background and a correctly illuminated group of friends. (This computerized balancing of background and foreground exposure also works in the reverse situation, a “contre-jour”, a dark subject against a brightly illuminated background, such as a face against a bright sky.)
There are limits, of course. In practical terms, this works better when the pre-flash doesn’t produce too large a difference between foreground and background illumination. You can’t keep the shutter open forever just so you capture enough background light, the picture would be blurred. That’s why I refer to twilight or dusk. But the results can be surprisingly pleasant, especially because this works in Idiot Mode. Unless the user screws up by trying to set up extra modes. Trust this klutz. Fortunately, factory spies have caught on and many cameras now have a “Restore Factory Settings” function.

You can get such features on DSLR (reflex) cameras starting at $400 (with a basic lens). Starting at $500-$600, you’ll have many choices.
Why not on compact cameras? The flash, the battery and the on-board software too limited, so far. —

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Home page of The Independent iPhone App

Then, inside the app,12 categories work the same way. On a wifi network, in the background, it takes a minute or so (three four times longer on a 3G network) to download a batch of 150 stories updated every day.  Then, the articles can then be read, quickly or leisurely, regardless of your connection. Pretty cool.

There are many reasons to be confident in the development of news on smartphones. Especially with the Apple innovation engine showing the potential to create a brand new sector — as it did in the music business with iTunes. As we speak, 43% of mobile internet traffic is generated by the iPhone device. Competitors have seen the threat and opportunity. RIM’s Blackberry wishes to enter the mobile app market — with an eye on the lucrative specialized news segment — and we can count on the combined impact of Google’s Android (their smartphone OS) and Chrome OS (their netbook platform) due next year. And Microsoft won’t stand still either. (Yes, they were early with Windows Mobile and let their lead evaporate, but they’re taking the situation seriously, they know what’s at stake if they don’t “make it” in the smartphone market.) And Nokia, the cell phone king, hard-pressed to stay ahead in the new smartphone world, but, just like Microsoft, rich, awake and determined.

A recent statistic allows further hope for mobile news. According to O’Reilly Radar, news related apps are by far the fastest growing segment in the iPhone apps galaxy (see chart below).

There are about 1500 apps in the news categories, representing a 2.6% market share… in a very fragmented market.

Another corroboration of the news junkies’ appetite for smartphone applications is the Associated Press’ recently outlined mobile strategy. A year ago, AP launched The AP Mobile News Network by affiliating 1000 newspapers. Today, the latest version of its iPhone application (to be followed by Blackberry and Palm Pre apps) not only takes advantage of the new push notification system but also goes deep-down local thanks to its affiliation program. You select the local news you’re interested in by entering your zip code or multiple zip codes. It is even possible to use the iPhone’s geo-location system to get locally relevant news (read the explanation of AP’s senior VP for product development in Editors & Publishers). AP’s mobile applications have generated 1.2 million downloads (75% for the iPhone). This clearly demonstrates how what was originally a business to business brand is willing to become a consumer brand — which, in turn, boosts the B to B revenue stream.

As of today, none of the media mobile applications are paid-for. No one is — yet — taking advantage of another feature of the Iphone OS v3, that is the App Purchase. (Again, this new feature is barely two months old). App Purchase allows transactions from within the application. No need to get out of the application and go to a web site to purchase what you decided you wanted as you were using the application.
(The counter example is the otherwise very smooth Amazon Kindle app on the iPhone: the Get Books button on the app’s Home page kicks you out of the app and on to Amazon’s mobile Kindle Store page. You look for the book, you buy the book and, when you’re done, you go back to the Kindle app. In theory, the new App Purchase feature obviates this round trip. But, wait, Apple gets 30% if you use its channel. Some will see this as a providence, everything is taken care of, shopping cart, micro-payment for only 30%. Others, like Amazon won’t let Steve Jobs “run the table”.)
In theory, with Apple’s infrastructure (and cash register) at the ready, the App Purchase is the tool of choice for a subscription based system. With the current (and durable) collapse of the advertising on the internet, and the difficulty to push ads on a mobile, paid-for mobile content is undoubtedly a key component of new business models.

