Well. Two things. To begin with, Chris Anderson isn’t the first to notice the rise in applications used to access the internet. Every news outlet’s digital division witnesses a sharp increase in its apps-related traffic. Here in France, Le Monde just said its iPhone apps now contribute about 20% of its entire traffic; its iPad application (a bit crude but efficient reader) has been downloaded 150,000 times. This is just the beginning as publishers are working on new apps, for the iPhone, the iPad, but also for Android, Windows 7 for Mobile and even Bada, Samsung’s proprietary OS. Many publishers forecast a share of 30% of their traffic originating from mobile devices. This is consistent with Morgan Stanley’s predictions of smartphones shipments overtaking the PC two years from now (see below).

Such trends, when repackaged in Chris Anderson’s craft, ascend close to papal encyclical status (that Anderson’s particular skill; in a recent lecture, the British journalism professor George Brock calls him “a professional exaggerator”). Never mind the data he presents are not of the utmost rigor. As we can see here, he magnifies the demise of the web.

But byte-flow analysis is misleading. A more accurate measure would be time spent on the traditional web versus apps. For instance, neither Anderson nor the graph say in which category Facebook traffic falls. Is it an app? A web-based service? All we know is American users spends a quarter of their time on it. I wouldn’t dare wrecking such an attractive intellectual scaffolding with mere facts, but we can’t compare video and text-based pages on the basis of their byte-stream. I did the test: a 3 minutes of You Tube video weighs 16 megabytes; the same time spent on text will only require a 20 kilobytes page, 800 times lighter. (The 8000 words Anderson/Wolff story — devoured in 15 minutes at a normal reading speed, weighs only 117 kilobytes). When measuring things, the metric does alter the perspective…

Nevertheless, Anderson’s fatwa is gaining traction, as did, in its time, his Long Tail theory. Later, Anderson amended the postulate, using the concept of “strong head” (mandatory if you expect to make money with the tail). His “Free!” edict was also updated with the Freemium notion – a paid-for model tied to an incentive. But no more sarcasm, such silicon snake oil is a charming ingredient of our e-times.

Caution with Anderson’s theory aside, there is no doubt the app phenomenon will significantly impact the way we consume news: apps might become their main cognitive container. They won’t be as rich as a website, but they are likely to enable more focused usage. Consider the upside in the absence of links: On a web site, a link in a story means leaving it to go elsewhere. In an app, as the link uses an encapsulated browser instance, the reader doesn’t feel she’s leaving the story, the environment stays the same, the UI remains consistent. This results in a more immersive experience, like in a physical newspaper, or in a book where reading is not disrupted by context changes. Apps will be a good vector for complex writings (quantum mechanic vs. celebrity gossip) even though compulsive foragers will blame the impossibility to comment, share, propagate, squabble around contents.

Like in previous media transitions, the new genre of apps on smartphones or tablets, isn’t likely to completely supplant web pages. Each category simply corresponds to a different need: the web for news-picking to socialize with; apps for long stuff to actually read. This divide is less anecdotal than it seems. This summer, the impact of computing toward the way we think, analyze and learn became a hot topic. Must-reads on the subject include a series in the New York Times, Your brain on Computers, and Nicholas Carr’s excellent book, The Shallows. (If you don’t want to immerse yourself in it, you can read the seed version of Carr’s thoughts it his essay, Is Google Making Us Stupid? , published in the Atlantic). Yep. Slowly, scientific and teaching communities realize compulsive multitasking and overdoses of stimuli do more harm than good to our synapses. Expect the pendulum to swing back (a little) when the general theory of multitasking gets revised.

Let’s come back to the application genre. For the news business, applications are likely to evolve towards specialization. Assuming apps favor focus and reader engagement (in addition to carrying transactional capabilities), they will become the medium of choice when it comes to valuing contents for their specific or proprietary nature (as opposed to commoditized infotainment). For a digital news unit, launching an app with a specific coverage target, such as sports or politics events, will become part of the standard strategic editing arsenal.

This leads us to the following question: how to deploy mobile apps in a cost-effective way when the number of Operating Systems and platforms keeps growing? For example, within one year or two, any one-shot, news-related app dedicated to a major election or to Olympic Games will have to be present on at least three to four OS, two families of mobile devices (smartphones and tablets), and multiple flavors of screen sizes and resolutions. Not counting updates and bug fixes. Those of us who were reluctant to develop micro-sites on the web, are likely to give up developing apps for mobile.

A crucial battle for cell phone makers will be on developments tools dedicated to “light” applications. From a digital business unit standpoint, currents SDK (Software Development Kits) appear way too complicated to accommodate the urgency of the news business, of its short reaction-times. What is needed is a set of tools, based on templates embedded in CMS like those available for Flash sites. Apple and Android should think about it. (As an example, I found this gallery of Flash-based sites, made on a WYSIWYG browser editor without a single line of codes). In an ideal world, those MACMS (Mobile Applications Content Management Systems), would be complemented by a profusion of plug-ins and widgets such as those in the WordPress ecosystem.

As in the infographics, or Flash-based animations, building simple news-related application will have to progressively shift away form the IT department and into the hands of newsroom people (thanks to an emerging breed of tech-savvy journalists). In order to achieve that transition, an entirely new set of tools has to be invented. This is the required condition for the takeover of apps in the content business.

—frederic.filloux@mondaynote.com

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Nothing much happens in August, we thought. Wrong. Our three-week break has been filled with a number of “interesting” events.

Curious Yellow

Let’s start with Mark Hurd’s exit from HP after five years of great financial performance as CEO. If you missed the fireworks, you can get a refresher in this Business Insider post by Henry Blodget, or this excellent NYT piece by ace columnist Joe Nocera.

In twitter terms, it looks like this: A “marketing contractor” claims Hurd sexually harassed her; an inquiry fails to substantiate sexual harassment but finds “an inappropriate close relationship”; the investigation also reveals that expense reports were fudged in order to conceal a tête-à-tête with the female. Mistakes were made, Hurd is fired. End of story.

Not quite.

When a CEO gets the boot, a modicum of decorum is usually observed . Not this time. From HP’s General Counsel we hear that “Mark demonstrated a profound lack of judgment that seriously undermined his credibility and damaged his effectiveness in leading HP”. And that’s on the record.

In her memo to the troops, Cathy Lesjak, HP’s CFO and now interim CEO, accuses Hurd of “misusing corporate assets,” referring to the illegitimate expense reports and alleged payments to the erstwhile soft-porn actress for work not performed.

But forget the salacious details; there’s always Google for that. What puzzles most of us is the exit package story. HP maligns Hurd, accuses him of what lay people call fraud… and then grants him an exit package worth tens of millions of dollars, $35M according to unverified estimates. Attorneys, less puzzled than supercilious, sue HP’s Board on behalf of despoiled shareholders.

In the next few weeks we’re certain to get a clearer picture of the inside animosity directed at the cost-cutting, Wall Street-pleasing CEO. His alleged misconduct may turn out to have been nothing more than a convenient pretext, a word that resonates in HP’s history.

Curiouser and Curiouser

This one’s harder to explain: Intel’s acquisition of McAfee. If you own a Windows PC with Intel Inside, there’s a good chance your computer came with bundled anti-virus/anti-spam/anti-spyware software from companies such as Symantec or McAfee. Microsoft entered the fray a few years ago and provides what they call Security Essentials—for free (Microsoft also offers a free safety scan here). PC Tools, AVG, Kaspersky Labs and many others provide the now customary combination of free and paid-for software security products.

In short, this is an active, thriving scene: Symantec’s revenues are at the top of the $5B range and McAfee’s are close to $2B, despite the competition with “free” products from Microsoft and others.

So what possessed Intel’s CEO Paul Otellini to risk his reputation—and more than $7B of his shareholders’ cash—by wading into such a complex, competitive sector? Seasoned Valley observers such as the WSJ’s Don Clark are politely puzzled (see here and here). Otellini intones a new mantra: Security Is Job One. This marks “Intel’s move from a PC company to a computing company”. Sonorous words, certainly, but without a story of higher revenue and profit for the combined companies, there’s not much to back them up.

If Intel’s efforts to provide more secure hardware are to succeed, Microsoft will have to cooperate—but Microsoft has remained silent. If Windows could be secured through the mere addition of a software layer right above “the metal”, the microprocessor, Microsoft would have done it, or acquired it.

I checked with OS and hardware experts. None of them think Intel’s story makes sense. Unless…perhaps today’s PC isn’t the target. Perhaps Intel wants to surf the next computing wave of mobility and smartphones.

Surely, Intel wants a piece of the smartphone billions. There’s a rumor they’ll soon buy Infineon’s wireless hardware business, and they have this MeeGo (née Moblin, as in Mobile Linux) thing going with Nokia. Still, there’s nothing there to explain how Intel would make money in a smartphone world dominated by Marvell (which acquired Intel’s ARM business in 2006…), Qualcomm (the wireless hardware/firmware giant), Google’s Android, and Apple’s iOS. The smartphone conjecture doesn’t answer the $7.6B question.

Is there another explanation?

Intel has squandered billions in unsuccessful attempts to shed the Wintel yoke: server farms, toys (I’m not kidding, see here), modems and networking gear, software…all to no avail. The yoke can be appreciated through this thought experiment: Take two processors, same computing power, cost, technology, die size, heat dissipation; they’re equal in everything but software support. One runs Windows, the other doesn’t. Which one will fetch the higher price?

Intel execs hate the Wintel tag because it conveys the unpleasant truth of their dependence on Microsoft. They keep looking for a different life, either by finding ways to assume control of the Microsoft relationship, or by hacking a path towards a Microsoft-free business model.

Cure Thyself

Lastly, we have the formerly Don’t Be Evil Google becoming more and more Orwellian. Late last year, Google CEO Eric Schmidt made waves (no insider pun) when he told us we have no privacy: “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.” That sally earned him some choice retorts (see here). Earlier this month, Schmidt caught more flak for suggesting that young people might someday be entitled to change their names in order to escape their web-cached past. John Gruber, a noted blogger, calls Schmidt Google’s “Creep Executive Officer”.

And now we see Google, in an alliance with Verizon, trying to neuter network neutrality. (An attitude that was promptly applauded by AT&T.) In true freedom is slavery language, Google pledges its undying commitment to neutrality for one and all…with the notable exceptions of future managed services and wireless networks.

How much of this is part of Google’s special relationship with Verizon to promote Android, and of Verizon’s efforts to gain the upper hand in their negotiations with Apple, we can only speculate.

But Verizon shouldn’t rejoice too quickly: Google Voice just became available through Gmail. This might sound innocuous until one realizes that this could be the beginning of the end for phone numbers, one more step in the disintermediation of carriers, in their reduction to bit pipes. We call people, not numbers; a Gmail address will do just fine, thanks.

More on this in future Monday Notes, this last topic is much more important than HP shenanigans or Intel existential pains.

— JLG@mondaynote.com

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If you are looking for the ultimate cyber black hole, point your browser toward Facebook. Beyond the 500 million users milestone, even more significant gravitational pull await the media industry. Here are facts to keep in mind.

— While the average online newspaper is viewed about 30 minutes per month (see data from the NAA), users spend 12 times more on Facebook: a worldwide average of 5hrs 52 minutes, 6hrs 02 minutes in the United States and 4hrs 12  minutes in France. Globally, social networks represent about 10% of the total internet time; and 2/3 of the internet population visit one such network at least once a month. And the growth is about  30% per year; in three years, that’s 220%, a multiplication by 2.2!

— Facebook dwarfs other social networks: worldwide, measured in time per month, it weighs 6 times MySpace, and 12 times twitter and 30 times LinkedIn.

— Of the half billion users, 250 million are logging every day, for about 34 minutes.

— Just as important, or more, 150 million access Facebook through their mobile phone.

— In June alone, on the US market, users spend more time on Facebook than on sites owned by Google, Microsoft and Yahoo combined (source: Nielsen).

Update Aug.2:  Nielsen just released this study showing that American spend 23% of their internet time on social media, vs. 16% a year ago.

The time spent numbers are always spectacular… but some view those as misleading considering how users interact with Facebook: uploading videos or photographs takes inherently more time than glancing over Google News. Granted. Let’s then consider more media related metrics.

Referrals. The web analytics company Woopra provides a good insight into  the workings of internet referrals (see ReadWrite story here). Facebook accounts for 68% of social networks referrers, vs. 25% for Twitter and only 4% for LinkedIn. Woopra also measured social bookmarking, where StumbleUpon – 10m members and an excellent iPad app – captures a 51% share vs. 30% for Digg. And, in the media category, still according to Woopra, 99%  of referrer traffic comes from a mere four providers: YouTube, Flickr, Last.FM and  the quality video site Vimeo.

Needless to say, the segment comprising entertainment, sports and reality TV is entirely dependent (90%) of social networks for their referrals, half of them controlled by Facebook.

Logging in. Social Networks not only act as powerful traffic attractor and referrals, but also as gateways toward other sites: this takes place when users log on one site using their ID from another. Gigya, another analytic company, found out that Facebook captured 46% of third party login, vs. 17% for Google, 14% for Twitter, 13% for Yahoo, 7% for MySpace and 2% for LinkedIn.

Sharing and commenting. When interacting with news items, though, Twitter takes a large lead over Facebook with, respectively, 45% and 25% of third-party logins. Google remains at 16% and Yahoo at 10%. This demonstrates Twitter is, by far, the best tool for quickly sharing a news item. One reason is the simplicity of Twitter’s interface; against it, the Facebook process to send a link to friends takes too many steps. Another reason is the level of “noise” (read: pointless prattling) that plagues Facebook and makes it a much less efficient tool for news addicts.

“Like”it or not. The “Like” feature,introduced by Facebook last April at its F8 Developer Conference, seems to be a traffic booster. According to Mashable reports, a group of 1500 US bloggers using the Typepad platform with the new Like button have recorded a 50% increase in pageviews. (A caveat: the phenomenon is a little too recent for these numbers to be perfectly reliable.) The “Like” button is now deployed on 350,000 websites and spreading fast.

Buying. It was meant to happen: since July 27, Amazon and Facebook are now joined in their use of an obvious concept: recommendation – already one of the most powerful engine in the Amazon selling machine. “Improve your Amazon shopping experience by tapping into your Facebook network,” says Amazon. “Explore your friend’s profiles and see who has similar interests; see birthdays coming”. The e-commerce giant promises it will not share account information or purchase history, nor will it contact your Facebook friends (although it must be dreaming of doing so!).

The weight of social networks in buying advice isn’t news. ReadWrite Web quotes a Gartner study showing how a group representing just one-fifth of the population turns out to be the key influencers in the purchasing activities of three-quarters of the population! This leverage is the prime motivator for big brands to stake out a presence in the social galaxy.

Whether it is to channel traffic, to expand a brand footprint, or just to increase contribution activity, Facebook needs to be a prime component of any modern news strategy.

National Public Radio is – again – a great example of the best way to use social media (on NPR’s digital strategy see our recent story). In this interview in PoynterOnline, Andy Carvin, senior strategist on NPR’s Social Media Desk, explains how NPR collected one million fans for its Facebook page. Interestingly, says Carvin, it took the radio network 18 months to get their first 500,000 fans and the last 250,000 came on board just over the last two months. Facebook is used to spread NPR news as well as getting sources. Since last year, as part of a new feature implemented by Facebook, all “fans” gets their feed automatically updated when NPR issues a story. And, in turn, each story triggers hundreds of comments. Today, Facebook accounts for 7% of NPR’s traffic and is the n°2 referral behind Google. PoynterOnline listed many news organizations that benefit from Facebook.

We already knew that, on mature markets such as the US, 75% of people get their news through social recommendation (as shown in a recent Pew Research). But, now, we know there is only one network that counts. Better post a “Facebook wizard” in the jobs listing of your company.

— frederic.filloux@mondaynote.com

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I can download any number of third-party, post-processing photo applications to my smartphone. I can crop, filter, stitch, frame… And there will be more applications tomorrow. With my “real” camera, I’m stuck with yesterday’s features.

As the saying goes, the better camera is the one you always carry. (By the way, “Better Camera” is the name of a smartphone application…) In that sense, smartphone cameras have a major advantage, they’re always at the ready.

But…smartphones cameras have tiny sensors, tiny lenses, tiny flashes. While the technology improves with each new generation, smartphone cameras will always lag behind the resolution, speed, and depth of single-purpose compact cameras, with their better lenses and bigger sensors. And, yes, compared to even “realer” cameras such as DSLRs, the compact cousin has much to learn, but try stuffing the callipygian Nikon D3s in your pocket.

Wouldn’t it be neat to have the superior picture taking capabilities of the Canon S90 (or other competitors such as the upcoming Panasonic LX-5) and the benefits of downloadable third-party applications to perform more in-camera processing and editing, to say nothing of smartphone-like communication capabilities?

Technically, such a hybrid is easier said than done. Add the circuitry (processor, memory, communications) of a smartphone to an existing compact camera and, done poorly, you’d get a “feature-rich” monstrous contraption that does more than either donor product, but that does none of them as well. Cost would also be a challenge.

But the idea is in the air.

Years ago, enterprising geeks found a way to break into and modify Canon’s DIGIC, the camera’s on-board image processor. This has become a worldwide hacking community project called CHDK, the Canon Hack Development Kit. It covers dozens of Canon cameras and its forum discussions are available in thirteen languages, including Farsi and Finnish. Imagine what hackers would do if a good compact camera had the processing power, the UI, the development tools, and the app store of a smartphone.

The Android world might be give us hope. In China, where so many smartphones and compact cameras are made, there’s a parallel version of Android called OPhone. A product of Google’s Apache licensing model, OPhone can use Android source code and modify it at will–as long as it doesn’t call itself Android. (I’ve simplified the licensing arcana a bit but without distorting the main point of the story.)

An enterprising Chinese ODM, one the many companies that manufacture products for big brand names, could take the matter into its own hands and create a smartcamera hybrid.

This, in turn, might cause the visionary sheep at one of the better known camera makers to embrace the idea.

Would it be profitable? For a sense of proportion, digital camera sales reached about 110 million units in 2009, a 12% decrease from 2008. 2010 numbers are expected to go back to 2008 levels. These are respectable volumes. They’re less than cell phones but more than netbooks (79 million in 2009).

The idea of an app store has gained acceptance. We’ve already seen Google TV, which is pushing on beyond cable. What other consumer products could be enhanced by a lively market of downloadable apps?

—JLG@mondaynote.com

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“They”, are the Digital Natives.

The French polling institute BVA published an enlightening survey of this generation: between 18-24 years of age, born with a mouse and a keyboard, and now permanently tied to their smartphone. All of it shaping their vision of an unstable world. The study is titled GENE-TIC for Generation and Technology of Information and Communication. Between November 2009 and February 2010, BVA studied hundred young people in order to understand their digital habits. Various techniques where used: spyware in PCs , subjective glasses to “see what they see”, and hours of video recording. (The 500 pages survey is for sale but abstracts, in French, are here ; BVA is considering a similar study for the US market). Here are the key findings:

The constant gamer. The way a Digital Native see his (or, once for all “her“) environment is deeply shaped by computer games. “When he is buying something”, says Edouard Le Marechal who engineered the survey, “finding the best bargain is a process as important as acquiring the good. The Digital Native enjoys using all tools available in his arsenal to outsmart the merchant system and to find the best deal. He doesn’t trust the brand. Like in a game, the brand is the enemy to defeat”.

According to the study, brands face a serious challenge from the Digital Native. Not only does he gets a kick out of triumphing over the brand, but he is not deceived by the marketing pitch. To make things worse, he’ll become an expert, he’ll achieve more knowledge than the merchant trying to lure him. That’s part of the game. Reading the GENE-TIC survey, brands and their vector (advertising), appear under siege in multiple ways. They look increasingly disconnected and outpaced by their target. In addition, advertising is reduced to its utilitarian dimension: if an ad message does not carry an explicit promotion, it is unlikely to lead to a good bargain.

Weirdly enough, when I asked Edouard Le Marechal if big ad agencies were flocking to subscribe to his survey, he replied they were not. Instead, GENE-TIC is massively subscribed to by clients such as high tech or telecommunications companies. (That also reinforces the idea that the brand – whether it is a manufacturer or a service – is willing to (re)connect more directly with its customer base at the expense of the advertising intermediary which appears to have lost its power).

There are notable exceptions, such as brands that are direct components of the digital sphere. Sony and especially Apple, maybe very few others, have gained access to a unique status of blind trustfulness (which, in itself, shows the crucial importance of design and user interface).

Corporate Defiance. How come the corporate world can be so unsophisticated, so focused on its internal processes when compared to the digital world? It doesn’t come as a surprise: the Digital Native doesn’t fit into the corporation. When the digital sphere is seen as fast, efficient, transverse, the corporation appears slow, loaded with heavy rules, crippled by hierarchy. The Digital Native has a problem with authority, but he respects competence. Statutory dimension and attributes are pointless. “It mainly results from a generation gap in which management is still in the hands of people who don’t have a clue on how Digital Natives think”, says Edouard Le Marechal. The old style management can’t handle behavioral dispersion, inability to concentrate, compulsive multitasking. This difference from Digital Natives is almost irreconcilable. But it’s not highly conflictual either, as long as companies are able to grant recognition of its employees’ different affect.

The estrangement toward the corporate community also result from macro-economic considerations. For the most part, this generation has grown in a tormented business environment: industrial downsizing in the nineties, tech and financial bubbles (that inevitably burst), credit crunch, global financial crisis. The result is mostly a hopeless – but not desperate – future for this generation: it shares (at least in France where the survey was conducted) the belief that it won’t do better than its parents.

The Group they trust. The Digital Native does not rely on a single group but on several, each with a different degree of trust. The three concentric circles are : close friends and family as the core, a group of 20 to 30 pals whom they trust, and the “Facebook friends” of 200 or so, which acts as an echo chamber. Beyond these groups, behaviors such as elusiveness, temptation to trick and circumvent the social system will prevail.

How do they get the news? No wonder why the group is crucial to the Digital Native getting his information. First of all, the fastest is the best. Forget about long form journalism. Quick TV newscasts, free commuter newspapers, bursts of news bulletins on the radio are more than enough. The group will do the rest: it will organize the importance, the hierarchy of news elements, it will set the news cycle’s pace.

