Reading the Google Tea Leaves

Google’s numbers for the quarter were very good, beating estimates and highlighting its mobile ad performance, but the company was short on details of how the earnings were derived.  My personal view is that Google is doing well with search and still working things out elsewhere.  Sure mobile is doing well, but it’s likely that the primary driver is mobile search.  Display, the good old secondary, is also likely expanding.  YouTube, Android?  Not much contribution in my view.

There’s a Street rumor circulating that Google may have an interest in CDN giant/pioneer Akamai.  I’m not sure how I feel about that one, presuming that it’s true (Google says it is not).  I can see some symbiosis there because Google already deploys server/cache technology inside some carrier networks to make YouTube work better, but the CDN business per se is definitely sinking and operators are likely to sink it faster as they deploy their own planned content monetization strategies, all of which include CDNs.  It’s not that CDNs are bad (which is why I used the “per se” qualifier just now) but that traditional content-provider driven, Internet-transit-avoiding, CDNs are bad in most developed markets.  There are other far more important missions for CDNs, and that’s why I believe that the term “CDN” here may be getting loaded with too much legacy baggage.  What we’re really talking about these days is “CMNs”; Content Monetization Networks.  They’re CDNs with about seven functional elements added to address TV Everywhere, QoE management, stream-switching, personalization, and the like.

Speaking of content, AT&T and Verizon have beaten the cable companies in customer satisfaction according to the latest JD Powers survey.  Some consumers who look at this may wonder what universe JD is in; I get plenty of complaints about both these players.  I think the reality here is that the telcos are first of all more tolerant of low ROI and thus have invested a bit more in both the experience and customer care, and second that the cable companies have had such a historically terrible reputation for field service that people are complaining more about the  legacy than the current reality.

Another factor that may be settling in here is that back-office OSS/BSS stuff is much more mature at the carrier level than at the cableco level, and without long-standing operations practices you tend to lose both quality of response and consistency.  Ironically, the cable guys should have been able to do this better, having a fresh start and a modern perspective.  Apparently, not yet.

Telefonica isn’t resting on legacy for sure.  At a recent conference the company talked about the very kind of network-data-mining initiatives that I’ve been talking about in my “the Network Knows” presentation.  I’m seeing more vendor attention to the notion that knowledge in the network can become the framework for value-added services, especially in the mobile area, but at least some operators are tired of waiting for vendors to do something and ready to strike out on their own.  With Telefonica Digital, it’s clear that there’s a sense of urgency in addressing new services, because the OTT wars are almost certain to move the ball quickly.



Industry Potpourri

Comcast’s ambitions attempt to create a network-view model at the earliest possible point in movie distribution, the same time a film is in theaters, has apparently been pulled back under a protest from studios.  The thought was to set the price high enough that people would have easily been able to get a better deal in the theater, but I’m told that the movie industry was very concerned that the erosion in theater viewing could hurt the box-office numbers so critical to public perception of the success of a new film.

All of this demonstrates the classical “channel conflict” problem with streaming video.  We tend to think that this is all about online, but of course it’s all about money, and nobody is going to upset their content monetization applecart, particularly the studios or networks who produce the stuff.  You have to be very mindful of any money-flow changes with a new model, and until you can demonstrate that the new does better than the old (the industry says by 10% or more) nobody will take the plunge.

Verizon has announced its home control and monitoring service is now available over its FiOS and DSL footprint.  The service is based on the home-control Z-Wave technology, and it pretty much covers the space with the current apparent exception of security monitoring.  The issue there may be simply that Verizon doesn’t have the kit technology to support that as yet, or it may be a matter of installation, since it appears that Verizon at least hopes that users will be able to plug in the modules and connect things on their own.

Home control is a service application that a lot of operators have been talking about, and in essence it’s an extension of the remote light-switch stuff that’s used today in a lot of homes.  With Verizon’s tools, you can do all that you’d normally do with the in-home systems plus you can access the control center remotely to change status and settings.  The cost of this is about ten bucks a month but the hardware modules could run a two or three hundred dollars in addition if you go wild.  The monthly charge is about as much revenue as Verizon can earn from a wireline phone, and it’s a clear revenue-mining adventure for Verizon.