Let’s try back-of-the-envelope conservative numbers for a digital newsroom.
- Editorial staff : 100 people. From my own experience, I know we can create a strong daily information system with one hundred, dedicated (no parasitic moonlighting), well-paid, well-trained journalists. Let’s add a 20% overhead ratio for support staff. In all : 120 full-time people.
- Cost per capita. Well. Good question. Last time we ran the numbers with a media CFO friend of mine, we found that, in France, someone making 2500 euros net-net (before income tax) actually cost to the company 77,000 euros per year including his/her chair and computer. Let’s settle for 70,000 euros (100,000 dollars). And let’s consider this amount an average without further distinction between junior and senior staff (we can debate this forever, I know, but these numbers are conservatively realistic).
- Total payroll: €8.4m.
- Let’s add another rule-of-thumb 20% of additional expenses.
- Grand total of cost per year, rounded up: €10m.

Now, the revenue side:

- We assume a real, significant website : 3m unique visitors a month (in France, Le Monde or Le Figaro are in the 5 to 7m range). We’ll use that number on a yearly basis (it’s not absurd to consider that a “unique” comes at least once a month; if not, we have a real problem).
- ARPU (Average Revenue Per User). For perspective, sites like the Washington Post or the New York Times extract between $7 and $12 per year and per web user through web advertising. Going to the pure player field, we’ll be mindful of reality and assume that number plunges to $1, that is €0.7. For the sake of our discussion today, we’ll use €0.7 as the revenue per user per year, our ARPU.
- Revenue for the web site itself: €2 million. (Which is very weak, but I use a crisis model).
- Which leaves us with a deficit of €8m we must offset with something else.

Enter paid-content on mobile:

- Let’s say we use aggressive commercial tactics and manage to convert 20% of our internet user base to a clever (modestly) iPhone app. That is 600,000 downloads. (Remember Associated Press : a million plus downloads in a burgeoning market; in six months, Le Monde’s app was downloaded 500,000 times).
- You get it : in order to complete the revenue stream of our little news operation we need to squeeze about 13 euros net per user and per year, Apple’s commission (30%) not included.
- 
Altogether, we’ll ask our faithful audience to pay us less than 20 euros per year to get our 100+ stories per day, archives, local geo-synced news, services, movies listings, etc.
- How can we do that : a paid-for app (affordable but not cheap, 4 euros), every six months or so an upgrade at the same price, and an App Purchase (or upcoming Blackberry equivalent system for subscription) charge of 1 euro per month and we are in.

Is this a BFD (Big F…undable Deal)? Probably. There are definite signs of economic life in the news mobile digital world. This because we don’t only charge for the news, we charge for the service, the convenience. —FF

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This is the Valley and its cozy relationships. By which I mean executives and directors sitting on one another’s board, competitors enjoying the same directors, venture firms “sharing” their partners around portfolio companies. For example, besides Eric Schmidt sitting on both Apple’s and Google’s boards, we have Arthur Levinson, head of Genentech, a director of both companies. Or partners at Sequoia (a very successful venture capital firm)
 sitting on boards at YouTube and Google, which might have help a successful “exit”, that is the sale of YouTube to Google.
Back to Apple, there are also lingering allegations of a no-poach agreement, one by which the companies agreed no to hire each other’s workers.
Closer to home: Be, Inc., the operating system company I founded with a few friends from Apple and elsewhere. For a while, one of our investors (and director) also sat on Microsoft’s board. Microsoft executives were investors in his firm and we ended up with Bill Gates (indirectly) owning a piece of Be. Ah well… That was a decade ago, the statute of limitations ran out.
The SEC (Securities and Exchange Commission), the stock market regulator, has become more aggressive in watching out for companies engaging in collusive behavior through cross-directorships. See here .

Back to Dear Leader’s words: Google enters more of Apple’s core business.

The first thing to notice is more. Indeed, the reason we all think Eric Schmidt’s resignation was overdue is two years old, almost: it’s called Android, Google’s smartphone OS, directly competing with Apple’s iPhone OS. In 2007, it isn’t clear yet that smartphones are the next PC, only bigger, the iPhone just starts shipping. But, a year later, in 2008, the competitive picture is now sharply drawn. Android is the most dangerous competitor for the most important component of Apple’s present and future profit streams, the iPhone ecosystem.
So, what is the more that broke the cross-directorship? Without a doubt: Google’s Chrome OS, with a strong dash of Google Apps.

To explain, let’s take a trip inside Google’s strategy.

