Explorations

iTunes in Top 10 of US Music Retailers

I wrote earlier about how the music industry is determined to choke the life out of its fastest-growing distribution channel, digital downloads through iTunes.  iTunes is now the 7th-largest U.S. music retail chain.  Can you imagine a major music company treating Tower Records this way?  And iTunes is bigger and growing faster. 

The Music Industry Hates Profits

Joel On Software has an interesting post about a theory on why the music industry wants to switch to variable pricing.  The crux of the matter is he believes they want to be able to use price to signal to consumers which music is worth buying.  Naturally, the higher the price, the better the music. 

I think Joel's rationale makes a lot of sense, and is certainly a part of the picture.  But I think it's missing a tie-in to the most important aspect: sheer greed.  Joel thinks we'll see bad music at $0.99 and good music at $2.49.  I think we'll see good music at more like $3.49 and bad music at $2.49, with the $0.99 level reserved for sale items.  Nothing will sell for under $0.99.  The aggregate result will be a large enough increase in average selling price to offset the coming death of payola and the fact that songs are now unbundled from albums.  The wildcard factor is whether the music companies want to kill its new channel outright, to ensure their long-term failure.  Who knows, this seems to have guided many of their actions around new technology over the years.

More on 3G

An astute reader posted the following question on my recent post about Verizon's 3G service:

I heard that a number of peole have dropped the verizon service, saying that it's barely faster than dialup.  Any reason why results might vary by computer, geography?

I think this is a great question, and I wanted to comment on it a bit further.  Based on my experience, I'd guess these folks fall outside the target audience for 3G service.  Let's clear up some details about the real-life performance of the service.

For starters, let's be clear about the performance: it is typically 400-700kbps.  Fast, but not speedy when compared to fixed-line options such as cable.  It's also definitely faster than dialup in the cities where I've used it (Portland, OR; Minneapolis; NYC; Atlanta).  Second, 3G is not always-on like cable and DSL.  You have to dial in with the included software.  I also understand that the cards go into a bandwidth-saving mode when not used for a period of time, and it can take them a few seconds to re-acquire the spectrum for communications.  Finally, the BroadBand Access service is only available in major metro areas -- outside of them it degrades to something slower.

So given all of that, why would anyone still want to shell out $60/month for this service?  In a word: mobility.  3G is slower than my Time Warner cable connection at home, but all the speed of my cable connection is useless if you're in one of the many airports where broadband is not available.  It's pricey, but far cheaper than the connections offered in many hotels.  And again, it works everywhere -- I've even used it from the passenger seat of a car.  3G takes the guesswork out of getting on the Internet.  You don't have to find a Wi-Fi hotspot or a telephone jack.  You don't have to have a local access number.  Simply put the card in, hit the Connect button and go.  If you ever find yourself in a position where you absolutely must get on the Internet now, you'll find this valuable.

I think we could make a quick map of the types of people who might love 3G service:

• Salespeople -- no more fiddling with the prospect's firewall to get the demo working
• Consultants -- continuous productivity in spite of the customer's infrastructure quirks is worth the price
• Frequent Travelers -- they know how difficult it can be to get online on the road.

And people who will hate it:

• People who replace their home broadband connection with 3G
• Infrequent travelers
• Anyone who would use it from a desktop PC

In short, Verizon is marketing this to mobile professionals for a very good reason.  I'd bet money the people dropping the service simply misunderstood what they were buying.

Intel Bests AMD on Virtualization

Intel has announced the release of support for virtualization in its x86 line.  What's important about this release is that it should remove the last roadblocks to offering efficient virtualization on the x86 platform.  (The canonical list of requirements for virtualization support in an architecture were laid out by Gerald J. Popek and Robert P. Goldberg in 1974.  For more details, read the original paper.)  With the release of its updated chips, Intel has made the x86 line Popek-Goldberg-compliant.

This is a big deal for two reasons.  First, this will make it easier to implement virtualization software.  Existing general-purpose x86 virtualization software such as VMWare and Virtual PC uses a complex software-based emulation and dynamic recompilation process in order to circumvent the x86's lack of native virtualization support.  This is very difficult to do well, which is one reason there are no good open source direct competitors to VMWare.  Having the proper tools to build a virtualized environment will make it easier for open source developers, and will set the stage for FOSS alternatives in this space.  (I understand that the Xen team is interested in taking advantage of the updates to the architecture.)  This will in turn force the commercial options to improve while driving down entry-level price points.

