Archive for February, 2011

How Competitors Can Challenge the iPad

Posted in tech on February 22, 2011 by themaroon

New tablets are starting to debut at a rapid pace and many more will be launching over the coming months. While the Galaxy Tab seems to have done modestly well, the iPad is still crushing the market. Most of the Android tablets just don’t look that exciting (yet) but I think by the end of the year that won’t be true.

Tablets need to do a few things to compete with the iPad, I’ll list them here in approximate order.

1. Compete on price. Nobody’s going to buy your Xoom for $800 when they can buy an iPad for $500. The lowest end iPad would seem to be the vast majority of sales. For a long time there when iPads were scarce, you could pretty easily pick one up by stepping up to the $600 level, but a $500 required waiting for weeks. Most people waited.

This makes sense. The whole reason one of these devices work is that everything is in the cloud. Your email is web based. Your video is coming from Netflix. Even your music is going to move into the cloud soon if it hasn’t already. What’s a few gigabytes at that point?

If your device is going to be priced higher than the iPad, there better be a damn good reason. Give me an AMOLED screen for example. (I think we’ll see this in the sequel to the Galaxy Tab, and it will be awesome.)

2. Think more along the lines of a notebook than an oversized iPod. This, I think, is one of Apple’s mistakes, both with the iPad and the iPhone/iPod Touch. They still make me tether my iPad to my PC. Why?  Developers have seen, as a result, that iDevices are often running on older OSes because people don’t want to do that.

And why should they? It’s ridiculous. There’s no reason this device can’t be updated over the air. There’s no reason it can’t sync music over Wi-Fi. With a Bluetooth Keyboard and Mouse this device could be as independent and functional as any notebook. It’s Android competitors will be.

3. Better licensing terms to foster app development. While I’m not in the camp that thinks Apple’s app store policies are unethical or abusive, I am almost certain they’re a strategic mistake. Tablets are a glorified thin client and are largely meaningless without cloud services. When it comes to cloud services, subscription revenues are king.

Forcing good e-reader apps like Amazon’s Kindle, or good video apps (Netflix) off of your device in an attempt to get 30% of revenues from them is a mistake. Those kinds of apps are why the device exists. They don’t have high enough margins to eat 30%. It would have been better to enforce this policy from the beginning so that we wouldn’t have come to love those things only to have them yanked away.

4. Support Flash. This is a no brainer. The lack of Flash is constantly a pain on the iDevices, and none more so than the iPad. Want to look at the website of any high end restaurant? Nope! Watch Hulu? Nope! (That’s partially due to Hulu being a pain in the ass, though you can get around that on Android with some browser string hackery). Play Cityville? Nope.

The lack of Flash is a true annoyance on the iPad. It won’t be on Android devices.

5. USB ports. There’s no reason current accessories can’t be just a driver away from working with tablets. It’s understandable why Apple forces accessory makers to use their certified connector, but for third parties the ability to connect mice, keyboards, printers, cameras, etc. might be enticing. I know I’d love to be able to charge my phone from my iPad.

6. Don’t roll your own OS. We’re in the early 1990’s all over again here, and Apple’s simply repeating their mistakes from the PC market. If you want to compete, just do exactly what the PC makers did. License a good third party operating system (right now that means Android, though I expect there will be a competitor soon, but more on that in another post) that developers are supporting, that is going to give you a software lead which in turn will give you a sales lead.

Though I love WebOS (I’d rate it a 9, iOS a 7.5, and Android a 6 and I’m the only person I know who has used all 3 extensively) I think HP is making a big mistake. They’ve got a chicken and egg problem with their app market. Their hardware is too far behind the times (by the time the WebOS tablet launches the iPad 2 and who knows what Android tablets will be on the market) and they probably don’t have a good enough strategy or big enough ad budget to solve it. The same is true of RIM’s Playbook. 

I think we’re seeing only the beginning of the tablet market right now. We are where smart phones were 4 years ago and the space is really going to heat up. Competitors have the chance to do the same thing to Apple that PC makers did two decades ago.

Bubble 2.0

Posted in Startup on February 17, 2011 by themaroon

There’s been a lot of discussion lately about whether or not we’re in a yet another tech bubble. It’s a complicated question because what exactly is a bubble? Clearly we all agree it involves “irrational exuberance” but to what degree?

Mark Cuban says it’s not a bubble, it’s a pyramid scheme. I think his logic is flawed. It assumes that later investors are paying back the former, which is quite atypical. Most of the action these days is coming from seed and angel investors, who rarely get paid anything before an IPO or acquisition. If anything, convincing later investors to follow on only increases an early angel’s variance, as it raises the figure needed for an acquisition. The public markets, I think, aren’t going to be as easily fooled as last time around and I don’t think anyone’s counting on them being the suckers at the bottom of a pyramid.

Currently there isn’t much bubble-like activity in the public markets. In the first go around I was asked questions like “I just bought 1,000 shares of Cisco, what do they do?”. Back then anything even remotely computer-related had a stratospheric P/E ratio. Most publicly traded tech stocks are trading at reasonable levels now. Even Apple is at 20, compared to an S&P 500 average of 24. There are a couple exceptions (most notably Netflix) but on the whole tech stocks are not out of line with what we’re seeing in other industries.

There are a few big differences this time around. For one there are real revenues and even profits. Groupon will likely top $1 billion this year, and their margins are probably pretty high. Facebook’s may have topped $1 billion last year already. Zynga is pulling in somewhere in the 9 digits. Last time the problem wasn’t that people were giving a company a $50 billion valuation despite it only having $1 billion in revenue, it was that they were giving a multibillion dollar valuation to a company that might not even have a feasible business model. When it comes to P/E ratios, there’s a huge difference between fifty and infinity. Fifty means the company has a proven revenue stream and a high chance of increasing profits through improving operations or scale. Infinity means they might be trying to sell something nobody wants.