By now we know what Google Apps are: applications running on computers in Google’s cloud and served to desktops, laptops and netbooks through a browser. No need for desktop applications. Nice. As long as you have a Net connection.
Enter the second stage of Google’s strategy: we need to keep these Google Apps running even when the Net is unavailable. If we do this, we conquer the Office world, we become the next Microsoft, only better.
No magic required to achieve off-line functionality for Google Apps, all the required components are available. Today’s personal computers have lots of memory, 1Gb of RAM minimum, and lots of hard disk storage. Further, most personal computers already have a Web server inside. (Geeks know where to look for httpd.exe or httpd.) Now, if we, Google, discreetly download the App code inside the personal computer, under the cover of a browser extension, what do we have? A microcosm, a small scale replica of the server and application software in our cloud, only now neatly tucked inside the personal computer. Really. Slick, simple, stealthy, a Trojan Horse against Microsoft. Or Apple.
The local replica of the server-based set-up isn’t so easy for Microsoft to counter: Google has tons of money, can and does influence Web standards in ways Microsoft can’t match. Further, unlike Microsoft, Google doesn’t have a legacy (Office) business to protect.

Great, but how does this threaten Apple? Isn’t my enemy’s enemy my friend? Aren’t Google and Apple natural allies against Microsoft?

Unless, of course, Google is the next Microsoft. Microsoft competes with Apple because it supplies the software engine for PCs fighting with Macs. Now, Google competes with Apple because it supplies the software engine for iPhone competitors and, tomorrow, for n-books. On the surface, these “cheap”, “limited” n-books don’t compete with Apple’s more expensive machines. A recent survey gave Apple an astounding 91% market share for personal computers costing more than $1,000. Consumer computers, that is, we don’t have numbers for Enterprise purchases. But Steve Jobs knows what always happens: the low-end machines start as a crack in the wall; later, they acquire more of everything and, if the higher-end incumbents don’t watch out, the lowly machines, the n-books, take over.

(If you want to absorb the enormity of the iPhone’s business, go here , this is Apple’s Q309 10-Q filing, numbers for the quarter ending in June 2009.
On page 26, Apple discusses its Revenue Recognition policies. Sparing ourselves the detailed parsing, iPhone revenue isn’t “recognized” (recorded) when the devices are sold, it is spread over the life of the agreement and/or according to the period of time in which features will be added by software upgrades.
Spreadsheet pathologists have untangled the mess, they’ve separated new ‘spread’ revenue from units just shipped from dollars flowing from earlier shipments. They arrive at an approximate $850 ‘unspread’ revenue per iPhone.
Now, turn to the 10-Q’s page 30.
For the 2009 quarter ending in June (Q3): 5.2 million iPhones for a recorded revenue of  $1.689 billion. This amounts to $324 recorded per iPhone.
Now, try instead the ‘unspread’ $850 per iPhone and you get $4.4 billion, compared to $3.3 billion in Mac sales.
This in less than two years, just a beginning as iPhone distribution reaches more countries, with only one current model. Perhaps this is why Apple is no longer Apple Computer. Certainly, this is why Apple worries about competitors for its largest and fastest growing money machine.)

A new Microsoft attacking both iPhones and Macs. And, unlike Microsoft, with free software. That’s what Apple sees in Google.

But, wait, there is more!

Apple’s business model is bound to change. In plainer English: Until recently, Apple’s profits were built on hardware sales. Everything else, system software or iTunes music revenue only mattered as a way to buttress hardware profits. For example, when iTunes came out, analysts expressed concern that music margins were thin or negative. So what? iTunes’s sole role is to prop up iPod and iPhones margins. Apple talks up its software, operating system and applications, spends hundreds of millions of dollars in development and generates modest or no direct revenue from it. It’s all in the service of Mac and iPhone sales and profit margins. That’s the picture so far, fast becoming the past.

With the iPhone, Apple hasn’t just broken into a new product category, it has shouldered its way into a new world of service revenues. Legally call it the way you want, the difference between the retail price of an iPhone, $199, and the pathologists’ number, $850, is a service revenue. According to other dissectors, the manufacturing cost of an iPhone would be about $179. So, the retail price covers the product cost, all the margin comes from the service revenue rebated by AT&T. That’s a business model change — and for the largest business unit.

But, this is just the beginning.

