Fee's Are Feeble (Short Take)

Fee's are not new but they seem to be increasingly common in situations where they weren't previously.

I recently took some trash to the local dump and got sticker shock. I hadn't been in awhile and apparently prices have gone up... a lot. On my bill were three seperate lines. First was the per cubic foot charge. Then there was a "Fuel recovery fee" and finally some other fee that I've forgotten the name of. The fees were a minority of the bill but they still added a significant chunk to the total. I was not amused, particularly by the fuel recovery fee. I hauled the garbage to the dump on my own dime and unloaded it as well. Why did they need a fuel recovery fee?

Hotels have started doing the same thing; "Resort Fees" is generally what the extra charge is called. Apparently you're only renting the room and not the right of way to actually get to it when you pay the room rate at those places.

Many airlines are doing this as well with baggage fees which leads to all sorts of fun if you aren't one of the first people to get on the plane since the carry on bins are even more stuffed full these days than they've been in the past.

The point of these fees  is to obscure the actual cost of the product. The problem is that people aren't stupid. After my experience at the dump I started looking for legal ways to avoid those extra fees in the future. I now look for those resort fees any time I'm thinking of staying at a hotel as well and figure them into my decision both in terms of determining the cost and deciding where to stay. All things being equal I'd probably pay a small amount extra to stay at a hotel that didn't have a resort fee. In short, businesses that do this aren't fooling anyone for long and they are annoying customers with their antics.

Pricing theory tells us that the customer experience is based off of perceived value. It is not a good thing if a fee pushes the price of something beyond where a particular customer is happy with the product. They will almost certainly pay up the first time but they are going to quickly adjust down their preferred price to account for those fees in the future.

Fees like the ones I've described above fall into a category of things that I refer to as "Stupid MBA tricks". They sound good on the surface but the end result is a net negative for the customer which is in turn a negative for the business.

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• Watch out for new hidden hotel fee

Death To The Advertising Driven Internet (App.Net)

OK, so maybe the title of this post is a bit extreme. In the abstract I don't have any problem with advertising. It's been a perfectly legitimate way for companies to get their story out and has provided a means for media outlets to pay the majority of their bills and make a profit for hundreds of years. Having said that, I'm not very happy with the advertising driven Internet. Primarily because of the impact it has had on privacy.

Demographic data has been available to advertisers for a long time now. Knowing the socio economic background of the readers of a particular type of media provided advertisers with the ability to target their advertising campaigns in a way that was likely to maximize the return on the dollars they were investing. The problem comes in when that infomation goes from being based on groups of people and starts being available down to the level of individuals. The Internet makes gathering and inferring that kind of data much easier than it has ever been before.

Google has made a fortune providing advertisers with the opportunity to target ads towards very specific types of customers. Sometimes I find that useful but there are also times I find it creepy which is why I've been hoping some sort of alternative to the advertising driven Internet would emerge. I like having options.

All businesses have customers and most people would probably assume that people who use Google's search and other services are their customers. This is not the case. Google's customers are the people who provide the revenue that allows them to maintain and grow their business; in other words, advertisers. Companies that want to stay in business need to keep their customers happy. Generally this isn't a problem. Where the issue comes in here is that there is a financial incentive for Google to make their advertisers happy and making advertisers happy can lead to a place where most of us feel our privacy has been violated.

Google is not unique and I don't mean to pick on them. I could say the same things about Facebook, Yahoo, Twitter and many others.

Given all that I was excited to see there is a new social networking site that is in the early testing phase that is being built on a totally different business model, one in which developers and users are the customer rather than advertisers. Listed among their core values is the following...

We are selling our product, NOT our users.

We will never sell your personal data, content, feed, interests, clicks, or anything else to advertisers. We promise.

There are several more statements along the same line that point out the value of having the customers be the end users and developers who create extensions to their core platform rather than advertisers. More can be found at https://join.app.net/

It's hard not to see Twitter as the first potential victim of this effort given the look and feel of the current early alpha interface along with the changes Twitter has been making and the developer discontent those changes have caused.

