Sunday, May 29, 2011

Microsoft/Apple (OS Pricing)

Windows v0.0
When we recently bought our Apple TV we also picked up a copy of MacOS 10.6. Our iMac is a few years old at this point and still running 10.5 so it was time. The nice thing about Apple's operating system upgrades is they are substantially cheaper (and more frequent) than Microsoft's. At $30 the update was pretty much a no brainer. Prices on the various flavors of Windows 7 seem to be all over the board but Windows 7 home premium seems to go for $70. This is more than two times the Apple price. As is typically the case when I encounter pricing discrepancies such as these I want to figure out the why side of the equation.

A lot of things factor into pricing. Oddly, cost of creation isn't necessarily a primary consideration. Just because you can make something for a dollar doesn't mean you should sell it for $1.50. Particularly if a lot of people are willing to pay $5 or more. I know that may sound dishonest but under most circumstances it isn't. You aren't doing yourself, your employees or in the long term your customers any favors when you do a lousy job of pricing your products.

Getting back to the topic at hand, why does Microsoft charge so much more for their upgrades? The most obvious answer is a variation on "because they can". People pay for perceived value and that value can come from a number of different factors.
  • Cost: My ability to pay is going to be the single most significant factor in a buying decision. I may choose a cheaper solution if I don't have the ability to pay for my preferred choice. My perception of what is a reasonable cost will also be impacted by my ability to pay. On the flip side, if I see something really nice that costs less than I expect I might decide there is something wrong with the product. I know it may seem odd that cost plays a part in peoples perception of value but it really does. 
  • Utility: If a product solves a problem I have it has value. That value will be based on 
    • The importance of that problem to me and 
    • The effectiveness of the solution 
  • Prestige: Brands and products that are perceived as cool or desirable will sell for more. Sometimes a lot more 
Let’s do a quick break down of Windows 7 versus MacOS 10.6 based on the above criteria.

Clearly Apple wins here. But it's not that simple. MacOS only runs on Apple hardware. Yes, if you're cleaver you can get it to run non Apple hardware but that is unsupported. If you own a Mac you do have the ability to run Windows 7 however and many Mac owners end up purchasing a copy to run Windows software under emulation or in an alternate boot partition. This leads me to the next category.

There are a lot of different ways we could look at utility here. If you don't own an Apple PC and you don't want to go the hackintosh route you're don't get to choose MacOS. There are two sides to that coin though. You also don't have to pay a premium for Apple's hardware. You can choose from a nearly limitless number of vendors and configurations. You can mix and match to your heart’s content. In short you are not locked in. That freedom comes at a cost though.

Microsoft has a much harder road to travel than Apple. Apple only has to support a very limited number of hardware configurations. Microsoft has to deal with a nearly limitless combination of possible configurations. People who criticize Microsoft and praise Apple in the area of stability aren't being inaccurate but they are being unfair.

Support is another factor. Apple tends to fully support only the current and previous release of MacOS. Microsoft on the other hand is still fully supporting XP and only dropped support for Windows 2000 about a year ago. If you're into the latest and greatest technology you might say "So what" but in some market segments this is an important consideration.

Microsoft likely incurs additional costs because of their longer support period but they also create more utility for their customers. This likely explains the bulk of the price difference between MacOS 10.6 and Windows 7.

I don't think it's difficult to figure out which of Apple and Microsoft are perceived as cooler. Windows Phone 7 and the Zune are only two examples that show most people prefer Apple products to Microsoft's offerings.

Another Factor
There is another factor I haven't taken into consideration. Business models also play a part. Microsoft is primarily a software company. Apple on the other hand uses software to sell hardware. MacOS is a significant point of differentiation for Apple. While their hardware does offer innovative features it is primarily the user experience (in this case the software) that allows them to get much higher margins than anyone else for PC's and laptops. Encouraging updates lowers the pressure on Apple to support ancient versions of their operating system and encourages users to adopt new versions with new functionality more quickly.

Apple also releases new operating system versions much more frequently than Microsoft. This in turn means they get to amortize the costs of their OS development over more releases. Microsoft really needs to look at accelerating their OS release cycle and there are signs this is going to happen.

Other than keyboards, mice and Kinects Microsoft isn't a hardware company. Their OS primarily serves as a platform for their various application offerings with Office being the most important. The Office suite is the gold standard today. This is likely one of the reasons that Microsoft was reluctant to support a full function version of Office on MacOS for a long time.

Based on the above ramblings I'd say that we can explain Microsoft's higher pricing for Windows 7 on two primary factors.
  1. Higher utility because of a wider range of hardware support/choices
  2. Higher utility because of the longer product support window
  3. Higher utility over previous versions since OS releases tend to be much further apart
Point two is complicated by the fact that for many individuals and companies Vista essentially did not exist. The gap between Windows XP and Windows 7 is far more substantial than the gap between MacOS 10.5 and 10.6.

Image by . SantiMB . via Flickr
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Saturday, May 28, 2011

Apple TV (First Impressions)

Apple TV
The Apple TV (Apple TV MC572LL/A (2010)) arrived in our home a few hours back. I wanted to document some early impressions.

It's tiny. The box it comes in is just a bit bigger than the ones that business cards often come in. The unit itself is much smaller with the rest of the space being taken up by the power cord, documentation and remote. Setup was very easy. All we had to do is plug it in and log into our iTunes account. We did a bit of extra work to get the remote control features via the iPad working but that only took a few minutes and I didn't have to resort to looking at the documentation or doing a quick web search.

In the process of setting it up I finally got around to setting up AirPlay. I'll admit that I'd heard of it but didn't fully understand what it was capable of. Being able to remotely listen to songs in our library was very nice, as was the ability to browse.

The remote control app is great. You can use the on screen keyboard of the iPad to more quickly enter text for searches and do anything else that the simple remote that comes with the Apple TV is capable of. The lag between doing things on the remote app and seeing the results on the Apple TV is very minimal and doesn't impact the quality of the experience.