Going back to iTunes, let’s consider its micro-payment system. Not the only one on the Net: I just spent $.45 on Amazon for a Cecilia Bartoli aria, neatly ending up in my iTunes library. Both very smooth, in plain view but generally unremarked, perhaps because they works so well. I can’t wait to see if and how Apple and Amazon will cooperate on e-book sales.
In the meantime, why would Apple let Amazon MP3 sales “get into” iTunes and why would they fight Palm’s attempt to sync their new Pre smartphone with iTunes? Amazon makes iPods a little nicer. Perfect, forget the “missed” iTunes revenue. Palm is trying to make an iPhone competitor look better. No way.
Today, Apple “sells” a lot of free products via iTunes: free university courses on video, free apps on the App store. The latter must be a money-losing operation, so far. More than a billion downloads, about half of which are free, will generate a “low” multiple of $100 million dollars in net (30% of gross) revenue for Apple. Figure out people costs, a large organization to manage the (sometimes frustrating) approval process, add the infrastructure costs, servers and their servants and you’ll see the App Store will never compare with the $600 profit par iPhone. The App Store helps that big number and may or may not make a little money on the side.

Now, Apple has developed an infrastructure, a micro-payment system — and an appetite. If and when some kind of tablet surfaces, it will be an opportunity to be the channel of choice for entertainment and, let’s use the ugly word, infotainment content: games, e-books, videos, newspaper and magazines, if they bite the bullet and demand payment. In a way, this would be the “Kindle-done-right”, with apologies to my dear Amazon friends, really: color screen, touch interface, Apple software and UI, Apple retail stores…
Apple could become a distributor and micro-payment agent for goods and services going way beyond you can get on an iPhone, think screen size, or a MacBook, think everyday mobility/ubiquity, weight and size. In the process, Apple could rake in substantial monthly profits (not revenue, we don’t eat from revenue). Perhaps not as much as the $25/month over 24 months equalling $600 for the contract life of an iPhone, but good enough for a multi-billion dollars business nonetheless.

This is the type of business Google threatens with Chrome OS for n-books, advertising subsidies and its CheckOut payment system. Business is war. —JLG

(In a future column, I’ll get into Google’s potential weaknesses in this conflict.)

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Quite important, actually. Brand management must be handled with great care, especially when business models are threatened. The brand becomes a critical line of defense, and a strategic component to build upon. There are conditions, though, to the survival of media brands — and to the emergence of new ones.

Adjustable. The media brand is no longer a monolith embodied into a unique, “noble” product. Today’s brand must be considered as a flagship, a hub surrounded by satellites, each dedicated to one type of business or assigned to a well-defined audience segment. A news sites tied to a newspaper can, for instance, be at the center of the galaxy in terms of “brand awareness” but not necessarily in terms of audience. A flagship brand will tend to reduce itself to a niche market (small audience, fairly good monetization ratio through a combination of pricey ads, subscriptions, etc).
By contrast, peripheral assets could draw large audiences: participatory sites, social networks, blogs clusters; these might grow faster than the flagship site and, at some point, could outrun it.
Problem is : monetization will be tricky as the yield per viewer will remain low. Those sites  will have to invent new ways of selling ads by capitalizing on the relationships within their audiences (for a good example, see our case study of the French social network Skyrock and its 40 million members). These new breeds of advertising campaigns will only fit a young audience that is more willing than the older generation to accept commercial invasiveness.

Connected. Linking brands and sub-brands is mandatory. A well-networked ring of sites will have an audience far greater than the sum of its parts. Sounds pretty obvious but, still, some don’t get it. Take the French media brand Le Monde. Great paper, great (profitable) site. The group operates several other sites, among them an experimental one targeted to a younger audience. Le Post.fr is viewed as a lower-grade journalistic product by Le Monde’s editorial aristocracy. (Granted: Le Post.fr had the strange idea of labeling the news it publishes; some are tagged “verified” other as “raw” which, to put it gently, is in opposition to the basics of the trade). Result is: Le Monde.fr doesn’t link to its shady offspring (and internal factions are pushing for selling the unit). Considering the figures, this deliberate disdain is not the smartest move. Over the last three months (April-June measured by Nielsen), Le Monde’s audience rose by 29% to 4.96m unique visitors. As a comparison, Le Figaro’s audience — the other big national daily that obsessively links every single piece of its online portfolio — rose by 35% to 6.67m UV, which makes it the clear number one among the media sites in France. Too bad for Le Monde, reluctant to take advantage of the audience of its “Post”: it grew by 36% over the period to 2.8m UV…

Diversified. A media brand won’t stay media only. As the online perimeter is concerned, brands, sub-brands and sites have to be as numerous as the revenue streams are: ad supported news (general or specialized ones), exclusive paid-for contents, all sorts of classifieds, e-commerce, services, gaming… Sometimes the main brand will appear in full view, sometimes it will be concealed behind another one with more appeal to the targeted audience.
Extensions will be considered in accordance to market opportunities and realized as products ranging from publishing (educational, professional) to paid-for events such as high profile conferences.