More chilling: the group’s belief in its power to decide what’s credible and what’s not. Truth – at least perceived truth – seems to emerge from an implicit group vote, in total disregard for actual facts. If the group believes it, chances are it is “true”. When something flares up, if it turns out to be a groundless rumor, it’s fine since it won’t last (which is little consolation for the victim of a baseless rumor); and the news cycle waves are so compressed that old-fashioned notions such as reliability or trustfulness become secondary. Anyway, because they are systematically manipulated, the Digital Natives don’t trust the media (when they themselves are not the manipulators).

Consequently, resources can only be group-related or collectively-driven. The perfect example is Wikipedia: because it is crowd-powered and carries an image of neutrality, it is embraced as trustworthy. In addition, Wikipedia is accessible, straightforward and well structured. As a result, many Digital Natives acknowledge turning to Wikipedia to check facts, or to get a good digest of the class there where given.

It would be presumptuous to draw too many conclusions from this survey. But let’s float few ideas:

Workplace. The corporation’s organization model has to be reconsidered in light of the Digital Native’s distrust. Personal rewards and empowerment must be redesigned. Top-down, the our-way-or-the-highway arbitrary system needs retooling. The survey showed that 3/4 of Digital Natives want to be entrepreneurs, not just for the the sake of it, but in order to be relieved from a hierarchy they don’t respect.

The group. Because it is at the core of the new social system, the group deserves a keener understanding. As for now, there is no sign of an “hostile disconnection” between the group and the rest of the society. But as long a the elite – political, corporate, media – is a disappointment to the group, a disconnect is looming. Today, no one in the ruling elite seems to understand the group’s arcane structure and rules. This, too, deserves a closer look.

The information. Trust will be difficult to restore. Again, such recovery will be achieved through a better understanding of the group. But the most likely scenario is a growing split of news consumers. The Digital Natives will be happy with superficial, quickly digestible streams of information. On the other hand, in-depth, balanced information will be the perquisite of a shrinking elite, sensitive to the notion of a trusted brand and ready to pay for it. This split is fine as long as we can be sure that a misinformed and growing share of the electorate is not becoming a threat to the very fabric of democracy.

—frederic.filloux@mondaynote.com

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Instead, we’ll look into the fun side of Apple’s antenna, or antennas (not antennae, a solecism from last week. A reader reminded me that antennae is reserved for actual bugs, as in insects.)

As they always do, savvy entrepreneurs immediately saw how to convert a problem into an opportunity, how to spin an unintended “feature” into $$.

Tongue-in-cheekiest of them all, we have Antenn-aid:

Nothing more need be said.

Etsy’s offering is a bit less subtle:

(and the pricetag is $4, not the $29 shown in the picture.) The label is a intentionally contradicatory: Placing the sticker over the gap will prevent involuntarily dropped calls, but the humor (and the product) works.

Let’s talk bumpers.

I like the sleek industrial design of the iPhone 4 but because the bumper and the charging dock are mutually exclusive, I’ve remained defiantly “unprotected.” I should have known better. One small slip of the hand, one bounce off the concrete and…

The local Apple store folks tried to console me: ‘Oh, this is nothing. Do you know why we have moisture sensors inside the iPhone? No idea? Ok, what’s the smallest room in your house? Yes, that one. The phone slips out of the jeans pocket and…”

I got luckier when I ordered a custom decal for the back of my iPhone. GelaSkins, a gem of a Canadian company, make skins for laptops, smartphones of almost any brand, and now iPads. Over the years, they’ve managed to incorporate interesting art, from Van Gogh to punk and Japanese street art (you can see their gallery here)

Recently, they’ve started offering custom skins: Create your very own special decal showing a picture of your family, your dog, your yacht or even your boss (if you think that will help). You upload a picture, crop it to fit your phone or laptop and they’ll ship you a neat decal printed on a clever 3M adhesive. It’s clever because it works for klutzes such as yours truly: Tiny channels crisscross the sticky side of the decal. One quick swipe and the air bubbles magically disappear. And, of course, no one gets the placement right the first time, or the second, or even the third (I know this from personal experience). With the GelaSkin adhesive you can try again and again until you get it right.

(Full disclosure: I have no relationship with GelaSkins other than being a full-price, satisfied customer.)

For my older iPhone, I submitted a picture from a now defunct art store on rue Saint Placide in Paris:

When I got my new iPhone 4, I repeated the process with the same picture and got a welcome surprise. GelaSkin knows the difference between the 3GS back skin:

…and the back of the iPhone 4:

The arrows at the top right point to three holes: one for the Mute button, the other two for the + and – keys on the phone’s side. Furthermore, the skin incorporates a correctly placed cutout for the camera and LED flash:

What I didn’t expect were two separate wrap-around skins for the phone’s sides, yielding this:

Reacting to critics, Apple has pointed to the weak spot on its interesting Antenna Performance page…

..but my custom skin covers the sides and the weak spot is “healed”:

Is it modesty or merely a combination of luck and ignorance? The Gelaskins site makes no mention of the “bonus feature”.

Let’s turn to an even sunnier side of the street. During his years at Pacific Bell, Scott Adams created the long running and still sharp Dilbert comics series, lampooning corpocatric culture and the drones infesting large organizations. You can find Scott’s insight into Job’s handling of the iPhone antennas problem (The High Ground Maneuver) on his blog. And, while you’re there, take a look at his weigh-ins on the iPad and Active Listening. I feel a little embarrassed to have only recently discovered Scott’s blog, but I’ve entered it into my Google Reader subscriptions.

One more Monday Note next week, then we go on break for two weeks.

—JLG@mondaynote.com

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More than ever, we are in the business where speed is key.

Look at how critical the speed factor has been in recent tech successes. To be sure, Google has been able to dominate search thanks to the quality of its algorithm. But Google’s win also came from its ability to deliver results faster than anyone else. This speed comes from the combined performance of three pieces of software:  Map Reduce slices the request in multiple chunks and assigns the work to multiple CPUs, the Google File System at the core of Google’s distributed architecture and the main database, BigTable, all supported by an unprecedented hardware deployment of several million servers. (A Cornell University paper by a Google Fellow gives a comprehensive description of the company’s architecture, PDF here). All three components are dedicated to speed of service, one of Google’s edges and a must to conquer cloud computing, where waiting for a file update or data transfer is not an option.

Speed is also a key success factor for Amazon and iTunes — the two kings of the friction-free transactions — but also for the video streaming service Hulu, or for business applications such as Salesforce. As for hardware, Apple taught us that speed and fluidity weigh more than a long feature list. Look at the four iterations of the iPhone (leaving aside the antennae issue for once), most of the hardware improvements have been aimed at increasing speed and fluidity of use (OK, battery life as well).

Two of the reasons why the iPad is about to take over the netbook market are its near to zero boot time and its instant application launch. Both are a blow to the PC which remains stuck in its passé architecture despite huge increases in processing power (or perhaps because abundant power facilitates wasteful programming practices). This contributed to the pace of the iPad adoption by the customers: it took 28 days for the iPad to reach a million users, vs. 180 days for the netbook. Consumers love speedy devices.

And, as a final example of speed related services, we can mention classifieds websites derived from the highly successful Blocket in Sweden (Blocket is owned by my former employer Schibsted). The site is so huge that an equivalent about 5.5% of the entire Swedish GNP goes through it!  As for the French version called Le Bon Coin (see Monday Note’s story), it delivers 2000 pages per second while relying on fairly small hardware. But the site is entirely coded in C language that provides lightning-fast data delivery (users see 40 pages per visits on average, eight to ten times more than any news site).

Let’s face it, consumers tolerance to latency is closing down to zero. They want ultra-fast boot time, quick network access, fast pages display or download.

Sadly, this issue that has yet to percolate to the surface of news media industry consciousness. Too many web publishers remain convinced that the quality of their editorial is far more important that the underlying technology that supports it. This is made even more obvious with the inception of the iPad and of its applications. The vast majority of news media publishers have not focused enough on speed and seamlessness. Let me repeat a point I’ve already made here several times: the digital news sector needs more investment in technology and techies.

This is a critical issue. As of 2009, in the US market, print represented 12% of time spent but still 26% of advertising spending, and those numbers are falling pretty fast. The internet shows a symmetrical pattern: 28% of time spent but only 13% in ads spending (both growing fast). For news medias, seizing up this opportunity means transferring know-how and content to the internet in the most effective way. This means developing services and applications offering top level speed and design. Otherwise, tech-driven pure players will inevitably fill the gap (and content quality might not be the main criteria of success…) at the expense of sluggish classical medias. No one wants content farms to crush quality news outlets.

Time is becoming the scarcest resource. Consider this: according to the US Census Bureau, time spent on various medias has remained stable since 2004, at around 3500 hours per year per person; the largest part is still taken by all forms of television, which absorb about 1600 hours per person per year. But things are not equal: over the last 6 years, newspapers consumption has dropped by at least 20% as video games shot up by 36%; so-called pure-player internet services rose by 31% and pure-player mobile services by 123%. (Those stats are imprecise: the exploding year 2010 is a projection).

Whatever the metric considered, access to mobile services is likely to grow. And it is directly related to the lifestyle of the population. In Korea and Japan, where people spend more time in public transportation than in any OECD country, the industry responded by developing large sets of mobile services delivered over fast networks. In the United States, time spent in cars (72 minutes per day on average, twice the European level) is more likely to stimulate Natural User Interfaces developments. For media applications, voice recognition systems are still in infancy: just think about a voice-activated digital radio that would allow the user to search and select any show, present or past, while driving.

For classical medias, we are just seeing the beginning of a vast catching-up phase. In doing so, the incumbents face digital native challengers that are way more skilled than they are in dealing with interfaces and with zero latency delivery.

— frederic.filloux@mondaynote.com

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Rewind the clock to June 7th 2010. Steve’s on stage at the WWDC in San Francisco. He’s introducing the iPhone 4 and proudly shows off the new external antenna design. Antennae actually, there are two of them wrapped around the side. Steve touts the very Apple-like combination of function (better reception), and form (elegant design).

And now we enter another part of the multiverse. Jobs stops…and after a slightly pregnant pause, continues: The improved reception comes at a price. If you hold the iPhone like this, if your hand or finger bridges the lower-left gap between the two antennae, the signal strength indicator will go down by two or even three bars. He proceeds to demo the phenomenon. Indeed, within ten seconds of putting the heel of his left thumb on the gap, the iPhone loses two bars. Just to make sure, he repeats the experiment with his index finger, all the while making a live call to show how the connection isn’t killed.

It’s not a bug, it’s a feature! It’s a trade-off: Better reception in the vast majority of cases; some degradation, easily remedied, in a smaller set of circumstances.

Actually, it’s a well-known issues with smartphones. Steve demonstrates how a similar thing happens to Apple’s very own 3GS, and to Nokia, HTC/Android, and RIM phones. Within the smartphone species, it’s endemic but not lethal.

Nonetheless, adds Apple’s CEO, we can’t afford even one unhappy customer. Buy in confidence, explore all the new features. If you’re not satisfied, do us the favor of returning the phone within two weeks. At the very least, we want you to say the iPhone didn’t work for you but we treated you well. If you fill out a detailed customer feedback report, we’ll give you an iPod Shuffle in consideration for your time.

One last thing. Knowing the downside of the improved antennae arrangement, we’ve designed a “bumper”, a rubber and plastic accessory that fits snuggly around the iPhone 4’s edges and isolates the antennae from your hands. The bumpers come in six colors—very helpful in multi-iPhone 4 families—and costs a symbolic $2.99.

The antenna “feature” excites curiosity for a few days, early adopters confirm its existence as well as the often improved connections (often but not always—it’s still an AT&T world). The Great Communicator is lauded for his forthright handling of the design trade-off and the matter recedes into the background.

If you can’t fix it, feature it.

End of science fiction.

In a different part of the multiverse, things don’t go as well.

Jobs makes no mention of the trade-off. Did he know, did Apple engineers, execs, marketeers know about the antenna problem? I don’t know for sure and let’s not draw any conclusions from the way Jobs avoids holding the iPhone 4 by its sides while showing it off to Dmitry Medvedev:

There’s a more telling hint. Apple had never before offered an iPhone case or protector of any kind, leaving it to third parties. But now, for the iPhone 4, a first: We have the bumper…at $29, not $2.99. (And which, by the way, prevents the phone from fitting into the new iPhone 4 dock.)

As usual for an Apple product, the new iPhone gets a thorough examination from enterprising early adopters, and many of them discover the antenna gap “feature”. As one wrote Jobs:

It’s kind of a worry. Is it possible this is a design flaw? Regards – Rory Sinclair

Steve’s reply:

Nope. Just don’t hold it that way.

Steve, No! Don’t diss your beloved customer. No tough love with someone who’s holding your money in his/her pocket.

A customer complaint dialogue is structured around a two-position toggle: a) it’s terrible, b) it’s nothing. The first one to grab a position forces the other person to assume the only one left. When Dear Customer calls, “Canon Law” dictates the first words out of my mouth: ‘This is terrible, how could we have let this happen to you!’. This forces the caller to concede: ‘Well, it’s not the end of the world, I just would like to…’ A cooperative conversation ensues.

However, if I argue that it isn’t the end of civilization, civility goes out the window. Dear Customer feels disrespected and insists things are awful. It’ll take time to lower the temperature and hear one another.

Steve Jobs’ cavalier dismissal worked as per the theorem: Dear Customer got mad. The media saw red meat, planted its teeth, and won’t let go.

Steve is an habitual offender. In the Summer of 2007, Apple abruptly (and rightly) dropped the original iPhone price by $200, from $599 to $399. Consumers who had bought their iPhones a few weeks or days before weren’t happy.

Steve Jobs’ first response:

“That’s technology. If they bought it this morning, they should go back to where they bought it and talk to them. If they bought it a month ago, well that’s what happens in technology.”

That pill didn’t go down well. A couple of days later, Apple granted early adopters a $100 rebate and the issue went away.

Recently, when a poor blogger kept pestering Jobs about porn and censorship, Apple’s CEO lost patience and lashed out:

By the way, what have you done that’s so great? Do you create anything, or just criticize others work and belittle their motivations?

We can’t help but pity the poor schmoe who challenged Jobs to a verbal duel (full text here), although he should have known better. Sooner or later, Steve would call him an ankle-biter. But…now that Steve has risen to the very top of the world perhaps he could morph into a magnanimous sage—and a cautious one, knowing that these exchanges will be milked for all they’re worth in page views.

As I was traveling, I watched the whole Antennagate mess go on and on, including a longish letter from Apple ascribing the problem to the algorithm used to report signal strength. Too late. As in our sci-fi, the facts in that letter should have been part of the announcement.

With the advantage of hindsight, an obvious question arises: Why didn’t anyone in Jobs’ entourage—or on Apple’s Board of Directors—take Steve aside to reason with him, to remind him of a few customer relations tenets?

Well-meaning but not realistic.

We have to take the whole Steve instead of futilely hoping that he’ll shows us the “good parts” while suppressing his darker side. He’s a genius like our industry has never seen. That’s why, in January 2009, I wrote that we owe him seven statues.

With the possible exception of the Dalaï Lama, our highest achievers aren’t the most pleasant of people. It’s the darker side that fuels their creativity and their relentless pursuit of a vision.

If you want the life energy and the economy of his sublime drawings, you have to accept the real Picasso; you want Kind of Blue, make peace with who Miles Davis was; you want Saint-Laurent’s calligraphs on the Great Wall of Fashion, allow his behavior.

[For good Summer reading, get The Beautiful Fall, Alicia Drake’s amazingly felicitous chronicle of the parallel Lagerfeld and Saint-Laurent years. The book is so “good” Pierre Bergé, Saint-Laurent’s longtime partner, tried to quash the French translation.]

So, yes, I imagine Steve’s lieutenants and directors wincing, but they stick with him because they’ve made peace with reality: Steve is Steve, he’s leading us somewhere, with or without rationality and civility.

We’re now at this past Friday’s “surprise” press event in Cupertino. (You can watch it, minus the press Q&A at the end, here.)

Let’s start with the bad news. Instead of coming out with a simple: “We screwed up, I screwed up. Please accept my apologies. We should have acknowledged the issue when we announced the iPhone…”, Jobs went through a lame “We’re not perfect, smartphones aren’t perfect” routine. Make a clean breast of it and move on.

Second ugly mistake: Blaming the media. Claiming “this has been blown out of proportion”, and whining that “after 34 years you’d think we would have earned some trust” throws more red meat to bloggers and journos. Steve needs to accept there’s payback going on: You can’t dismissively lord over the media and not expect them to kick you when you’re down.

It was a welcome and disarming idea for Steve to play the Antenna Song at the beginning of the conference; less so to imperiously declare there was no Antennagate—that’s for the media to conclude.

The Magnanimous Steve would have said: “We’re proud to be held to higher standards, and we embrace them even if we sometimes fall short.” Everybody nods and moves forward. Complaining about the media when they’ve done so much for Apple (and for themselves in the process—it’s a codependent relationship) isn’t a winning move.

Now, the good news: The numbers. Moving past the sales volume (3 million units, despite the media storm) there are the returns and dropped calls. According to Jobs, AT&T’s retail operation reports a 1.7% return rate for the iPhone 4—compare that to 6% for the previous iPhone 3GS. The rate of dropped calls appears to be 1 percentage point higher for the iPhone 4, a statistically insignificant difference. (After the conference, a few reporters were invited to visit Apple’s on-campus $100 million wireless testing lab.)

More good news for Apple, the iPhone carries features such as FaceTime. This is likely to be the great sales virus that infects families, as Apple very well knows. They hired Sam Mendes, the director of American Beauty, for their first FaceTime commercial, the fifth in the gallery here. Pulling at the heartstrings, shameless, effective. I like Mendes’ last segment the best, two people using sign language over the videophone.

Eventually, Antennagate will be forgotten, leaving only a scar—or a bumper—on an otherwise accomplished product.

Let’s end on a poetic note.

I used to think Apple folks were atheists…until the Jesus Phone. Then they saw the path and the light: only a divine creator could have had the iPhone in mind when iTunes was hatched to bestow upon the iPod its lasting market power. The iPhone comes out and iTunes becomes the godsend that begot the Apple App Store with its five billion downloads. Erstwhile heathens, now believers.

Did that same god just sting Steve to remind him of her existence — and powers?

— JLG@mondaynote.com

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Two years ago, Earl Wilkinson, the managing director of the International Newsmedia Marketing Association (INMA), produced a chart showing how the growth in the number of journalists employed by US dailies had not prevented a decrease in circulation:

A former journalist himself, Earl is a strong advocate of editorial differentiation; therefore, he is not against large newsrooms. But the fact remains: on the US market, the size of the newsroom isn’t a shield against readership erosion. With the possible exception of India,  the era of big editorial cathedrals is gone. In France for instance, according to a 2009 study conducted by the National Center for Scientific Research (CNRS), the number of journalists almost tripled in two generations, about 50 years. For the same time period, the number of copies sold per 1000 inhabitants shrunk by 66%, from 360 about 120 per 1000 people.

I took the OECD report titled The Evolution of News and the Internet and fed it to Excel. The output shows the following trends:

#1: editorial workforce. If adding journalists has proven unable to reverse the trend in reader depletion, in any given market, the more numerous the journalists are, the better the newspaper industry holds. The chart below covers seven countries, with two superimposed data sets. First, in blue, the number of journalists per 100,000 daily copies sold; second, in red, paid circulation per 1000 inhabitants.

Sweden and Norway show the most favorable ratios: strongest readership and the biggest editorial staff per copies sold. Italy shows the worst numbers: relatively few journalists for the lowest readership.

One notable exception: with only 41 journalists per 100,000 copies sold, Japan enjoys the highest newspaper penetration with more than 402 copies sold each day per 1000 inhabitants. The reason is Japan has five of the world’s top 10 paid dailies; among them, the Yomiuri Shimbun has a daily circulation of 10m copies, and the Asahi Shimbun 8m. While Japan has 13 times less titles that the United States, its population is only 2.4 times smaller. As for the US, it has 112 journalists per 100,000 copies sold and a penetration of 159 copies per 1000 inhabitants. But those numbers are degrading fast due to a higher reliance on disappearing advertising revenue.

#2: Productivity depends on market density and concentration.

To produce a million copies per day, it takes

… 414 journalists in Japan, a record high dense market in which the average daily sells almost 500,000 copies

… but 1600 in Sweden and Finland where a daily sells typically 40,000 copies

…and 1122 in the US where, on average, a daily sells 34,000 copies

Trend #3: Profitability. In Europe, there are basically two groups:

- Those who have been able to maintain a decent profitability through workforce adjustments. This group includes Finland, Germany, Norway – a country in which companies can be quite decisive when it’s time to restore profitability.

- The others, who have made no adjustments and whose profitability lags (only Sweden suffers from both downsizing and weak profitability).

The chart below shows profitability and its main components.

Trend #4: Subsidies. The OECD data show too many subsidies lead to low operating profit, no workforce adjustments and decreasing readership.

Italy and France are the perfect examples. Compared to Sweden, Italy has 4 times less readers par 1000 people but 12 times more subsidies per reader.

For France, the numbers are slightly better: 3 times less readers than Sweden and 5 times more direct subsidies (according to a conservative estimates, 10% of the revenue of the French dailies comes from public funding). The latest OECD data shows that neither France nor Italy have undertaken any sensible downsizing.

In fact, in Europe, the soundest newspaper economy is the British one: no direct subsidies, only a VAT at zero (like in Finland and Norway).

—  frederic.filloux@mondaynote.com

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Instead of spending your hard-earned dollars loading your Kindle or iPad with fictional potboilers, head over to Scribd and download the Department of Justice Complaint vs. Russian spies (June 2010).

Why submit yourself to the tedium of ponderous DOJ prose? Aren’t such legal documents boring, repetitive, written in an esoteric English argot meant to confuse lay people? Yes, and this one is no exception. But it also contains fascinating and, at times, amusing insights into the people, scope, and technology of the long term embedding of Russian spies into the US.

Deployed by the SVR, Russia’s spook agency and successor to the fabled KGB, the wannabe saboteurs used carefully built American identities and led “unremarkable” lives. Their exact purpose isn’t clear from the DOJ story. They didn’t seem to be engaged in active spying, they appeared to have been planted “just in case”. This could be evidence of Russia’s very long view, of the SVR’s willingness to make investments for a distant future, or of a plan to build a support base for other agents. We won’t know for awhile, and may never know. The agents have pleaded guilty to activities other than spying, such as money laundering and using false identities…and now they’re gone, handed over in a Vienna trade, just like the Good Old Cold War days.