The device itself seems to be very responsive though I have seen reports of some people having issues with the display quality. In theory I believe the latest software update takes care of that issue.

Speaking of software updates, our unit prompted us soon after being turned on about an available update. After we confirmed we wanted to update the whole process was automated and only took a few minutes.

Audio quality is as good as the source material allows. Our whole library is MP3 at good but not great quality.

We played a few videos via YouTube and the playback was flawless.

For $99 this device appears to be a great deal. You will need a HD TV of some sort since the only video output is HDMI and I believe it requires at least 720P to work.

So, first impressions are very positive. I'll post again if that changes.

One online source pegs the cost of the the current generation Apple TV at $64 so Apple is making a few bucks on the hardware alone. Additional traffic to their iTunes store will account for even more revenue.

Edit 5/29/2011: Further research reveals that the Apple TV is capable of 720P maximum resolution. So far this hasn't been a problem. Our TV is 48 inches and video has appeared crisp. Given the price and features I still weigh in very much on the positive side.

Image by yum9me via Flickr
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Double auction.
Omar Sultan of Cisco generously took the time to comment on one of my recent Cisco posts. He made some good points. I posted some followup comments as well. The post and comments can be found here. Spending on innovation isn't the same as being innovative and what Omar's posts indicate to me more than anything is great engineering. As a general rule my experience with Cisco equipment has been very positive from the perspective of reliability. On their low to mid tier products (<=6500 series) I just don't see a lot of innovation though. I don't know enough about the higher end or data center stuff to have an informed opinion.

Hopefully people don't think I'm picking on Cisco here. In general I think they are a very good company and I've known a fair number of people who have worked there in a technical capacity. From what I can tell Cisco is a pretty good company to work for.

I'm a long time member of EBay. In fact my wife and I discovered EBay just months after it was launched. We've bought and occasionally sold a lot of stuff over the years. One of the things that's been bugging me for awhile now, at least from the perspective of being a seller is the fact that standard EBay auctions end at a particular time. You have some flexibility in specifying the number of days and there are other options such as "Buy It Now" and "Best Offer" but those are fixed price offerings. There's nothing wrong with that, but it's not an auction.

What is the problem with the fixed end time? If you're a buyer, not much. If you're a seller though it's an an ideal setup. Over time buyers have learned that the best approach to winning an auction on EBay is to step in at the very last minute and bid. This is referred to as sniping. It's completely legal but it tends to suppress bidding and thus reduce the final price. In real auctions bidding continues until nobody is willing to beat the current high bid. From a sellers perspective this is the ideal scenario. Since EBay makes a good chunk of their money off of commissions on the final sales price I just don't get it.

An additional factor in discouraging early bidding is the fact that as the current high bidder your money is tied up until the auction ends or you get outbid. With sniping your odds of getting out bid until the very end are very low if you make an honest bid. This means there is an opportunity cost to not gaming the system. That item you bid on today may prevent you from bidding on another tomorrow even though you'll ultimately lose on the first one. Sure, that money is available later but some deals really are once in a lifetime and it's frustrating to be in a situation where you have to risk over extending yourself when you see one.

The thought of selling big ticket items on EBay gives me an ulcer. I've been downsizing my very modest vintage guitar collection recently to fund my guitar building obsession and I've done all my selling through a dealer rather than EBay. I'd rather pay the commission than risk selling on EBay and dealing with all the hassle. Maybe I'm unique in this though?

What I want is an option to extend the duration of the auction so long as bids are still coming in. This is the way real world auctions work. I'm not sure this would encourage early bidding but it might discourage sniping since other bidders would have some time to rethink their maximum bid and push the price up. I'd be much more comfortable selling on EBay if this option were in place.

Apple has recently been in the news for filing and then instantly dropping a lawsuit to sue a NY teen who illegally sold dubiously sourced parts that allowed people to create a white iPhone 4 months before Apples official release. The coverage of this in the press has been less than positive in regards to Apple and it's easy to understand why this looks like a big bad company picking on the little guy.

I'm not a Lawyer, but I'm fairly sure Apple essentially had to file this suite. The parts in question had Apple trademarks and companies have to defend their marks if they want to keep them. Given the amount of press this case got I don't think Apple had a choice. the fact that they filed to have the suit dismissed immediately may show that they've settled already but reports seem to indicate that isn't the case. I suspect they simply wanted to cover the legal bases and this was the least violent way to do it.

Apple left open the option of reopening the case in their dismissal request so they still have a lot of leverage if a settlement is in fact in the works.

Image via Wikipedia
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Wednesday, May 25, 2011

Cisco Wrapup/More On OpenFlow

Cisco Emergency Communications Vehicles
One more post on Cisco, and then I'll be done for now. I wanted to elaborate a bit on some things I said in my previous two posts which can be found here and here.

I talked a fair amount about OpenFlow last time. I kind of presented it as a potential panacea for Cisco. I think it's a very interesting technology but I don't think I did a very good job of explaining why that is or how I think it can help Cisco. I'm not going to subject anyone to a routing primer here but I do need to spend a brief bit of time explaining at a high level how modern networks work.

Networks are a lot like our road system. To talk to your email server or retrieve a web page your computer needs to know how to send a request to a remote computer and that remote computer needs to know how to send a response back. In the real world when I have a similar problem I bring up Google Maps, type in my starting point and destination and get back a route to get me from where I am to where I want to be. Networks use exactly the same basic approach. It's called routing. The big difference between routing and Google Maps or a navigation system is that routing figures out the next turn or "hop" one step at a time while your navigation system figures out the entire path for your trip from beginning to end. While the route taken between any two points more than one hop apart can change over time it tends to be fairly static over shorter periods such as minutes or hours.

