Endeavour Partners - Blog

Here is a fascinating graphic showing how age affects the likelihood that a household has wireless only coverage, and how that pattern has evolved over time. It shows three effects:

• younger households are much more likely not to have wireline service
• regardless of age, the proportion of households without wireline services is rising rapidly – it’s not just households without wireline getting older
• the rate at which the proportion of households without wireline is rising fastest amongst younger households

Age and households without wireline

Does the iPad herald a new age of connected devices, or is it “just a big iPod”?  Reviews have been mixed.

Apple's iPad: With WiFi for $499; with WiFi and 3G for $629

And even if you love it, will you be willing to pay the extra $130 upfront and $29.99 per month for 3G service, or is WiFi sufficient? (Particularly given that a 3G chipset adds only $7-10 to the BOM).

I suspect WiFi is sufficient, and that the price of 3G connectivity is too steep.  It is too steep, in particular, because in a new era of multiple connected devices each new device cannot come with its own expensive data plan.  It is one thing to pay for home broadband ($40-50) and a smartphone data plan (~$30).  It is another to add a netbook, a MiFi, a connected camera, an eReader, and/or an iPad and have each of these carrying its own contract.

Would you buy a separate data plan for each of these devices?

My family looked at netbooks for Christmas this year, and chose to buy without the subsidy and wireless broadband contract.  The most common use cases for netbooks and iPads are still likely to be in places with WiFi connectivity:  Home, office, hotel, café.  And if you own more than one connected device, then you are better off buying a MiFi portable WiFi hub (from Verizon or Sprint) and sharing 3G connectivity across multiple devices than having a 3G connection for each device.

With this in mind, it actually could make more sense for wireline broadband providers to subsidize netbooks and iPads and connected consumer electronics than for wireless companies to do so.  In our case, the netbook bundled with FiOS Internet or Comcast’s DOCSIS 3.0 service would have been more compelling than the 3G offer.  For the iPad, a purchase for less than $499 with WiFi and a bundle of pre-loaded apps and services (such as Verizon Media Manager or a Comcast TV Everywhere app) from a broadband service provider would be interesting indeed.

Yesterday’s Blackberry outage was eye-opening.  There are mixed reports all over the web about the extent of this outage and what caused it, but I lost email, PIN messaging, Blackberry messenger, and had intermittent problems across all other apps on my device.

I was traveling with a Blackberry-wielding colleague.  Usually this would make us feel like business Samurai, ready for anything.  Yesterday, this overconfidence caught up with us.

Emails to my travel agent never made it through, and there was no rental car waiting for me in DC.  Even at Hertz, I had one of those “not exactly” moments, and it took an interminable half hour to get a car.  In transit from the airport to meet people for dinner, neither of us could get wireless data connectivity.  No ability to search for the hotel and restaurant by name.  No ability to use Google Maps to get directions.

Also, we kept dropping calls.  Even calling to get directions was not as smooth as usual, but eventually this is the “old fashioned” way we found our destination.

Me:  “I can see the mall on my left, and the XYZ company on my right.  No, I don’t know what street I’m on.”

Friend/colleague on other end:  “I think I know where you are; go 1 mile, then turn left.”  (Not so long ago, this would have seemed miraculously cool – like in the Matrix:  “I need an exit!” – now it seems pretty pedestrian and painful.)

This sort of event brings home how much we depend on technology on a daily basis.  And how quickly we’ve become spoiled by technological capabilities that are relatively new.  It reminds me of a sort of post-apocalyptic Stephen King novel, where the protagonist needs to find their way through the world using their feet and their wits, but they are suddenly bereft of all modern technology and convenience.

Without Google Maps (and frequent United flights!) I’m not sure I’d make it to Denver in The Stand.  I’d probably jog right past.  Would you make it?

Perhaps more importantly, this has me seriously questioning my loyalty to Blackberry.  From a competitive analysis perspective, this is a disaster for RIM. Two major outages in a week.  A general degradation in service over the past year.  Meanwhile, my partner is having great fun with his iPhone, and my wife’s Droid Eris seems pretty darn cool.

I saw this at the gas station yesterday; I suppose they have one at every gas station:

Air is free, but water isn't

It struck me that at one time or another someone may have thought they would make money from air.  Or clearly, that they were monetizing this device in some other way.  For instance, by attracting customers from the station across the street that didn’t have free air.  But now all the gas stations have this service, so no one makes any money from it even in an indirect way.

It’s also interesting that air is free, but water is expensive at the gas station.  In fact, water is more expensive by the gallon than gasoline!

We’ve been thinking a lot lately about why some things are free and some things are expensive – and, in particular, why so many more things are becoming free.  Technological progress, asymmetric competition, and open innovation are relentlessly driving costs down and capabilities up.  A prior post pointed out the innovation trajectory of processors, storage costs, and bandwidth.

