Friday, December 31, 2010

2010 Year End Wrap-up and Predictions

Looking Back

I covered a number of different topics over the past six months.  NVidia & Apple were mentioned frequently as were the Motorola Droid X, Kindle and the IPhone .  I also did a series of three articles that analyzed Martin Guitars apparent pricing strategy.  Here are brief followup comments on some of these companies & products.
  • Nvidia: Discreet graphic sales have rebounded in recent months and their embedded GPU's are finally gaining some traction.  Publicity wins in the HPC space have been impressive.  They've obviously decided to punt on the X86 market long term since they don't appear to have any plans to develop an Intel compatible processor of their own or acquire VIA for theirs.  I don't see PC's or Windows vanishing any time soon but it's clear that in the future people will primarily interact with the Internet via mobile devices and ARM based solutions fill this space nicely and the NVidia Tegra product is an increasingly credible offering in this space.  With both Intel & AMD offering products with GPU's integrated onto the same packaging as the main processor the discreet GPU is going to be an increasingly niche product.
  • Apple: The IPhone 4 woes have pretty much blown over.   Apple has continued to establish themselves as a premium brand with innovative design wins and great marketing.  This company more than any other understands that the technology is secondary to putting out compelling products that customers feel a connection to.
  • Motorola Droid X: I'm still happy with my Droid X.  The Froyo update added some nice capabilities and overall it's been a very good experience.  Inevitably though it seems like the longer I have a device the more unstable it becomes.  Adding and removing software is always a crap shot.  In theory it shouldn't make a difference but perceptually anyway it certainly seems to.  On the plus side, when I do need to pull the battery to clear the phone I only have to wait a couple of minutes for it to boot up, which is much better than the past couple of RIM Blackberry phones I've used or owned.  In regards to stability, I'm less inclined to blame Android than I am the fact that the more complex a device is, the more difficult it is to get everything to work properly together.  Today's smart phone's are essentially palm sized personal computers and all that functionality comes at a price in terms of reliability.  This is likely one of the reasons Apple is so draconian in how they approach 3rd party Apps for their mobile platforms.  
  • Kindle: Which brings me to the Kindle.  Within the limitations I discussed in earlier BLOG entries it continues to be a pleasure to use.  The recently announced ability to loan books  was a pleasant surprise; as with the text to speech function Amazon has left it up to content providers to say yes or no to enabling this feature on a book by book basis. Simplicity is a wonderful thing in some cases and this is one of those.  There is increasing evidence that the Kindle and IPad fill different enough niches that there isn't currently a lot of overlap.  This is particularly true given the relatively low price of ~ $140 for the entry level Kindle.  If you can afford $500 or more for an IPad you can probably come up with the money for a Kindle as well.  .  
Looking Forward

Here are some fearless predictions on various products and companies and what the new year might hold.
  • IPhone: This is a device that may have reached maturity.  I'm not saying that Apple won't continue to try to innovate, but future functional changes are likely to be much less revolutionary.  Stylistically I'd expect a fairly radical departure from the IPhone 4, likely to a form factor with softer edges like the latest Touch & the first generation IPad.  I also expect a CDMA capable IPhone.  Adding a CDMA IPhone will clear the technological hurdle that has prevented Verizon from selling IPhone's in the past.  I believe the contractual hurdle ends January 1 2011.  
  • IPad: On the IPad front the most likely change is the addition of a back facing camera.   I expect to see some modest price drops and enhancements but nothing earth shattering.  I'm not even convinced that we'll see a substantial increase in the resolution of the display.  Fragmentation is something that Apple has been criticizing Android for recently and with every new device they come out with that has a different display resolution their fragmentation increases.Other credible rumors include a mini USB port. Less likely, at least in the short term is some sort of hybrid display that works both in bright light and darkness.  There is at least one option.  The technology used in the OLPC is available from a company called "Pixel Qi" and features both a color mode similar to LCD's and a black and white mode that shares many properties with E-Ink.  If Apple adopts this or a similar technology for the IPad then Amazon and other companies producing E-Book readers are going to see their sales drop primarily on the high end since there would no longer be a compelling reason for people to buy an E-Book reader in addition to their IPad.
  • Kindle: I don't see dual mode displays being as big a boost for E-Book readers such as the Kindle.  Yes, they would add some nice capabilities but much of the appeal of these devices, particularly the Kindle is their simplicity and cost.  A color display would be a plus, but if it adds significantly to the initial purchase cost or tempts Amazon to try to go head to head with Apple and other tablet producers it is likely to be a net negative long term.  There are no clear answers here but I'd be inclined to move to a hybrid display and keep the functionality of future Kindle's focused on books and possibly other media.  I'd also want to keep the price of the entry level model below $150. 
  • Amazon: In theory Amazon can cut and run at any time in regards to the Kindle.  They already support reader software on the majority of platforms that people care about and it's hard to believe that the margins on the Kindle are very high, or even positive when all costs are taken into account.  However, no other platform makes it easier to buy books from Amazon.  If you're making the bulk of your money selling "media" as most companies do in this situation than clearly facilitating purchases is in your best interest.  
  • Software Patents: I'd like to think that this is the year that software patents will become saner but there is plenty of evidence to argue to the contrary.  Here's just one example.  This is why I'm not a fan of software patents.  The concept of double clicking initiating an action has been around for a long time.  probably decades.  The trivial differences described in this patent required no innovation and little thought.  I don't think it is productive or beneficial to have entities going around filing for and being granted these kinds of patents.  If software patents are legitimate at all than the bar should be MUCH higher than this.
  • Paying For Online Content:  It seems like we've finally turned the corner in regards to paying for online content.  I'm not going to claim that piracy does not exist or that there isn't room for improvement but I'm seeing things happen in this space that I wouldn't have just a few years back.  Minecraft is a simple yet addictive game that is currently in Beta but available for sale.  As I write this they have managed to sell nearly a million copies at about $20 per.  In the bad old days we essentially had a situation where legitimate access to digital content was nearly non existent and expensive while illegitimate copies were readily available and free.  This created a culture of entitlement that has been very slow to subside.  Apple made the first significant dent with the ITunes store and others have followed. Making online payments and purchases easy and reasonably secure by way of services such as PayPal has also helped.  The cost of creating and delivering digital content is almost entirely in the creation part of the process.  The per unit variable costs are essentially nil.  As people become increasingly willing to pay for online content we're going to see more business models that are based off of customers paying directly, rather than indirectly by way of ad revenues.  
Closing Musings