For us geeks, the amusing part is the collection of hackerdom gems contained in the DOJ file. From social engineering to ad-hoc WiFi networking, MAC-address filtering, steganography, and unsecured passwords, these supposedly “highly trained” individuals looked more like Keystone Spooks than Hollywood superspies.

A good example of social engineering is described when one of the culprits experiences unspecified software problems with a laptop. (Sound familiar? We’ll refrain from the easy jabs.) Enter an FBI agent passing as a Russian Consulate employee, “I’m here to help”, who borrows the laptop with a promise to fix the problem. The machine is broken into, fully explored, and yields a rich trove of unprotected files.

In another case, the Feds, while “inspecting” a home (legally, of course), find a password left in the open, helpfully written down on a plain piece of paper.

Our spies thought steganography provided a safe and effective way to conceal messages inside innocuous-looking documents. Strong cryptography isn’t enough: If the folks at the NSA see an email message or a radio transmission they can’t decode, that alone will raise a red flag, bringing no end of trouble for the sender and receiver. One must have a way to exchange encrypted messages without being seen. Hence the slight of hand: Hide the message in plain sight.

The first known implementation of the idea was the microdot, the invention of the perfectly-named Professor Zapp. In today’s version, the message is embedded inside a picture that’s posted on a Web site.

A digital picture is made of pixels, say 3,000 by 2,000. Each pixel is represented by a number, 8, 12, or 14 bits. Let’s use 12 bits for our example. The picture is a 12-layer mille-feuilles, each layer containing 6 million bits. With a modest amount of software magic, you can replace one of these layers with a new set of 6 million bits—bits that hold your encrypted message.

What happens next? To the human eye, not much. The layer swapping business introduces a modest amount of noise that our eyes and brains easily overlook and correct. Your picture is now on Flickr or Facebook, to be downloaded by someone with software that can extract the right layer and retrieve the message.

It’s a clever technique—but it’s well-known to counterspies. What our brains see as forgivable noise looks like a man-made artifact, a statistical abnormality when it’s scanned by an NSA computer. The message might be inscrutable but the activity is detected. (This assumes that the NSA knows where to look, or that it can scan the billions of pictures—two billion on Facebook alone—that are uploaded every day. If Facebook can process such quantities, perhaps the NSA can as as well, or it can discreetly ask for help.)

The DOJ complaint describes another ingenious way of exchanging messages: An ad-hoc Wifi network between laptops. One spy sits inside a coffee shop, the other is inside a car parked outside, or even driving by. It seems safe because the computers are connected directly to each other—there’s no Internet involved, no public network that can be monitored by counterspies. To add security, they use Mac address filtering instead of the more mundane login and password process. Mac addresses date back to the origins of the Ethernet; every device gets a unique identifier, something like 01-23-45-67-89-ab. Our spies make sure that only two specific Mac addresses are allowed on their ad-hoc network.

(Un)fortunately, the counterspies are in on the scheme. With a simple packet sniffer, such as Nmap, the FBI out-geek the spies and monitor the exchange. This was made particularly easy because the Russians kept re-using the same Mac addresses for their “surreptitious” Wifi network transmissions. They were probably lulled into a sense of false security.

Techies roll their eyes: How gauche! They should have known better than to reuse the same addresses. Mac address spoofing is so easy! With address spoofing you can make up hardware identifiers at will. Nothing necessarily nefarious, here, Powerline Ethernet adapters do it all the time. A couple of command lines in Linux or Mac, or a few Registry entries in Windows and you’re done. You’ve created a different, unpredictable set of network addresses for each exchange. Bury these constantly-changing Mac addresses in an urban environment with its thousands of active WiFi networks…the counterspies wouldn’t know where to look.

The word is the same in Russian: Idiots.

My expert friends go further: Why did these bumblers use laptops? Today, you can easily create a bootable Linux system on a USB drive. With a thumb drive, almost any computer, public, private, borrowed can be used. There’s no need to struggle with “software issues” on an easily compromised laptop. Easy to use, easy to hide or destroy if needed.

These mistakes are strange, almost unexplainable. Russian hackers are considered world-class. Why didn’t the SVR enlist their help? Were the apparatchiks concerned about their native hackers being a little too free, or too clever, or too “market-oriented”? Did they rely on the “safer” but duller techies in their midst?

We’ll see if anything more comes to the surface in the coming weeks and months.

For more juicy espionage summer reading, look up Robert Littell’s books. Some of them are eerily consonant with the DOJ document.

— JLG@mondaynote.com

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Navx is a €1m a year French company whose business is speed radar location databases. In France, it is illegal to sell or use selling radar detectors, devices that pick the microwave or laser radiation emitted by speed guns and automated cameras. But providing speed trap location data is lawful. In fact, the French Interior Ministry maintains a public database for fixed radars. And companies such as Navx, or various GPS makers supply location information for mobile radars.

To sell its product, Navx relies massively on Google AdWords: the company buys keywords that guarantee a high ranking in search results associated to terms like “avertisseur radar” (radar warning). Over the years, Navx invested a large part of its revenue in keywords purchases, up to €400,000 a year. For Navx, like for millions of other businesses all over the world, the result was a massive dependency on Google systems. For Navx, Google worked very well: in October 2009, 69% of new subscribers revenue came from AdWords. The company was still losing money, but growth was promising. Then, Google pulled the plug, arguing Navx business was illegal. Google’s ukase came at the worst possible time: Navx was about to complete its second round of funding. The company lost most of its new revenue stream, causing investors to get cold feet, in turn causing Navx to lay people off, and so on.  Navx argues the legality argument was a mere pretense: Google had a real, ulterior motive for the ejecting the speed trap location ads from its system. Navx believes its tiny but growing service came to be viewed as competition for Google’s own geolocation services. That’s a possibility.

Such a story is typical of Google’s opaque world. Countless examples are offered in books, in newspaper and magazine stories where businesses went belly up because some  geeks in Mountain View turned the dials of an unseen algorithm, without the slightest regard for the impact on the very businesses that pay their salaries.

The Navx story is different, though. The company took its case to the French Competition Authority; last week, the regulator issued its ruling on the matter: a) Google acted in a monopolistic way (in France, it controls 90% of the search market); b) Navx business didn’t break French laws governing radar detection devices or services; c) Google did act in a discriminatory way, without any legal ground for so doing.

Google was given five days to reinstate Navx Ad Words account, and four months to clarify its Terms of Service. (The full ruling, in French, is here).

This landmark decision from the French authority should come as a warning to Google. It is the first time that a regulatory ruling defines Google as a clear-cut  monopoly. It does create a precedent in a European Union that makes antitrust action the cornerstone of its trade policies. Several related cases have already been brought before the European Commission. For example, the British comparison website Foundem complained Google imposed discriminatory penalties. This also applies to the French legal search site Ejustice and to Microsoft’s online shopping guide Ciao! (See stories Reuters and Venture Beat ). In Germany, the Bundeskartellamt, the local competition authority, has been called in by two publishers and a digital mapping companies for the same motives; and the Italian regulator will rule by September 30 after a complaint from a group of newspaper publishers.

Such lawsuits — less and less isolated — will end up having a broader effect on Google’s business. In the past, many entities endured Google’s autistic practices in silence; in a network economy Googles “subjects” can now rise and regroup.

Many American companies suffer from vision impairment: they consider the Rest of the World as an aggregation of second-class people. What I called in a previous column the “Burundi Syndrome”, leads to zero delegation of authority. This leads to terrible results. Each attempt from a European subsidiary to adapt company policies to its local market conditions hits a wall of a soviet-like centralization, this time epicentered on the West Coast of the United States.

This is true for Google, but also for Apple, Amazon or Microsoft. The people they maintain on this side of the Atlantic are powerless – and, often, frightened; they will constantly defer to the HQ, “la corp” in French parlance, for any decision. Such rigid stance is actually good news for alternative, more flexible players. There are local companies willing and able do what it takes to capture the markets left open by their inflexible US competitors, in digital advertising or contents delivery.  One customer at a time, big companies undermine a customer and partner base that was once largely sympathetic.

In the long run, ignoring these trends can only have adverse effects.

First, regulators shouldn’t be underestimated. In Europe, they are getting more technology savvy, better organized and more able than ever to develop cross-country cooperation.

Second, such practices ultimately damage revenues. Take Apple’s eBooks Store, for instance. Using of a French-based iTunes account prevents a customer from buying books in English on the US eBooks store, this without offering any legal reason for the prohibition. Now, turn to France: perhaps as a surprise to US-based Apple execs, a significant number of French iPad users want to read books in English. The result of Apple’s segregation of iTunes accounts? These users flock to Amazon Kindle’s application. A similar lack of flexibility applies to e-newspaper prices; Apple set two levels: €0.79 or €1.29, nothing in between. These numbers don’t fit the needs of local publishers. But Apple Europe gives only a deaf hear to requests for adaptations — even if these won’t in any way harm iTunes’ margins.

Google’s black box or Apple’s access and pricing policies provide the fascinating spectacle  of great brands letting their lazy condescending behavior hurt their customers and partners. “Any customer can have a car painted any colour that he wants so long as it is black“: the old Henry Ford motto no longer applies in a global, connected economy – which also happens to be an extremely creative one. In many sectors, collective creativity will provide new ways around the bunker mentality that plagues large American corporations.

—frederic.filloux@mondaynote.com

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I’m not completely naïve, however. In the end, I’ll agree there is little chance we’ll settle on another word.

Once upon a time, philosophers held thought preceded words: you thought of something and then struggled to find the right words for that gem. Later, psychologists of the twentieth century persuasion, came to think, no, to say words preceded thought: one could only think of thoughts for which they already possessed words for. As much as I like our dear Lacanians, some of whom hover around the Valley, the word ineffable leaves them… speechless.

Devoid of a clean theory, we can wallow in examples.

The most visible one is the PC, the personal computer. Derivative thought first gave us “microcomputers”, because they were “like” minicomputers, themselves “like” the only serious computers, mainframes — only smaller. Next, because size matters, we’d get nano computers, pico computers, femto computers…

Fortunately, the gestalt, the user experience won: This is my computer, as opposed to the institution’s. The beginnings weren’t always easy: I recall a book called “You bought a personal what?”, published in the late seventies. I also remember our collective indignation at Apple when, in 1981, IBM boldly misappropriated the concept and introduced The Personal Computer and proceeded to win the market, that is until Microsoft gave it to the clones. The P word worked and won.

Decades ago, Motorola was the king of cell phones. Cell was a good word because it pointed to the amazingly powerful innovation of cellular telephony. Previously, mobile phones called a radio station and kept using the same frequency as the user moved around. This severely limited the number of users and forced mobile phones to have powerful radios to stay connected over long distances. With cellular telephony, frequencies  were reusable as users were magically handed over from one lower-powered radio station to another as they drove around, leaving the frequency behind, ready for another user.

The Motorola name came to be associated with radios of all kinds, from cars to the Moon. I recall Motorola execs calling their successfully miniaturized cell phones of the late eighties “little radios”. They were rightly proud of their technical prowess, I owned several StarTacs and MicroTacs. But when cell phones gained PDA features, Motorola’s clock got cleaned by the likes of RIM (Blackberry) and Palm (Treo). For a long while, Motorola’s culture remained backward-focused on the phone part of the customer experience. The new phone boss, Sanjay Jha, is now an Android convert: a couple of impressive Droid devices have put Motorola back in the race.

I recently spoke with carrier executives. One individual used the word “terminal” to designated their customers’ handsets. A revealing choice of words. Customers, on their side, think of themselves as being at the center of the world and of connecting their devices to an almost infinite number of sources of information, entertainment, social connections, email, navigation… With a mindset like this, no wonder Google wants to disintermediate carriers and turn them into bit pipes. True, cellular networks are technical wonders, complex, delicate and, because of the explosive growth in data usage, overtaxed. But imagine BMW executives calling their cars rolling computer networks. True, modern cars are stuffed with dozens of computers, some producing amazing feats of engine management. The Ultimate Driving Machine slogan or, more recently, the Joy campaign better relate to what their customers really look for.

One way to think of what besets Nokia is they still are the king of phones. The game changed under them. This isn’t about phones anymore, it’s about a new, different as opposed to “like”, generation of personal computing. How do we otherwise explain Apple’s success in spite of its “phone” problem, whether related to AT&T’s network or to antenna design, or to signal strength indication software? I know, it’s called iPhone. And, when the iPad came out, the joke went you couldn’t make calls with the iPad either… But Apple recently moved away from the iPhone OS designation to the better iOS moniker.

We’ve seen what happened to Windows Mobile, bad focus, the spastic clinging to the Windows franchise. Or to Mobile Linux, a.k.a Moblin, Maemo, Meego. Who cares about “Linux Inside”? Customers, apps developers or corpocrats?

That’s why I feel the -phone suffix can lead to focusing thoughts, feelings, desires onto the wrong target. Like gazing at the lace curtain’s beautiful patterns instead of ogling the good-looking humans animating the street.

This said, what are the chances we’ll abandon “smartphones” for something like RPC (Really Personal Computers) or MID (Mobile Internet Devices) covering what we call today smartphones and tablets?

None, zero. Usage wins. We got used to Apple or Google, because success pumped  meaning into the words.

JLG@mondaynote.com

[More fun with smartphones: Brian S. Hall blog, The Smartphone Wars. Not the most politically correct collection of posts, always opinionated, very often insightful.]

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Disassembling the utterly complex chain of ownership control at Le Monde would take most of this column. Let’s just say the newsroom, which historically controlled 22% of the company, gave a resounding 90% vote for a triumvirate including the head of Lazard France, Matthieu Pigasse (41); the co-founder of Yves-Saint-Laurent, Pierre Bergé (80); and Xavier Niel (43), the founder of Free, France’s largest non state-related telecommunication company. Together, the investment banker, the philanthropist, and the telco maverick are likely to become the main shareholders of the most prestigious French newspaper — one that is facing a severe cash crisis (see last wee Note Le Monde on the Brink). The journalist’s choice was supported by most constituencies in a position to influence the group’s fate. Only one voting body chose the other bid; technically it can trigger a deadlock for the ultimate vote at the board level, scheduled for this Monday; this is a highly unlikely scenario, one that would immediately lead to a bankruptcy filing.

Two years ago, such choice would have ben unthinkable. On paper, the other bid, led by Claude Perdriel — owner of the left-leaning newsweekly Le Nouvel Observateur —, supported by the Spanish group Prisa and by France Telecom-Orange, would have got the prize. But their offer got mired in politics, and Le Monde’s staff reacted strongly against it.

Nicolas Sarkozy’s involvement doomed the Perdriel bids. When he summoned Le Monde’s current CEO, Eric Fottorino, to warn him, it felt like George Bush telling the New York Times’CEO: “You have two choices, here is my preference, be careful.” For any journalist, this type of ultimatum is the perfect repellent. Especially when, hoping to influence the decision, the executive branch pushes every lever.

To understand how it works, here, you have to keep in mind how the executive branch keeps the French medias under the tightest possible leash. When a government-friendly columnist is unhappy about his employer, he calls Sarkozy’s chief of staff (nicknamed the vice-president) who, in turn, calls the head of the broadcast network to express his concern. It always works like a dream, especially when the CEO of a network (radio or TV) is a government appointee or, for a private company, when the main shareholder is a FON — Friend Of Nicolas).

When a key target such as Le Monde is at stake, every possible mean is activated. Take the paper’s cash-bleeding printing plant: over the last few weeks, two Sarkozy media friends  — Vincent Bolloré, who owns the free paper Direct Matin/Soir, and Arnaud Lagardère, who publishes the major Sunday paper Journal du Dimanche — disclosed their intent to terminate their printing contract with Le Monde’s plant, further weakening its P&L. At the same time, the presidential entourage hinted the Pigasse-Bergé-Niel team would be deprived of the public funding set aside to subsidize the ailing printing plant. (It didn’t occur to the government staff that the trio doesn’t care).

At the same time, since Claude Perdriel was a bit short of cash, the French government induced the support of France Telecom-Orange (the state still controls 26% of its capital and its boss is a political appointee). As a kind of moral reinsurance, the Perdriel bid was able to secure the involvement of the Spanish group Prisa, owner of El Pais. Early in the process, Prisa wanted to take over Le Monde, but gave up after taking a closer look at the balance sheet. Unfortunately, the man who whispers into the ear of Juan Luis Cebrian, CEO of Prisa, is no one else than Alain Minc, who suffers from two handicaps: a) he was instrumental in the collective hallucination that led to Le Monde’s desperate situation, and b) he is one the closest advisors to… Nicolas Sarkozy.

The death-blow was given in front of Le Monde’s staff last week. The Perdriel-Orange-Prisa bid appeared ill-prepared, and incoherent. Perdriel said Le Monde should remain an afternoon paper whereas, in an earlier interview, Cebrian said it ought to shift to to a morning publication schedule. As for the digital strategy, Orange’s CEO hinted he thought the only viable asset in Le Monde’s galaxy was its website, to be unlocked from the mothership with a different capital structure (i.e. with a large stake from Orange). For the future of the paper and of its powerful editorial engine, this was the wrong message. Clearly, Stephane Richard, Orange’s CEO, dropped the ball (who the hell is advising the gent?). The fact is: Orange doesn’t have a clue about its overall internet strategy; it doesn’t have a technological edge; its tons of cash have yet to find a clever way to be used; and, in the news business, Mr. Richard is in desperate search of the type of visibility Orange enjoys in movies or in sports).

In addition, both Perdriel and Cebrian— who sits on Le Monde’s board — were questioned regarding their ability to prevent a recurrence of the of bad investments Le Monde made during the early 2000′s; neither Mr Perdriel’s age (84), nor Mr. Cebrian’s aloofness appeared to quiet down worries within Le Monde’s team.

Adding an excess of political involvement to a sloppy preparation doomed the Perdriel-Orange-Prisa bid. Yesterday, the Journal du Dimanche, published by one of the most trusted FON, Arnaud Lagardère, headlined : “Le Monde votes against Sarkozy”. Very telling…

In contrast, the Pigasse-Niel-Bergé team delivered a competent pitch. According to people who where in the room, they seemed driven by a genuine desire to work on Le Monde’s future with a long term perspective. Xavier Niel’s speech, recounting his modest origins and his “luck” to have ridden the right digital horse, was seen as reassuring. He spoke about his immense wealth (“which could be seen as indecent”, he said), his opposition to inheritance, and his resulting desire to use his money for meaningful purposes.

Although left-leaning, Niel doesn’t have a reputation for interfering with editorial. He seems more interested in Le Monde’s business prospects, such as increasing the digital assets’ role into the group’s overall strategy, and providing more resources to the newsroom.

As for Pierre  Bergé, he hit the right spot by offering to hand €10m to a foundation that would hold a minority stake capable of preventing unwanted boards decisions. Lazard France’s chief, Matthieu Pigasse, has yet to convince he’ll be able to built a Chinese wall between his upcoming board membership at Le Monde and his day job at Lazard, and his friendship with the likely presidential candidate Dominique Strauss-Kahn, just to name one. As for now, journalists intend to give him the benefit of the doubt.

Le Monde is entering a new phase in its tumultuous 66 years history. For the first time, the paper’s staff is emerging largely reunited to support a new ownership. Granted, this triumvirate doesn’t have a media business track record (when you see the state of the French press, you wonder how it could be a prerequisite…) But they know how to manage companies for the long run, as opposed to the usual short term, Malthusian view that prevails in the industry.

—frederic.filloux@mondaynote.com

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Understandably, perhaps, Intel didn’t want to play in the low end of the processor market. But we now see the emergence of RPCs, Really Personal Computers, more commonly called smartphones. Nokia, RIM, Apple and the fast-rising army of Android licensees all use high-end ARM derivatives.

Intel’s answer is a family of low-end x86 devices, Atom processors. So far, Atom processors haven’t been used in smartphones, only in netbooks.

‘Wait’, says Intel, ‘over time, our proven semiconductor design and manufacturing capabilities will allow us to reduce the power consumption and cost of x86 processors. That’s how we’ll win this emerging market, just as we won the PC.’

Easier said than done. The older and more complicated x86 architecture is inherently disadvantaged against the more modern ARM architecture. And, as we’ll see, there is more to this fight than semiconductor design and manufacturing prowess.

For context, let’s go to Mary Meeker’s latest (June 7th, 2010) Internet Trends presentation.

By 2012, she predicts, smartphones shipments will exceed PC unit volumes. Approximately 480 million smartphones versus 430 million PCs, going to 650 million next generation devices by 2013:

Just as important, by next year, smartphones unit volumes will overtake “feature phones”:

Smartphones, feature phones? Without losing ourselves in taxonomy games, let’s turn to the popular Blackberry devices: they are good examples of the smartphone category. Anything less is a feature phone, sometimes called a regular phone, or a “dumb phone”.

Going back to the inflexion/transition taking place, the iPad usage pattern shows it “usurping” the desktop’s Internet usage:

Next, Mary Meeker points to this year’s big surprise, the iPad’s unforeseen fast rise:

So far, Intel plays no measurable role in this new computing genre. Smartphones (and feature phones as well) all use ARM processors.

Does this mean Intel didn’t see this coming? Has the king of PC microprocessors given up on smartphones and tablets? This isn’t like the feisty company we know. Tim Jackson’s book, Inside Intel, makes for enlightening and, at times, disquieting reading as it explores Intel’s culture. The company’s take no prisoners ethos resulted in brushes with US and European courts, leading to costly settlements, such as the latest $1.25B payment to its competitor AMD.

Intel people dislike the Wintel word: it points to their being prisoners of their good fortune, to their Microsoft-dictated role as the supplier of microprocessors that run Windows. To better see their problem, consider two equivalent processors: same computing power, same silicon technology, same power dissipation, same size, same manufacturing cost. But with one difference: one runs Windows, the other doesn’t. Which one will fetch the better price?

This “running Windows” advantage killed all competitors: the PowerPC from IBM and Motorola, DEC’s Alpha, HP’s Precision Architecture (smothered into Intel’s Itanium, properly nicknamed the Itanic), MIPS.

There is one exception: ARM processors are everywhere, not just in phones, smart or not, but also in entertainment devices, navigation systems and wide range of embedded applications.