There is another concept in networking that is important to understand. It's called "flows". A flow is a conversation that goes on between two different end points(computers) on the Internet. A flow could be you typing a URL in your browser which causes your computer to retrieve a web page or a continuing conversation via a chat client. Flows are particularly important in the case of firewalls. When your computer starts a conversation with a remote system it needs to be able to hear the response. In the modern world there are almost certainly at least two firewalls in between the end points of that conversation. In order for the response to get back temporary holes need to be opened on both ends. These holes are created as a result of flows. If a conversation (or flow) is allowed by the firewall policy then a temporary hole is opened in the opposite direction to allow a response back

One of the coolest things about OpenFlow is that it allows you to manage flows and how they get from point A to point B. You could for instance send video, web traffic and voice data all over different paths even though one or both of the end points is identical. You could create what is referred to as a "honeypot" in the security world and route suspicious traffic into your network to that honeypot. To the attacker this could be made largely transparent. They would think that they were actually breaking into your network while instead they were wasting their time. The first example is from one of the videos on the Openflow web site while the second is one that occurred to me while thinking about this technology.

So how does this help Cisco? Well, in truth it's more about Cisco getting ahead of the curve rather than having their competition out innovate them. The reason I see OpenFlow as a paradigm shifting technology is that it essentially eliminates the need for traditional routing in some cases and provides a tool that allows for the management of flows in a highly dynamic and customizable way. The potential for new products and technologies to emerge from this shift is significant. Cisco is well positioned to be a leader given their expertise in networking and growing presence in the server space. They basically own a portion of the entire puzzle from end point to end point. That is a very exciting place to be right now. If, and this is a big if they recognize the possibilities and are willing to make the investments and changes needed to take advantage. Big well established companies seldom do in these circumstances.

To summarize, one of the thing that is revolutionary about OpenFlow is that it enables us to get away from routing and focus instead on flows of data. There still needs to be a way to know how to get from point A to point B, but that information can be handled in a much more dynamic and flexible manner. Great technology alone doesn't create shareholder value. You need to leverage that technology to solve problems that customers are willing to pay to have solved. Cisco is well position to both identify those problems and solve them and if they don't, someone else is likely to.

While Cisco is making positive moves right now my suspicion is that instead of adjusting to the competitive and technology landscape as it is today they are trying to return to what worked for them in the past. It'll be an interesting story to follow, and hopefully not in "train wreck in progress" kind of way.

Image by densaer via Flickr
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Tuesday, May 24, 2011

How Does Cisco Get Out Of Trouble? OpenFlow?

MENLO PARK, CA - FEBRUARY 08:  A chainlink fen...
I'll start this entry with another disclaimer. As I said in my previous post, I'm just a guy who likes to figure things out. My current obsession of the moment is Cisco and understanding both why they got where they are today and how they could potentially find a path forward. I don't have any insider information and while my day job involves networking I wouldn't consider myself an expert. I'm currently working towards a Cisco CCNP and have a good high to mid level grasp of networking and familiarity with the major market segments. I also have a day job that is taking up a lot of my time right now and a lot of other interests. I only have a limited amount of time to research and think about this stuff.  I've never worked at Cisco and I didn't interview anyone who does before writing this and my previous entry. I really enjoy writing this BLOG though and putting words down on "paper" often helps me gain insight and a better understanding of the topics I discuss. With that out of the way...

In my previous post I covered some of the things Cisco has done that have put them in a place where their stock price has essentially been stalled for a decade plus and their competition has been eating away at their market share. I pointed out some of the downsides of a primarily acquisition based culture. Innovation suffers when you're waiting around for the next big thing. Buying external companies may save money and reduce the risks inherent in R&D but it also means you're potentially giving your competition a head start. It's easy enough to acquire small companies that come up with interesting new technologies but this is much less true if the next big thing is invented by Juniper, HP or one of the other big players.

Cisco has a lot of very smart people working for them. The tricky bit is that the company is not especially innovative. The whole culture has been built around acquisitions and their integration.

Cisco started out as an innovation company. Somehow they need to find a way to get back there. In the meantime they are going to likely be shedding unprofitable assets and continuing to refocus on their core networking expertise. They've also seen some success in the server and data center virtualization space in recent years. Servers and networking might not seem like an obvious market adjacency but given the trends brought on by virtualization they are increasingly tightly coupled in the data center. Over the past couple of years Cisco has managed to leverage that increasing integration to create a nearly one billion dollar business. That's one of the rare bright spots in an otherwise gloomy picture. Which leads me to my next point.

There has been a lot of talk about cloud computing over the past few years. Increasingly the location of data and computational resources are viewed as important only from the perspective of data security and ready availability. So long as I have access and my data is safe I don't really care where it lives. I'm not unique in this. All sorts of "magic" needs to go on behind the scenes to make this work seamlessly. Layer three TCP/IP networks are not well suited to this kind of work since they are hierarchical and inflexible as to where a particular network host/identity lives. There are things you can do with VLAN's, DNS and other technologies to mask some of this but those solutions are limited and messy. Increasingly, as Sun Microsystems used to say, "The Network is the Computer".

So one thing Cisco does have going for them is their server/virtualization products. If they can do a good job of offering solutions that overcome the issues inherent in traditional layer three networks they stand to make a lot of money. But how are they going to go about doing this? On the one hand proprietary solutions are appealing from a business perspective as they lock consumers into a complete solution. If you want all the magic you have to buy all Cisco, all the time. As a consumer, I hate that approach. I don't like getting locked into one vendor, no matter how much I like them. Companies take turns for the worse, new technologies emerge that turn the world on its head, etc. Vendor lock in is a non starter for me. Superior products and the inevitable switching costs should be enough for any well run company to keep their customers. If you have to resort primarily to lock in via proprietary features you are doing something wrong.

So how can Cisco innovate in this area quickly? One intriguing possibility is OpenFlow. What is OpenFlow? to quote the web site...

OpenFlow enables networks to evolve, by giving a remote controller the power to modify the behavior of network devices, through a well-defined "forwarding instruction set". The growing OpenFlow ecosystem now includes routers, switches, virtual switches, and access points from a range of vendors.