As 2010 comes to a close I've been writing this BLOG for almost exactly six months.  I've had a lot of fun and am looking forward to continuing to make updates in 2011 as time and inspiration allows.

I'm grateful for a lot of things this year, one of which is the fact that at least a few people have apparently taken the time to read some of my musings.  While I'm not writing here to become rich or famous I'd be lying if I claimed that I don't get a bit of pleasure out of every single hit this BLOG gets.  Thank you to everyone who has read even one word I've written.

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Friday, December 17, 2010

It's A Great Big Beautiful Tomorrow (Except at Disneyworld?)

Walt Disney World - Carousel of Progress - cir...
The title of this entry is the theme song from Disney's Carousel of Progress, one of the attractions that Disney created for the 1964 worlds fair. My wife and I just returned from a fairly enjoyable week plus stay at Walt Disney World in Orlando Florida.

As I've mentioned before, I'm a big Disney fan.  I'm not alone.  Disney stock has appreciated around 20% this year and they've been on a good run for awhile now.  In spite of this, and in spite of the title I'm going to make a couple of criticisms of the company.

The first is probably a short term thing.  Disney is apparently in the process of phasing in new business process software.  There were many glitches during our ten day stay including the need to issue us a new room key/charge card on average every other day at one point.  Ours wasn't an isolated experience and we heard about other people having similar problems.  As an experienced IT professional I know these kinds of things are difficult to avoid and generally of limited duration.  Based on some of the problems we saw though it appeared that whomever created the new system could have done a better job on gathering requirements.  Some corner cases were not handled well.  For example, we were vacationing with friends and we wanted adjoining rooms.  When we first booked our stay via the Disney Vacation Club we only had enough points (DVC is a points based time share) to book four days at a particular resort.  Later we were able to add two more days to our stay at that resort.  In the process of adding those two days Disney apparently failed to add the additional room even though they charged us the points.  For those familiar with how DVC works we basically ended up with a one bedroom rather than a two bedroom unit for the first two days.

Disney did a reasonable job of salvaging this situation but it took an hour plus to work out all the details and it did have a negative impact on our stay as we ended up with a unit that wasn't quite what we had originally requested.  .There were other problems as well, but they didn't have a substantial impact on the trip.

The second thing I noticed that bothered me was the continued erosion of the on/off stage concept at the.  Those who are familiar with Walt Disney will know that he wanted people to be immersed in the experience of going to the parks.  One of the things that bothered him about Disneyland was that they didn't have the space or the money to prevent cast members from different lands from having to be "out of place" while getting to where they worked.  He was passionate about the presentation of the experience and having somebody destined for Frontierland passing through Main Street USA in costume wasn't something he wanted customers to see.  Walt Disney wanted the customer experience to be as immersive as possible.  

When the Magic Kingdom (The Disneyland equivalent in Florida) was built they actually scooped out a bunch of the nearby dirt to create an artificial lake, and built a mound/hill upon which all the attractions were built.  This allowed them to create tunnels under the park so that costumed cast members could go from place to place without interfering with the magic of the story that Disney was telling in any particular area.  The visible parts of the park are essentially built on the "second floor".  Fast forward four decades and at the Walt Disneyworld parks other than the Magic Kingdom this ideal seems to be largely dead.  More on that in a bit.