Why?

Because of a fundamental philosophy difference.

Traditional Intel does “everything”: it designs, makes and sells a range of x86 CPUs.

ARM, on the other hand, doesn’t make and sell chips; it licenses microprocessor designs. Over the last two decades, designing electronic circuitry has largely become a software affair thanks to EDA tools. With such design software, you take ARM’s licensed designs, presented as ‘‘libraries’’, and adapt them to your needs. When done, you turn to a manufacturer, a “fab”, such as Samsung, TSMC, Global Foundries and many others. One crucial advantage of the ARM world stems from the customization process, often with additional libraries licensed elsewhere. The result is what we call a SOC, a System On a Chip. A SOC reduces cost, physical dimensions and power consumption by adding “non-processor” functions to the chip. This is what all smartphone makers look for. Hence ARM’s omnipresence in the emerging world.

Intel’s absence is puzzling, especially when one remembers the company got an ARM StrongArm license as part of another settlement, with DEC this time. StrongArm became XScale and, surprisingly, was sold to Marvell in 2006.

Four years ago, Intel bet against ARM.

Why?

As stated at the beginning of this note, Intel’s view is they’ll win against ARM using the sheer force of their semiconductor technology. Today, ARM processors are smaller, cheaper and consume less power than Intel machines, but Intel thinks their design and manufacturing might will win the day, some day. For low power applications, Intel deploys its Atom sub-family of x86 machines. This works for Windows netbooks, but power consumption is still too high for smartphones or tablets such as the iPad, which can live for about 10 hours on a 24.8 watt-hour battery:

That’s an average 2.5WH consumption, including a big display, radios (WiFi, Bluetooth, 3G), storage — and the A4 ARM derivative. According to EE Times Europe, the iPad’s A4 consumes between 450mW and 800mW, depending upon the application it runs. Comparable Atom processors, with a graphics unit, consume about two or three times as much. (Typical netbooks come with a 7200mAh, 7.4V battery; that’s 50 watt-hours, lasting from 3 to the ‘‘spec sheet’’ 5 hours, versus the ARMed iPad’s 25 watt-hours lasting 10.)
Intel seems to believe they can close the gap. But there is little reason to believe their highly motivated competition won’t keep raising their game.

There might be another factor to Intel’s bet against ARM: Microsoft. Following the “Everything is a PC” motto, the Redmond company believes tablets will run a version of Windows 7, hence the recourse to x86 processors.

So far, x86-based PC tablets haven’t taken the world by storm. And it looks like Nokia will continue to use ARM processors for its future tablet based on the merger between Intel’s mobile Linux, Moblin and Nokia’s Linux derivative, Maemo, the whole thing being now called Meego; ChromeOS tablets are also likely to use ARM processors, not x86 CPUs as Google acquired Agnilux, a processor design firm somehow related to Palo Alto Semiconductor, a firm acquired by Apple, which later also acquired Intrinsity, another processor design team. It also appears HP’s tablet, based on their acquired WebOS, will use ARM processors.

As discussed here two weeks ago, the PC isn’t going away. But, as Mary Meeker sees it, a new era has begun and Intel isn’t part of it.

This absence might be a simple question of profit margins: the revenue by ARM processor (or SOC) is much smaller than with x86 chips, less than $10 per unit in most examples. Intel might harbor the usual cannibalization fear: cheaper ARM processors might displace x86 CPUs.

Another speculation is Intel’s “other half” objects to processors that don’t run Windows. That assumption doesn’t hold water: Microsoft’s first Xbox used an x86 engine but the newer Xbox 360 uses a… PowerPC derivative. Microsoft’s Zune media player uses an ARM derivative, the Tegra chip, made by Intel’s “legal nemesis” Nvidia. The same applies to smartphones powered by Windows Mobile, in the past, or by Windows Phone 7, later this year: all ARM-based devices.

This sends us back to the bet on the “technology brute force” as the only reasonable explanation, coupled with a “Windows for ever” belief. As we can see below, Intel shares, like Microsoft’s, haven’t done much since 2000 and the bursting of the Internet bubble:

Wall Street isn’t showing much belief in Intel’s reliance on its x86 architecture to win in the new personal computing world.

We’ll see if and how they cave in and get a new ARM license.

—JLG@mondaynote.com

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More importantly, the newspaper’s independence will be under severe pressure.

Le Monde is the textbook example of the evolution of French press over the last years:

• A steady erosion in readership.
• A lack of budget discipline, made worse by loose governance.
• The core newsroom’s reluctance to support the digital strategy
• The collective certainty the “brand” was too beautiful to fail and that a deep-pocketed philanthropist will inevitably show up at the right time to save the company.
• An difficulty to invest into the future, to test new ideas, to built prototypes, to coopt key talent or to invest in decisive technologies.
• A bottomless investment in the heavy-industry part of the supply chain, in costly printing facilities.
• An excessive reliance on public subsidies which account for about 10% of the industry’s entire revenue. Compared to Sweden, French newspapers have 3 times less readers, but each one gets 5 times more subsidies.

To a large extent, these characteristics are shared by most French newspapers. This could explain the dire situation of the Gallic press. As of today, four major properties are on the block, or urgently looking for saviors:

• Le Monde seeks at least €100m (for a first round).
• Le Parisien, a popular daily, is for sale; although quite good from an editorial perspective, it is not profitable and its family ownership wants to refocus on sports-related assets.
• La Tribune, the n°2 business daily, is looking for a majority investor.
• Liberation is also facing a  cash stress.

Le Monde’s situation is by far the most critical and the most emblematic. Here are the key elements : In 2009, the Groupe Le Monde had a revenue of €390m, an operating profit of €2.2m, and a net loss of €25 m. It is crumbling under €100m in debt, the result of a failed acquisition strategy. Its arcane shareholder structure includes Lagardère Group for 17%; the Spanish group Prisa (owner of El Pais) for 15%; the newsmagazine Le Nouvel Observateur for 5%; its staff for 22% and various other entities for the rest. Its main assets are : The daily Le Monde and its weekly magazine; Le Monde Interactif (including Le Monde.fr); three other magazines; and a printing plant. Over the last three years, it looked like this:

Over the last fifteen years, Le Monde’s management proved unable to come up with a cogent strategy. The group tried to expand into the regional press and into the magazine sectors without any coherence behind such moves. The only tangible achievement was the creation of Le Monde Interactif, this against most of an internet-adverse newsroom. In fact, Le Monde’s digital unit had to handle 34% of its ownership to the Lagardère Group in order to get sufficient funding.
The group’s current valuation reflects the state of the different business units. Calyon, an investment bank, valued Le Monde Interactif at €67m, the magazines and the printing plant at €63m, and the newspaper itself at…€10m!  An absurd valuation considering that most of of Le Monde’s editorial firepower still lies in the paper’s newsroom.

Until recently, management was highly confident: Le Monde would easily find fresh capital. Five potential investors were considering a bid. Outside of France, there were the Italian group L’Espresso led by the industrial magnate Carlo de Benedetti; the Swiss group Ringier; Groupo Prisa from Spain. On the French side, the two major contenders were Claude Perdriel, owner of the weekly newsmagazine Le Nouvel Observateur; and a group of three private investors combining Matthieu Pigasse, head of the investment bank Lazard in France, Pierre Bergé co-founder of the fashion house Yves Saint-Laurent and has a long history of financing left-leaning lost editorial causes (he was close to the late socialist president François Mitterrand), and Xavier Niel, a highly successful telecommunication entrepreneur whose net worth is north of €2bn.
The five were said to be ready to commit €80-100m to get a majority stake in Groupe Le Monde. Then two things happened: the opening of the data room and the interference of French politics.

The electronic data room opened about a month ago. After few days of number crunching and legal analysis, two of the big media groups, Ringier and L’Espresso withdrew. Ringier found out Le Monde’s situation was far worse than expected with a €200m cash need. Gruppo De Benedetti opined a bankruptcy filing was required, before anything else, in order to clear up the debt. Among other things, potential liabilities at the printing plant are worrisome: it’ll lose roughly 30 to 40% of its revenue this year; it needs both a major upgrade and a severe downsizing of its heavily unionized workforce.

In France, firing a printing plant employee is hugely expensive. The gent is paid €50,000 per year, works 32 hours per week and 164 days per year. Firing him costs about €466,000 – that’s a  French government estimate, it (we…) might pick part of the tab. Combined with the mandatory modernization of the plant, the workforce downsizing was to add about €50m to the bill. Others dark discoveries such as massive off-balance-sheet liabilities discouraged the foreign suitors. As for the Spanish group Prisa, it asked to postpone the deadline to September, a request denied by Le Monde as it faces a short-term cash crisis.

In itself, the withdrawal of three serious media concerns had to be seen as a further warning of Le Monde’s dire predicament.

It didn’t discourage French bidders. For the triumvirate led by the Lazard partner and financed by the telecommunication Niel and fashion tycoon Bergé, this development wasn’t to change anything. They can handle a sharp rise in the required funding. This didn’t turn out to be the case for Claude Perdriel, the Nouvel Observateur owner. At 84, this wealthy businessman made a fortune in high-end bathroom fixtures. In 1977, he launched Le Matin de Paris, a modern, cleverly designed newspaper, whose main purpose was to support François Mitterrand’s presidential bid. Once the socialist settled at the Elysée palace, Le Matin unabashed support made it increasingly irrelevant, it folded in 1987. This explains Claude Perdriel’s desire to put his hands on Le Monde. But with the prospect of an ever increasing price for the prize, Perdriel quickly realized he needed some backup (he should have known, he sat on Le Monde’s board, after all).

Perdriel first found help in Stephane Richard, the newly appointed CEO of France Telecom, the country n°1 telco that includes the ISP and mobile carrier Orange. Richard intends to make two moves: first, take over at least a third of Le Monde’s digital unit by buying the 34% stake owned by Lagardère; second, to invest at the group level. A minor detail: Orange’s main shareholder remains the French government, with a 26% ownership. And this Sunday June 20th, after a last ditch effort, the Perdriel-Orange duo announced it has been able to reintegrate the Spanish group Prisa in its bid.

Two weeks ago, Nicolas Sarkozy jumped into the fray. The French president summoned Le Monde’s CEO Eric Fottorino to express his view on the battle for the paper. The President loathed the bid from the trio Pigasse-Bergé-Niel. Xavier Niel, he said, is a bad idea; classy as always, the head of State called him a “peep-show man”, referring to Niel’s early activities in Minitel “personal” services (Claude Perdriel made a fortune in the very same business).
But Niel’s early days are the least of Sarkozy’s problem. He sees the self-made entrepreneur as an uncontrollable maverick backing two anti-sarkozy websites: Bakchich and Mediapart. For the media control-freak Sarkozy, the thought of having the Niel crew taking over Le Monde is an unbearable one. With Perdriel, at least, he won’t wander in unchartered territories; and since the Nouvel Obs owner is a bit short in cash, he’ll have to rely on the government-friendly Orange.

Here we are. Two years before the next presidential election, Le Monde’s independence is clearly at stake. Of course, it is highly unlikely to see the new owner’s representatives getting involved in editorial choices. Things usually  work on a subtler, more pernicious way.

On the Perdriel-Orange side, in a self-granted interview, Denis Olivennes, Le Nouvel Observateur’s publisher let it be known he wanted to create “a center-left newspaper”.  This vision of a news organization built on political agenda is passé, to say the least. More importantly, with Orange as a backer, numerous subjects will become difficult to cover in Le Monde. Orange spends about €1 billion a year in contents: cinema, all forms of TV, broadcasting sports rights. For any Le Monde journalist covering such topics will become very touchy… in addition to those at the core of Orange’s businesses (internet, mobile, infrastructure, regulation). Again: Orange people won’t interfere with the coverage, but reader perception will be tainted (not to mention self-censorship, a plague in French newsrooms). To prevent such suspicion, it was crucial to secure the moral backing of El Pais owners, hence this weekend’s intense discussions.

As for the Pigasse-Bergé-Niel trio, the presence of Lazard France’boss Matthieu Pigasse is not likely to lighten the ambience.
First of all, Pigasse is said to have political ambitions (see his profile by Reuters here); he is close to IMF managing director Dominique Strauss-Kahn (a likely presidential candidate for 2012); he is involved in various think-tanks; he was an adviser to a center-something candidate during the last presidential election. Pigasse is cozy and charming with journalists, and cultivates the oxymoronic image of a cool-banker by owning a rock and roll magazine.
Second problem: should Pigasse and his associates get Le Monde, Lazard’s involvement in many sectors will raise questions. For instance: Lazard has been retained by the Greek government as an advisor on its public finances; the Paris-based sovereign debt division of Lazard is also helping countries such as Argentina, Ecuador, Ivory Coast, Kazakhstan. Not to mention the bank implications with many Fortune 500 companies. Already, big PR firms are sharpening their knives and are ready to discredit Le Monde if their clients come under attack. At some point, Mr. Pigasse will have to choose between his banking, political and media ambitions.

What does Le Monde need now? Four things (at least).

1. A project. Both editorial and industrial. Editorially speaking, Le Monde needs to turn up its competitive metabolism, to muscle sections such as the business coverage, and to better integrate its website in a strategically planned approach of the news.
2. A restructuring. Assets such as the magazine Telerama have to be sold (as long as there is a buyer). The printing plant will have to be shut down and the print load transferred to Le Figaro which has built a modern facility that can handle Le Monde print run.
3. A decisive human resources initiative. Like in every newsroom, there are huge imbalances in the staff workloads, which creates frustration and bitterness. On average, a journalist at Le Monde works 15% to 20% less than its counterpart at the Guardian or El Pais. This has to be adjusted through a fair (but delicate) labor negotiation. Actually, the Prisa group wanted to address this issue rather bluntly.
4. A long term approach. In any case, Le Monde’s renovation will take years. On this aspect, Claude Perdriel’s bid is not particularly appealing; at 84, he is not likely to stay at the top for long, and after him lies an uncertain future — especially when the restructuring will require additional funding. The Niel-Bergé-Pigasse team claims to have more of a long term approach (and deeper pockets). As long as it is able to refrain from using Le Monde to push political agendas or careers, as long as the newsroom can be protected against conflicts of interest – and that’s two big ifs – their bid could bring a more stable future for Le Monde.

Le Monde remains a great news organization, both in print and online. It might become irrelevant within a few short years if its new owners want to use it for their interests or goals. Otherwise, if proper steps are taken, it has the potential to be an editorial powerhouse comparable to the Guardian or The New York Times. This is what is at stake today.

—frederic.filloux@mondaynote.com

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‘Anssi, we’re hosed.
I assumed the dumb customer position and bought these three devices all by myself.
For our N900, I had to order on-line, the locals don’t carry our Maemo device. See what happened…’
He turns to his iMac, [this is science fiction, remember], types Nokia in the search window and gets this:

Now, a click on the “sponsored link” gets this:

.

A blank window. [This is not science fiction].
Anssi protests: ‘This must be a problem with Apple’s browser!’ But, no, the bug repeats itself with Chrome, Firefox, even with the Nordic Opera.
OPK continues:
‘We pay for this sponsored link and it gets us to a blank page.
Either Google is after us, or we’re incompetent, or both.

Anyway, I found our on-line store, a bit too complicated for a user like me. So, I saved time and a few dollars buying my own N900 from Amazon, one click, much simpler. By the way, Anssi, what are we doing selling, or trying to sell, or trying to give away a Windows 7 netbook? Don’t answer.
Then I needed to get a SIM for my $459 unlocked N900. I went  to the big AT&T store down the road. Boy, these guys make it too complicated and they don’t fully support the N900. Fortunately, things get better on University Avenue, I’ve done all my shopping there. First, the friendly people at T-Mobile got me a SIM, installed it, checked everything, even the micro-SD card I bought.
Next block: Verizon, a little less friendly, a little slower but they got me a Droid under 30 mins. Three blocks down, the Apple store. They were a little surprised I wanted an iPhone as their new device was coming out “Real Soon Now”. The manager came out, a Turkish engineer who recognized my name on the driver’s license, smiled and set me up in less than 15 minutes. You should see their portable sales terminal, all the sales people carry one on their hip, an iPhone with a scanner and a credit card reader.
How come we don’t make one? Don’t answer.

I’ve been using these three devices for two weeks now and I can tell you, Anssi, we’re in big, big trouble. We can’t win against these guys.
We say our Finnish sisu we’ll carry us through difficult times, but I’m afraid we’re harnessing our energies to the wrong strategy. We’re rowing on the sand instead of going with the tide.
Remember Kai Oistamo’s embarrassed explanations for our software strategy: “Symbian is the chosen platform for us for smart phones, MeeGo, combining Intel’s Moblin with our Maemo, is about the next wave, where wireless devices will go next.”
Between us here, how do you get applications developers to believe in such statements?

I used the N900 and I’m embarrassed, the touch screen uses this inferior resistive technology while Moto and Apple use a much nicer capacitive touch screen. As for Maemo, our treasured mobile Linux, it didn’t work for me. When I tried to go to our Ovi store on the N900, I was told to upgrade the OS to Maemo 5. I did, the process was mercifully executive-proof. But, after that, the Ovi link kept telling me to upgrade the OS. I see our marketeers position the N900 as being for the “Technology Enthusiast”; this is a euphemism for “Not For Normal Users”. I know, I know, we always have the next product, I’ve seen the internal demos of the N8, but the opposition is too strong. The new iPhone, the hordes of Android devices will kill us, to say nothing of these tough Canadians at RIM.

Listen to our shareholders, they don’t believe in us any more. We just had to tell them our numbers will disappoint them again. Have you seen our stock price since April?

And since late 2007?

This happened during my watch. I’ve been thinking about this, especially since I’ve also been secretly using an iPad at home. This is no longer a phone game, this is the emergence of a new computing genre. Smartphone is a misleading word, we’re dealing with a new kind of really personal computing. Why do you thing our neighbors up Page Mill, HP, bought Palm’s WebOS instead of sticking to Windows Mobile or Windows Phone 7?

You know how much we hate carriers, especially the US ones, they are the reason why we’re so unsuccessful here. The great news is Google wants to disintermediate the carriers. How do they do that? By working with the Android army of manufacturers and targeting the $89 price point. Once there, carrier subsidies are no longer needed, consumers are free to move from one carrier to another as they get a better deal, or as they buy a new gadget without having to beg for an ETF (Early Termination Fee) exemption.

Apple will keep playing their usual game: profits above market share. We’ll see how successful they’ll continue to be. They keep building the whole user experience stack, from processor to OS to applications to media distribution to retail. It’s not a game we can play.
This leaves us with one choice: Android. I have made the decision and I want you to implement it.’

Anssi Vanjoki is pensive. He knows OPK isn’t reacting in anger and he knows the boss doesn’t brook dissent. Still, he needs to understand:

‘But, Chief, we’ll lose control of our destiny. With Android, we no longer own a key component of our product strategy, we’ll be reduced to competing on price.’

OPK’s sharp reply:
‘Are you telling me you’re the wrong man for the job?’
‘We have to stop kidding ourselves. Doing what we do, more of it, more efficiently, more energetically won’t work. As the Americans like to say: If you can’t beat them, join them. We’ll have a price war anyway as we find ourselves in an inferior position against more attractive devices, this is what we just told Wall Street.
Anssi, take the lead. We know how to make and move huge quantities of devices, 50 million per quarter.
Now, do you remember our 8810?

We once were the kings of sleek design. Now, look at the N900 next and cry. We’re the land Marimekko and Iittala, of Finnish design. All over the world, people pay a premium for elegance, for exclusivity. We’re not doomed to a race to the bottom, we’re destined to a race for quality, for elegance.
And look at the numbers. We spend 13.5% of revenue for R&D while Apple, doing “everything”, spends 3%. If we stop spending this doomed to failure R&D money, we can lower our percentage below Apple’s.
Next, we only do three models: good, better and best. Three price points and we’re done. Simple message, less product managers and other corporate busybodies showing PowerPoint slides to one another over endless meetings across ten time zones.
Anssi, look at me: are you ready for the bloodbath?’

Three days later, in a joint conference with Google’s Eric Schmidt, Nokia makes the following announcement: ‘The world’s largest smartphone maker will base all future models on the Android software platform.’

In spite of substantial restructuring one-time charges associated with the move, Nokia’s shares jump 20% in one day. And Apple shares lose 10%, which brings smiles to Microsoft execs as their company recovers its number one market cap ranking.

End of science fiction.

In a more plodding reality, Nokia is likely to continue on its current course, believing their problem is one of execution, of putting more faith in their sisu.
The king will be deposed, Google and Apple will divide the spoils.

— JLG@mondaynote.com

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No one expected competition to come straight from… Safari, the web browser that comes with the iPad. Last week, while planning this column, I asked friends in the industry how they use their tablet and which their preferred media apps are. Many of them mentioned Safari as one of their favorites. Jacob Weisberg, chairman and editor-in-chief of the Slate Group e-mailed back : “You don’t need the apps! The Safari browser is a great way to navigate magazines and newspapers. As I wrote in that column, the PDF-type magazine apps feel like a huge step backwards – remember Zinio? I don’t like being locked in a walled garden within a walled garden. But I hold out hope for the next generation of apps [Slate is about to release its own, inspired by BBC and NPR]“.
Alan Mutter who writes the excellent Newsosaur blog, was finishing his own column (he’s more like a Friday guy) and said “[Safari] makes it possible to access a beautiful rendition of any site on the web, including those operated by publishers offering sub-par iPad apps”, he was referring explicitly to Time Magazine and the New York Times.
Marion Maneker, contributor to Slate’s business website The Big Money, responded fully in a post discussing his favorite apps but underlined the advantages of Safari: “Right now many newspapers are better read through the websites. It’s great to be able to save the site URL as its own app-tile on the iPad’s Home screen”.
Even Alan Rusbridger, the editor-in-chief of The Guardian said in an interview, a couple of months ago, how he was surprised to see how well his site renders on the iPad. (That could be one of the reasons why 2ergo, the company that designed the excellent Guardian app for the iPhone, is not rushing to deliver for the iPad).

So, that’s the first idea: simply browsing the web through Safari appears to seriously challenge publishers’ efforts to create good applications.

That could explain why many apps appear stuck in two weird modes. The first one involves encapsulating the web experience into an app, and coming up with a design closer to the original paper. For the second mode, newspapers and magazines choose to replicate the carbon-based reading experience on the iPad with PDF-based reading applications. Not exactly a great leap forward either. But it is convenient: over the last weeks, I found myself buying more newspapers on my iPad than I did on newsstands.