Notably so far as I can tell it does not include Cisco devices currently. This is a problem. The OpenFlow effort is relatively new but it smells like a game changing development to me. Cisco has been involved in OpenFlow but external appearances show them being much less interested than HP and other vendors in this market. If you're an established and dominant player in a market technologies like OpenFlow are scary because they fundamentally disrupt the way your business works. You've made assumptions and built an organization based on a certain world view. You can't just turn an organization the size of Cisco on a dime. It takes time and effort. Worst yet, how do you know when a particular trend is game changing versus being a flash in the pan? It's not an easy question to answer. Having to deal with questions like this is why CEO's and senior management get paid a lot of money.

It's my opinion that OpenFlow is going to help change fundamentally how networking, and computing is done. To be clear, I'm not saying that OpenFlow is the initiator of this change but rather that it is emerging as a very interesting enabling technology that supports trends in the industry such as virtualization, cloud computing and data mobility.

Cisco shouldn't be sitting on the side lines or conspiring to work around or subvert OpenFlow. They should be embracing what it brings to the table and leveraging their growing market presence on the server/virtualization side in conjunction with their networking business to build compelling solutions that will excite customers and investors. Cisco is well placed to carry out such a strategy and I believe it could be very lucrative. To date though they don't seem to be moving in that direction. Fighting what OpenFlow represents will be a tough battle and not one that is likely to end well. Microsoft fought the emergence of TCP/IP for several years and we all know how that ended. I think this situation is fairly analogous.

Products built solely on proprietary platforms are going to have difficulty keeping up with the innovation that a more open environment creates and fosters and even a company as large as Cisco is going to have a tough time providing all the bits and pieces that will be needed to make a purely proprietary solution work. There are just too many moving parts.

Image by Getty Images via @daylife
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Sunday, May 22, 2011

Why Is Cisco In Trouble?

LAS VEGAS - JANUARY 06:  Cisco Systems chairma...Image by Getty Images via @daylife
I'm going to start with a disclaimer here. I'm just a guy who tries to understand things and one of the things I've been trying to understand recently is what went wrong at Cisco and what they need to do to turn things around.

Financial Background
Cisco was a long time tech darling. The undisputed king of the networking world and a sure money maker throughout the 1990's. From the perspective of their stock that hasn't been true for awhile now...

If you look at the graph to the left of this text you'll see what I mean. Cisco's stock price has been hovering between $15 & $32 for the past decade plus with the general trend being down recently. These aren't the kind of numbers that excite investors.

Of course the stock market isn't purely about numbers or logic. There is an emotional element as well. Until recently Cisco's EPS (Earnings Per Share) have generally shown an upward trend over the past decade.

CSCO Stock Chart by YCharts

I'm not a stock analyst and I won't pretend to play one on the Internet but clearly Cisco's earnings growth haven't been impressing investors. Google is an extreme case but if we compare them to Cisco we'll get a pretty good hint as to why.

CSCO Stock Chart by YCharts

It's not hard to figure out which of these companies most people would prefer to put their money in.

So we know that Cisco's financial performance has been considered poor. The question is, why? Such questions seldom have simple answers. It's probably fair to lay some of the blame at the feet of companies that made radical reductions in their technology investments after the dot com bubble burst. Even so, Cisco has been very slow to recover and recent results have been painting an increasingly grim picture.

The Possible Why(s)
From outside of the company and with zero insider information here is one of the key overlooked contributors to Cisco's current malaise.

Cisco has always been known for their acquisition culture. When they have seen an emerging market or technology they've gone out and bought one or more best of bread companies in that area. They are famous for their ability to quickly incorporate these new purchases into the collective. In the past the advantage to such an approach has been that you could minimize your R&D investment. In addition you got to pick the winners and reward them rather than having to back some of your own failures.

R&D when done right is directed with some goal in mind but it is largely speculative. You might spend millions of dollars on something that turns out to be a complete bust. Cisco was able to avoid taking this risk by simply waiting for new markets to develop and buying their way in. One example from the mid to late 1990's was the emergence of network switches. Cisco was able to acquire several companies and quickly become a dominant player at the network access layer via what became their Catalyst line.

There is a problem with this approach though. No matter how good you are at incorporating new companies into the fold, it takes time. Networking is becoming increasingly complex and tightly integrated in the data center and at the core and edge. These are the areas most large companies care about. The emerging trend towards cloud computing is playing a part as well as small to medium sized companies are increasingly out sourcing much of their most expensive network infrastructure to large service providers who also use highly complex and integrated network topologies. Products acquired from the outside are not going to be plug and play with Cisco's existing product line.

Adhering to industry standards helps in this regard but there has always been a tendency for proprietary technologies to play a part in Cisco and other companies product offerings. The EIGRP routing protocol is an example. Technologies developed in house take into account the larger ecosystem of the company. The  product managers and marketing professionals involved along the way (if they are doing their jobs) build a coherent picture and story about where new products fit into the larger picture.

So, the upside of the acquisition approach is that it allows a company to be nimble and minimize risky investments in research and development. The downside of this approach is that it takes time to "digest" new acquisitions, even if you are as good at it as Cisco. As the pace of innovation has become faster on the high end and the number of players on the low end has increased Cisco has increasingly struggled to keep up with their competition. At the access layer HP offers products with similar or superior features for significantly less money while companies like Aruba, previously known for their wireless products are announcing new products and road maps that offer intriguing capabilities that could greatly increase security and reduce the costs and complexity of managing networks.

One way to be good at incorporating new acquisitions is to create what is essentially a loose federation of smaller entities. Structures such as this become increasingly attractive as companies grow in diversity and complexity. GE would be an example. Cisco has a much narrower focus than GE but you only have to look at their numerous IOS variants (Cisco IOS, IOS XE, IOS XR, and NX-OS for example) to realize that they either chose not to provide a unified architecture in this area or they weren't capable of creating one. Different devices are going to have different needs but until relatively recently Cisco managed to keep their router and switch IOS's reasonably close in terms of syntax and versioning. Now it seems like every new product line has a new and unique operating system that has only a superficial resemblance to IOS.