App.Net seems to be doing well in the early going and has raised over eight hundred thousand dollars in a very short period of time. they are also getting some press which is always a good sign. Ultimately though the question is will enough people be willing to pay for such a service in large enough numbers to make their business model viable? I certainly hope so but time will tell.

(Photo credit: Will Lion)

Related Articles:

• Think App.net is just a Twitter clone? Then you're missing the point
• Would you pay for an ad-free social platform?

Microsoft/Google/Apple, Which One Of These Doesn't Belong Part 2

OK, so where was I going with all that stuff in part one? The answer to the question posited in the title of this and my previous entry is obviously Apple. Unlike Microsoft and Google Apple provides end to end experiences that terminate in consumer electronics devices but those devices are only the top of a pyramid of value creation that they own or exert significant influence over. That ownership and control means they extract a lot more profit than their competitors.

Apple

Apples approach isn't without risk as companies that have taken this route sometimes find themselves fragmented as keeping everybody in step is very challenging. This is where Job's crystal clear vision and iron will served Apple well but operational excellence isn't Apple's only secret.

Why did the original iPod do so well? MP3 players were nothing new. They had been around for several years and while they had done OK they had never taken off the way they did when Apple entered the market. Apple's success was the result of understanding what the biggest pain point was for consumers and addressing it. What was that pain point? Acquiring media. Apples answer was the iTunes store. Yes, pirated copies of music were widely available at the time but the quality was variable and you needed to be somewhat tech savvy to acquire and manage that music. It didn't hurt Apples cause that the RIAA was busy locating and prosecuting people who partook of this illicit activity.

While Apple was solving a customer pain they were also a brand new business model where they made

money on the hardware AND "software" in the form of media sales. Sure, some people didn't partake of the iTunes store but most did and the revenue generated by those later media sales looks very nice on Apple's bottom line.

The primary reason I was interested in Google and Microsoft announcing their own tablets is that it appeaed to be a move by these companies towards emulating what Apple has been doing so successfully over the past decade or so.

Microsoft

The problem with Ballmer's recent claim that Microsoft is going to compete with Apple in all markets is that they can only do that credibly by taking one of two approaches given their current lack of success.

   o They can create a new business model that creates superior cash flow OR
   o They can emulate what Apple is already doing

Neither scenario is likely to work for a number of reasons but choice number two is much more likely to bring success since there is already a very successful example to follow. Given Microsoft's first ever quarterly loss it seems obvious they are not heading in a good direction. Radical change is probably their best bet and they seemed to be moving in that direction with the announcement of the Surface tablet. Recent back peddling by Ballmer does not bode well though.

Google

Google is doing great compared to Microsoft and has a much better prognosis. There is reason to worry however for several reasons. Arguably the biggest one is the fact that the Apple/Google divorce has continued to progress with Google Maps soon to be removed as the default map app on iOS devices and no sign of a decline in the ongoing patent litigation between the two companies.

So if Microsoft continues to fade and Apple continues its ascension platform wise Google could be in trouble a few years down the road. This likely explains Google's introduction of ChromeOS and Android. Ad revenues are driven by search and if Google search isn't available the ad revenues are going to dry up quickly. Microsoft has been trying to dethrone the Google search juggernaut for years now with little success but Apple has a significant advantage since they control the entire value chain in the case of Apple products.

The introduction of the Nexus 7 is likely just another step towards Google following suit. As I said in the Microsoft section there are two ways to compete with Apple. You could argue that Google has in fact created a new business model with their search business but that business model is increasingly dependent on the good will of Apple. Carving out some space for themselves has to look awfully tempting and the Nexus 7 is likely an experiment in ascertaining how feasible that is. Google's earlier introduction of a phone was a disaster but they appear to have learned from that mistake and chose a better product for their distribution model this time.

Conclusion

Apple is a very scary company right now if you are anywhere near a stack of money that they want to claim as their own. The landscape of history is littered with highly successful tech companies that went from giants to liquidation or acquisition bait over very short periods of time. Microsoft is starting to look like Nokia circa 2008 right now and while Google is likely better off they may only be a couple of years behind Microsoft if they don't figure out how to deal with Apple soon. Imitation may not be a bad choice for either company and its certainly worth a try.