Microsoft is adding to its cloud position, promising an Azure-compatible distribution of the open-source data-distributed cloud architecture Hadoop.  This package, one I’ve blogged about before, is based on the notion that large data repositories of unstructured information are divided up among elements in a cloud, and when something has to be found the request is parceled out to where the data is or might be for operation.  Hadoop isn’t the answer to every enterprise’s prayer because it’s really mostly about unstructured data not about the normal enterprise repositories, but it’s a powerful way to process semi-textual stuff like documents or emails.  Oracle had a Hadoop tale to tell at OpenWorld, and it looks like this package will take off.

Cisco announced some virtual-desktop stuff, including a partnering with Citrix.  The most interesting thing was a virtual appliance designed to offload videoconference and potentially streaming applications from the normal central-hosted process.  In the new model the connection is signaled or coordinated via the host-system side of the VDE but the video session goes right to the virtual desktop appliance.  This is a demonstration that there are features on the client side that could promote a data-center-cloud vision of client/server partnership; HP should take note!

Neustar is planning to buy Targus, a company that’s specialized in location/ID services for VoIP and non-traditional voice technologies.  The move, I think, illustrates the value of any kind of location or identification information to services, and the value of building services from network-generated or network-related information.  Targus has been expanding what it can do gradually, and Neustar may have its own plans.

In a blog, Neustar management cite the obvious symbiosis; Targus provides a caller-ID service primarily and decodes that to customer name while Neustar has LNP facilities.  They’re right about the symbiosis, but the question is where they might go from here.  We’re moving to not only a notion of number portability and caller ID to one where we have multiple VoIP services with multiple user names for the same person, and messaging and video to boot.  Can they plan to create a communications identity service that ties the threads of all of this into a pretty ribbon.


Clouds and On-Ramps

HP is now “officially” reviewing its decision regarding the shedding of its PC unit, and I’ve got to admit that I’m not convinced here.  As I’ve blogged before, the PC market is commoditized very thoroughly and there are few indicators that it’s in any way symbiotic with the server and data center software spaces.  IBM, the poster-child for success in the tech business, shed their PC business long ago.  Why does HP believe it can justify retaining it now?  Especially given that they’ve discredited the whole line to a degree with their earlier decision to spin it out?

The only way HP can recover from this is to articulate some brilliant strategy that creates a cloud ecosystem that includes the PC, and I wonder whether it’s capable of something that radical, or even whether such a positioning could be articulated at all from the PC side.  Apple, who has their own set of announcements in the cloud space, would have the pizzazz to make a cloud appliance move, but that’s because they have differentiable brand power behind their appliances.  Google could do the same.  HP?  Come on!

The Apple iOS 5 and iCloud launch today, and while frankly neither are particularly revolutionary, they are still credible steps toward what might turn out to be a revolution.  The iCloud mission seems now to be one of creating “unity” among the iOS devices, meaning to create a virtual iOS umbrella that covers everything Apple and essentially makes iOS a virtual OS residing in part in every appliance and also in the cloud.  What Apple has not yet done, but that I’m confident it will do, is to realize the potential of that model with services beyond collective iOS chatting.

We could call what’s likely to emerge from the Apple/Google/Microsoft dynamic “social communications” but it’s also arguably the first step toward network-supported behavior modification, something that’s going to unite identity, LBS, demography, buying/shopping behavior, advertising and promotion, and a bunch of other things.  Why?  Because it creates a kind of parallel universe in (dare I use the cliché) cyberspace where our alter egos have electronic tools and systemic knowledge they share with the real us through our appliances.  That’s the end-game for everybody.

The O2 subsidiary of Telefonica is getting into the game too, or at least getting into the IP-voice-for-free game, with its own Skype-like offering, called “O2 Connect”.  This is a WiFi-only service that appears to be working to capture O2 user free-call loyalty and prevent too much of a shift to an OTT voice offering.  T-Mobile, who launched a kind of cross-platform free-call service called “Bobsled” has expanded its offering to cover most of the PC and appliance space.  Of the two, despite the WiFi focus, I think O2 has the edge, not so much for features (what are free calling features anyway?) but because the O2 offering is an outgrowth of Telefonica Digital. That’s the new BU that’s been positioned to create cross-platform service-layer offerings.  Arguably this is the most advanced and aggressive position taken by a Euro telco, and I think it’s a pretty clear signal that things are going to heat up in the service layer, not only among the OTTs but even between the OTTs and the telcos.