To be clear, I'm not objecting to the underlying architectural improvements of IOS XR and NX-OS though in terms of intent these two sound similar enough under the covers that I'm not convinced they should be separate product lines. What I'm objecting to is the lack of consistency and tight integration. Networks are  complex and making the lives of people who work in the networking field more difficult is not a good thing.  

A Few More Thoughts/Wrap Up
Acquisitions can also be problematic if you start buying the wrong things. Many people, myself included feel that Cisco went off the rails when they started acquiring companies in the consumer space. Their first mistake was not the purchase of Linksys, but rather putting the Cisco name on Linksys products. This is somewhat akin to Nordstrom buying the Dollar store chain and calling in "Nordstrom's Dollar Stores". From a branding perspective I didn't understand the point of this move.

Other forays into the consumer space were even more perplexing. In business it's generally considered best to stick close to things you know. The further afield you get in terms of acquisitions the more likely you are to make big dollar mistakes. Flip is the most obvious example of this for Cisco. Video certainly drives bandwidth on networks as the recent reports that NetFlix streaming now makes up more than a fifth of Internet traffic in the US show. However, Cisco may have seen video as a growing market and wanted to get a piece of the pie. Pursuing revenue growth is one of the jobs of any company. Doing so outside of your area of expertise is risky because the new area can become a distraction that draws resources and attention away from your crown jewels.

In the interest of keeping this from growing any longer I'm going to wrap up here. From where I'm sitting Cisco is starting to do the right things. They've dropped Flip and they are saying the right things about focusing on their core competencies. I'd like to see them restructure to be more focused on R&D and tight product integration. They should probably keep acquisitions low and focused on technologies that can be quickly integrated into their product line rather than fully or nearly fully realized products. Another reason for laying off the acquisitions is that they may have to find a way to live off of substantially smaller margins for awhile. Having a bunch of money in the bank will help smooth a much needed transformation.

The next two years will be key for Cisco. They are losing to their competition across the board right now. IBM faced a similar crises twenty five years ago and managed to survive. There is no reason to believe that Cisco can't as well but they have a tough road ahead of them.
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Tuesday, May 17, 2011

ASUS/Nook/More On Differentiation

The interior of the Barnes & Noble located at ...Image via Wikipedia
Last time I continued my seemingly never ending dialog on the topic of differentiation and how I think companies should compete with Apple's iPad by mentioning the ASUS Eee Pad Transformer TF101. To recap briefly, the Transformer is a 10.1 inch tablet. The 16G version goes for $400 and the optional keyboard is another $150. So, for $50 more than the base iPad you can have a higher resolution display and a keyboard. The optional keyboard adds additional battery life and transforms the Eee Pad from primarily a consumer of content to a decent producer.

The key here is that ASUS is offering a product that is cheaper than Apples iPad and has a significant upgrade available with the optional keyboard. This is how you compete with a company like Apple and a product like the iPad.

Another company that has the right idea is Barnes & Noble. with their color Nook. I'm not a fan on non E-Ink book readers but with the recent Android 2.2 upgrade the color Nook has a lot to offer. At $250 it's half the price of the iPad and offers many of the basics people want in a Tablet with Email, web browsing and a very stripped down app store.

Both of these products differentiate themselves on price and features while providing what seems like a clear value proposition to potential buyers.

It's easy to point out a company that doesn't seem to get it. RIM, maker of the until recently beloved Blackberry smart phones fumbled badly with the Playbook. The device is significantly smaller than an iPad which isn't necessarily a bad thing but the base model (16GB, WiFi Only) costs exactly the same as an iPad. Really? For a 7 inch display?

I suspect the thinking in regards to pricing on the Playbook was that RIM is a premium brand and they can't be seen as competing with Apple on price. If so, fair enough but they aren't competitive on features either. That is not a good combination. A price point $50 below Apples would have acknowledged this without making the Playbook seem "cheap".  At $100 less I'd have given it serious consideration if I were in the market right now. I'm only one data point of course but at some level these are the kinds of evaluations that go on in peoples heads when they are in the market for a particular product and exploring their options.

Clearly it is possible to compete with Apple. Google has been very effective with their Android operating system in the smart phone space. Both Android and iOS offer similar user experiences but they are significantly different in ways that differentiate them from each other. I may write more on this in the future. Right now it's time to get prepared for my day job.
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Sunday, May 15, 2011

ASUS/The iKey Lives! (Short Take)

IBM AT KeyboardImage via Wikipedia
A friend of mine just sent me a link to the ASUS Eee Pad Transformer TF101. It has most of what I envisioned the iKey to be. 10.1 inch display, detachable keyboard, etc. I want one. Though  based on the promotional video I'm a bit old to be the primary demographic being targeted by this thing.

The Eee Pad has one significant feature I hadn't thought of. The keyboard has additional battery capacity so it can run 40% longer while plugged in. It doesn't look like the keyboard can be used without plugging in but that isn't a big deal. It's the ability to detach the keyboard that is of primary importance.

I'm seeing conflicting information on pricing but the tablet and keyboard are sold separately and appear to go for ~ $650 total if you can find them in stock.

It does look a bit thicker than I'd like with the keyboard and it doesn't have 3G capabilities so you're going to be limited to wireless for now and based on the reviews there are some flaws but it's an intriguing and very cool product in my opinion.

ASUS Eee Pad Transformer TF101-A1 10.1-Inch Tablet Computer (Tablet Only)
ASUS Eee Pad Transformer TF101 Keyboard/Docking Station

ASUS is doing the right thing here. They've made the keyboard available but optional and are pricing the combination to be very competitive with Apples offerings. This product won't beat Apple by itself but I think it's going to help ASUS compete effectively against the iPad.
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iPad and a Bluetooth KeyboardImage via Wikipedia
In a previous entry I talked about Apple and the fictitious iKey, a device that could fit between the iPad and MacBook Air. I also discussed how such a product might reduce sales of other products in Apple's product line and how companies keep that phenomenon in mind when developing new products. It's generally good to take sales away from you competition but you don’t want to put yourself in a position where you create a product that reduces your overall margin by reducing the sale of higher margin product offerings.