Companies should have core values that encourage growth and shape how they develop.  Ideally these core values are simple to articulate and understand.  One of the more famous corporate core values is Google's "Don't be evil", IBM has "Innovation that matters"  and Southwest Airlines has "Great customer experience".   Like most companies Disney has several core values. 
In regards to the Disney context I really like this set of core values and based on comments Walt Disney made during his life they are very true to what he believed in.  The one that is most relevant to the point I'm trying to make right now is "Storytelling".  Imagine seeing a cast member dressed for the Haunted Mansion in TomorrowLand.  If you're familiar with Disney this is not a harmonious image.

At the non Magic Kingdom parks in Florida cast members park right in front on the entrance.  I don't recall this being the case when we were last there a couple of years back, but I might be misremembering.  Costumed cast members are regularly coming and going while customers are entering and leaving these parks.  This seems to be at odds with the story telling aspect of the Disney culture and I doubt Walt Disney would have been in favor of it if he were still alive.  Technically the parking lot is "off stage" in Disney parlance, but it just doesn't feel right to me for things to work this way.

To be clear, I have nothing against the cast members.  Disney should be providing them with parking spaces that are either near the parks (but out of sight) or regular shuttle service if parking is further away.

A lot of people would argue that this is a small thing, and maybe it is.   Companies lose their way all the time though by losing site of their core values.  Apple during Steve Jobs exile would be one example.

My wife and I took a back stage tour at the Animal Kingdom while we were in Florida and I noticed there were signs up anywhere cast transitioned from "back stage" to "on stage".  Those signs reminded cast members of many of the company core values and as a general rule all the Disney staff we interacted with did a great job of living up to them.  On the other hand cast members we saw leaving and coming to work (often in costume) just looked like ordinary people.  Understandably they were not engaged and pretty much looked like anyone else would in those situations and that certainly doesn't contribute to the story telling or magic that is supposed to be at the core of the Disney experience.
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Saturday, December 11, 2010

Segway Thoughts

The Segway PT's detachable wireless InfoKey
I recently had a chance to learn how to ride and operate a Segway.  It's a neat device and I can certainly understand why so many tech types got enthusiastic about the concept when it was first introduced several years ago.  From a business perspective though it is hard to see this as anything other than a niche product, and that is essentially what it has become.  Of course as the saying goes,  hindsight is always 20/20 vision.

There are two primary reasons why the Segway is a niche product and the second actually follows logically from the first.  The primary problem is one of utility.  What value does this device have to a prospective customer?  Of course that question is going to have a different answer for each person.   Realistically we can't take into account everyone's opinion so we aggregate people into groups that we feel are representative of the larger population.  I'll use myself as an example.

I'm male, live about a mile from work and own a car that gets thirty three miles to a gallon.  Everything I need is within a five mile radius of home so I seldom need to travel further than that.   In some ways I sound like the perfect customer for a Segway.  The Segway would be great for commuting back and forth to work and running errands.  The issues for me are that if the weather is bad I'm going to want to drive and if it is good I'd be thinking "Why the heck am I not walking?  I could use the exercise." particularly in the case of my work commute.  Carrying capacity is somewhat limited but it wouldn't be bad for most errands.  Sidewalks are not universal however and riding on the street is unappealing to me.  I was once hit by a pickup truck while in a cross walk and while my injuries were relatively mild the experience was enough to make me very cautious in regards to situations where automobiles and my body could have a negative interaction.  Finally, my wife and I often like to go places together.  That would require two Segways.

Which leaves me with the question, what the heck would I use one of these for?  I suspect this is the question most people ask themselves once the initial wow factor wears off.

The base Segway costs just under $6k.  For that kind of money most people are going to need to get a lot of utility to feel properly compensated (assuming they have that kind of money to spare which many do not).  I couldn't justify buying a Segway at half or even a third of that cost.  I don't think I'm alone in that assessment. Oddly this provides the people who make the Segway with a powerful incentive not to lower the price even if they can; assuming of course that they can find enough customers at the current price to justify their share holders investment in the company.