One interesting slant to this is that O2 Connect is based on Jajah, a VoIP free-call service that Telefonica acquired.  This is yet another example of operators (in Europe in particular) going out and buying service-layer technology because vendors have dragged their feet in supporting the business models the operators need to have supported.  I noted a couple of months ago that I was starting to see active resentment of vendor attitudes crop up in large telcos, and there may be a real “vote with your feet” movement here, where operators decide to roll their own service layers.  We’ve had over 800 downloads on our ExperiaSphere Multi-Screen Video Application Note, for example; I doubt vendors have been responsible!  Operators need a service layer, and they’re going to get one, one way or the other.


Mobile Traffic, Broadband Infrastructure

A ComScore report shows that traditional PCs still account for over 93% of online traffic, with mobile phones at about 5% and tablets the rest.  Among the appliances, Apple’s iOS devices represent most of the web traffic.  I think this is an interesting data point when you consider the evolution of the Internet and Internet equipment.

First, it’s pretty clear that wireline is still where most bits are pushed, and I think equally clear that’s where most content is delivered.  People typically think “entertainment” when they’re at rest, and most often in their residence or a hotel room somewhere.  Mobile devices like iPads that are capable of being used in more places are still limited as entertainment portals because most of those “more places” aren’t considered suitable for entertainment by their users.  Yes, we’re going to see changes here, but it’s likely that for the next two or three years the traffic balances won’t be radically changed wireline versus wireless.

That leads to the second point.  Mobile broadband is a driver for equipment to the extent that it’s a supplement to metro/wireline.  That’s why companies with RAN positions and a good understanding of the mechanics of voice as it evolves from TDM to EPC/LTE have an almost insurmountable edge.  They have most of that incremental iron, and it’s hard for those who don’t to sell a story that’s differentiable.

Then to the third point.  Wireless is most “incremental” to those who don’t have any metro/wireline infrastructure at all.  Players like Sprint are forced to build a whole wireless aggregation network on raw capacity because they don’t have any facilities in place.  To get ubiquity, operators have to cover a bunch of territory where they don’t have facilities, no matter who they are.  That means a big capital burden for everyone, but likely a crippling one for those with no “home territory” to leverage for capacity.  That is likely why Sprint is said to be in cash trouble right now.

Which brings us to point four.  Mobile consolidation and rumored problems with Sprint’s financials are the result of low margins.  It’s easy to read a telco financial and think “Hey, these guys are raking in a ton of money” but forget that they faced astronomical first costs to get there and that they’re able to expense many of these only over a long period.  Their ROI is low, and that keeps others from wanting to be in the market.  It also limits the ability of even the big guys to invest.

The real value in mobile, then, isn’t bits any more than it was in wireline.  Both need a notion of higher-level services to supplement basic profits.  It’s like voice of old; you don’t make money on dialtone even though you need it to make money.  You make money on custom calling services, etc.  It’s those supplemental services that the OTT people are addressing more effectively.  It’s those services that the network operators, both wireline and wireless, have to play strongly in for them to sustain their profit and revenue growth, and thus their investment.  Apple’s iOS dominance in traffic and its recent iMessage service demonstrate that the mobile services space isn’t going to be based on bits, or on IMS, but on cooperative services between appliances and hosted logic.  Own those and you own the revenue growth of the industry.  And the best operators can hope for is one of the two—a draw.




Is There a Reason to “Occupy Wall Street”?

I’ve been watching the Occupy Wall Street protests like everyone else, and like many at least I’ve noted that they are long in interest and short in details.  There’s a tendency for the media to attribute this to superficiality; hey these people have no agenda they’re just troublemakers.  I think it’s more than that.  People are angry about Wall Street but they aren’t specific about their complaints because the process is just too complicated for the average person to understand.

While I make no claim to be an expert on the Street, I’ve been involved with it for over a decade and have even been for a time a partner in a hedge fund.  So while I don’t claim to speak for the movement, I think I may understand a bit of the substance in their claims of greed and fraud.  I propose to share them here, and if you’re offended by semi-political comment, read no further!

The first truth of the situation is that we ARE in a class war, and we’ve been that way since the industrial revolution.  It’s an inevitable fact about our economy, and pretty much everyone else’s too.  Manufacturing or production or whatever you call it transforms things that aren’t particularly valuable or useful (raw materials) into things that are both valuable and useful.  That means that they offer a significant opportunity for PROFIT.