Hopefully some of the stuff in this and my previous entry make sense. Things have been insanely busy the past several weeks and I don't see that changing for awhile so I'm kind of shoving this stuff out there a bit half baked. It isn't helping that Google's blogger software is mangling the expletive out of my formatting either. I've had to save and edit this thing twenty times as I write this trying to get the formatting to come out the way I want it.

English: iPod classic front view (Photo credit: Wikipedia)

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Microsoft/Google/Apple, Which One Of These Doesn't Belong?

The recent announcements of the Google Nexus 7 tablet and the Microsoft Surface tablet may signal a more significant and broad change in the world of consumer electronics than most people seem to realize though Balmer's statement that the Surface is essentially just a reference design argues against that theory. Frankly I think Ballmer is either under playing Microsoft's plans the Surface to appease their partners or he's decided to flip flop because of pressure from both inside and outside the company. The second scenario would be particularly unfortunate. I'm going to mostly pretend Ballmer didn't essentially reduce the Surface to irrelevancy for the rest of this post.

It's clear that Apple is the king of the heap these days when it comes to the consumer space. They make tons of money and people line up days in advance of their new products going on sale. When is the last time that happened for a Microsoft product? OK, the Kinect did fairly well but as a general rule people don't get very excited when a Microsoft product is released. The same can be said for Google.

Apple is fundamentally different from both Google and Microsoft in that they are heavily involved with every aspect of their products. In business terms this means they have an opportunity to create, and capture value along almost the entire value chain. That is a very powerful position to be in if you handle it well and Apple clearly does. This ability to create and capture value across the value chain is why Apple is so insanely successful.

The Peril of Not Being Apple

All of which is wonderful for Apple but not so good for the companies that are trying to compete with them. Google is in a better position than Microsoft because the majority of Google's revenues are from advertising revenues generated primarily by their very successful search engine. Google knows however that this revenue stream can be choked off up stream of them which is why they created Android and continue to try new things to keep peoples eyeballs focused in their direction. Apple's ability to control so much of a users experience puts them in an excellent position to influence where people's attention is focused. The recent announcement that iOS 6 will jettison Google's map software in favor of an Apple created alternative is a case in point.

Microsoft is in an even worse situation. Sure, they are probably selling a few more copies of their office suite on the Mac these days but those sales are being cannibalized from the Windows PC side of things where sales are dropping so there is essentially no upside there either.

Apple gains other advantages from their current approach to hardware and software. Microsoft has to support an near infinite number of hardware platforms with each new Windows release. There is no way they can test every possible combination which is why performance and stability under Windows has always tended to lag behind Apple who only have to test on a very small number of platforms that they have all the inside information on. This contributes to the quality of the overall experience when using Apple products and also lowers Apple's R&D costs which tend to be much lower than anyone else in the technology industry.

How Do You Compete With Apple?

I'll be honest. I don't really know the answer to this question and so far it's not clear anyone else does either but you didn't read this far in the hopes of seeing me cop out so here goes...

If you're Google you're worried about Apple and if you're Microsoft you are probably more than a little terrified though you would never admit that in public, at least not in so many words but some of Ballmer's recent actions certainly seem to be telegraphing fairly clearly that he's not feeling all that confident.

One possible approach to dealing with Apple is to look for niches that they have chosen not to compete in. Many Android device makers have managed to make a modest chunk of change by following this approach. Apple offers one screen size for phones and one screen size for tablets. Most people seem happy with these choices but as the old saying goes, you can't please all of the people all of the time.

The problem with that approach is that Apple can watch and wait for lucrative market segments to emerge before introducing their own product. This means that their competition is essentially doing their market research and establishing a beach head all at no cost or risk to Apple and they've shown themselves to be particularly competent at entering markets others have already spent years in and taking over in short order. MP3 players being one example.

I still think this is a reasonable strategy as Apple isn't particularly quick to move. They like to be methodical and thorough and while they generally deliver great products when they finally enter a market there is still time to make money and maybe, just maybe establish a beachhead that they can't overcome.

This post is getting a bit long and I haven't even gotten to my main point. I'm going to leave off here though and save that for the future.