Managed. In some instances, a media brand will better sell itself as an unlabeled service, in other cases it will gain from putting is name forward. Let’s be trivial: it is mostly a question of cost versus revenue. Last week, the BBC struck a landmark deal with four national newspapers groups for which the TV network will provide videos — for free. In that particular instance, the cost of the news material is already amortized through the regular broadcasting. Therefore, generating additional revenue becomes secondary to expanding the brand through powerful distribution channels. (The BBC move is widely criticized as unfair competition by commercial video providers who were used to selling their stuff to media sites). In France, some TV networks are considering the opposite move, which is selling their video content in exchange for a fee set on a per minute basis. Flexibility has to be the rule.

Monitored and protected. It is fairly easy to damage a brand. A wrong product, an ill-timed diversification and you’re done. The Washington Post, whose management wanted to organize sponsored “off the record” dinners, paid the full price for a bad judgement with a terrible PR embarrassment.
But as Alan Mutter put it in his blog, “Papers shouldn’t shy from for-profit events”. But there are events totally unfit for such profit-seeking initiatives. Readers are quick to see the difference between revenue generation and selling out. There is no substitute for good judgement and for attention to these issues at the highest level of any media company.

Above all:  Trusted. Let’s face it : in the permanent “noise” of today’s e-media, the ability to deliver a reliable “signal” remains a media brand’s most precious asset, which therefore is the ultimate label of quality and steadfastness. Trustworthiness has nothing to do with self-aggrandizing “History” presumably  associated with old companies. Recent events show that good media brands — Politico to name one (read the story in Vanity Fair) – can be created from scratch. It goes for superblogs as for traditional news organizations, successful recipes remain immutable: professionalism and balance in the news gathering and the editing processes and a fiercely defended independence. As long as this principles apply, media brands, old and new, will thrive. —FF

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Back to 2009, for the past week, we’ve had the strongest wave to date of rumors and speculation regarding Apple’s second coming (after the Newton, see below) into the tablet space. Putting such froth down would be ignoring the desire, the hope behind the agitation. The Greater We seems to want something bigger than and iPhone and smaller than a 13” MacBook, currently Apple’s smaller laptop.

Great, but what for?

Credentials. Before I proceed with parsing the question and exploring answers, I need to disclose my own background in this very topic, it’ll shed light on my perspective.

We’re back in the Spring of 1987, I run Apple’s Product Development, we just launched the Open Mac my 1985 license plate promised, the Mac II, and a natural evolution of the original Mac, the Mac SE, with a much-desired internal hard disk and a not-so-welcomed fan.
Steve Sakoman, head of Macintosh hardware engineering, walks into my office and, for a moment, we bask in the glow his good work. But he has something more important in mind: he doesn’t want to keep running a large and growing organization, not his cup of tea. Steve wants to leave and start a tablet computer company. He describes a computer the size of a sheet of US letter paper, 8.5”by 11”, about 1” thick. A touch-sensitive screen occupies the surface, you write on it with a stylus, it recognizes your handwriting. I immediately ask him if he needs a CEO; he smiles, he knows I’ve been bitten by the entrepreneurial bug and replies we need to discuss the matter with his main investor, Mitch Kapor, the founder of Lotus. Steve befriended Mitch in his earlier HP days where he engineered a small portable computer product, the HP 110. Yes, you might call it a netbook today. (See Steve’s Wikipedia profile here).
Steve is the engineer’s engineer; we sometimes call him The Real Steve to tweak the then departed Steve Jobs. To us, Steve is a Franchise Player, a term of American Football used to designate an individual you don’t want to trade away. As a result, we offer him free rein to get rid of the big organization duties he doesn’t like and set up an independent group, his own team, his own building elsewhere in the Valley, funded by Apple and reporting to me. Steve calls the project Newton, a neat reference to an important apple. There is tremendous excitement inside and, soon, outside, because we all see a huge future for the tablet “form factor”, a nice, more natural portable computer we’d all carry around and write on.