The giants of American industry, like Carnegie, Rockefeller, and Ford recognized that by contributing capital to build plants and facilities, they could turn dirt (or ore, at least) into gold, and they did.  Of course, they needed to have labor to do this, and the more that labor cost as a component of the production transformation, the lower the profit was.  Thus, capital and labor are natural adversaries, and since labor is a majority of voters, the battle is hard for capital to win, at least directly.  That’s why we’ve seen “offshoring” of jobs; labor costs are lower.

The second truth of our situation is that the desire to grow wealth is insatiable; call that “greed” or just a manifestation of the classic American goal of creating a better life as you will.  The point is that growing wealth by building plants and creating production is a long and risky process, and so “capital” decided to look for another route.  The strategy it’s been trying for probably nearly 100 years is the “bubble”.

Bubbles are situations where the monetary value of something escalates faster than the objective value.  You can create them in a lot of ways, but what they all come down to is what could be called LEVERAGE.  You get leverage by using borrowed money to buy stocks, which gave us the 1929 crash.  You get it by over-hyping tech to drive up the price/earnings ratio of shares beyond any reasonable value, which gave us the 1999 NASDAQ bubble/bust.  You also get it by playing financial derivatives.

Which brings us to Truth Three.  Derivatives are financial instruments that disconnect the stuff you invest in from the assets they represent, so that in some cases there’s no real “asset” at all.  When you buy “futures” you buy the right to buy or sell a stock at a given price, not the stock itself.  You pay less for the futures than for the stock, but the value of the futures moves with the value of the stock, and so you get an accelerated gain or loss.  When you buy a credit default swap, you buy insurance on a bond, a debt.  In the 2008 economic crash, CDSs were almost certainly written in enormous quantities, perhaps many times on debt that the buyer didn’t even own.  We also bundled mortgage debt into packages whose content was largely invisible.  So we created a house of cards on financial instruments that didn’t represent anything, and so whose value was whatever the markets cared to determine.

Derivatives are not easily regulated.  People who “sell a stock short” are supposed to be borrowing shares, selling them in the expectation the stock will go down, then buying them back to “cover”, pocketing the profit if the shares do fall.  That at least keeps short sales connected to the real shares, but for years now people have sold “naked shorts” meaning they’ve not bothered to borrow the shares at all.  How’s that for leverage!  We don’t really know how much of this happens because there’s no easy way to track it, and with some derivatives there’s no public exchange or records of trading.

Now, for the fourth truth.  The stock markets are largely driven by firms who specialize in stock trading, not by “investors”.  These firms use high-performance network connections to exchanges to buy and sell huge blocks of shares, and to buy and sell derivatives based on bundles of stock (just like we had them based on bundles of junk mortgages!).  What moves the stock market is the TRADES, so when stocks go up and down that reflects not the sentiment of those who OWN the shares but those who TRADE them.  High-frequency trading and derivatives can create massive movement in shares, like the “flash crash” earlier this year and the sudden upswing of stocks more recently.  All the volatility you see in the market is exacerbated by derivative trading, and it scares hell out of the average investor.

And guess what?  The “average investor” is forbidden by law to participate in a lot of this.  Unless you’re an “expert investor” under US securities laws, you can’t trade in most of these instruments and you can’t invest your money in funds that do.  So you sit with your 401k and watch the value fluctuate because of trades designed to create massive leverage-based profits for a group you’re not allowed to join.  Even the funds you invest in may be battered by the derivative trades, so you’re not safe anywhere.  You may have a problem being truly or optimally profitable because you’re in a system you’re not really ever PART of.

The system might also have cost you your job.  We have lost jobs in the US because capital is leaving, or trying to leave, the historical bargain with labor.  In part, it’s jumping onto the bandwagon of derivative-based growth in wealth.  A virtual financial instrument that’s not tied to reality doesn’t create products, and thus doesn’t create production.  In part, it’s simply moving labor to places with lower cost.  We offshore jobs because it creates more profit.  Free trade helps countries who have something to trade; to the extent that we become a service economy we become necessarily a net importer because we aren’t producing stuff here.  We may have cheaper goods here, but we have cheaper jobs, fewer jobs.  They weren’t stolen by China, they were given away by companies to boost profits by lowering labor costs.  And we’re creating fewer new jobs because we’re not investing in production, but in derivatives and “social networking” and things that generate a big return for capital but produce little or nothing in production, and so produce no good high-value manufacturing jobs.  Why are VCs not investing in the “next Cisco” or the “next Apple” but instead in the “next Facebook”?  Because it’s higher profit at lower risk.