It works fine as long as three conditions are met.

- The price has to be right. When a physical newspaper costs €1.30-1.50, it doesn’t make sense to demand €1.59 on-line for exactly the same content. Apple’s rigid pricing policy doesn’t help in the matter. In the Euro zone for instance, a newspaper will sport one of two prices: €0.79 or €1.59 (which translates into $0.99 and $1.99 in the US store). Many editors find this pricing either too low or too expensive, especially when, in a country like France, a 20% VAT applies on digitally delivered content – which undermines the profitability. Most of went for the €0.79 price, which is a good thing.
The price issue is especially critical critical for magazines. For glossies, the equation is pretty simple: for the same price, it must offer more. Otherwise, it’s a much better deal to pickup a copy at the newsstand. Except for foreign publications: Vanity Fair costs $4.95 in the US and £4.20 in the UK, versus  €8 to €9 in Paris; this is a case where the iPad version of the magazine is a good bargain.
Wired is, as of today, the only magazine to take advantage of the iPad capability. Its June edition is a self-contained 527Mb application, fully loaded with videos and contents rearranged to fits Apple’s tablet. Wired’s designers have done a spectacular job by making two designs of the magazine : one for portrait mode, one for landscape mode; each time you switch, the layout changes, pictures resizes, etc. It is more an exercise of style than anything else, and definitely not applicable for a weekly magazine, let alone a daily. Interestingly, Wired’s iPad triggers extreme reactions, as some put it on the top five other in the top bottom….

- The reading experience has to be fluid and flawless. As I was reviewing several media apps for this column, it turned out many of them crashed (for instance when switching from portrait to landscape mode), and fluidity in browsing and zooming varies. In that matter, the iPad is unforgiving; because of its speed an precision the slightest clumsiness becomes lethal.

- Interface has to be obvious. An app that requires instructions to perform basic functions such as navigating between sections, saving stories, etc. needs an urgent redesign.  It’s funny how designers tend to forget Apple’s main design lessons :
• less is best (features, buttons, etc)
• simplicity and slickness rule
• complexity buried under the hood.

But PDF-powered digital newspapers remain static experiences : they don’t take advantage important web features such as the ability to interact with contents, navigating by related stories, or simply searching contents.

Most people I quickly polled for this article express disappointment with the current state of media apps. New York Times technology correspondent John Markoff outlines “The general lack of interesting User Interfaces to take advantage of the iPad” (John preferred apps are BBC, the Financial Times, NPR). Can’t agree more. But there is no reason to worry. Developers had only few weeks, to come up with something. Chances are future iterations will be completely different from what we see today.

Let’s conclude with a quick wish list about media applications for the iPad:

1 / Programmable downloading. Publishers should keep in mind that the iPad is also an offline reading device. Applications should offer the possibility of downloading several layers of contents at once for later reading. In the same way we have push notification, we should be able to set our app to auto-download the issue of our favorite newspaper when it is available…

2 / More interaction. The next batch of apps will have to offer more on the interactive side. Although its virtual keyboard is not comparable to a physical one, many people will want to use their iPad to interact with medias; that feature should not be limited to the web, especially since large chunks of content will switch to apps in order to become paid-for.

3 / Recommendation-based navigation. The current iPhone Guardian app shows that its perfectly feasible to add tags that send to related stories. That should be done on the iPad apps. It’s a great way to increase the page views and also the value the long tail.

4 / Put more videos. They work great on the iPad. The best apps (and the most expensive to build), will take advantage of video.

5 / Try new formats. Long ones for instance. One of the best apps is the iBooks. It’s simple to use, efficient, and it doesn’t compete with the existing web. As I say in a previous Monday Note (see Profitable Long Form Journalism), the tablet is the vector of choice for long pieces. I would definitely pay for a 15,000 words essay by Slate’s Farhad Manjoo on Facebook privacy issues, or for a Tom Friedman piece about the flaws in the Chinese manufacturing system, or for a account of the BP disaster by the staff of the Wall Street Journal. Theses are unique value for which tablets are the medium of choice.

6 / Segmenting. Bookmarking habits lead to a greater segmentation of the reading process. We enter websites through sections as much as through the all-purpose home page. Therefore it could be a good idea to devote one application for each of the most popular entry points of a website.

Tablets will requires a new grammar and new marketing tactics. And a lot of test & learn. This is just the beginning.

—frederic.filloux@mondaynote.com

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The columnist claims that with the iPhone and the iPad as the Dear Leader’s new pets, Steve Jobs has kicked the Mac to the curb (or kerb for our British readers). Lyons backs his claim with the following evidence: Apple’s 2010 WWDC was focused on the iPhone OS only; there were no Best Applications awards for the Mac, only for iPhone/iPad apps; and, drum roll, the iPhone OS was renamed iOS (the name is licensed from Cisco, just as the iPhone moniker was).

Lyons may be onto something, but in his desperate quest for page views at Newsweek (itself kicked to the curb by its soon former owner, the Washington Post Company) our columnist has yielded to the crass motives and hyperbole he loves to lampoon.

Yes, Steve Jobs said the PC (including the Mac) isn’t “the future”, but he didn’t go on to euthanize it.

Let’s go back to the evening of June 1^st, 2010. We’re at the D8 conference discussed here last week. Steve Jobs is interviewed by Walt Mossberg and Kara Swisher; you can find the entire 95-minute video here.
(Sorry, iPad users, it’s Flash…but, wait…nevermind. Although the interview shows up as Flash on my antique personal computer, when I watch it on my iPad, behold!, the site detects the iPad client and spews an H.264 video stream. We can take this as a sign that the WSJ doesn’t want to miss the advertising revenue of 100 million iPod Touch/iPhone/iPad devices out there, and as a preview of what other sites will do, as well. And perhaps it’s a problem with my old desktop machine or older eyes, but the video look better on the iPad than it does on my PC.)

I’m watching the video as I write this. It completes and, in places, corrects my recollection of the event. Whatever one thinks of Steve Jobs—and the video won’t change many minds—the conversation contains a number of gems, such as Steve’s pithy view of the enterprise market (between 28:30 and 29:15), his take on the Adobe controversy, his pronouncement of carriers as “orifices” (that was a few years ago, recalled by Walt for laughs), the importance of editorial functions (Jobs doesn’t want us to “descend into a nation of bloggers”), how he looks at his job (around 59:00), and more. I know an hour and a half is a lot, but pay attention to what’s said and not said and, just as important, the face and body language.
The bit about the future of the PC comes between minutes 45 and 51. There, Apple’s CEO lays out his vision of the post-PC era in a string of very carefully weighed statements, interspersed with personal insights into the changes in user interaction brought about by the new very personal devices.

As Apple unties the software platform from the iPhone, one can imagine a number of iOS-powered devices in its future. Apple won’t necessarily follow HP’s example, but the latter has made it clear that they’ll use the newly-acquired Palm WebOS in devices such as printers. This is a high volume business, one where the traditional embedded software is user-hostile. Just imagine a Palm Pre screen grafted onto a printer.

In the D8 video, Jobs explains how difficult it would be to make an Apple TV that would replace the ugly set-top boxes foisted upon us by cable operators. He’s correct, the cable industry is a bad scene—just try to get a CableCard—but, as Mossberg reminds him, Jobs said the same thing years ago about phone carriers. What about the iPhone, then? “We managed to solve the problem…”

However you want to position it, the future appears to belong to the new breed of very personal computers. But the transition to the new era? Nowhere do we hear a date, or even a rate of change. There are even a few admissions of “we don’t know”. (The Apple people I spoke with don’t know either. Some will admit that they’re awestruck by the market reaction to the iPad. They’ve gotten used to the iPhone after three years, but the iPad…they’re happily puzzled. They knew it was a solid product, but, geeks that they are, they didn’t foresee the traction from normal humans.)
In other words, Jobs has no intention to “Osborne” the Mac and has said so. There are still many applications, ranging from professional photo and movie editing to hard-core document preparation, where the computing power of a PC is required. This is, of course, the kind of objection the incumbents always raise: The new thing is a toy, it’s too small and underpowered, it lacks this list of attributes and that array of devices. All true statements, but as the interloper pushes in, aided by a combination of simplicity, price, and ease-of-use, the incumbent plays to its strengths by increasing its natural attributes, its raw power and richer function set…and thus sets the pace for the new genre to surely but slowly gain more muscle and and broaden its uses. We’ve seen it before: minis versus mainframes, PCs versus minis and workstations.
Here, history hasn’t exactly repeated itself. What’s happened before our eyes is that the smartphone form factor—and inherent computing power “weakness”—has allowed it to skip some of the growing pains and jump to general acceptance. Being smaller, they aren’t expected to run legacy applications such as Office. Unencumbered by that burden, smartphones can flourish and gain momentum. Riding that momentum, the newest tablets have broadened the genre’s usability without having to pay the Office ransom that, in effect, castrated the PC Tablet.

In Q1 2010, the iPhone made as much revenue (to say nothing of profit) as the Mac and iPod combined. Assuming 2.5 million iPads sold in the quarter ending June 30th, with a few shiny iPhone 4’s sprinkled in, the Mac versus iPhone/iPad picture will become accentuated.
So, yes, Google with Android, Apple with iOS and, perhaps, HP with WebOS have ushered in a new era of post-PC personal computing. The PC won’t reign supreme anymore…but it will still be around for a long time.

—JLG@mondaynote.com

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A quick précis: France is a country of 65m people, with a modern tech infrastructure. Internet to the home is faster than in the United States and way cheaper than in Australia. The cellular networks work even better than the AT&T’s, and the three carriers use a single worldwide standard, GSM. Its internet population numbers 45m, a fast growing proportion of which speaks serviceable English, good enough to read the parts of the Huffington Post that are not written in Shakespearian English.

With this in mind, let’s focus on two interesting aspects of the HuffPo advertising mishap.

First, it shows how advertising is sold: by the bulk. The HuffPo sales people’s intellectual horizon doesn’t extend very far. This is what I call the Burundi Syndrome, one where American companies see the ROW (Rest of the World) as an aggregation of second class people. Consider Apple’s geographical definition for instance: its London-based EMEA division encompasses Europe, Middle-East, Africa. A vast zone ranging from Burkina-Faso to Sweden — where the average student is way more educated than its American counterpart and where the per capita GDP is just 20% lower than in the US (OK, Burkina Faso — I’ve been there too — has a long way to go).
Coming back to the Huffington Post, the choice of a below grade ad served on a ROW market demonstrates a tragic inability to understand the true power of the internet, i.e, making contents globally accessible to a solvent population.
That’s the first distinction between great media brands and cheap ones. Neither the New York Times, nor The Sydney Morning Herald nor the Guardian would delegate the sale of their non-domestic ads without some sort of guarantee covering the advertisers’ relevance.

Second, and more importantly. By allowing such a degradation in its premium advertising space (a home page is supposed to be just that), the HuffPo acknowledges that its content is, in fact, cheap. It therefore admits that volume, rather than targeting or relevance, drives the value of its content.

And volumes the Huffington Post delivers. A lot. According to ComScore (which is blessed with the rigor of a Greek public accountant), the Huff Post cruises at 26m unique visitors per month. Other sources agree on more than 20m UV, which is above the New York Times (19m UV/ Nielsen), and twice as much as the Washington Post.

How do I dare question such an audience success? Simply because, in my not-so-humble-opinion, The Huffington Post is not, per se, a news organization. Its content relies upon on a mixed bag of high profile bloggers, drawn from Arianna Huffington’s vast personal network; these individuals deliver thoughts of varying depth, ranging from fun stuff to leftovers quickly produced by an obscure assistant. The rest is an army of bloggers (thousands) whose only pay is the virtual currency of visibility. Under such circumstances, you get what you paid for. The Huffington Post is above all a very well staged aggregator with a razor-thin layer of editorial.

There is much worse than the HuffPo. And it is called Content Farms. I must confess that it showed up only recently on my personal radar screen. First thanks to one of the best columnists in the business: New York Times’ David Carr, a true hard-core journalist (see his complicated background here). In this remarkable piece, David explains his encounter with a Demand Media exec.

Demand Media is the internet’s largest “mediocrator” (the term is mine, not Carr’s), built on the following concept:
-  7000 contributors; not exactly Pulitzer candidates, more like “my computer is four meters away from my bed” type of people.
-  A $15 to $20 stipend per article. To put things in perspective: for such alms, a Vanity Fair or The New Yorker writer would produce roughly ten words. At this rate, David Carr says he would be making almost a dollar an hour writing is column.
- Copy editors are paid $3.5 for processing a story; Demand claims to have 1,000 of them (they oversee a stream of 7,000 articles per day).
-  Demand Media also supplies videos ($20 a pop). As a comparison, research by my students at the Sciences Politiques School of Journalism established that professional video reporting could cost about €1400 a minute.
-  The choice of stories is algorithm-based. An analysis of internet traffic detects what users are keen to click on and what yields the best in advertising revenue. Add clever use of Search Engine Optimization, and you get big numbers.
- Tech is also present in copyright monitoring with anti-plagiarism software.

Demand Media is a huge internet property. In an AdAge interview, Joanne Bradford, Demand’s Chief Revenue Officer and former Yahoo’s sales boss, said eHow alone – one of the many sites fed by Demand’s content – has 50m UV a month.
What’s on eHow by the way? As I’m writing this column, I can see How to make tissue paper flowers for party decorations written by Wandergirl a young lady from Nashville Tennessee, eHow member since 2008. She worked hard, staging pictures, writing nice instructions for this essential element of decoration. Not being a huge fan of paper flowers, I won’t dare to assess the quality of the piece; I’m way more of an expert on migraine relief, and I was not utterly impressed by the How to get rid of Migraines piece, a gently watch-your-food kind of new age entry (but the value proposition of the How to Decorate a House Plant Pot for Under $3 piece seems, in contrast, indisputable).

OK. I’ll quit sneering. How do content farms relate to journalism?

Clearly, a company such as Demand Media has its eye on mainstream media. Smartly enough, it assembled a high profile editorial board, as explained in this PaidContent story (PC is on the top of the subject: follow their tag here): university deans, former media execs, ethics specialists; Jeff Jarvis didn’t fall into the trap of Demand’s legitimating strategy, he explains why here.

Two things lead me to write about content farms this week. The first one is conversations I had in Paris, with people who drool over the content farm model: audience-based demand and algorithm-driven, this thing is definitely gaining traction. Then, a string of announcements triggered my interest. Two months ago, USA Today decided to outsource some travel content to Demand Media. No big deal. In many publications (French ones are typical), travel journalism is already a cozy heaven of soft editorial corruption. It shouldn’t get worse, then. A great deal from a bean-counter perspective: USA Today doesn’t pay for content and shares ad revenue with Demand Media.

Even more interesting: last May’s announcement that Yahoo was paying around $100m to acquire Associated Content, another huge writers-in-a-stable outlet. This points to interesting bits:
- A company such as Yahoo doesn’t believe in the economic value of classical journalism. I’m not judging here, just the fact’s ma’m. It prefers pouring $100m for a stream of cheap contents to spending a fraction of that sum to build something, hem…  different.
- This shows where the real money is. Not in quality reporting, but more in a product for a massive audience that translates into eyeballs (what a term) that, in turn, will be monetized — especially if you add a good layer of software algorithms to the product.

Don’t get me wrong: I’m not saying these companies are evil while old media outlets are the embodiment of intellectual noblesse. Actually, a great deal of brainpower lies on the content farms side; better than others, they carefully analyze their audiences, do good SEO and ad management. I said many times here how woefully underinvested in technology mainstream media are (search, recommendation engines…). I’m not anti mass-market product either: I had great time participating to the development of a 2.7m free newspaper in France.

But I also think the percolation of bulk content, of a type of lowest common denominator production has implications for the evolution of web use. In an increasingly visible fashion, bulk content will radicalize media consumption by outlining the boundary between streams of low-ends “contents” and added-value editorial productions, whether provided by traditional media or by a new breed of pure players.

In a sense, that’s a good news.

There is a hitch, though. In this ocean of mass audience low grade products, authentic journalistic efforts will have to get used to taking refuge on tiny audience islands of. A consolation: such audiences will be solvent and willing to understand the true price of editorial. Hopefully.

—frederic.filloux@mondaynote.com

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The eighth installment of the Wall Street Journal’s annual D: All Things Digital conference was held last week outside Los Angeles, your author in attendance. You’ll find full coverage of the proceedings here, and the speakers list here; it was an impressive roster, du beau linge, as we say in France.
Staged as a series of interviews conducted by Wall Street Journal high-tech guru Walt Mossberg and conference co-producer Kara Swisher, D8 brings us “straight-up conversations with the most influential figures in media and technology.”
On the D8 site, the one-hour fireside chats are mercifully chopped into digestible ten-minute segments. The D8 audience is limited to 500 people, a cross-section of high-tech execs and entrepreneurs, VCs, media investment bankers and attorneys, a few Hollywood types genuinely involved in bleeding-edge tech, some pained-but-valiant old-media reporters, and a handful of bloggers who are able to pay the stiff conference fee ($5K). Discouragingly, there were very few Europeans—discouraging when so much of our future is fought and decided within a five-mile radius that encompasses Palo Alto, Cupertino, and Mountain View, where HP, Apple, Google, and Facebook are. Below are my notes from the show about three fixated leaders: The two Steves (Jobs and Ballmer) and Mark Zuckerberg, CEO of Facebook.

Steve Jobs

Steve Jobs opened the conference with the only interview of the night. True to form, he tells us Apple will continue to design and create devices that provide the best user experience. He doesn’t care what the pundits say, he measures the win/lose proposition one customer at a time. That’s why he’ll spare no effort, avoid no fight in preventing anything—carriers, enterprise sales, Adobe—from adulterating the relationship between Apple and its customers.

The numbers support him—the iPad sold 2 million units in its first 60 days on the market—and the customer satisfaction surveys (JD Powers and Consumer Reports) validate his strategy. With the iPhone and iPad, Jobs has envisioned a new genre of very personal computing (see the March and May 2010 Monday Notes on this topic).

With this coming week’s Apple Worldwide Developer’s Conference, a new iPhone, and more goodies around the corner, Apple’s future looks secure… unless you start worrying about the side-effects of the unrelenting focus on the device and the user experience. Has this selective attention lead Apple to neglect the Cloud and Social Networking? Has Jobs paid enough attention to the ways in which the Google and Facebook Cloud applications could one day control his destiny?

The Other Steve

The other Steve, Ballmer, was also in fine form. I don’t admire everything he’s said and done, but one must bow to his unrelenting, dynamic, articulate, witty, and often thoughtful ways of preaching the Microsoft gospel: Everything is a PC. If it’s got a processor, some memory, and a display…it’s a PC. You can call it a tablet but, to Ballmer, it’s merely a form factor. The iPad? Ha, try taking notes with one. There were some admissions: Yes, Apple had a great quarter, Google is a behemoth, Microsoft missed a cycle in the mobile device space…but we’ll be back next year!

Ballmer masterfully delivers all this with the powerful voice of the Harvard football coach he once was—his orders must have easily carried across the field. The enunciation is fast and precise, the sentences flow without hesitation, the body language exudes authority and friendly camaraderie although with a hint of potential retribution. One can easily imagine him going head to head with the CEOs and CIOs of the largest corporations and PC manufacturers in the world, reminding them what would happen if they were no longer treated as Most Favored Clients. (The same intimidation evidently applies to the troops inside Microsoft.)
But articulate and masterful doesn’t necessarily mean correct.
I’m not convinced that an intelligent man like Ballmer believes what he says. I hope he doesn’t, otherwise Microsoft is in trouble. Mocking Google for having two operating systems, Android and Chrome, is boneheaded. Chief Software Architect Ray Ozzie, onstage with Ballmer, gently tries to take the jibe back: Android is for phones, Chrome is for the future in the Cloud. When asked about Windows 7 and Windows Phone 7—systems that are related only by name—Ballmer admits that Microsoft also has two OS’s, but unlike Google’s, Microsoft’s have “coherence”.
As for dismissing the iPad and other tablets as simply PC form factors, Ballmer ought to think again. Isn’t the PC-centric view precisely the reason why a company with Microsoft’s resources has repeatedly failed at creating a tablet? The iPad isn’t a Mac Tablet, it’s something different. That it has been freed from the “like a PC” entanglement is one of the reasons two million iPads have been sold in its first two months.

Mark Zuckerberg

Mark Zuckerberg is 26 years old—30 years Ballmer’s and Jobs’ junior—and the CEO of Facebook, one of the most amazing companies of the past two or three decades. For him, the Web revolves around people and their connections, the famous social graph. Everything else either doesn’t matter or supports his view of a Web of connected users.

Facebook is a fast-growing company with close to 500 million users. The technical infrastructure for such a huge business runs remarkably smoothly. Think of the billions of photos that are uploaded every day, or the constant upgrades and refinements to the product and its services. It appears that Facebook has learned some lessons from Google about the back office and the constant evolution of Cloud apps, and other lessons from Apple when it comes to keeping the UI clean and, I might add, the slide presentations elegant. This isn’t the work of a bunch of amateurs.

Some critics suggest that Facebook should get a ‘‘real’’ CEO because Zuckerberg can’t possibly be trusted with the running of this important company. Others claim that Zuckerberg is heavily coached—although they stop short of calling him a puppet CEO whose strings are pulled… because pulled by whom? Yes, the Facebook board includes powerful VCs from Accel and Greylock, a serial entrepreneur and now investor, Marc Andreesen, and a mover-and-shaker from Washington and Google as COO, Sheryl Sandberg. (The full exec bios are here.) But if we take a little deeper dive into Mark Zuckerberg’s bio, from Wikipedia, we see that the fellow has no lack of native talent:

Zuckerberg…started programming when he was in middle school. Early on, Zuckerberg enjoyed developing computer programs, especially communication tools and games. … At high school, he excelled in the classics. He transferred to Phillips Exeter Academy where he immersed himself in Latin. He also built a program to help the workers in his father’s office communicate; he built a version of the game Risk and a music player named Synapse that used artificial intelligence to learn the user’s listening habits. Microsoft and AOL tried to purchase Synapse and recruit Zuckerberg, but he decided to attend Harvard University instead…. In college, he was known for reciting lines from epic poems such as The Iliad.