Three years later, we leave and start Be, Inc. While we say nothing about our plans, our association leads many to believe we’re doing a tablet computer. In fact, we had soured on Newton’s prospects: Steve’s time running the project and my own observations led us to agree handwriting recognition was hopeless.
We know what happened next: a number of tablet devices came out, such as the GO Pen-based OS and AT&T’s Eo.
Apple’s Newton, was announced in 1992 and shipped in August 1993. (See the Wikipedia article here, riddled with errors, not a word of Steve Sakoman’s role. Another site, oldcomputers.net offers geekier views.)
Initially, Newton was touted as creating a trillion-dollar PDA (Personal Digital Assistant) market and Microsoft, in its usual creative fashion, jumped on that bandwagon as well. Windows CE (as in Consumer Electronics) became the core of Microsoft’s PDA effort and later morphed into Windows Mobile. In another burst of original thought,  Windows Mobile will now be rebranded as Windows Phone…
On the PC front, a Windows version got dressed up as the Tablet PC operating system. In 2001, Bill Gates told us: “The tablet takes cutting-edge PC technology and makes it available whenever you want it…It’s 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.”
Today, the tablet form factor occupies a very small segment in the PC market, with Toshiba, HP and Dell shipping one or two models each. They’re modestly successful in vertical applications such as form filling for insurance adjusters or doctors. More Tablet PC history here.

With this out of the way, let’s turn to the putative iTablet.

The “What For” question isn’t easily answered. For example, it is tempting for me to fantasize about an iPhone, only with a larger screen, wouldn’t this be nice? The “only thing” I can’t do on my iPhone today is write columns. The Notes application is helpful for a few sentences, but that’s it, no real writing. A bigger screen would give me a bigger touch keyboard, I could type my Monday Notes away on an airplane or, forbid the thought, in a boring meeting…
Back from the dream, will I type on a 10” slate? That’s the big ergonomics question (OK, usability by a large enough number of normal humans). I don’t know; I suspect some of us won’t. But an aging French male like me, not trained to be a touch-typist might try it and like it.
Put another way: Will the Jesus Tablet appear as a replacement for a notebook, only smaller, supporting enough of the tasks performed on a laptop today? And, if it does, will it cannibalize Apple’s laptop business? Or will it come in at a lower end, expensive lower end perhaps, as a complement to today’s laptop line-up? Will this “premium lower-end” vacuum up business formerly left “on the floor” by Apple’s lack of no-book offering? This assumes that, unlike Windows netbooks, the iTablet generates adequate margins. See the business models discussions a little later.

Dimensions. The rumor mentions a 10” (diagonal) screen. I’ll spare you the arithmetic and the comparison with the iPhone’s 1.8 length to width ratio: a 10”screen means something close to half a US letter page, 8.5” by 5.5”. Fold a US letter page and stare… I checked men’s pockets, jackets and coats. (Women don’t have pockets, they have purses.) The hypothetical tablet would fit in a coat (as in topcoat) pocket, it would go in but stick out of a jacket pocket (the opening is a standard 6”, the depth varies a little but never reaches 8.5”, by far) and it wouldn’t fit inside most breast pockets. Contrast and compare with the approx. 2.5” by 4.5” dimensions of the iPhone and most of its brothers and sisters; those dimensions make smartphones eminently ubiquitous. I doubt the half US letter format would achieve the same constant presence.
Blackberries are called Crackberries because they’re used at all times, even inopportune ones. So are the other smartphones. The price they command comes, in large part, from their frequency of use. If an iTablet ever comes out, I’ll be curious to see what size/frequency of use compromise is reached.
Personally, I’d like something a tad smaller. I still miss my Toshiba Libretto, a tiny but fully functional Windows 95 computer. While I’m at it, I’d prefer (and pay the price for) a very small Libretto-inspired MacBook. Fat chance - so to speak. I won’t bet against Apple designers’ and engineers’ ability to do something really innovative in the tablet form factor.