So there’s my take.  Capital, meaning finance, meaning Wall Street, is optimizing its own profit at the expense of our economy overall.  Why do Fed numbers show that “wealth” is growing so much faster than GDP?  How can the country be worth more than it’s producing in total?  It’s the “virtual economy”.  Why is the wealth of the top tier increasing and that of the four lower quintiles of income changing by essentially nothing in real spending power over the last twenty years?  Because they’re not part of the system that’s winning.

Occupy Wall Street has in my view a reason for anger, whether the individuals in the movement understand the reasons or not.  They have a reason to be unhappy with both parties, because both parties are complicit in the problem; money finances campaigns and wins elections.  But if they don’t want to become the American version of “Arab Spring” that topples governments but can’t govern when they win, the movement will need to look at the root causes of the Wall Street problem and pressure politicians to take effective steps to fix them.  Otherwise, we’re going to have more bubbles and more uncertainty in the future.  That’s not good for anyone, even the Street.  Parasites that kill their host are not successful.

The Shifting Sands of “Monetization”

Netflix has abandoned its plan to separate the streaming and DVD businesses, something that shareholders and the Street (not to mention customers) are sure to be happy with.  I’m not sure that this was as bad an idea as it seemed, though.  The problem with all the streaming players, as I’ve noted in prior blogs, is content availability.  Netflix may have recognized that it has two very different businesses going here.  One is the business of supporting people who routinely rented movies for “movie nights”, and the other the people who just couldn’t find anything interesting on TV for a time-slot in a given evening.  For the former, you can dip a long way back into the long tail of content; the latter tend to want material they like, and typically they want it in a short-slot form factor to fit in the hour interval they can’t fill with channelized material.  Can the company juggle the two as a single offering?  We’ll see.

This week will mark the start of Apple’s iMessage service, which is arguably both an exploitation of Apple’s dominance in mobile and a direct threat to network operators.  iMessage lets any iOS 5 device send unlimited messages to any other iOS 5 device, and while the media hype that this eliminates a 20-cent-per-SMS windfall for carriers is nonsense (everybody who texts often has an unlimited plan), the Apple move COULD be an indication that Apple is indeed going to push cloud services to its customers that would gradually encroach on telco gravy trains.  Voice, for example, might come along.

Telcos may have mixed views of all of this.  If they’re required by law to allow third-party services that compete with their own (a US principle, and similarly we believe for Europe if regulatory trends are upheld) then it would seem logical that Apple and others would jump into the services space, not only for current services but for the emerging mobility/behavioral models as well.  But the big thing would be that if Apple keeps going this way it is in my view inevitable that it become an MVNO in every geography where that’s possible and profitable.  That would suck a lot of margin out of the mobile players.  A few Street pundits have told me that they believe AT&T’s T-Mobile aspirations are due in no small part to an MVNO fear; T-Mobile would be a very logical player to partner with since they have EU affiliations as well as US ones, and a deal with them could have real scope for Apple.

Google would certainly jump where Apple did.  While Google and Samsung delayed their launch of a new model, which is said to include the “Ice Cream Sandwich” version of Android that unifies the separated tablet and smartphone lines, it’s clear that they’re the most credible counter to Apple and also the flagship for Android, at least until Google’s MMI deal is done.  The EU approved that buy and we’re now waiting only on US DoJ, something that I hear will be coming eventually.

All of this comes at a time when operators are struggling with monetization and changing business models.  We’ve been as frustrated as they have with the snail’s pace response of equipment vendors to the operators’ goals, but we have noticed significant progress over the summer.  Alcatel-Lucent and NSN in particular have been tightening up their articulation and telling a service-layer story that has some substance, though their full details are still not on their website and there are still significant differences in how well the message is told among the various regions and even sales teams.  The question now is whether the operators can recoup their losses in the service layer.