The second major shift that will be brought on by the widespread adoption of virtualization will result from the change in perceptions that will result.  The concept of what a PC is has been largely wedded to the concept that it's the thing behind the keyboard.  But as virtualization becomes pervasive, we'll start to see a lot more delivery models for desktop software.  New niches will be created in the areas of scaling, management, and exploitation of large virtualized systems.  New generations of ultra-thin clients will be created.  Perhaps users of the $100 PC will even be able to leverage more desktop power on demand.

Widespread virtualization is a paradigm-shifter that it's worth keeping an eye on.

Better Flickr Uploading (or The Internet is the Platform)

Recently, the Flickr Uploadr tool for Windows stopped working on my computer.  The Flickr forums were no help, and I didn't want to spend all day uploading the 4 or 5 pictures in my set.  So I searched around a little and found an alternative: the Flickr Importr.  This tool, apparently by an independent developer, let me upload my photos in no time.  Even better, it allowed me to specify the tags and visibility for each picture.  I highly recommend it.

The interesting thing about the Importr is that it's but one of a galaxy of third-party tools built on the published Flickr APIs.  There's even a site devoted to rating some of the best at The Great Flickr Tools Collection.  And all this for a company that's fairly new and not nearly the leader in its space.  Years ago, tools like this were built to new Microsoft APIs, but it seems that more and more the innovation is occurring "in" the network.  The rise of Web mash-ups is well-documented, but that's more about combining existing Web tools than about creating new value around a single site.  On the other hand, applications like those available for Flickr, Google, and salesforce.com are built specifically to inhabit the firmament created by a single vendor.  And that I think makes them different than mash-ups.  These captive developers are strengthening the ecosystems around their core vendors.  All successful platform vendors do this, but it's interesting to see how fast it happens with published Web APIs.

We're still at a phase where developers will build to a Web API because it's available and they can build a something neat in a weekend.  But over the long term, the ability to rapidly promulgate a platform among the development community will have huge implications.  Salesforce.com really understands this, and is creating incentives for ISVs to build on their platform.  One of the most important is that it will speed the platform adoption cycle and make it much harder for a platform to remain dominance.  Intertwined with this is the idea that using a Web API allows developers to operate at a significantly higher level of abstraction than even the most advanced toolkits.  I'll write more about this topic in coming weeks.

Gates Asleep at the Switch?

There's been a lot of reporting on the recent set of Microsoft memos indicating that the company is refocusing (again!) on Web services.  It would seem at some level that they understand that the Web is becoming the platform of choice for software developers.  (Ironically, this is largely because they spent the better part of a decade making it almost impossible for ISVs to make any money on desktop applications.)  But now they're deciding that they want a piece of this whole "Web" thing in a bad way. 

So they're floating the idea of hosting all of their applications and making them available for rent.  How will all this hold up in reality?

First, they are clearly on the right track.  Most software will be a service, period.  The initial wave of Hotmails and eBays led to the second wave of Flickrs and Bloggers, along with the developer-focused Google/Amazon/Flickr APIs.  After all, if you don't have to put your users through the DLL hell that is desktop software, why would you?  The Internet has even warped user expectations regarding desktop software: people complain that iTunes doesn't auto-update itself, instead requiring a new install.  So Microsoft is belatedly getting there.

The problem is that they don't understand all the reasons why developers are moving to the Internet as a platform.  Some of the most common:

• I can ship my software every day.
• I can use whatever technologies I want on the back-end.
• It's free. 

Microsoft is bad at all three of these areas.  It's hard to make a case for Visual Studio at $200 when Ruby on Rails is free and arguably better for my particular job.  Microsoft's ecosystem is hostile to open source, one of the best accelerants for software teams.  And Microsoft has grown lethargic and is utterly incapable of shipping product quickly.  At least Ray Ozzie understands the need to be nimble:

"Developers needing tools and libraries to do their work just search the Internet, download, develop and integrate, deploy, refine," Ozzie wrote. "Speed, simplicity and loose coupling are paramount."

So what does this mean for Microsoft's Web services initiative?  Let's call it MS .NET 3.0 to indicate that they've supposedly gotten the religion before, but that they still haven't shipped a major update to their browser in a year or so.  .NET 3.0 will likely go the following route: they'll take it really seriously and put together a 'kill team' to make it happen.  The Kill Team will find no clear enemy.  The Kill Team will realize that to make the initiative successful, they have to endanger the Windows/Office licensing models.  And then it's up to Ballmer & Gates: are they willing to bet the company again?  Regardless of the details or proximate causes, that decision point is coming.  Who knows whether they will succeed?