None of this means that Zuckerberg is the best CEO in the Western world, Nbut I think his critics are mislead by his occasionally infelicitous public speaking manner, for which he is often panned. Somewhat true—I, too, have been struck by the gap between the quality of his public delivery and the depth and relevance of his vision. True, but not relevant.

The public speaking awkwardness was in full display at the beginning of his D8 interview. Grilled on the latest privacy controversy surrounding Facebook, he didn’t sound convincing. He sweated so profusely that Kara Swisher asked him to take his overly-warm hoodie off.
But when it came to his views of social networking, his company, his team, his management style, and his sense of the future, he found the right gear and zoomed off. Of course he wants the company to make money, tons of it, that’s the score in the real world, like it or not. Of course he uses our social graph, our connections, our behaviors to target advertising.

Zuckerberg is somewhat disingenuous when he says he won’t release our data to advertisers. He actually does better than that: He keeps our data while using it to target advertising on advertisers’ behalf. The advertisers tell him what they want and he delivers their ads to the chosen targets. He takes their money but doesn’t hand out our details. This is better than the old practice of selling qualified leads.
Zuckerberg realizes that the privacy complaint storms have had little effect on our use of Facebook. For many users, Facebook is the place where they start their day on the Web. This starting point could become a tollgate as Facebook continues to offer more services. Mail? Skype-like audio/video chat? Payment systems? Something like Craigslist? Let’s ask Zynga what they think of the tollgate. Although the Facebook press release doesn’t say how much the “5-year strategic relationship” cost Zynga, others are happy to help: The number is 30 percent of revenue gathered from game credits.

I don’t see too many shortcomings when comparing Zuckerberg’s view of the Web as people –and-connections with Google’s foundation on page links. If Facebook continues to grow its number of users and its breadth of services, the company could find itself in a commanding position few of us could have imagined five years ago. What will we (and Google, Microsoft, and Apple) say when Facebook reaches a billion users?

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Two weeks ago, at an INMA conference in Oxford, I met Monica Bulger, an Education PhD, she was giving a speech covering the notion of cognitive containers associated with devices such as the iPad (see her blog). Then, at a dinner at Exeter College, in a room right out of a Harry Potter movie set, she discussed her work at the University of California Santa Barbara where she investigated her students’ use of Web searches.

Dr. Bulger took 150 graduate and undergraduate students and asked them to write a 1 to 2 pages recommendation for the use of computers in the classroom (she verified that the question was not already treated in Wikipedia). They had 50 minutes to complete the assignment.

The goal of the experiment was ‘to disprove the fact that information is simply a matter of access, and after that, everything else is easy. I wanted to show the highly sophisticated cognitive process taking place. No matter how sophisticated machines are, research still requires a bit of work’.

Among here findings (details here):

— Students who bring academic experience to an online research task are more likely to succeed than those with technical expertise alone: ‘Without the essential literacy skills of gauging credibility and synthesizing materials to form and communicate an understanding, the ease of information access afforded by the online environment does not matter’.

— The highest performing students use copy/paste to organize their thoughts. Copy/paste is usually seen as a plagiarism tool rather than as an organizing one. But in the experiment, students with the highest academic background used copy/paste to collect phrases from various references and later built their text around it.

— Younger students tend to be more opinionated than their elders; they begin to write  their essay after only seeing 5 URLs, and they extract sources mostly to support their beliefs. Those with deeper background (graduates) gathered much more information (15-20 URLs) before beginning the writing process.

— Google is the source. Logically, students should have gone to the ERIC database; the Education Resources Information Center, is the reference for texts about education and teaching. Although rather frustrating, according to Monica Bulger, ERIC should have been the first source on the subject. Instead, 98% of the students flocked to Google. (Actually, the terms “Laptops in the classroom” yields 87 references on the subject in ERIC, most of them, though, posterior to Dr. Bulger’s research conducted late 2007).

— Search processes showed a definite lack of imagination on the students part. For instance, they made little or no effort to restructure search terms. Many even copied and pasted the entire phrase “Should laptops be used in classrooms” into Google. Almost none of them had the idea to widen the scope of the work, or to look at it from a different perspective. To put it another way, there is no divergence whatsoever in their ways to search, all seemed to follow the same preset template.

— Most of the students performed rather a small number of actions, going though 18 different web sites to find 2 or 3 quotable sources, this without much difference between graduates and undergraduates.

Let’s add some perspective to this research and see how it could impact information gathering and processing.

On the positive side, the more someone is literate, in the classic sense, the more this individual is likely to distance him/herself from what he/she finds. In practical terms, a better course of action looks like hiring individuals with strong academic backgrounds, first, and teaching them journalistic skills later. In real life, it depends on the kind of journalism involved.

On the more negative side: It seems hard to get “out of the box” thinking from students; same search terms, more or less same sources. That leaves little room for innovation here.

There is little doubt that the overwhelming use of technology such as search engines – and the preeminence of Google in that field — tends to flatten global knowledge. Let’s not forget that Google’s algorithm is based on popularity rather than relevance; the PageRank system acts as some kind of popular voting in which links are the ballots. The consequence is a self-sustaining phenomenon in which superficial research will value the most popular results which, in turn, are linked and gain in popularity, and so on.

And, unfortunately, most of the searches are superficial. ‘It is certain that an overwhelming amount of information reduces serendipity’, says Monica Bulger. ‘Over a thousand of results, we tend to select the top five’.

This leads to three conclusions:

1 / Every month, about 88 billion searches are performed on Google. This represents about 65% of all searches in the US, close to 90% in France where I live. This dominance needs to be addressed with focused user education. In classes, universities, journalism schools and newsrooms, people should be shown how to formulate queries and refine search terms; how to expand the scope of a search and trump the algorithm in order to generate serendipitous results. Search is a science; without proper knowledge of its use, Search will become a voodoo controlled by a small elite; the rest of the crowd will be left with poor skills, without the ability to go below the surface of lowest common denominator search output.

2 / More broadly, Dr. Bulger’s work demonstrates the primacy of cultural background over specialized technical skills. She has shown such background to be a discriminant factor used to interpret and integrate search results. That same background should also be helpful when using a more classical approach, involving thesauri topics, associated terms, dictionaries.

3 /  Finally, time is a factor — and the ultimate luxury in looking for information. If Monica Buldger’s students would have been given a few days instead of fifty minutes, the level of divergence between their findings, the overall diversity would have been much broader. The most creative students would have ventured into “lateral” queries, riskier paths, instead of sticking to the most immediately productive (or supposed to be) ones. Dead-ends are not always dead-ends, they can breed creativity, openings and breakthroughs.

And by the way, this exactly what journalism is about.

—frederic.filloux@mondaynote.com

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This past Tuesday, Steve Ballmer reorganized Microsoft’s Entertainment & Devices division, let go of its execs, Robbie Bach and J Allard, and moved a few more pieces around. All wrapped in the most mellifluous, Orwellian language we’ve seen from Microsoft in awhile. The full memo is here. We’re treated to encomiums to great work, friendship, spending more time with one’s family, leaving on a high note…under the guise of decency, this is indecent.
Ballmer’s view of executive leadership doesn’t admit standing up and taking responsibility. He can’t say ‘I screwed up’ and then explain what he’ll do to rectify the situation. No. Instead, two gents are fingered while they pretend they aren’t being blamed. In a surreal, a cappella farewell memo, J Allard writes to his soon former troops:
‘No one can touch our talent, our impact or our ambition. We’re the only high-tech company with the track record and self-confidence to reinvent ourselves as we have. If you want to change the world with technology, this is still the best tribe out there.’

Robbie Bach dutifully plays his part in the down-is-actually-up corporate farce. He gives a long exit interview to the Microsoft-friendly blog TechFlash where he claims the dual departures are coincidental, that everything is fine. What does he have to say about tablets? Nothing much:
‘Well, tablet is an area that will evolve going forward. Certainly it’s a focus for what we’re doing in the Windows space, and how they’re thinking that space. We’re going to have a bunch of netbooks and tablet stuff that’s in the works there. We’ll just see how that evolves. I don’t think there’s anything earth-shattering about that. It’s just another set of devices, and we’ll figure out how we make sure we bring a good offering to consumers.’
And, regarding the now defunct Courier tablet:
‘Courier, first of all, wasn’t a device. The project and the incubation and the exploration we did on Courier I view as super important. The “device” people saw in the video isn’t going to ship, but that doesn’t mean we didn’t learn a bunch and innovate a bunch in the process. And I’m sure a bunch of that innovation will show up in Microsoft products, absolutely confident of it.’
Serves us right for not reading the small print on the screen during the demo. These guys obviously think we’re idiots. That’s their privilege, but they ought to be a little more discrete about their low regard for us.

Not everyone buys this BS. One blogger, Horace Dediu, offers what many believe is the right explanation: Robbie Bach was fired because he lost the HP account. As the largest PC maker, HP is a hugely important Microsoft customer. A few weeks ago, HP acquired Palm for its WebOS smartphone software platform. The slap in Microsoft’s face still resonates; it’s a verdict on the failed Windows Mobile offering and a negative prognosis on its upcoming Windows Phone 7 Series operating system for smartphones. Days after the acquisition, Mark Hurd, HP’s CEO, let it be known that WebOS will be used in connected printers. As a final blow, HP’s (future) Slate Tablet, once held high as a Windows 7 device, will also use Palm’s WebOS.

Steve Ballmer has always been Microsoft’s most powerful salesman. That he lost the HP mobile devices account—and it was Ballmer who lost it, not Robbie Bach—is yet one more reason why Microsoft shareholders are troubled. Their unhappiness can be charted by comparing two stock price graphs, spanning the January 2000 – May 2010 period. Microsoft’s stock dropped from $56 to $25.80…

…while Apple shares rose from $25 to $256.88:

The morning after Steve Ballmer opened the proverbial Second Envelope, Apple’s market cap, the total value of its shares, surpassed Microsoft’s. In Wall Street terms, Apple is now the largest high-tech company, worth about $230B, a few percentage points ahead of Microsoft. Across all industries, Steve Jobs’ company is now second only to an oil company, Exxon, at $285B. When questioned about Apple overtaking Microsoft, Ballmer had this to say:
‘It is a long game. We have good competitors but we too are very good competitors,’ he said. ‘I will make more profit and certainly there is no technology company on the planet that is as profitable as we are.’

When it comes to profits, Ballmer is willing to take credit.

Over the last decade, Wall Street has declined to reward Microsoft for its superior profit. The explanation is simple: Professional investors don’t believe Ballmer, and they don’t see bigger profits in Microsoft’s future. Conversely, they bid up Apple’s shares precisely because they think the company will keep growing revenue and profits. Apple has managed to enter new, growing markets, a feat Ballmer has repeatedly failed to accomplish.

January 2000 was when Steve Ballmer was made CEO of Microsoft. Yes, we can discount the year 2000, that’s when the Internet Bubble burst causing most high-tech shares to collapse. Still, since the end of 2000, Microsoft stock has stagnated, hovering between $25 and $30.
This never appeared to faze Ballmer. While we joke about the Steve Jobs Reality Distortion Field, Microsoft shareholders ought to worry about Steve Ballmer’s own distortion, and about the self-inflicted effects of such a strong field.
We all remember Vista, it was a godsend for Apple. Did Ballmer acknowledge that there were problems? What about the Xbox 360 reliability nightmare? The apologies were left to underlings. Then Google comes out of nowhere to take 65% of the Search market, leaving Microsoft with an Apple-like market share (I’m referring to Macs, not iPods). In MP3 players, Microsoft failed again and again in its attempts to unseat the dominant (65% market share) iPod/iTunes combo. Social networks? A tiny investment (1.6%) in Facebook. And where is Microsoft in the Microblogging world, a.k.a Twitter? Nowhere, the old Microsoft Messenger is fading away.

Now we have the most recent Microsoft failure: Smartphones. When the iPhone came out in 2007, Ballmer pronounced it a “passing fad’’. Then, in 2008, he promised that Windows Mobile would have 40% market share by 2012. To be fair, he did recognize the failure in October 2009: ‘[We] screwed up with Windows Mobile.’ The platform was effectively dead. Earlier this year in Barcelona, Ballmer introduced his new smartphone OS, Windows Phone 7 Series, available in time for the Holidays. Two months after the Barcelona event, two Kin phones emerge to a lukewarm reception…and neither of them run on the old generation software, nor the next one, orphaned at birth.

Undeterred, Ballmer now predicts there will be 30 million Windows Phone 7 smartphones sold in 2011. Ballmer has proudly proclaimed there will be no iPod or iPhone in his household, so that’s a few Windows 7 Phones sold right there. As for the rest of the 30 million… has he heard of Android? At last week’s Google I-O, the company announced there were over 100,000 Android phones activated every day, more than 35 million Android phones this year. Given the enthusiasm of handset makers for Google’s OS, they’ll probably sell twice as many next year. Ballmer’s Reality Distortion Field is overheating.

There’s no dearth of advice for Ballmer to right the ship. You can find Galen Gruman’s at Infoworld and Anders Bylund’s at the Motley Fool. But I’m afraid none of it will work. The same leadership will cause the same effects. Ballmer is running out of envelopes.

One of Microsoft’s problems, paradoxically, is that it makes a lot of money. It can spend 15% of revenue in R&D—about $9B a year—with no market breakthrough to show for it. Great concept demos and prototypes… and then nothing. (How many new Googles, Facebooks, and Twitters could we VCs fund with that kind of money?…)

A bigger problem is Microsoft’s Board of Directors. Ten women and men with distinguished backgrounds ranging from banking to pharma, from university president to venture capitalist. (There’s a lonely entrepreneur there, Reed Hastings, CEO of Netflix. He’s a math whiz, which could explain the NetFlix prize.)
Three out of the ten members are old-time friends, connected through Harvard (Gates and Ballmer) and Stanford (Ballmer and Marquardt). Such closeness makes it difficult to make painful decisions. Furthermore, it’s not obvious how a research mathematician, the President of Harvey Mudd College—a terrific place for gifted kids—an auto executive, and a banker can parse the finer but essential points of a mobile software strategy. The PowerPoint slides look professional, the occasional demo looks good… but what can a “generalist’’ director do?

In theory, the directors’ most important function is to hire and fire the CEO. But how independent are the Microsoft directors? How could they get the CEO to open the third envelope?

Microsoft didn’t have Apple’s stroke of luck. Fire one if its founders who goes on to start two companies, Pixar and NeXT, and then comes back twelve years later, tempered by the experiences, good and bad, ready to lead the company to an amazingly successful second act. Except for Ballmer’s two-year stint at Procter & Gamble, all he and Gates have ever known is Microsoft.

So, there we are. An immensely successful company, still making large amounts of money but unable to go beyond its original Windows + Office + Exchange franchise, left behind by a combination of newcomers such as Google and Facebook with the old frenemy, Apple.

Someday, a large institutional holder will get tired of waiting, tired of watching yet another rah-rah, ‘the future will be great’ speech from Ballmer, and they’ll dump their shares. That might shock the Board into taking the required drastic action. Take a look at the institutional ownership of Microsoft stock. Many have already started selling portions of their holdings.

Next week in Los Angeles we have the Wall Street Journal’s D8 conference (the speaker line-up is here). Steve #1 and Steve #2 will be interviewed on stage by Walt Mossberg, the newspaper’s high-tech guru. We’ll see how Walt broaches the Second Envelope question with Steve #2. Will he pose hard questions or toss softballs, allowing Ballmer to give one more of his now tired and tiring ‘We’ll win…eventually’ speeches?

Come to think of it, Steve Numero Uno might very well heap praise on Microsoft’s CEO, he likes him just the way he is: with enemies like Ballmer, who needs friends?

I’ll be in attendance, and will report back next week.

—JLG@mondaynote.com

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Before performing media oncology tests and discussing possible treatments, let me describe which soapbox I’m standing on. Each time I raise the issue of advertising trailing behind the digital train, I get two responses: media execs nod sagely, and later explain how they intend to progressively circumvent the ad food chain; advertising people breezily dismiss my remarks: ‘Anyway, you don’t like us’. Untrue.

First, I’m in the same boat with many of my friends in the news media: a significant part of my income, past and future, rides on advertising. Therefore, my pragmatic self-interest is to see digital advertising thrive.

Second, over my 25-year career, I worked with ad people in many occasions. In the late 90′s, for a year, I even worked at a large ad agency, trying to evangelize multimedia. I met interesting people there, even though I quickly realized we had little in common. And my last job as a managing editor was at a free newspaper: 20 Minutes — 100% dependent on advertising.

I am way more open to this business than most of my journalist colleagues are. No ideological posture or agenda on my part. Today’s note is the result of two years of observations and conversations with digital editors and publishers I met in Europe, US or Asia.

Let’s face it. On digital medias, advertising hasn’t delivered. In the news business, we have a rule of thumb: an electronic reader brings 15 to 20 times less in advertising revenue than a print reader does. I’ll stop short of saying this dire state of affairs is only attributable to advertising. Between inadequate interfaces, poor marketing, and the certainty that, just by itself, intellectual superiority entitles to success, medias carry their share of responsibility in this situation. But, for the most part, it is the advertising community who missed the digital target.

Digital advertising sucks. Both on the web and on mobile. Two main reasons for this.

#1: Poor design. Where is the creative talent? Not in digital, that’s only too clear. Let’s face it: most of banners, skyscrapers, sliders, pop-ups, you name it, merely act as reader repellents. Judge by yourself.

.

These “creative works” end up as fodder for ad-blocking systems. Unfortunately, these defense mechanisms are thriving. A Google query for “ad block” yields 1.25 million pages which send to dozens of browser add-ons. On Firefox, AdBlockPlus is the most used extension with more than 80m downloads and more than 10m active users. The same goes for Chrome whose ad-blocking extension is downloaded at a rate of 100,000 times a week and now has over one million users. For Internet Explorer, there are simply too many add-ons to count.

I spotted this comment in an excellent Media Guardian ad blocking story.

“I work for a digital advertising agency. Along with microsites, iPhone apps and long-form digital content, I make banners. Shitloads of them. And I use Adblock Plus. I also advise my friends and colleagues to use it too. This is because most advertising, online or otherwise, is utter crap. And banners contain some of the worst of the crap. Flickering, squiriming, farting, buzzing crap”.

Another sign of the ad design failure is Apple’s decision. Not only does Apple enter the mobile ad business as a sales house, but Jobs’ company will also design ads, for a hefty $50,000 to $100,000 fee. Apple’s message is the profession needs to reboot advertising graphical standards. How strange it is to see a technology company giving lectures on design to the very people who prided themselves for their creative brilliance. If this is not a blow…

#2: badly sold, badly bought. A high-tech product sold and purchased in the most low-tech way. One after the other, most technology aspects of the advertising business have slipped out of the hands of those who were supposed to own it: ad serving, data management, behavioral targeting, analytics… All are now controlled by engineering-driven companies.

In the process, the added value of media buying outlets has shrunk to a bare minimum, in which a bunch of twenty-something are negotiating discounts with their counterparts in media. That’s the exact opposite of yield management.

Everyone laments that Google, the ultimate geek machine, has absorbed a large part of the digital advertising business, but that’s just the logical consequence of an inability to invest in technical talent.

The digital world is not the only one affected by advertising’s creative weakness. Over the recent weeks, I met some managers of RTL, the n°1 French radio. Their take:

• True, the overall quality of ads we air is falling.
• We know that such degradation contributes to the erosion of our audience numbers; listeners tends to shift to quieter listening such as public radio. (This is especially in the morning time slot where commercial stations make most of their revenue, hence their concern).
• We try to limit the damage by screening and sometimes rejecting the most inaudible ads, but economic conditions don’t help: we can’t afford to lose any campaign on the basis of aesthetic considerations.
• Fact is: because they don’t make enough money on ads, creative agencies are simply not motivated to invest in the talent needed to develop good ads.

Three trends should cause the advertising community to stop and think harder about its future.

1. The technology dimension of the business will intensify. Competence and imagination will tend to be in the hands of small companies. As they already do, the biggest and the smartest ad outlets will want to acquire such talent pools. But they will face tech companies ready for a bidding war; see what happened in the mobile ad sector with the AdMob’s acquisition by Google and Quattro Wireless taken over by Apple – with the subsequent launch of iAd, (on the subject, see this preset search on TechCrunch).
2. Media will have a strategic interest in boosting their CRM. They’ll invest in developing this crucial asset for their digital properties.
3. Media will tend to move up the ad production chain by having their own creative teams, working more closely with big advertisers; (see this Australian example mentioned in a previous Monday Note Digital Takeover, The Fairfax way).
   In that matter, Apple could give an interesting pitch: “We are the media, we spent time and money designing a good interface; we don’t want our work ruined by sub-standard advertising; let’s work directly with brands and concoct great campaigns that will benefit us, the advertiser and the reader”. This could become a broader trend, spreading to other medias, such as broadcast radio, neglected by today’s ad creatives.

Does this lead to the extinction of big advertising shops? Certainly not. First, there is the inertia factor; these companies remain quite wealthy thanks to decades of solid rainmaking. Second, agencies still enjoy profitable strongholds in which their value added is undisputed such as outdoors display, television and print — and the associated media and strategic planning. Third, they have no shortage of good managers able to organize turnaround… in due course.

It is hard to reform a fat-cat culture – from heavy margins, captive clients, cozy cronyism – to a more agile one, where technology and innovation drive the business. In this very respect (again), advertising and news media converge: both have been late in hiring developers able to understand the specifics of their business. Because of their intrinsic vulnerabilities, media have been the first to take a hit. If advertising wants to avoid a Jivaro-like downsizing, it needs to listen to the clock: it’s ticking away.

—frederic.filloux@mondaynote.com

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Let’s start with a simple Web app. How does it work?

Somewhere, a computer runs a Web server. In turn, the Web server runs an application whose job is to pull the strings of the browser marionette hiding inside my computer at the other end of a Net connection. The app tells my browser to display ‘Monday Note’ at these coordinates inside such-and-such a window, using this font, that size, and this color. Or the Web app sends a file and tells the browser where and how to play it, and so on.
But what happens if I lose the Net connection? The server no longer pulls the string, the marionette collapses, my Web application is dead.