How this will go for vendors is hard to say, because ironically they’ve just now figured out that they needed a better content monetization story.  Apple is now demonstrating that the vendors need to support a mobility/behavioral story too, because operators will be assailed in that zone shortly.  In theory, for Cisco and Juniper at least, the cloud should be an easier tale to tell because they have data center assets to play on.  Huawei, who has recently announced its own enterprise push, can also harness enough hardware presence to be credible as a “cloud vendor”.  However, they’ve had those assets all along and have done a sad-to-awful job of positioning them.  Alcatel-Lucent and NSN will now have to scramble a bit to create a good cloud story, but they at least don’t have to scrabble over the rubble of previous bad positioning to get there.



Our Industry: Looking At, and Through, Clouds

There are signs that the networking industry is doing a bit more weaving and bobbing as it looks for a position that sustains revenue and profit growth.  One big item is the story that Sony is going to buy Ericsson out of their long-standing handset partnership.  The deal here, so the story goes, is that Sony wants to spread its technology across its whole line of appliances, from phones to game systems, and also to get considerably more aggressive in the market.  I’m told that Ericsson has not been excited about either of these points; conservatism has always been Ericsson’s weakness in my view.

Sony is right in this case.  Apple has demonstrated that the notion of a separate smartphone, tablet, and game system market is unlikely to prevail in the real world.  What’s really happening is that there’s an appliance market that shows (at the moment) three distinct faces.  Some users will accept them all, and others will gravitate to one of the group, depending on how they balance the various applications and issues.  The point is that it’s likely that all of these appliances will have a feature base in common, and that symbiosis among the devices will be important for players who want to keep multi-faceted buyers in the vendor’s product domain.

This is also reflective of what Apple needs to deal with now, in the world it created.  Things like televisions are clearly going to join the appliance ecosystem, and there will probably be other stuff that also joins, but the reality is that what’s going to matter more is the experience that can be delivered through all this stuff and not the exact boundary of the “stuff space”.  Apple TV isn’t important except as a member of the Apple Ecosystem, and fleshing out that ecosystem is a job for cloud-hosted features, something that Apple is yet to demonstrate it grasps.  But then neither has Google demonstrated that; only Amazon so far has any cloud reality, and even there it’s not completely clear that they have a strategy or whether they just stumbled into a couple of gold coins from a pirate horde.  Can they find the rest of the loot?  We’ll see.

Another indication of market turmoil is today’s UBS decision to lower their earnings forecasts for Alcatel-Lucent.  There is nothing in particular about the company’s products or strategy behind the move; it’s rooted in Alcatel-Lucent’s large exposure to the EU market and the debt crisis there, and also in issues of cost reduction that the company still confronts.  I’ve noted many times over the years that Alcatel-Lucent has a position of unique opportunity and risk, both derived from the common cause of their broad product line.  They’re in everything, everywhere, and so have unparalleled influence.  In the last year or so, though, they’ve fallen victim to the common network equipment vendor problem of weak articulation.  We’ve seen many examples of cases where the company has been unable to control an engagement that they are objectively the only player capable of supporting.  Why?  Because they have no clear marketing position, particularly on their website, and because you can’t expect a sales force to be a strategic marketing tool; they’re compensated to close deals.  In some cases, the sales team in carrier accounts can’t even recognize a service-layer opportunity.

Oracle is making its cloud strategy a bit clearer, but there are still plenty of places where the connection between offering and goal are a bit fuzzy.  Perhaps the most revealing is their Oracle Public Cloud announcement, an announcement of a social-network front-end to a cloud service bazaar that will include all of Oracle’s Fusion apps eventually.  The idea is that companies can use this front-end to provide teams and individuals a point of access that offers them cloud capabilities based on their identity, and thus allows both line departments and IT to buy elastic capacity.  The focus of the OPC is SaaS, yet another example of the fact that anyone really looking at profit in the cloud has to be looking at the place where the largest amount of user cost can be displaced.  SaaS also simplifies the notion of work backup and overflow, and since Oracle has championed the database appliance that can simplify data mobility and has embraced a Hadoop-friendly model for data distribution, you can argue that they’ve got the best cloud position in the market.  In fact I expect to see IBM working to refine their own strategy to insure they can fill the same role.



Steve’s Legacy

There’s no way that any blogger in technology could not, today, offer a tribute to the greatest innovator that the technology industry has ever known.  Steve Jobs was a true giant in a world of pretenders, a man who understood the technology and buyer sides of the coin when others simply flipped it.  His genius was to drive the market and not just respond to it, which made him all the more a standout at a time when it’s hard to find companies who can even keep up with change.  Steve produced it, and loved that role.