OK, so while it’s good to take sales away from your competition are there factors that companies keep in mind when evaluating new product offerings designed to compete with existing competitor products? Not surprisingly the answer is yes. I’m only going to touch one here. I’ll continue to use Apple and the fictitious iKey which is an iPad like device with a detachable keyboard about the size of an iPad 1.

One of the interesting phenomena of iPad competitors has been the fact that almost nobody seems to be trying to undercut Apples pricing in the tablet space. This is somewhat perplexing. On the one hand Apple does have the advantage of a very healthy content marketplace to help them offset the costs of designing and building the iPad but on the other they buy all of their components from other companies since they don’t build processors, touch screens, batteries, etc. The companies that do make these components are all taking a cut of the actions. LG, Sony, Hitachi, etc. all own substantial component manufacturing capabilities. It would be fair to argue that Apple can afford to sell the iPad for little or no profit since it drives a larger “eco system” but Sony isn’t lacking in this area given their media assets

It may be possible that potential competitors are weary of being seen as cheap imitators if they bring out tablets that cost less. This would be a reasonable concern but some of Apples competitors are actually charging more for what seems like less. Frankly that phenomenon confuses me. I have absolutely no interest in buying a 10 inch or so Android based wireless only tablet for more than $499 and I suspect most people would agree. I love my Android based Droid X but I wouldn’t pay more for it than an iPhone. Ignoring functionality, iOS & Apple have a much larger cachet. Old school cell phones are essentially fungible and smart phones are heading in that direction, particularly in the Android market segment. Superior features may help differentiate a product in this kind of market but at least some of the differentiation is going to be purely based on brand perception and buzz. Apple wins big on both counts.

So, in addition to cannibalization another potential factor companies have to consider is fear of cheapening their brand. Given the commodity nature of consumer electronic products this probably isn’t a big factor in this case but it is something to keep in mind. Apple is a premium brand and if you are forced to compete with them on price rather than features you’re going to come out looking a little bit tawdry.

Getting back to my fanciful iKey idea, one way a company could choose to compete with Apple is to create a product that is adjacent to the iPad but not a direct competitor. A tablet sized device with a physical keyboard could in theory do that. If executed well it could cannibalize some of Apples iPad sales.

The key here would be to make something no bigger than the MacBook Air in terms of thickness and with a ten inch screen. You can get pretty close to a full sized keyboard with that form factor. After experimenting with our iPad 2 using a small Blue Tooth keyboard I'm starting to think you might not even need a touch pad with such a device. It's reasonably natural to reach out and use the screen.

Apple innovates mostly in small ways. They didn't invent the MP3 player, they perfected it. They didn't invent the smart phone, but they sure as heck put their mark on that market. Imitating Apple is not the right way to compete with them. They are always thinking several steps ahead as market leaders generally are. It's always good to know what the competition is doing, but for businesses that want to live at the top of the food chain that is not enough. You have to be willing to take some chances and work hard to understand where there are opportunities to try something a little different. Steve Jobs and company do have the advantage of what is now a very well established and regarded brand but they got there by taking chances. The Apple Lisa was an early example.

High margins come through innovation, not creating "me too" products.
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Saturday, May 14, 2011

iPad 2 Review

Comparison between the iPad and iPod Touch's K...Image via Wikipedia
My wife and I ordered an iPad 2 in early April from the Apple online store. It arrived just a few days before the end of May. Lead times have come down considerably since then. We went for the base model, 16G of storage and WiFi only. My Droid X has wireless hotspot functionality so getting on the Internet from the base iPad 2 isn't a big deal. Avoiding the temptation to get a data plan also significantly lowers the cost of the iPad over and above the non trivial savings of not paying for the 3G version.

After a couple of weeks of use we're both very impressed. My wife has owned a couple of generations of the iPod Touch, including the latest version. The iPad is in many respects just a much bigger iPod Touch. This isn't a bad thing. Small highly functional devices that fit in your pocket are great to have around but there are just times when having more screen real estate is essential.

I wouldn't try to make a BLOG post on an iPod Touch, but it is easy to do with the iPad 2. In fact I'm typing this review using a Bluetooth keyboard attached to the iPad on the Safari browser. I wouldn't want to go much smaller than this, but I don't feel like the quality of this experience is being seriously compromised. As I noted with my fanciful iKey product idea in a previous post, an iPad sized device with a detachable keyboard is a potentially compelling product offering. You could argue that we already went through that with the Net-book but I think there's a significant difference wether Apple made such a device or somebody else. A Net-book doesn't fit comfortably in a purse or small piece of luggage.

Getting back to the iPad 2, a lot has already been written. We didn't own the first generation so I can't do a detailed comparison. I will say that the second generation iPad just seems a bit more finished and refined than the original. This is fairly typical of Apple's approach. Nobody does design better and constant refinement is a given. This isn't to say that Apple has never made mistakes in this area. I'm not a fan of the iPhone 4's aesthetic. It is boxy and kind of ugly compared to the 3G & 3GS. The iPad 2 is much closer to the older iPhones in looks which probably explains why I like it.

We've done a bit of web browsing but the primary use so far has been games. Plants versus Zombies is a lot of fun and the iPad two is a great crossword puzzle conduit.

Battery life has been very good. We haven't done any formal tests but for normal use we seem to do fine if we remember to plug it in couple of days. It doesn't have anything close to the Kindle's longevity in this area but it's a much more capable device.

Speaking of the Kindle, the iPad 2 is not an eBook reader. At least not for me. The Kindle is very easy on the eyes. I can read for hours with little or no fatigue. This is not true of the iPad 2. I spend a lot of time staring and LCD displays and seldom have a problem. For some reason though reading on the iPad 2 is not a pleasant experience. I'll concede that some of that could be purely psychological but I don't think all of it is. I tend to suspect that people who claim the iPad is a replacement for the Kindle and other E-Ink readers haven't actually spent much time with the competition.