To achieve its strategic goal of displacing Microsoft Office, Google knew it had to provide an off-line version of Google Apps. Off-line capability is implemented by dropping a replica of the Cloud—a Web server, the application code running on that server, and a local cache of my data—into my computer. My work will be uploaded to the Cloud when the Net connection is restored. With today’s software technology, with abundant storage and computing power on desktops and laptops, Google’s goal isn’t unreachable.

But…the Cloud can be replicated inside my laptop?

It’s not as fantastic as it sounds. While the Cloud evokes images of Google server farms and Big Iron, even the flimsiest of netbooks now provide ample RAM space (at least 1Gbyte, often 2), plenty of disk space (160 Gb or more), and an Intel processor running at 1 GHz or faster. Recreating the server, storage, and applications is well within their power.

Furthermore, your PC/laptop/netbook already contains a Web server. Every Mac carries a copy of the Apache Web server (“the most popular HTTP server software in use” says the Wikipedia article), as so do most Linux “distros” on netbooks and DVDs. Windows provides a Web server called IIS, Internet Information Services, the “second most popular web server in terms of overall websites…” (Wikipedia). If you want Apache on Windows, it’s free and easy, go here. The Windows Installer package (née MSI) weighs in at 6Mbytes, that’s all.

Combining on-line and off-line work modes isn’t a new idea at all. Microsoft has been providing combined modes for years with Outlook and the Exchange Server. When I’m on-line, I can edit contacts, mail, calendar appointments. If I’m sitting in an airplane composing email replies, I work on a local cache, a copy of the server data that resides on my hard disk. When I reconnect, the mail is sent, the calendar on the server is updated, the two versions update one another and consistency is restored. (Most of the time…)

Until recently, Google provided some off-line capabilities for some of its Apps, using a browser plug-in called Google Gears. The goal was to offer an ‘open source browser extension that lets developers create web applications that can run offline.’ Gears has since been “deprecated” (I’m not too fond of the word’s potential for alliteration) by which Google means they’ll rely on HTML 5 to provide…

• A Database module (powered by SQLite) that stores data locally.
• A WorkerPool module that provides parallel execution of JavaScript code.
• A LocalServer module that caches and serves application resources (HTML, JavaScript, images, etc).
•A Desktop module that lets Web applications interact more naturally with the desktop.

A Geolocation module that lets Web applications detect the geographical location of their users.

It sounds and is complicated—this is far from “just use a browser”. If Google wants the best of both worlds, if it wants on-line as well as off-line capabilities for its “Office-killer” apps, it will have to stuff a lot of local code on our machines…and update it, and deal with bugs, just like Microsoft and its desktop apps. Furthermore, for most users, the desktop versions of today’s Google Apps can’t compete with the familiar MS Office. (As discussed last week—a mere opinion—my own Google Docs user experience hasn’t been enticing.)

Summarizing: Google wants to kill the Office Golden Goose. To do this, it must go beyond on-line, browser-based Cloud apps and provide off-line, “earthbound” versions as well. Ironically, this kills the “Everything in the Cloud” argument: Google is now forced to deploy and maintain a complex set of desktop apps that emulate the Cloud originals. Microsoft seems far better equipped to continue with its familiar, robust desktop Office products while it deploys a subset of functionality in the Cloud.

And Apple?

While Apple believes in “native”, local apps, when the iPhone came out there were no tools to develop applications and no App Store. The party line was “Web 2.0 apps”. We know what happened: We have iWork apps on the iPad and on the Mac but no Web versions. In that sense, Apple doesn’t have an answer for the on-line/off-line dual modes offered—or promised—by Microsoft and Google. (There is iWork.com as a way to share documents, but editing capabilities are still only local.)

But…ask a friend to show you the iPhone manual on the iPhone itself, not from a desktop browser. Or, better, the iPad manual on the iPad. While they look and behave like local code, they’re actually Web apps. Here’s the local Settings app on my iPad:

…compare it to the iPad Manual, a Web app:

The iPad Manual Web app fooled everyone I showed it to, even more so after bookmarking the site (www.help.apple.com/ipad/mobile/interface) on the Home screen:

It looks like another app.

Let’s look at the local iPad Mail app (which, by the way, has a fluid and fast UI, very helpful when you’re dispatching a large number of messages):

Last week, we heard that Apple is going to update its MobileMe Webmail app. It’ll look like this:

Web apps that are nearly indistinguishable from the local code versions running on the iPad. This is the model Apple could use to get the best of both on-line/off-line worlds.

What’s next? Perhaps a MobileMe (or iWork.com) version of Pages, or Keynote (Apple’s own “PowerPoint”) or Numbers (their spreadsheet). The code runs on an Apple server (that’s not too hard) and the UI is served via the browser (that’s a little harder).

Going back to the on-line iPhone and iPad manuals, alert geeks have noted Apple’s use of an HTML framework nicknamed PastryKit. (An HTML framework is a collection of HTML code modules—HTML “bricks”—you can use to build an application. Google supplies iPhone HTML modules here…) ArsTechnica, the aptly named techie site, called PastryKit the “best iPhone Web app library you never heard about”. John Gruber, the always-awake blogger, provides further insights here and here.

What this all boils down to is this:

- Like its frenemies Microsoft and Google, Apple has been busy making Web apps, and crafting the tools to build them.
- Unlike Microsoft, Apple doesn’t have an Office cash cow to protect so they can build Web apps that “cannibalize” the desktop iWork suite.
- Unlike Google, Apple starts with good (YMMV) desktop apps—and they don’t have to give away their Web versions.

The almost unavoidable conclusion is that Apple could build itself a nice MobileMe 2.0. Today’s version isn’t always well-regarded, even when it provides neat features such as Find (and Lock, and Erase) my iPhone or iPad.

Tomorrow, Apple could play the freemium game. Let’s say free email or 5 Gbytes of picture storage, and paid-for iWork Web apps. Who knows, you might even be able to host your own domain name, as Microsoft Live now provides. (Although I have my doubts about that. Microsoft thinks Small Business, Apple thinks Consumer.)

This is all speculation, of course. Should Apple enter the game, the matter of execution would play its usual role in determining if Apple could yet again extract large amounts of money from a less-than-dominant share of the market.

—JLG@mondaynote.com

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First, would you trust a citizen neurosurgeon to remove your kid’s neuroblastoma? No, you wouldn’t. You would not trust a citizen dentist either for your cavities. Or even a people’s car repairman. Then, for information, why in hell would we accept practices we wouldn’t even contemplate for our health (OK, big issue), or for our washing machine?
Fact is, with the advent of digital media, the very notion of rigor and accuracy has become more… fuzzy, more analog. As I said here many times, we are now facing three types of news: the Commodity one (everyone gets the same account of the oil spill in Louisiana or the deadly unrest in Thailand); Mashup news (the more it buzzes, the better it works); and the Quality Niche, that tries to defend its standards. The first two are expanding and the third is getting to look like a Zant currant, (Raisin sec in French): good, tasty, but tiny and dry. And produced in small quantities.

A couple of weeks ago, a friend of mine sent me a remarkable piece about fact checking at the New Yorker. In a loving and witty rendition, the author, John McPhee, details how an army of minutiae-obsessed researchers will spend days to check the smallest assertions in order to remove even the palest shadow of doubt. (I’m linking to the PDF file, hoping Condé Nast’s legal department will forgive this copyright infringement in view of my heartfelt homage; this article really deserves to be dissected in journalism schools).

A few years back, this colleague showed me a mail exchange he had with a sub-editor at a major US daily about a long feature story of his. Its original submission triggered a long email with dozens of questions about every aspect of the story: “Who says this? Could you add a source of this data? Isn’t there a contradiction between this figure and the other in paragraph six? Can you be more specific on this and that? It went on an on. The story was actually seen as a good one; the painstaking editing, checking and challenging process was merely standard procedure.

Who has the luxury of applying such treatment to news material, nowadays? No one, almost. Only some “Zant currant” news organizations are still holding firm on such a practice. Which leads us to my point: journalism is a profession; it comes with standards, techniques, and a certain level of demand, from the author and his/her editors.

These notions collide with the new information chain: Algorithm => Search => Filtering => Aggregation => Mashup => Social Feedback (i.e.: commenting, sharing, tweeting, blogging…).
We’ve been through the hardcore part (fact-based reporting, checking, sourcing, editing). Now, let’s sort out the new jargon.

Algorithm: it has become the main underlying engine for digital information consumption.  Think about Google News traffic: 3.7 billion people exposed per week, according to GeographicalMedia . For many news sites, GN has fostered a dope-like addiction, with a 10% or more dependency level. New York University Professor Clay Shirky has theorized the “Algorithmic Authority“, one that leads to the shift from individual to collective expertise, sometimes self-organized through a Wikipedia-like structure.

Search, Aggregation and Filtering are just by-products of the algorithmic engine; in the better cases, they are supplemented by a small amount of human editing. See excellent examples such as Techmeme or Mediagazer; they combine a strong home-brewed algorithm with a thin layer of human intervention, hence the term of “Aggrefilter” coined by our friend Dan Farber.

In this context, Blogs range from the best to the worst. Professional blogs – either independent or hosted by traditional medias – can be the most advanced form of written journalism. Quite often, blogs produced by good journalists are as insightful as standard stories, but way more fun to read. (In France, I do know editors who wish their writers were as witty in the paper as they are on their blogs). Good bloggers sometimes border on columnists. Their work is solid, precise and, sometimes, edited; they take time to write their pieces and it shows.
At the other end of the spectrum, blogs can be utterly superficial, lacking precise facts, or agenda-driven and written with a shovel. Unfortunately, both kinds of blogs are sometimes found under the same roof. In many news organizations, big and small, instead of being considered as a more modern form of journalism, the “blog” name tag is a synonym for lower expectations.

The same kind of carelessness goes for comments. I do believe that opening news content to public feedback is a good thing. At its very core, journalism begs for argument; pundits need detractors. But most online editors satisfy themselves by opening the floodgate of comments, without a strategy, or even the slightest attention to content. As a result, everybody loses: the writer who sees painstaking work defaced by shouts; and the publication for allowing substandard, unmoderated feedback. Participation without relevancy is pointless. Unfortunately, in most news sites – including big ones, very little thought seems to have been given to raising the level of public contributions.

This leads us to the oxymoronic notion of citizen journalism. Using public contributions to compensate for the absence of a reporter on the scene is nothing new. For decades, finding pictures taken by witnesses (sometimes paying for such) has been part of the job. Today, Twitter has replaced the checkbook. In many instances, Twitter has proven extraordinary precious and efficient. But, soon, the spontaneous stream of accounts has to be supplemented by professional editing and checking. This is the kind of powerful combination that made the coverage of civil unrests in Tibet or Iran so compelling.

Last March, professor George Brock, head of journalism at the City University of London, gave an absolute must-read lecture on the evolution of journalism titled Is “news” over? (see video and text). Here is what he said about readers input:

This is a competition for trust between two different forms of collective intelligence. This argument is not being openly and clearly mapped by those who run news media. Perhaps understandably, no editor wanting to encourage the highest level of participation online wants to underline that the suggestions, tweets, tips and facts flowing in from this rich new sources are being filtered in a traditional way.
But the facts of news consumption on the web tell us clearly that filtering is exactly what people tend to prefer when they have the choice. Filtering used in the old days to be known as “editing”. If it’s done right, it should be for the benefit and protection of the viewer or reader. It should create trust.

These distinctions are essential to the preservation of quality journalism. Many wondered why the Yahoos, Googles, Microsofts, where unable to setup news organizations despite their incommensurable wealth (to put things in perspective: Google spends five times more each year for its datacenters than the New York Times spends for its entire newsroom). Part of the reason is the return on such an investment. Financially speaking, the news business is not very appealing. See for yourself in this revenue per employee table.
Google being the 100 index :
Amazon:……………85
Microsoft:…………..53
News Corp:………..47
Yahoo:……………..40
Washington Post:…19
NYTimes:…………. 22
Gannett:……………13
McClatchy:…………10

But, to thrive, journalism requires more than a checkbook. It has to be built around a set of cultural traits that are in total contradiction to the engineering efficiencies of a search engine or an internet portal. Evidently, the modern news business requires more technology; and journalists needs the dialectics from their public. But news requires more professionalism than mere crowd-powered demagoguery. Today and, I believe, for as long as trust is to be part of the relationship with readers.

—frederic.filloux@mondaynote.com

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First, the Cloud Gospel according to Google. Desktop bloatware is passé. Modern browsers can perform a magic trick: We, Google, maintain the applications on our servers, and we store your data as well—securely, trust us. For you, the experience is desktop-like. Word processing without Word. Spreadsheets without Excel. With one login and password, you can access your documents, create presentations, edit financials from any computer in the world that has an Internet connection.
If you’re on an airplane and want to edit your killer Board of Directors pitch, we’ll provide a local version of your files stored in what is technically called a cache inside your computer. You edit your slides and everything updates and re-syncs when you land and recover a Net connection. You have the best of both worlds: dual off-line/on-line modes. The magic relies on modern operating system, browser, and server technologies. The vast computing and storage power in today’s laptop does the rest.
To summarize: Take a laptop with a modern browser and you’re done. Everything–applications and data–resides in the Cloud. On-line or off-line doesn’t matter. It’s automagically synced.

Since it has no legacy business to protect, Google can offer free versions of its Web Apps. (As we’ll see later, they also offer paid-for versions.) Kill the $300-a-DVD Office Golden Goose and someday, my Son, all this will be yours: 1 billion users at $100/year…that’s a nice $100B/year service business. If you think I exaggerate, you’re right, but by how much? Facebook will have 500 million users sometime this year. The Google vs. Microsoft battle will play out over a decade or more. As a time perspective, Google will soon be twelve years old.

In the meantime, Microsoft isn’t asleep at the switch and they do have a huge legacy to protect. Last year, Microsoft’s total sales were $58B, down 3% from 2008.

(Numbers geeks can find Microsoft’s full 2009 Annual Report here. Note the Operating Profit, 35%. The company spends 15% of its revenue in R&D and 28% in Sales, Marketing and General Administration. Compare this to Apple’s 29.5% Operating Profit, 3% R&D, and 9% SG&A, with a comparable revenue level, in the $50B to $60B range annually. Microsoft’s Net Income is 25% of revenue, Apple’s is 22%. I used the latest available figures for both companies: FY 2009 for MS, Q1 2010 for Apple.) Microsoft Office represented 90% of the $19B Business Division sales, with a nice 64% Operating Profit:

Roughly 60% of all Microsoft’s profits come from Office and a little more than 53% from Windows OS licenses (or what MS calls its “Client” business):

So… Office + Windows, 60% + 50% = 110% of Microsoft’s Operating Profit? The math is complicated by the losses in something called “Corporate-Level Activity”…

…and, more importantly, by the hefty 73% operating loss in the company’s Online Services Business:

Microsoft spends about $5.3B to generate $3B in online revenue. Since it’s neither a philanthropic nor a poorly-managed business, MS isn’t passively shrugging off these losses. It’s making an investment, a strategic one. Not “strategic” in the sense that corporate minions use to explain away losses from politically correct activities; strategic as in winning the war against Google. With this in mind, Microsoft proceeds to do Google one better and delicately navigates the treacherous transition between desktop applications and the Cloud. They don’t want to prematurely cannibalize their fat desktop revenue, but they also don’t want Google to become the emperor of productivity Web apps, killing Office revenue/profits as a result. The story goes like this: Web-based apps are great, see our new Office Web apps “coming soon”:

On June 15th, you’ll be able to get the Office 2010 DVD, available today by pre-order at Amazon. (The Professional version is listed at $499; for the Home and Business user it’s a mere $279.99.)

I went one step farther. On the Office Live main page I clicked on the offer to create a free Website. Oops, wrong browser…only Explorer and Firefox allowed, dear. No Google Chrome, no Safari (for Windows or Mac). If you squint a bit, you’ll see the system requirements exclude Windows 7. The page is from another era, 2008…

Microsoft generously sends you to the Firefox download page, if you’re so inclined or Windows-less. Firefox it is and it works well:

I played customer and ordered a domain, gasseeoffice.com. It’s a nice simple process, all handled by Microsoft. Less than an hour later my shiny new domain was active and accessible from anywhere on the Net. In the meantime, I used the basic but effective Web-based Office Live tools to build a simple site:

No great shakes but it’s serviceable and easy to put together with no desktop apps required.

There are bugs. I tried to add a “Live Sites” blog module and was dropped into the Mactopia home page. It’s still a work in progress; the rendering of a PDF doc in the Live Workspace is terrible:

What Microsoft is doing—but hasn’t fully implemented yet—is clear. When Google says “Everything in the Cloud, you just need a browser on the desktop,” Microsoft answers “Everything on the desktop and in the Cloud.” A nice, familiar, fully functional application on your desktop and a browser-based subset in the Cloud. The best of both worlds. If the Microsoft approach sounds more complicated, if it looks like they’re trying to have it both ways…that’s true. But they might have the right strategy.

In practice, at least in my experience, Google Apps aren’t Office killers. I’ve been using Gmail in both the free and paid-for accounts. The basic email functions work well, but managing contacts is awful. (Months ago, I heard Google had an internal project called Contacts Don’t Suck. I’m still waiting.) A desktop address book in Outlook, Entourage, or in a dedicated app is vastly superior. And here the Cloud helps: You can sync your address book across computers and smartphones of almost any persuasion.
I’ve tried to use Google Docs to write, share, and edit these Monday Notes. Failure. Compared to any word processor, Google Docs feels clunky and constrained, and hyperlinks die when you download the document.
When it comes to acquiring a domain name and creating a Website, things get geekier. Yes, Google Checkout offers a simple way to pay for your domain, but Google doesn’t manage the registration. Instead, you’re thrown into a Godaddy.com page where you must enter a number of special DNS records:

A piece of advice: Buy your domain name directly from Godaddy, it’ll be much easier to administer. One of my Google Apps accounts is free but when I had DNS trouble because of a site I was building, there was nowhere to turn—no phone number, no email, just user forums. Then I noticed something in my “Enterprise” (paid-for) account. There’s a Customer Support email address, an account number, and a PIN. I went back to my free account, signed up for the 30-day trial upgrade to the Enterprise level, got my question answered in two courteous and effective email exchanges, solved the DNS issue…and canceled the upgrade.Two take-aways.First, Google Apps aren’t “there” yet. They’re still clunky, to say nothing of managing the “stuff behind the desk”. They’ve been quickly upgraded–perhaps too quickly– at the expense of the user experience. If managing Google Apps is as complicated as running an Office DVD install program, an important part of the Google theory falls apart. We see the trumpeted announcements of large organizations and governments that have turned to Google Apps, but what we don’t see is a courageous journalist going back to the proud early adopters a year later to tell us what actually transpired.
Second, the desktop client + Web app combination sounds more attractive. I like the agility and functionality of a local app and I’d like to be able to walk to any computer and edit the work I’ve “left at home” by syncing my data with the Cloud. Today, there are many good data syncing solutions: DropBox, SugarSync, Microsoft’s SkyDrive (soon to be integrated with Office Live), Apple iDisk (a subset of the MobileMe service—works on Windows as well). With the synced services you save your work on your computer and the rest happens by itself. Your work is uploaded to the Cloud and updated each time you make changes; and you can open and edit your documents from anywhere with an Internet connection. You could use Google Docs as a document repository, but it doesn’t automatically sync—you must explicitly upload/download your work.

If Microsoft continues to straddle the local and Cloud implementations of Office apps, it could have a better product than Google: Familiar, robust Office apps for creating and editing your documents, and convenient “anywhere” access.
We know the sarcastic mantra: It’s a mere matter of implementation. We know the warts on Google Apps; we’ll have to see how the Office Desktop + Live combination develops as they move beyond beta.

Next week: The Apple version and another under-the-hood look at Web vs. local apps.

—JLG@mondaynote.com

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Compared to my computer, I realize I’m using the device in a different way. No mail (too clumsy), no writing, no twittering. Just reading stuff, the longer the better.

And I wonder: Can tablet computing be the missing link, the one that could rehabilitate (or rather introduce) long form reading in digital format — in a profitable way?

Let’s project ourselves two years from now. And let’s put the iPad aside for a while. It’s 2012. Tablets have become a cell-phone-like commodity, competition is strong. Aside of Apple, devices from Samsung or HTC running Android or god knows what operating systems are thriving. Standards for digital formats have emerged and e-books are heading toward a 25% market share in Europe and the United States. The digital publishing chain is running smoothly and efficiently with the following characteristics.

• The old production and distribution system that was eating 65% to 70% of the retail price is now down to a 30% fee taken by publishing platforms. They get this 30% for putting the publications on their virtual shelves and for collecting the money.
• These inventories are served by clever search and recommendation engines (not the Trabant-like system of the iTunes/iBooks store).
• To reflect decreasing distribution costs when compared to physical books, e-books retail prices are down by at least 30%.
• Authors also take advantage of the technological shift, they get higher royalties.
• New formats have emerged; the old dichotomy between hardcover, priced at $25, and paper back, at $10, is gone, replaced a by a more diversified pricing structure.

Hence the question: What will the impact be on journalism and on the bottom line of media companies?

Before attempting an answer, let’s reframe this in the dual context of the current business situation and of the newscycle. Managing a newsroom within today’s constraints is a difficult exercise. In daily newspapers, physical editorial space (i.e. column inches) is scarce, making long pieces a hard-sell to the editor-in-chief. The web is more welcoming, although we all know that beyond a 600 words story, reader attention tends to fade — especially for younger audiences.

As for the newscycle, it accelerates and becomes increasingly complex, requiring more expertise and, in theory, more editorial resources — should editors decide to go below the surface. Take the debt crisis in Europe, for instance. The general framework is pretty simple: thirty years-old traders in shark-frenzy mode, going against sixty years-old politicians. The sharks prey on the politicians who have failed to build decent economic leadership since the introduction of the euro system (coins and banknotes entered in circulation January 1st 2002).

Now, getting to the bottom of it is much, much more complex. Explaining how a small country (Greece), that accounts for less than 2% of U.E. GDP, is able to threaten a $16 trillion economy will require more that  a couple of quick stories. The same goes for dissecting the financial instruments used by hedge funds to take advantage of the political confusion; it can’t be summarized with a nice interactive graphic (plus, thanks to Steve Jobs’ raid, the Flash language of the graphic would soon be as readable as an ancient papyrus). By any measure, complexity requires depth.

Like in a book.

A book?