So who is buying these things?  As near as I can tell they are popular primarily with the following groups.
  • Wealthy consumers with a lot of money who like high tech gadgets (See Steve Wozniak)
  • Tour Companies (They are a nice differentiator and equalizer as in theory every one on the tour should be able to go the same speed)
  • Police departments (A nice compromise between in car and on foot patrols)
  • On campus transport for companies and universities (Disney uses them at Epcot extensively)
  • People with certain forms of physical disability
I'd be very surprised if Segway doesn't have very healthy margins on their products.  The computational power needed is modest by todays standards and the rest of the components aren't all that exotic.  The rechargeable battery is likely the single most expensive item.  When companies have high margins and low volumes they basically have two choices.  Lower the price in the hopes of increasing sales more rapidly than profits drop off as a result of the lower prices or keep prices high and stay/become a premium and/or niche product offering.  Segway has apparently chosen to take the second path.  Either choice is equally valid depending on the circumstances.  Given the apparent limited utility of the Segway,it's easy to see the wisdom of the premium/niche play.  Which is why the second reason the Segway is a niche product is price.  I realize that this is essentially circular reasoning but it does show the interrelationship between the various factors that determine product strategy.

Speaking from my own experience this thing is murder on the knees, at least when you first start out.  If you are prone to joint pain I'd recommend some sort of anti inflammatory prior to your first ride.  The picture at the left is of the Segway I got to call mine for a couple of hours recently.  Overall the experience was very good.  After about thirty minutes of instruction and training I was able to get around fairly well in "Turtle" mode.  Turtle mode limits the Segway to six miles an hour.  For most uses this is plenty, at least for a beginner.  Almost all the work of controlling the Segway is done by the legs.  You can tilt the vertical column from side to side to steer it but for most turns even that isn't necessary as a slight shift in weight left or right causes the Segway to slowly turn.  If all this sounds complicated, not to worry.  It quickly becomes a very automatic process.

The picture near the top of this entry shows the "key" of a Segway.  The icon on the right is a "smiley" face that shows the Segway is functioning properly. The buttons control various features including placing the Segway into "Turtle" mode. If the key falls off or is removed more than a short distance the Segway will go into shutdown mode.

Segway has faced a number of challenges since its inception including most recently the death of its than current owner while riding the all terrain model.  For certain uses I really like the Segway but I'm not convinced that it has long term viability.  That question will be answered by how many units they can sell to the various relatively small niche markets that gain positive value.  If I won the lottery I'd think seriously about purchasing one just for the fun of it.  Otherwise I'll be more than happy to reminisce about my recent experience if the urge to buy one ever strikes me.

Top Image via Wikipedia
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Monday, December 6, 2010

Eliminating Utility In The Name of Revenue

"594" is part of the registration &q...
I'll be honest, I'm not a big fan of advertising.  I know I'm not unique in this, with the exception of the clever and/or funny commercials that get shown during the Super Bowl it's rare that most of us have anything positive to say on this topic.

If you own a DVD of an old TV series you can tell that commercials were much rarer thirty years ago.  Half hour shows last twenty five minutes plus.  These days twenty minutes or so seems much more common.  Maybe this is why I seldom watch TV.  It seems like every time I'm getting interested in a program there  will be a commercial break.  Even the networks apparently realize that this is a problem as many shows spend a bit of time after each break reviewing what has gone before.  A cynic might think the real reason for this is that it allows them to stretch ten minutes of actual content into an hour but I'm certain they are just being courteous to their viewers.

My wife and I recently flew across the country on Jet Blue.  I'll say up front that my experience with them over the years have been almost exclusively favorable.  One of the things Jet Blue did early on to differentiate themselves from other airlines was to provide everyone with a small TV screen inset into the back of the seat in the next row up.  You can either use your own headphones or purchase a pair for $2.  There are thirty some odd TV channels available for your viewing pleasure.  The best channel for me, at least prior to this last flight was the one that showed the progress of the flight. To the left/above you can see an example of what I'm talking about.  The problem this time was that Jet Blue apparently decided this was a great place to insert some advertising.  And not just a little advertising.  I timed it and forty seconds of every minute featured an ad.  This meant that I often had to sit and watch for fifteen seconds or more before I got to see the information I cared about.  Eventually I just turned it off as the utility I used to get was now gone.

Maybe most people don't care.   To the best of my ability to judge I don't buy anything based off of the imprecisely targeted at best ads that are propagated via most media sources.  Word of mouth, research and the occasional well targeted Google ad are my sources.

OK, so maybe I make an occasional impulse buy as well.

Given that background it doesn't matter much that I'm not seeing those TV &  Jet Blue ads.  I have other ways of making product decisions.  However, while it might not matter to the products being advertised it should matter to the outlets.  I'm now a tiny bit less favorably inclined towards Jet Blue.

There was a time when a national brand could get coverage of nearly everyone in the United States by placing an ad on the three major networks.  The ever increasing fragmentation that cable brought has made that sort of coverage impossible; and yet based on what seems like steadily increasing ad volume advertisers still seem hell bent on reaching everyone.  This is disconcerting given the fact that much better approaches exist today.

Personally I'd like to see companies take a more disciplined and targeted approach to advertising.  Advertising is only one means of building a brand or product.  Providing customers with real value and good customer service are at least as important, particularly if the goal is long term growth and sustainability.

Image via Wikipedia
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