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What I Mean When I Say "The Cloud"

The technology industry loves to create new words and combine old ones in new ways. One recent example of this is "The cloud". You pretty much can't go wrong if you use it in any sentence that is technology related these days but what does it mean?

I'm going to briefly explain what it means to me. With a bit of luck I'll manage to do this in a way that actually makes sense to those of you who don't live inside my head.

The cloud to me is a way of providing instant access to my data along with on the fly backup. This BLOG is an example. I can edit a post from anywhere, stop in the middle of a sentence and pickup my editing right where I left off regardless of what device I'm using and possibly weeks or months later. I don't have to remember to copy stuff to a thumb drive, email a copy to myself or do anything else. I know that there is one golden copy and it lives on Google's huge server farm some place. Ignorance is bliss so far as the details are concerned. I deal with IT related issues every day at my day job, I don't want to at home.

I think that is a fairly typical "man on the street" attitude when it comes to "the cloud". What most of us care about is how technology makes our lives easier and/or more productive.

Where things get messy is when we're out of touch with "the cloud". Google messed the initial version of the Chrome book up by not taking that scenario into account. Yes, I love having all my data available at any time but as wonderful as that world is, Internet connectivity isn't pervasive yet and it may never be. There are simply too many places where linking to the "connected world" may never be cost effective.

My key point is I like having access to my data and having the experience of managing and editing it be as seamless as possible. Any solution that doesn't include some form of offline functionality is going to fall short of the mark. Distributed data models such as the one built into Dropbox have downsides but on balance I like them because they cache my data and make it available locally even if some complexity is introduced by this caching of data.

So really, its less about the cloud and more about having ready access to my data. How that access is managed doesn't matter to me so long as the system handles situations where I'm not connected to the Internet in a way that allows me to see and manipulate my data. The same goes for the processing side of the cloud equation. I don't find the concept of computing devices that are essentially display only very exciting. They work great in certain situations but are not always a good fit.

 (Photo credit: Wikipedia)

Some Random Thoughts On Microsoft's Surface

Microsoft getting into the tablet business has been big news recently. It's interesting for a lot of different reasons, most of which have been discussed about a half million times already in the tech press but that never stops me from spewing out a few hundred words on a topic when I have a mind to so here we go.

Microsoft has many problems staring them in the face right now. They can't seem to win or even make much ground in the search war, have become an also ran when it comes to browsers and are losing ground on the OS front while essentially being a no show in the mobile space as Nokia, their chosen partner in that dance is progressing rapidly towards insolvency.

Meanwhile Apple has transformed itself from an also ran to a "We're going to run you down" tech giant over the past decade or so and Google has managed to carve out a pretty effective niche while also making Apple sweat a little bit (albeit mostly on the low margin end of the market where Apple doesn't care much) in the phone and tablet space.

So why Surface, and why now? I don't buy Acer founder Stan Shih's theory that it's just a ploy to sell Windows 8. That sounds like wishful thinking to me. Microsoft has helped generate a lot of money for companies like Acer and the thought of having to compete with them on the hardware front can't be comfortable. Particularly if Microsoft has some success here which I think they are capable of. The Surface looks like a well thought out product and Windows 8 has gotten a lot of good buzz. Also keep in mind that it's not as if Microsoft are complete strangers to the hardware business. XBox 360 ring any bells? Add in keyboards, mice and the Kinect and it's clear they aren't moving that far out of their comfort zone here.

Apple makes boatloads of money because they make revenue on everything. Hardware, software and media. Microsoft makes licensing fees when a copy of their OS is sold but they make zilch off the hardware itself. Also keep in mind that Apple is eating into those Windows licensing revenues by cannibalizing the low end of the laptop market with their iPad and eating away at the high end with their MacBook line. Desktop computers are rapidly becoming a niche market so the fact that Apple doesn't seem to care much about that segment can't be very comforting to Microsoft.

So, what is an aging software giant to do? The old saying "If you can't beat 'em, join 'em" comes to mind. Microsoft can't turn itself into Apple but they can start creating experiences that are more integrated. Inserting themselves in more places along the value chain also increases their opportunity for revenues and profits and that is always attractive.