I have no doubt that startup valuations are overly high. It’s just to good of a fundraising climate for founders. Even though Y Combinator alone is pumping out 80+ startups a year, the relatively low capital needs have too many investors chasing after two few startups. Even if you assume there are another 80 startups worth funding in the valley every year (and we’re at the point where I’m not sure that’s a safe assumption anymore, at least at the angel level) that’s still not that many opportunities to do an early deal with a team of founders.

So what’s going to happen in the long term? Well, I expect investors are going to see a lot of middling returns. This time around companies, with a few exceptions, aren’t going to crash and burn like last. Even Twitter will probably find a way to make decent revenue. The amount of money that can be made selling ads alone is now substantial thanks to targeting. During the original bubble products like AdSense and virtual goods and freemium services weren’t yet widely understood, and if they had been I think we would have at least seen fewer wipeouts. People know a lot more about making money on the net now than they did a decade ago and that will help a lot when the inevitable correction comes.

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Kudos to Nokia

Posted in Mobile on February 16, 2011 by themaroon

The tech blogs are all atwitter about Nokia’s move to Windows Phone 7, and the response is overwhelmingly negative. Personally I think they’re all insane. Nokia’s Stephen Elop has sent a bold signal that he’s not going to sit there and shuffle deck chairs on the Hindenburg while Android and Apple eat the rest of their large but rapidly declining market share in smart phones.

Now, I’m not 100% sure Nokia made the right call going with Windows. Android might have been a better alternative. I can see why they’d go with Windows Phone though. Microsoft is the devil you know. They’re honest about their intentions. They want to make money selling you their operating system and selling apps on it. I’d bet they’re even sharing the latter with Nokia. Their interests are aligned with an OEM’s just as they have been in the PC market for decades now.

Google’s somewhat sneaky about the whole thing. They’ll give you the “open source” operating system, but all the good parts of it are closed source and owned by Google. It may be free as in beer, but it isn’t free as in speech, and it isn’t going to get any freer over time either. If you want access to the Android app market (and if you don’t have that, good luck selling units) you have to play by their increasingly stringent rules, which soon will include using Android’s stock UI.  

Moreover Windows Phone 7 is marketable, Android isn’t. Windows is a brand that, no matter how often maligned it may be by people who read tech blogs is still trusted by most people. Android is a commodity. I’ve asked just about everyone I’ve encountered with a smart phone what operating system they’re on. Most of the Android people say “I don’t know.” Windows and iOS don’t have that problem, and if Nokia wants to create value they need to avoid being a commodity.

As unrecognizable as Android is to customers, Symbian is far worse. Samsung, Motorola, LG, and Sony-Ericsson all moved on because of it. Its web browser sucks. Despite having the largest share in the market its app selection is anemic. It is, as Elop said, a burning platform.

A lot of the nutjobs complaining about “Elopocalypse” say Nokia should have just improved Symbian. But then they’d be looking at, at best, 1-2 years before they had a viable competitor to Android and iOS, and another year at least before the apps arrive, if they ever do at all. The smart phone OS market is going to be won in less time than that. Nokia doesn’t have time to wait for Mr. Right (if you even accept the assumption that there’s significant value in owning the software, which itself is ludicrous) because they need Mr. Right now.

It takes a bold leader to ditch a platform with the highest share in its market. There’s a fine line between courage and stupidity, but I think  they’re on the right side of it. They could spend lots of time and money developing an OS that can compete with what’s out there now, then lots more time and money trying to attract developers to it. And if the first iPhone had just launched this year that might be the way to go. But it didn’t, so it isn’t, and I think Nokia should be commended for having the courage to make a bold play to recoup what they’ve lost.

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Verizon iPhone and Android

Posted in Mobile on February 7, 2011 by themaroon

The iPhone is launching on Verizon, and the mobile industry is all atwitter about it. As an iOS developer myself I’m certainly happy to see it. It’s clear that this will expand Apple’s (and therefore my) audience to some extent, and that’s nothing but positive. It’ll be a good thing for everyone except AT&T, and for them I don’t think it will be disastrous.

As I said before the iPhone launched, people largely choose their carrier first and their phone second. While the iPhone has done a better job of getting people to jump ship than any other mobile device, that paradigm still hasn’t really changed.

What this means is that Apple is about to shift a good chunk of units on Verizon. Surveys seem to indicate about 20% of AT&T customers will switch with their next upgrade, which won’t help AT&T with their perennial war for the largest carrier in the US. It also means we could expect to see Apple as much as double their US sales of iPhones in 2011.

But what it also means is that this won’t really be a game changing event. Android is now activating somewhere around three times as many units per day as Apple, and even if 100% of Verizon iPhone owners choose it over Android, it won’t put much of a dent in that. Apple only sells something like 20% of their units in the US anyway, which means even if iPhone sales here double, they’re looking at an overall 20% growth.

Furthermore, Android is now becoming a serious competitor to iOS in the tablet space. The iPhone had no serious competition in the consumer smart phone space for almost three years, the iPad will have it in less than one.

What does all that mean for app developers? Right now not much. The Android app store experience is so poor that even a 3-5x multiple of users still doesn’t make it as compelling of a development environment for someone developing standalone apps. It’s perhaps more compelling for those making apps that they will use as a continuation of their brand (think online banking) but for a developer making an app for the sole purpose of profiting from it directly, the iOS platform is still looking substantially better.

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