Connections. The iTablet is like an iPhone, only bigger. No. I don’t quite see myself bring an iTablet to my ear to argue the merits of a Term Sheet in a conference call. But that doesn’t say we won’t see useful telephony function. If we assume WiFi plus a data plan on a wireless carrier, then running Skype-like VOIP telephony with a headset might be in the cards; the Term Sheet discussion just mentioned will now be over a shared document on the screen.
US carrier choices? AT&T is much maligned for its poor network. A lame excuse is they didn’t see the Jesus phone rising and failed to build enough capacity. Not coverage, capacity: smartphones drink a lot of data and overwhelm the wireless pipes designed for voice traffic. So much so Verizon just decided all future smartphones on its network must also have WiFi connectivity. Why? WiFi traffic will relieve the still voice-centric network from data overload. AT&T hasn’t waited to offer “free” WiFi to iPhone users in the US. Regarding which carrier will support an iTablet, it’s not a given there will be just one carrier; times are changing: the FCC is now looking into exclusive arrangements. Late 2010 or, more likely, in 2001, a new wireless standard, LTE (Long Term Evolution), might get us into “interoperable” phones and n-books. Here, “interoperable” means we could switch carriers, say from Verizon to AT&T, without having to change devices, just like in more civilized parts of the world. Summing up: nothing special to an iTablet, here.

Price and business models. A delicate matter. Today, if we believe several analysts, Apple gets $850 or more per iPhone. Does this mean the iTablet would retail for more? Surely, it will cost more to build. Can Apple sell a $1,000 tablet? Even Steve Jobs had to cut the iPhone’s price by $100 a few weeks after the inaugural June 30th 2007 shipments. This gets us back into subsidies or, if you prefer, paying for a small portion of the device every month, buried in your phone bill. But we’ve established the iTablet isn’t a phone, we’ll have just a data plan, meaning a smaller ARPU (the sacred Average Revenue Per User) for an iTablet than for a smartphone. Today, for reference, I have a Verizon dongle for my MacBook, just in case nothing else works; the data plan is $60/month. That’s $1,440 over two years. Is there room for a $500 subsidy bringing the n-book, sorry, the iTablet down to $499, or $400 to reach $599 “retail”? Not sure. Today, Verizon sells an HP Mini n-book for $199 with a 2-year contract. The data plan is $39 for 250Mb/month, $59 for 5Gb, just like my dongle. In this case the subsidy, when comparing with the retail price of a similarly equipped HP Mini, falls somewhere between $150 and $200. This calls into question the $400 to $500 subsidy required (in my theory…) for the iTablet.
Another possibility is a new iTunes subscription for music and videos. And, while we’re at it, let’s buy the data plan directly from Apple using the iTunes micro (in this case, if not mega, at least meso) payment system. Dear Leader doesn’t like the phone company to “run the table”. Who are we to blame his steely resolve when we see the ruses carriers use, the impenetrable agreements they deploy to get into our wallets.
The Financial Times had an interesting story on July 27th.
In effect, the story positioned the iTablet as an entertainment device, offering movies and music, complete with albums and, why not, ebooks. The “albums” part is puzzling, this is what one of my neighbors, who supplies software to Hollywood types, calls “a 50-years-old idea of what a 20-years-old will buy”. But the rest of the story could buttress the subscription concept. We can already get this type of content one at a time on an iPhone, including Kindle books. An iTunes subscription might work, it’s been suggested many times before. Personally, I think Jeff Bezos could make a neat deal with Apple and focus on selling content, books, rather than having to build a Kindle. Imagine a Kindle DX (9.7” screen, $499) next to a (subsidized) $599 iTablet.

Games. Much to everyone’s surprise, the iPhone has emerged as a major game platform. So much so Nintendo now points to the iPhone as a probable cause of its Q1 2009 revenue decline, this after 2 years of go-go growth from its innovative motion-sensing Wii. If an iTablet comes out, we can expect it to feature games, either adapted from the iPhone or specifically designed for the bigger screen. This, in passing, says the iTablet would run iPhone OS software, not Mac OS X.
Game revenue, outright sales or subscriptions, could become an important part of the subsidy business model.

The third device question. This could be an ill-formed query but let’s try anyway: do we need a third device? A phone, a laptop and now an iTablet? The iPhone’s place was never in doubt but what about a device that’s neither a laptop nor a pocketable smartphone? As discussed earlier: Is this a way to sell another device to existing Apple customers, or is it a way to bring in the lost sheep, the errant n-book users?
We’ll see in a few months. —JLG

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