Mac Sales Exceed Expectations

According to AppleInsider, an analyst at Needham & Co. recently published a research note for the firm's clients indicating that Mac sales have led to over 1 million Mac switchers in 2005.  This doesn't sound unrealistic to me, given that Macs are extremely popular among hardcore geeks as well as newbies.  That combined with the low price point of the Mac Mini undoubtedly led to more sales. 

Why do geeks like Macs?  Put simply, Design without Compromise.  The PowerBooks are essentially one of two brands of laptops that are constructed worth a damn.  (ThinkPads being the other.)  Geeks tend to have used multiple laptops before, so they will be more discerning in their purchases.  Similarly, the Mac Mini is physically so much different than PCs that it represents a difference in kind.  I know of several geeks, myself included, who had visceral reactions upon holding the Mac Mini in their hands.  (One called me from the store begging for a reason not to buy it on the spot.)  I don't think it's unreasonable to assert that Apple is the only major company doing PC hardware innovation of any sort.

Even with the strength of their design, Macs don't compromise on the software side.  With its roots in Unix, OS X is superior in many ways to Windows of any flavor.  And since geeks tend to use lots of free software, the unavailability of something like MegaCorp's Billing Plus 7.24 isn't relevant.  Geeks want programming tools, media tools, basic office software, and good Internet tools.  The Mac has all of these, so they're more than happy.  Java support is a little weak, but that alone isn't a deal-breaker.

Prediction: the release of Intel-based Macs will cause a major acceleration in Mac sales.  The safety net of being able to reboot into Windows when necessary will make people feel more comfortable spending $2k on a Mac.  Could Apple become a major seller of Windows and OS X, being the only vendor who could sell dual-boot machines?  This assumes the new Macs will be able to dual-boot, but I don't see a whole lot of good reasons they wouldn't enable this as an option on some models.

FairPlay plus leading-edge computers equals a very bright future.  Valuation be damned on this one, their sales & profit growth is too high to make valuation a real concern.  The stock valuation is irrational at this point anyway.  I predict it will go higher, but not because the valuation is reasonable.

Web 2.0 Bubble Underway?

Techies understand that Web 2.0 doesn't mean anything, but that doesn't stop the money from pouring into the sector.  Slapping the Web 2.0 buzzwords onto your company is a sure way to get funding and press attention.  But is a bubble under way yet?  One sure way to tell will be when companies start getting funding for the ideas generated at Web Two Point Oh!  I'm certain it's only a matter of time until this happens.  Fortunately, we know how this movie ends and will clean up on put options this time around.  :-)

3G Rocks!

3G feels like it's been with us for quite a while.  First came the hype, then the bubble, then the Valley of Death.  But it has finally crossed the divide and made it to Shipping Product in America.

I took the plunge with Verizon's 3G program, called Broadband Access.  Essentially, you buy a PC card for your laptop ($99) and subscribe to the service ($59.99 monthly).  Run through the painless install on the provided CD, and you're online.  What you get is comparable to a DSL connection: 400-700kbps, with claimed top speeds around 2Mbps.  The first couple of hours, I monitored the connection speed and these seem to be about what I'm getting.  But after the first day, I stopped measuring because the bottome line is that Verizon is selling what so many of us have needed for so long: easy broadband access from anywhere. 

I will grant that $60/month is a bit steep for an Internet connection.  It's more than my faster cable connection at home, and more than the (also faster) T-Mobile Wi-Fi I use on the road.  But I'll be dropping the T-Mobile Wi-Fi shortly since the 3G connection doesn't require me to go to a hotspot.  And since I travel a great deal, I spend a ton of money on broadband access from hotels ($9.95/day at the Marriott, for instance).  That reign of terror has finally ended -- the Verizon card works in most major metro areas in the U.S.  They've hit critical mass, and I can project that the expansion of 3G will look like the rollout of digital phone service, only it will happen faster. 

As a sidenote, Sprint also appears to have launched a 3G data offering, and Cingular is rumored to be launching theirs soon.  But given the quality of their voice networks, why bother?

It's good to find out that the U.S. is finally starting to catch up on this whole "Internet" thing.