How will it all end? I think there is a fifty/fifty chance that Microsoft pulls off a successful launch of the Surface. They have a lot of very smart people working there and the buzz is good but they need to avoid missteps like not allowing tech journalists to actually examine the surface after the press conference that announced it.

I try to be agnostic when it comes to platforms but I do like competition. I don't want one company dominating. Google has done an OK job of keeping Apple honest but having Microsoft continue as a viable alternative is going to be very important going forward so we can continue to have more than one choice when it comes time to buy our tech toys.

English: M in blue square (similar to seen on ) (Photo credit: Wikipedia)

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Sub Optimal Rumors Annoy Me

There was a rumor recently that Apple would be selling a seven inch iPad this fall for "as little as $200". This is the kind of rumor that annoys me for reasons I'll explain shortly. The rumor also said that this device would have eight gig of storage. In other words it would essentially be a Kindle Fire clone.

The primary reason this rumor and ones like it annoy me is that they make no sense. Apple is not in business to compete with Amazon toe to toe. They have a very different business model and if they were going to create and release a smaller form factor tablet I can guarantee you two things. It would not cost $200 or even $250 and it wouldn't come with only eight gig of storage.

It took awhile for companies that wanted to compete with Apple in the tablet space to figure out that Apple had set the price point for tablets. Companies such as Blackberry and HP came into the market late with products that offered less than Apple at higher prices. If you're going to go head to head with Apple you have to offer more for less or you might as well create a mountain of hundred dollar bills and burn it because the end result will be the same either way.

The flip side of this is that Apple gets to sell their products at a premium. That might not seem fair but it is reality. So, given that why would Apple sell a product comparable to the Kindle Fire for the same prices as Amazon? Obviously they would not. The base iPod touch goes for $200. Off the top of my head I'm going to say that Apple could sell a device similar to the Fire for $300 and nobody would blink. Apple has huge margins relative to the rest of the industry because they understand the value of their products and charge accordingly. Also keep in mind that investors know this and focus on those margins. Apple is going to do everything they reasonably can to keep their balance sheet numbers looking good. Getting into a price war with Amazon would be very counter productive to that goal.

Which brings me to my second point. Apple is primarily a hardware company but they are making a lot of money on applications and media as well. If you look at the iPod touch you'll see that while they do offer an eight gigabyte entry level model their next cheapest option has thirty two gig. I'm betting that the next version of the Touch will have a base model with at least sixteen gig of storage. The reasoning behind this is as follows. In a world of rich media storage space gets eaten up quickly. This is particularly true given the big bump in resolution we've seen on recent Apple products which exceeds 1080P in the case of the third generation iPad's. All those pixels eat up local storage quickly and the always connected world is still years away if it ever comes at all.

You could argue that the cloud paradigm makes local storage a moot point of course but in the US anyway you'd be wrong. Data caps are very modest and prices are high so even devices with cellular connections are going to be constrained when it comes to downloading video and large song archives. The more local storage a device has the easier it will be to manage all that content which improves the odds that the device will be used and additional content will be purchased. I've pretty much stopped buying apps, music and video for my Kindle Fire because I'm tired of constantly seeing the "Low Storage" warning.

There is a chance that Apple would have a eight gig entry level modal if they did a small form factor tablet but I tend to think they'll start with sixteen. Amazon needs to at least double the amount of storage on the next version of the Fire if they want to have any chance of getting my business and the same would go for Apple. I will not buy another tablet with eight gig of storage no matter what the price.

Some of you might be thinking "But they sell the Apple TV for only $99". True, but keep in mind that Roku's equivalent product goes for about $15 less and who do you think makes more money off of media sales? 

If you're going to make up a rumor its best to understand the business model of the company that the rumor is associated with if you want to be credible. It also helps to understand the product category, know who the big players are and be able to describe the business model of those other players as well. You may not be right about your guess/rumor but at least you'll come up with something that passes the ha ha test.

Of course I could be dead wrong on all of the above if Apple has decided to change their business model. I don't think that is the case however.

Business Model Triangle (Photo credit: Alex Osterwalder)

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