Apple, and Steve, gave us the current market revolution.  By marrying portable power with ubiquitous broadband he ushered in a new era where the average teen can have, literally at their fingertips, computing power that dwarfs the world’s computational supply just a few years ago.  We’ve yet to see where this can take us, and I’m personally saddened that we’re not going to have Steve to help guide us in the journey.

The Carrier Cloud Forum at Interop this year is grappling with some of the issues that Steve Jobs created.  Appliances demand back-end services to support them, and the way those services are created and the identity of those who offer them may well be one of the major issues in networking.  I’ve noted that operators in my surveys have been steadily promoting the cloud services opportunity among the monetization projects they have been running, and it looks like it could be the top of the list this fall.  It’s not that the cloud offers operators the largest opportunity (mobile/behavioral services and content both outstrip it) but that cloud infrastructure is also what’s likely to host content services and mobile/behavioral services.  Appliances have coalesced all of the opportunities of the future into one delivery point—what the user is holding.  The cloud coalesces all the technology options into one, admittedly fuzzy, vision.

I think CCF demonstrates that we’re still shadowboxing with the issues, though.  The fundamental truths of cloud computing remain as they always have been.  SaaS displaces the most cost and therefore offers the greatest benefit to buyers and profit to sellers.  IaaS is the most flexible, but it presents both benefit-case and profit barriers to wide adoption.  All the “-aaS’s” will face a common issue of service- and application-level integration, which is something nobody is really looking at.  That integration will likely set the pace for the question of how clouds and networks get along, because the general solution at the service layer would produce a flexible solution at the service/network boundary.  We’re not looking for this in the cloud computing space but operators are looking at it in their own service-layer projects, which include both mobile/behavioral and content.  Can all of this stuff be combined?  Not so far.




Is the iPhone 4S an iPhony?

Apple’s iPhone 5 proved to be media hype; the company actually released only the also-rumored iPhone 4S.  While Apple fans were quick to get behind the more limited announcement, Wall Street took Apple’s shares down in disappointment over the failure of the company to do something revolutionary.  The 4S looks exactly like an iPhone 4, and in one poll only about 10% of responders thought it was a significant advance. I think that the disappointment is unfair—understandable but still unfair, or at least unrealistic.  First of all, the 4S runs iOS5 and has a dual-core processor and thus arguably fits at least the basic profile expected for the iPhone 5.  The criticism comes down to “You didn’t make it bigger”, which really means “It still looks the same.”

As I said in an earlier blog, Apple can’t be expected to keep launching revolutionary updates to a static product set, nor can it be expected to launch a new revolutionary kind of consumer appliance every three or four years.  That’s its biggest problem, and one that really doesn’t have an easy solution.  Apple arguably launched the personal computer and then lost the lead to others.  Its iPhone is still the largest-selling smartphone model, but as in the PC space Apple has lost the total-unit crown to a commodity family, this one based on Android instead of MS-DOS and Windows.  Inevitably, it will lose the top device slot in smartphones, and the top spots in tablets, because Apple is not a commodity market player and clearly doesn’t want to be.  Nor does Wall Street want that, which may well be the strongest motivation of all.

The real question with Apple is, and has been, what it does with iCloud, and so far there are just a few hints.  One example is an iCloud service that shows you where your friends are (providing they’ve agreed to share location with you).  The question is whether this is just a scattershot app aimed at no trend in particular, or whether it’s an indication that Apple understands that the cloud has to be a big piece of what it sells now.  Apple arguably created the thin client appliance market, and now it has to accept the inevitable consequence of increased application hosting in “the cloud”.  Accept, and profit from it.

Sprint, who was hinted to have an exclusive on the iPhone 5, will have the 4S along with all of the other competitors, and in fact Apple says that the new model will launch in more markets faster than anything before.  For Sprint, the phone-sharing isn’t a good thing because it only puts the operator at parity with its major rivals, and that in my view isn’t enough to justify having made a major commitment to Apple to take a large order (rumored 30 million over four years) of phones.

In all, the Apple event was a disappointment to many, and perhaps a critical one for Cook’s first announcement.  What it does do is tee up things for Google, who now has an opportunity to do something more profound, both in terms of Android and in terms of the cloud.  The question is “Can Google do any better?” and I think that in the near term the answer may be “No!”  There are too many balls to juggle.