Oddly, I’ve been myself through the related experience. Last winter, I came up with a book project that had the attributes of decent journalistic work: an angle, a narrative, sound fact-based demonstrations, etc. (Unsurprisingly, it had something to do with the themes I’m addressing in the Monday Note). Everything sounded OK, I had an editor (in the Anglo-Saxon sense, i.e. the person who takes 2% of the retail price to help with the delivery of a book through the likes of Marines boot camp techniques). For good and bad motives (a series of overseas trips, a complicated work schedule and an all too human propensity to procrastinate), I put the issue to rest for of a couple of months. When I went back to the manuscript, roughly a third of the 5000 words synopsis was already out of date, with many facts no longer relevant, aging data and so on. The book could be finished by, say, next October, with an early 2011 publication schedule. I had to face it: factually speaking, this work would have been a piteous piece of out-of-date journalism.

The concept of book publishing needs an upgrade. It has to be reconsidered in order to take advantage of the digital medium. (Not all sorts of books of course, I’m mostly talking about non-fiction, news-related items here).

Let’s try back-of-the-envelope calculations to assess the P&L and, then, go back to the coverage of the euro crisis. A good business reporter is willing to explain in greater detail why the current relief plan is doomed in the long run. First, let’s forget about the 300 pages of a hardcover-equivalent opus; a swift and agile 120-150 pages piece will do just fine.

Now let’s compare paper and digital cost structures, with the following (and debatable) settings:

• The target retail price is set at €9.99  for paper and €5.99 for the digital version (you can count in dollars since the two currencies are now on a dangerously converging path…)
• The line “other editorial costs”  includes: editorial creation, steering the lazy and a neurotic author, copy editing, proofing, some design and, for the digital part, making a weapons-grade PDF file with DRM, anti-piracy features such as watermarking, etc.
• For the physical product, printing and distribution (wholesale and retail) are based on standard French practices.
• VAT has been set arbitrary at 8%; in France it is 5.5% for print, but 19.6% for the same book in file format (believe it or not: Finance ministry bureaucrats decided to follow a U.E. regulation that assimilates a downloadable e-book to a computer service, hence the higher rate); in Spain it is 4%. So, let’s stick to 8%.

It goes like this:

You’ll notice the following: even with a 40% lower digital retail price, the author makes 33% more and the publisher’s margin is multiplied by eight. (Needless to say, you can reflow the numbers to address the author’s legitimate whining).

Now, let’s consider a large national daily selling 400,000 copies per day and assume that 2% of its buyers will purchase this riveting narration of the euro crisis; that translates into 8000 sales. Since the newspaper is already paying the writers and the editor, we’ll cap these two cost items at €10,000 for the month of work required by the project. Altogether, the e-book will make €44,000 before tax. This translates into a €20,800 margin for the newspaper acting as the publisher, a 47% gross profit margin — not bad in the news business!  And the risk is minimal: taking into account the €10,000 of pure editorial costs (writer + editor, which are due no mater what), the break-even point is around 2500 e-books, an easily achievable sales volume considering the promotional firepower wielded by a good newspaper. In addition, you get a fairly up-to-date journalistic product, one that can be versioned to reflect the subject’s fluidity.

You get my point: e-books as ancillary products for a newsmedia are something worth considering. Not now, but within a couple of years as the worldwide installed base of reading devices reaches tens of millions. At this point, at any media company version 2.0, e-books will be part of the standard toolkit.

—frederic.filloux@mondaynote.com

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HP doesn’t want to be left behind, as it has been with its iPaq line of Windows Mobile devices, nor does it want to join the race to the bottom, again, to make profit-challenged Windows Phone 7 or Android clones.

This brings to mind an almost forgotten episode in HP’s past, one exemplary turn of events to keep in mind when looking at companies who dominate a market — for a while.

Once upon a time, HP owned the Personal Computer market. Then, in a characteristic case of the Incumbent’s Curse, lost it.
What? HP lost the PC market? But they’re the market leader with more than $10B in sales in the latest reported quarter.
That’s in today’s version of personal computers, the Wintel machines.
But the idea, the desire for a personal computer is very old.
For HP, it starts in the late sixties. They buy a design from Tom Osborne, the founder of a company called Logic Design.
I highly recommend reading Tom Osborne’s own words, it’s a long piece but one of the best I’ve ever read in the genre. You’ll find gems like:

‘I remember the overwhelming realization that sitting in front of me on a red card table in the corner of our bedroom/ workshop, sat more computing power per unit volume than had ever existed on this planet. I felt more like the discoverer of the object before me than its creator. I thought of things to come. If I could do this alone in my tiny apartment, then there were some big changes in store for the world.’

And, later in the same piece, his involvement in two more seminal products, the HP 35 and HP 65 pocket calculators, the latter being programmable and incorporating a magnetic stripe reader:

‘My role in the HP 35 was quite different than that in the HP 9100. Except for the card reader and the power supply, I did most of the circuit design in the HP 9100. I did none of it in the HP 35. Instead, almost all of my effort went into prescribing functional characteristics. This time, I knew that someone would want the calculator that followed the HP 35 to be programmable. A couple of times, I dug in and argued for features that would grease the slides for the follow-on product, the HP 65 (which, I think, was the best product I ever worked on).’

The HP 65

I can’t resist adding this last quote:

‘We had no idea whether the HP 35 would be a success or a dud. (Before it was introduced, a market analysis by a major consulting firm had determined that it would fail because of the tiny keys and the RPN notation. In my opinion, it succeeded for those reasons.) Anyway, we gave it our all and found that it was so well received that overnight, it made the slide rule a relic.’

There is also an EDN interview of Tom Osborne here.

I was there. My biggest break in business, even bigger than being hired by Apple to start Apple France, happens when, in June 1968, HP France takes me off the streets. After dropping out of college and going through four years of what Californian therapists delicately call a “psycho-social moratorium”, I am ready, I get lucky.

HP hires me to launch Tom Osborne’s invention, the 9100A, the company’s first desktop computer, on the French market. In 1968, HP is a relatively small company, $250M in sales; it is the company David Packard describes in his soberly eloquent (and accurate) book, The HP Way, now regrettably out of print. That HP isn’t yet the unwieldy and process-manacled behemoth it later became.

The 9100A is expensive; in 1968, $5,000 is a lot of money ($31,000 in today’s dollars). Still, the techies for whom it was designed love it. They see autonomy, independence from the centralized, institutional computing resources provided by their employers. That spirit goes far, sometimes. Engineers at one aircraft company do want a 9100A for their work; management opposes on various and, the engineers say, capricious grounds: ‘We have big computers, use those.’ Or, ‘We can only buy French computers.’ Engineers being engineers, they craft a workaround: the company’s purchasing department gets a requisition for HP parts, the set needed to re-assemble the 9100A they lust after. This, being HP, is easy to do, the 9100A is “overdesigned”, I used to take the machine apart and rebuild it on the spot as a proof of the product’s maintainability, even by a certified klutz. Next, they have to keep their treasure hidden. They condemn a toilet by pouring plaster of Paris in the bowl, pad the seat, jury-rig a shelf as a desk and keep the door indicator stuck in the “occupied” position. Thus they compute in peace.
Ah, those unruly end-users…

While iterating the machine, adding exciting techie peripherals such as a plotter, HP execs are thinking. The company has a minicomputer business based on a 16-bit processor architecture. A bold decision is made: the next generation of HP’s desktop computers will use the same instruction set. But the 16-bit processor will be hidden under what we’d call a User Interface, a firmware layer making it look like an evolution of HP’s desktop machines. In rapid succession, starting in 1971, the 9810, the 9820 and 9830 are born. (The full HP museum of calculators is here.)

These three machines, while using the same underlying 16-bit instruction set, implemented in hardware of varying speed and cost, are incompatible. A program written on one would absolutely not run on the other.
The 9810 uses a “classical” key-per-function model inherited from the 9100, but different.
The 9820 comes up with a very ingenious, seductive “algebraic language”. So seductive it leads to contests for the on-line program that will do the most — and be inscrutable and unmaintainable as a result. Techie delights not unlike APL (an overly elegant programing language) perversions.

The 9830 sports a Basic interpreter, a programming language of emerging popularity.
A few improved variants follow, 9815, 9825, but the basic plot stays: a single underlying 16-bit architecture and three programmatically, philosophically different machines.
All very successful, because they attract different customers, and because they are very good, made and sold by a strong company. As a result, HP sweeps the field. Companies such as Wang and Olivetti were “there” before HP came in, others such as Hattori/Seiko and Tektronix joined the fray, they are all crushed by HP’s engineering prowess. (Not by the company’s painstakingly sexless marketing: the joke went that HP would pitch sushi as a small ball of cold rice — stating exact dimensions and weight — surmounted  by a piece of dead fish.)

In today’s light, pushing three incompatible machines built on the same 16-bit processor architecture looks weird. Why not have one series of compatible machines? But, at the time, application software, developers, programming languages, APIs, application frameworks are either inexistent or not perceived as they are today.
In any event, the company is very successful — and also stars in the pocket calculator business.

Then, in the early 1970’s microprocessors happen.
They are 4-bit machines, 8-bit machines a little later. HP looks at them down its 16-bit nose: they’re nothing. But you know the rest of the story, the new micros are adopted by geeks all over the world because they, too, see what Tom Osborne saw in 1964: ‘more computing power per unit volume than had ever existed on this planet’.
MITS, Ohio Scientific are born, the former a client of Bill Gates’ Microsoft for a Basic interpreter. Then Radio Shack, Commodore and Apple rise and sell hundreds of thousands of machines.
(History buffs know why Wozniak and Jobs picked the 6502 microprocessor: it was available over-the-counter at the company, minimum purchase quantity one, $25 a piece. The two compadres took a bus to MOS Technology’s headquarters in Sunnyvale, got their processor and, according to their account, drooled over the tech documentation on their ride back home.)
The new personal computers built with these microprocessors are less powerful than HP’s 16-bit machines, the companies are less reputable. But the newcomers are cheaper, the programming tools are available from a variety of sources, some can be had in kit form — in 1976, I subscribe to a pulp rag published by Bell Labs geeks, Creative Computing, and try to get MITS Altair kit shipped to France, unsuccessfully.

HP loses the market to a swarm of scruffy interlopers. After trying its hand with its own CP/M based systems, HP finally joins the Wintel camp. In 2001, HP acquires the fallen king of PCs, Compaq, this after Compaq acquired DEC, itself the fallen king of minicomputers. Only then does HP regain the PC crown, taking it from Dell.

Was Sun a victim of the Incumbent’s Curse after dominating the server market in the dot.com era? Did their success blind them, did they fail to see that the PC clone organ bank would give rise to generations of less elegant machines running less elegant software — for a lot less money? Did they misjudge the flexibility afforded by Linux, and underestimate Intel’s monster manufacturing prowess? They’re now part of Oracle, an apparently unstoppable “incumbent”.

Did Yahoo! fall prey to the toxic waste of success, thinking they had won after defeating Altavista and Excite? Will they manage to matter again?

Who’s next?

Intel for inexplicably getting rid of its ARM processor business, selling it to Marvell? Today, Intel has no traction in the new computing genre (I know, they just announced they’ll be back with a new generation of thrifty Atom processors.)

And, while we’re at it: Why not RIM, Nokia, Microsoft, or even Apple, Google?

The Incumbent’s Curse works like a neurotransmitter disease: it starts slowly, there is no brutal onset of symptoms. The patient’s good health of the moment encourages denial; but when the malady becomes obvious it’s hard to combat, it’s often too late.

—JLG@mondaynote.com

No related columns.

Consider these two macro trends:

The first one stems from the world’s linguistic evolution. As of today, there are about one billion English-speaking people worldwide, half of which are native speakers. This latter proportion keeps growing as education improves; this growth reinforces the prevalence of English as the main internet lingua. With 500m people, English accounts for 27.5% of the connected population. Chinese makes the second language group with 400m people, 22.6% of the net population (and the mother of all government-mandated restrictions).

Beyond that, only the Spanish group (7.8% of the internet population) and the Japanese (5.3%) are above the 5% threshold. French accounts for 3.2% of internet users, with a global number of 57m.
Asia’s expanding literacy involves not only national languages (such as Mandarin or Hindi), but also the learning of English. In fact, the “use” of English could be much larger than shown in official statistics. Back in 2006, according to linguistics professor Braj Kachru, the “use” of English, as he called it, involved more than 500m people in India and China combined (see story in the Asian Times).

In many European countries, teenagers’ exposure to the English-speaking internet (for example through illegal downloads of movies and series) is a powerful learning vector.

The second trend involves the telecommunication infrastructure. The physical world is increasingly connected. Take optical fiber: its 2009 global market (outside China) represented 171m of fiber-kilometers, a 22% growth versus 2008 ; and that doesn’t reflect each fiber’s capacity to carry more data as carriers use more sophisticated modulation/demodulation circuitry.

Mobile internet? According the ITU (International Telecommunication Union), broadband mobile subscriptions are overtaking fixed connections. Today, there are about one billion 3G mobile subscribers worldwide, a number expected to double by 2013. This is driven by technology progress and falling prices. Between 2008 and 2009, the average global broadband subscription price has decreased by 42%; cell communications (4.6bn subscribers worldwide) prices dropped by 25%, and fixed lines by 20%.

You get my point : more English internet users, increasingly linked thanks to more and cheaper bandwidth. Of course, there are still 28 countries where the cost of internet broadband subscription is equivalent to one month’s wages. But the digital divide is narrowing. For mobile telephone usage, developing countries lag a well-equipped country like Sweden by only 10 years – but still by 72 years in terms of infant  mortality.

Unfortunately, the emergence of this culture, of this knowledge-hungry population is met by an increasing lockdown of the internet. Of course, a Bangalore student can still get a lecture about electrical engineering provided by Stanford University or the MIT, but the commercial internet is now strictly reined in. This trend is driven by a cascade of technical controls that condition commercial policies which, in turn, must submit to trade regulations restraints.

#1 Technological control. Protocols, hardware, software are mostly US-designed. If, overnight, a couple of players such as Apple and Microsoft decide that Flash sucks, their gravitational field acts upon everything else (they might be right, technically speaking for web-video, but still many Flash-based multimedia productions becomes useless, like providing glasses that won’t read old books…) The same goes for hardware designs (microchips, graphic components), operating systems and even HTML norms (even though W3C, the World Wide Web Consortium, is supposed to be an international organization).

#2 Commercial control. As the internet becomes more applications-oriented, this control over hardware and OS designs and suppliers influences the availability of contents. The perfect example is the Apple ecosystem (iPhone, iPod, iPad devices + iTunes + Applications). Willing to focus on its lucrative domestic market, and for alleged production reasons, Apple decided to postpone the release of the iPad outside the US by a couple of months.
Fine. But in doing so, it blocked the access to the iPad App store and all its related contents. To use my own [admittedly grey-market] iPad, I managed to switch from a France-based iTunes account to a US one (you must have a billing address there). Then, a new world of contents and applications materialized before my eyes. All the applications I was prevented from grabbing for my iPhone suddenly became available, so did recent movies (to rent or to purchase), TV series, documentaries… and books.

#3 Regulatory control. Apple is not the only one to territorialize its system (although it does that with a great zeal). Country blocking — i.e. the ability to implement regional restrictions though Country Code Top-Level Domain –  is in fact dictated by complex country-to-country copyright contractual agreements.

Movie releases work under strict rules which govern the availability timeline on different platforms: first in theaters, then on DVDs, paid-TV, cable, and finally broadcast. Each country has its own system that cannot be violated. As an example, this explains why the TV series Damages was first aired by the American cable network FX in July 2007, but had to wait February 2008 to show up on French pay-TV Canal+, and one more year to be shown on “free” broadcast TV.

Understandably, a French TV broadcaster will want to protect its expensive exclusivity. This is why the free streaming channel Hulu, all US networks and part of the iTunes Store are not accessible outside the United States.

But this system, engineered by corpocrats, is completely outdated. Release windows, regional rights restrictions no longer make sense in the internet era. As file sharing systems become easier to use (and as they are served using an ever-expanding bandwidth), all such restrictions do is encouraging massive illegal downloading, even in populations that are not particularly prone to it. Probably spending several thousands euros per year for all sorts of medias, I would have happily paid 4 dollars per episode for the Season 3 of Damages. But since it was not available thru any legal channel, I managed to get my weekly fix the very next day it was aired in the US.

The very absurdity of the global digital system is revealing itself. It created all the instruments for global access and, then, turned around and arbitrarily restricted its commercial use, paving the way for piracy. Think about it: our broadband networks now allow seamless streaming of films, TV shows, music and, soon, of a variety of multimedia products; we have created sophisticated transaction systems; we are getting extraordinary devices to enjoy all this; there is a growing English-speaking population that, for a significant part of it, is solvent and eager to buy this globalized culture and information. But guess what? Instead of a well-crafted, smoothly flowing distribution (and payment) system, we have these Cupertino, Seattle or Los Angeles-engineered restrictions.

C’mon guys. This is 2010. Take your private jets and travel a bit. You’ll see that in Paris, Berlin, Amsterdam, or Oslo, most of us are global consumers who want one thing: being able to flash our credit card and buy every single piece of dematerialized cultural or informational good we want. Those passé commercial agreements are no longer enforceable. Time to tear down these digital walls.

—frederic.filloux@mondaynote.com

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The Math

Consider the numbers: HP, the world’s foremost PC maker, sold $10B of “Personal Systems” in its last reported quarter:

(turn “on” display image in your mail reader
to see the graphics)

Despite their premier position, HP isn’t making much PC money: $500M, 5% Operating Profit. (The full HP Q1 report in PDF can be found here.)

Now let’s turn to Apple’s most recent quarter. Smartphones constituted 40% of the company’s revenue:

When we add up the numbers, we see that the iPhone = Mac + iPods. And this rough calculation “misunderestimates” the weight of the iPhone OS. In the more mature iPod category, the iPod Touch (the iPhone without a phone) grew by 63% year-to-year according to Apple COO Tim Cook in the most recent earnings conference call. (Full Q2 2010 SEC filing available here.)

Subtract an estimated $180 for manufacturing cost and another 12% for Operating Expenses…

..and we get 58% Operating Income for iPhones.

I realize I’m taking a bit of arithmetic license—I’m assuming Operating Expenses are uniform for all product categories, and so on. But the essence remains: Apple makes $3B of profit from its iPhone while HP takes in a mere $500M on its PCs—that’s a 6x difference. The Center of Money has shifted.

(As an aside: If we divide iPhone revenue by the number of units, we arrive at a $622 for each device. Accounting connoisseurs can search for “Retrospective Adoption of New Accounting Principles” in the SEC filing and decide for themselves how much iPhone revenue is accounted for at the time of sale, and how much is kept in reserve and parceled out in 24 monthly installments)

The Curve

HP’s low margins are a symptom of the mature PC sector. The personal computer has reached the S-Curve’s shoulder while very personal computers are still at the S-Curve’s knee, poised for the type of growth the PC has enjoyed over the past 30 years:

When we stare at the curve and consider that steep upward slope, when we consider what it will take to keep the ball rolling uphill, our thoughts turn to software platforms and operating systems. Is it a good idea to use a mature OS in this new genre? Will the layers upon layers of software silt that have accumulated over decades provide the proper environment for the growth of this new species? Until now, OS makers had to struggle to stay compatible with existing applications as they piled on additional modern features. Microsoft and Apple were prisoners of the past. But with the smartphone… Free at last! The smaller size provides an escape from backwards (and that is the right word) compatibility.

The smartphone isn’t just a new genre, it’s nothing less than a reboot of personal computing.

Google agrees. The very successful Android OS has been adopted by a rapidly growing number of handset makers. Recent AdMob statistics place Android ahead of the iPhone in US Web traffic. The cynics may disagree, rebutting with contrary Comscore stats and the supercilious observation that AdMob is being acquired by Google…but it doesn’t really matter. Android is ascending, and will soon show up in tablets (unless its close relative, Chrome OS, ends up as the chosen engine).

Google and Apple have seen—and have comprehended—the same opportunity. They’ve jumped on the next wave of very personal computing, in two form factors…or more…let’s see what happens with TVs.

(I’m not ignoring RIM, the maker of the very good and very successful Blackberry. It’s still the #1 smartphone in the US market, but it’s not apparent that they see what Google and Apple see. RIM seems to want to stay focused on what they do well. I’ll look more closely at RIM in a future note.)

The Objections

Realists will object that the new devices aren’t as capable, as powerful, or as useful as traditional PCs. Yes…for now. We always hear this objection when a new genre emerges. What, minicomputers? They can’t do what our mainframes do. Microcomputers? You must be joking. Look at how puny they are, they don’t even have a real operating system. The interloper does less, but it also costs less—sometimes much less. It’s lighter on the wallet, and it’s also lighter on the mind, easier to live with. The incumbent fights by adding features that reinforce its dominant status, but by moving upwards it makes room for the new device which, over time, gains more power and acceptance, and firmly establishes itself.

The upstart doesn’t signal the end of the previous generation. We still have mainframes, and we’ll have PCs for a long time. But give it time and, as stated at the beginning of this note, the Center of Money will shift as customers become more comfortable with the new, lighter, sexier model, as the nascent devices gain muscle and polish. This is the future Google and Apple have in mind for their Android/Chrome and iPhone platforms.

(If you’re interested in a more in-depth discussion of Google’s Android, take a look at Andreas Constantinou’s blog. Especially “Wintel future for mobile operators” and “Is Android evil?” The comments are worth your while as well. Or see Dr. Constantinou’s meaty 65-slide deck surveying “Mobile Megatrends”. One take-away: Google wants carriers to be mere bit pipes, wireless ISPs and nothing more. They want to drive the price of smartphones to less than $100 in order to take the carrier out of the subsidy business and, as a result, loosen the carrier’s control over handsets. Free, again, at last.)

The Surprise

As I was researching this note, something happened: HP jumped back into the smartphone game. The premier PC company announced that it was buying Palm for $1.2B. Their own smartphone platform, the iPaq line, has been losing ground. (See the recent NY Times article, H.P., Tech Powerhouse, Stumbles in Smartphones which points out iPaq’s “steady slide into irrelevance.”) Despite Palm’s obvious woes, its WebOS isn’t one of them—au contraire, the software platform was universally praised. So, here we go, let’s write a check and get ourselves a good engine for the new race.

In a previous MondayNote, I wrote that no one would buy Palm.

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