I wasn't willing to commit $500 to the first generation iPad. There just wasn't enough functionality there for me. Apple made enough improvements to the iPad 2 that it was an easy choice. Doubling the memory, doubling the CPU and significantly improving the graphics performance while achieving the same price point was a job well done.

I wasn't able to completely finish this entry on the iPad since some of the BLOGGER tools I use don't quite work perfectly with the iPad Safari. This isn't a huge deal and I'd grit my teeth and post if I didn't have the option of doing some polishing on my Laptop.

So, in brief summary it's a very nice product and we certainly have no regrets about the purchase. It provides more than enough utility/value to justify the expenditure.

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Sunday, May 8, 2011

Apple, Cannibalization

In my previous entry I speculated that the recent rumors that Apple was going to switch at least their laptops to ARM processors might be rooted in leaks of a new product offering that would exist between the iPad and the MacBook Air. To be clear, this speculation is based on no outside information and the odds of it being true are very very small. Even so, I do like the idea of a slightly beefed up iPad with an easily detachable keyboard for around $700 base price. I'd wouldn't be surprised if Apples clever design and engineering teams could create such a device in a form factor only slightly bigger than the iPad 1.

You'd need a touch pad on the keyboard, but that shouldn't be a problem. Maintaining the same size as the iPad wold lead to a somewhat cramped keyboard but for casual to intermediate complexity tasks I think it would work well enough.

Of course you can already attach an external Bluetooth keyboard to an iPad. Carrying around even a small keyboard is cumbersome though and not as convenient as an integrated solution would be.

So, imagine what would be possible if you had an iPad with keyboard/touchpad combo. You might have to remotely connect to a more full featured computer to do some of your more esoteric work but for a majority of day to day tasks you would have a very capable platform. The biggest limitation would be the size of the screen and even that could be addressed by versions with larger screens. Lets call such a device an "iKey"

Assume for a minute that an iKey would be as cool and successful as my initial geeky instincts tell me. Is there some reason why Apple wouldn't produce something like this? In short, yes.

A very important consideration in product development is cannibalization. The basic idea is that new products may impact the sales of existing products if their is substantial overlap in their capabilities. This is particularly true if the new product offers a price advantage over the existing product or products. Cannibalizing your competitors sales might or might not be good. If you're entering a new market segment and can build a product that is likely to maintain your desired margins then cannibalizing sales from existing players is a very good thing. This is not generally true if you're contemplating a product for a market that you already have a presence in that is likely to steal sales from your existing offerings. There are circumstances under which this is done, but based on my understanding it's rare. At one time Starbucks was opening so many new outlets that they were starting to steal sales from themselves. This was deemed OK since the thought was that it was better for them to steal sales from themselves than to have others do so. Keep in mind that Starbucks eventually closed a lot of under performing locations.

So, the potential strength of an iKey like device is also it's weakness. If it could provide a significant percentage of the user experience that the MacBook Air provides at a lower cost then Apple would be unlikely to bring such a product to market unless they could sell enough additional units to make up for revenues lost on sales reductions of the Air and other Apple products. This may seem counter intuitive if you're a tech savvy consumer hungry for neat gadgets but it makes good business sense.

Ideally new products need to either slot in nicely between existing products or replace aging offerings. The base MacBook Air retails for $999 with 64GB of storage and 11 inch screen. An iKey would either need to fit between the iPad and the MacBook Air or replace one of the two. While it's possible that Apple could incorporate a keyboard into the iPad line it seems more likely to me that they'd either wedge in such a product between the iPad & MacBook Air or replace the Air.

As I said above, this is all just speculation and tech geek wishful thinking on my part. It is fun to try to figure out where  technology is going to take us in the future and speculate on what companies like Apple might be doing in regards to future product offerings. It helps to have an MBA when doing this but it doesn't make me omniscient.

Image by rafm0913 via Flickr
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Saturday, May 7, 2011

Apple/ARM/Laptops (Short Take)

MacBook Air
In my entry yesterday I talked about the recent rumors that Apple is switching to ARM in their non mobile devices. In general I was dismissive, at least in the short term. The latest reports seem to focus in on laptops. Laptops are an interesting case but only if we're careful in our definition. Laptop can currently be applied to anything from a netbook weighing under a pound all the way up to a desktop replacement that weigh ten pounds or more. Performance characteristics vary almost as much.

Apple's laptop range isn't quite that broad but the difference between the MacBook Air and MacBook Pro line are substantial. Could Apple be considering a move to ARM for the Air? In short, I very much doubt it. Doing so would make the Air a slightly larger iPad with a keyboard and that falls far short of what you get with the current Air.

Of course a slightly larger iPad with a keyboard wouldn't necessarily be a bad idea. I'd think very seriously about buying one, particularly if the keyboard were detachable. The nice thing about such a device is it would be light, ultra portable and capable of doing 90% of the work I want/need to do. I'd still want a full featured laptop for the other 10% though.

Perhaps Apple is considering creating a new product line that sits between the iPad and the MacBook Air? Something along those lines might explain the origin of these rumors. Assuming they aren't completely made up.

Image via Wikipedia
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Friday, May 6, 2011

Apple To Convert To ARM Processors For Non Mobile Devices?

Intel Corporation
Earlier this week there were reports that Intel was working hard to get Apple to use some of Intel's fabrication capacity. Now I'm reading that Apple is going to switch all their devices, including laptops, desktops and servers over to ARM based processors ASAP. Could these two stories/rumors be related and is either credible?

Apple made the transition from PowerPC to Intel based processors in their Mac line in January of 2006. This move was hard on many of the Apple faithful who had been extolling the superiority of the PowerPC based Macs for years. While the PowerPC is a much more elegant design it was also rapidly falling behind Intel's X86 based architecture in many areas. Apple has seen substantial sales growth since this transition for several reasons, not the least of which was that porting code from Windows based PC's to Apple MacOS based computers running Intel processors was much easier. Keep that in mind when evaluating the chances that Apple will switch to ARM.  ARM is a great architecture in the mobile space, it is not ready for prime time in the desktop and server market at this time.