Android handset vendors, to be sure, can create something that has all of the features that the iPhone 5 was supposed to have; HTC has arguably done most of that already.  But an Android arms race by the Android Little People won’t change the game much.  Android already holds the lead in installed handsets, and no single vendor will challenge Apple for the brand lead.

Except maybe MMI.  The problem Google has is that its MMI deal is drawing more scrutiny, and doing something really dramatic in Android now might spook regulators further.  Without MMI they don’t have their own hardware arm anyway.  So this raises a question.  Did Apple deliberately hold back on the iPhone 5 knowing that this might not be the best time to launch given the economic risk, and knowing that Google might be helped more than hurt by a convincing new Apple victory in smartphones?  Stranger things have happened.


Regulations, There and Here

Europe continues to move toward a more radical telecom regulatory posture, with EU Commissioner Neelie Kroes proposing that the unbundled copper rates for operators who fail to develop credible FTTH plans be reduced.  The goal is to provide an incentive to move beyond the basic copper infrastructure, and making copper less profitable would seem a logical path to that goal.  It’s not that simple, unfortunately.

Our model says that virtually every EU country could in fact deploy FTTH profitably, providing one defines “profitably” as meaning “meets the company’s IRR guidelines”.  The challenge is that the telcos, as privatized entities, have an obligation to their shareholders to enhance profit and not just sustain it, and there are other ways that investment would bring a higher return.  In point of fact, revenue per bit for residential broadband has plummeted worldwide, and in the majority of countries the subscribers are unwilling to pay for top-tier broadband even where it’s available.  So from a pure bottom-line perspective, this may be bad juju.

The second issue is the public policy goal.  As I’ve noted before, I’ve been unable to come up with a convincing case for broadband serving any specific public good.  That’s not to say that people don’t like it, but they like ice cream too and we don’t promote its consumption at a government level.  As a technology consultant, I’m all for stuff that makes technology grow because it makes my own business grow, but I’m also one to insist on proof for claims, and I’m not finding it here.

I believe that there is a global trend toward the “Australian Solution” to broadband, which is a form of nationalization of the access network to move the problem of infrastructure modernization out of a for-profit business.  Again, I’m all for what people want in a democracy, but I wonder whether everyone is aware of the consequences.  If fiber isn’t going to be profitable to deploy then it will have to be subsidized, and that’s an increased tax burden at a time of global economic turmoil.  Can government create regulations that will sponsor innovation?  Remember, we used to have regulated monopolies and government-owned telecom in Europe and we abandoned these because the network wasn’t being modernized.  So now we abandon the privatized mechanisms for the same reason?  That’s an awful lot like situation ethics, and I think the EU needs to justify this more than it has.

Speaking of public policy, Verizon has kept its promise and filed suit to block the FCC’s neutrality order.  It appears as though the order is going to be the subject of more than one lawsuit, and ironically neither the pro- nor the anti-neutrality camps are happy with it and so both are appealing.  I’m of the view that’s probably a good thing because there are parts of the order that are fatally short-sighted and parts that are smart.  Everyone disagrees on which are which, of course.

The smart side is that it should be illegal for an ISP to either block traffic on the Internet or interfere with it, and I think everyone agrees with that part.  Where I think the order goes awry is in the prioritization regulation.  “No paid prioritization” is in my view a very bad thing because it forces QoS-sensitive IP services to go off the Internet, and given the almost universal movement toward convergence IP services are about all we’ll have anywhere.  Rather than have telcos hire a thousand lawyers to figure out how to dodge this with “managed services” outside the Internet, why not simply say “anyone can get priority handling for a fee”, and then let anyone who wants it do the paying?  The argument that the Internet would get worse overall might be slightly true, but if it is the truth would be that it HAD to; that revenues were too low to sustain investment.  Only where there’s no competition would any sort of price regulation be needed, I think.

Logic isn’t the answer here, though, because the law isn’t logical (as anyone who knows a lawyer probably realizes).  The question here is one of law and not of fact; does the FCC have the authority to do this in the first place?  I don’t think so, and so the question may be whether the Court of Appeals tosses the whole thing or just sections.  Congress might also step in, and if there’s a change of administration in the next election, the next FCC might elect not to fight an appeal or even reverse itself.  Unlike courts, the FCC is not bound by precedent.