It is true that Microsoft has announced support for ARM in Windows 8, but so far as I can tell they haven't uttered a single word that would indicate they are going to drop support for X86 based processors. Given this my initial reaction to the rumor was to guffaw. Then I did a bit of research and decided a bemused grin might be more appropriate response.

The primary reason I didn't initially put any credence in this rumor is that I thought ARM was missing two pieces of functionality that are vital in non mobile computing platforms.
  1. Support for Virtualization
  2. 64 bit instructions set
It turns out that item one is in fact a part of the ARM Cortex A-15 architecture announced last September and that item number two is currently being worked on by NVidia as part of their project Denver

So far as I can tell nobody has announced an implementation of ARM that supports both virtualization and a 64 bit architecture but it seems credible that such a processor could be available in the next few years.

Why are these features important? Processors that provide virtualization functionality can be efficiently time sliced into multiple virtual processors. This capability provides two main advantages. In the server space processors historically ran at 10% or less average utilization. Time slicing the processors in a server allows companies to fully utilize the hardware they've invested in because they can run as many virtual servers as they need to in order to push the utilization of their available resource as close to 100% as they want. Virtualization can also be used to create a "sandbox" that can run codes more securely by isolating them in their own virtual machine. 

In the case of 64 bit processors you gain two things. The ability to process data twice as fast and the ability to utilize much larger amounts of addressable main memory which is especially important to servers and high end workstations.

So what about the rumors that Intel wants to put some of their foundry capacity to work for Apple? That makes a lot of sense. I'm not an engineer and the kinds of technologies used to fabricate processors and other silicon based products fall well outside of my day job but two things are clear. One, Apple is selling a lot of hardware and Intel would no doubt love to get a bit more of the revenues that are being generated by those sales. The second important consideration is that Intel arguably has the best semiconductor process technology in the world. Their recent announcement of a viable commercial process to create 3D transistors is going to allow for significant reductions in power consumption and increases in speed. Industry analysts believe Intel is two years or more ahead of their competition. So, if you're Apple why wouldn't you be interested in working with Intel if the price is right? Ironically this may mean Intel ends up producing ARM architecture processors. 

This wouldn't be Intel's first foray into manufacturing silicon for others. In late 2010 they announced a partnership with startup Achronix to manufacture Field Programmable Gate Arrays using Intel's 22nm process.   

So in summary, while Apple is not going to switch to ARM in the next two years they might just be able to make that leap some day in the not too distant future and when they do it is possible that Intel will be making those processors. Sound a little far fetched? Perhaps, but if ARM continues to evolve and move up market Intel's going to have a lot of excess capacity and shrinking revenues. Smart companies adapt in those kinds of scenarios.

Image via Wikipedia
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Wednesday, May 4, 2011

RIM/Microsoft (Short Take)

a chart to describe the search engine market
Blackberry maker Research In Motion continues to make moves designed to reverse their recent setbacks and move the company in a positive direction; the most recent being an announcement that they'll be switching from Google to Microsoft's Bing as the default search engine on their phones and devices.

Based on my reading it seems clear that Microsoft is paying a hefty sum of money for this change. Clearly Microsoft is working hard to build a presence in the mobile space. Their partnership with Nokia was apparently just the opening salvo of a new offensive. With the Nokia deal they get the potential for substantial exposure and market penetration of their windows phone 7 operating system. Their RIM deal doesn't go that far but it does give them first dibs on a substantial additional chunk of the mobile search space going forward.

This deal seems to make good business sense from RIM's perspective. They get cash which is never a bad thing and likely other benefits as well.

Microsoft now has the potential to make substantial inroads into Google's search engine dominance. Given the probable continued growth in this space I don't believe Google will see much of an impact revenue wise in the short to midterm. That could change a couple of years out if things work out the way that Microsoft is no doubt hoping.

On a side note, it always kind of amuses me when industry pundits try to pick a winner in these scenarios. Both companies win assuming both sides are competent and I see no reason to assume otherwise in this case. The point of a partnership isn't to cheat your partner, it's to gain an advantage in the marketplace that will be mutually beneficial. The loser in this deal is very likely going to be Google.

Image via Wikipedia
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Tuesday, May 3, 2011

RIM To Support iPhone, Android Platforms (Short Take)

Image representing Research In Motion as depic...
In my previous entry I talked primarily about Research In Motion and their eroding market share. I concluded that their smart phone platform was no longer an asset and that it might be wise for them focus on their current competitive advantages which from my perspective are security and infrastructure. Infrastructure in this case means their Blackberry Enterprise Server software which amongst other things provides a gateway between Microsoft's Exchange platform and Blackberry phones.

BES is a significant differentiator for RIM in the area of smartphones and tablets. Yesterday RIM announced that they are in the process of acquiring ubitexx, a company that owns technology that RIM will be able to use to rapidly add the capability to provide much of the functionality of BES to Android and iOS based devices.

RIM said the single web-based console is being designed to provide IT administrators with the ability to distribute software and manage policies, inventory, security and services for BlackBerry devices, as well as other mobile devices. IT administrators will be able to manage devices over-the-air, including activating devices, distributing software and applications, locking or wiping devices, enforcing and resetting device passwords, setting IT policies, and managing optional mobile applications for end users.

The snipped quoted above is from this article.

This is a smart move on RIM’s part. Many companies when faced with a similar scenario would have chosen to continue to support only their own products. From a business perspective this doesn’t always make sense, but internal loyalties and self-interest often run deep. While it is true that RIM is arguably undermining a competitive strength of their smartphone line by adding support for Android & iOS to BES they are also building on a strong product offering and providing themselves with an avenue for future revenue growth. They are essentially hedging their bets in case they continue to have difficulty competing in the smartphone market place.

Image via CrunchBase
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