Asymmetric competition is when competing players have very different motivations and are happy to destroy each others economics in order to chase these goals.  For instance, Google has been going along merrily, annihilating the value propositions of email, watching videos, smartphone operating systems, office productivity applications, and mobile navigation all in the name of capturing more eyeballs and clicks for advertising.  These are all areas where people once spent billions of dollars.

A recent video I saw of an NEC product under development brought this all home to me, and it is worth looking at more closely.  NEC appears particularly blind to the power of open innovation – leveraging the achievements of others and the vast army of technologists and developers moving forward at breakneck speed in a wide-variety of areas.  Instead of building on the best of what is available, they appear to be developing something proprietary and from scratch.

My friend Josh at 3Play Media showed me the video of  this NEC product, a cool new “universal translation” system.  Well, at first it seemed like a cool idea.  Two users with glasses.  One user speaks in, say, Japanese, and then the other can see the words in English projected on the lens of the glasses.  Wouldn’t it be great if you could go anywhere and have the world translated for you like this?

The system has two glaring problems, however:

1. The price – NEC is targeting a price of around $83,000, making it barely competitive with hiring a full-time human translator
2. The clunky hardware – the current lab version of this is so geeky and clunky as to be completely ridiculous and impractical at any price

Of course, NEC plans to bring the price down with volume.  And I am sure that they will be investing to make the glasses nicer and more like “regular” glasses.  Unfortunately for NEC, they seem to be investing a lot of money in things that might not matter that much (like wearable computing) and competing against an avalanche of free stuff that likely will.

The universal translator has five key elements:

Five elements to make a universal translator work

1. First, we have the device itself.  The concept of a wearable, glasses-based system is intriguing and sexy.  The reality, however, is horribly expensive, clunky and a long, long way from ready for mass market appeal.  Also, why have a specialized device for translation?  Wouldn’t the use case be nearly identical if you presented the translation on an iPhone or Android device or even better if you text-to-voiced it to a blue tooth earpiece?  These technologies are here today and effectively free for this service.
2. Then we have some part of the service working in the cloud.  Sounds good, but don’t expect to charge extra for this.
3. Then we have voice recognition.  Similar to the device, don’t we have armies of developers working on this problem in other fields?  Won’t voice recognition just improve on its own and not require NEC to spend much time or money on this element?  Eventually, there will be a voice recognition piece that can be bought off the shelf and work well enough.  It won’t cost $83,000 and won’t contribute to NEC’s value creation.  Windows 7 has apparently made some strides in this area.
4. The translation itself.  This has to be the secret sauce, right?  But once I have it in text I can already go to Google and translate it for free.  Any language into any other language.  No, it isn’t perfect, but is it good enough to avoid paying much?  Or do I want the $83,000 version?  Probably good enough.
5. Presentation of results of the translation.  This is a solved problem, very easy in either text format or voice.

So, what is NEC basing it’s pricing strategy on?  And when are they planning to come to market?  Based on this quick and dirty analysis, we should have a free app on iPhone within a year or so (if there isn’t one already!).

I guess this means translation is more like air than water.

My posts last week about Obsolete technology and how Everything’s changing started some interesting conversations.  Some argued against our prediction that anything that can be digitized will be digitized.  Others seemed to think I was stating the obvious or hadn’t taken this line of thinking far enough.

What does the world look like if key technology trends continue?  How do businesses and consumers respond to dramatically increased (and continually increasing) computing power, memory, and bandwidth?

Here are a few graphs showing progress so far.  Processors are now so powerful and so cheap that handheld devices like an iPhone or a Droid perform like PCs of not too long ago.

The relentless march of Moore's Law

The cost of hard drives (and by extension server space and cloud storage) are falling so fast that we keep needing new terms ending in “-byte” to describe what is for sale or we will be talking about pennies:  Megabyte, Gigabyte, Terabyte, Petabyte, etc.

Data storage costs continue to plummet (Hard drive pricing as a proxy)

Meanwhile, broadband Internet access is widely available and download speeds are getting faster and faster.  In 1999, the typical cable modem offer was $50/month for 600 Kbps.  Today, $50 will get you 20-30 Mbps in many areas on fiber or cable’s DOCSIS 3.0, and leading players are beginning to roll out 100 Mbps offers.

The fastest available download speeds are becoming ever faster

These trends do not appear to be slowing.  In fact, over the next few decades, these changes will fundamentally reshape the business landscape, our economy and our culture.  This was the topic of a fascinating conversation earlier tonight, captured here by my friend Ariel Diaz.

Will ever greater computing power and ubiquitous broadband connectivity really enable us to transition from the “digitization of everything” to augmented reality to parallel virtual worlds?  I don’t know.  It sounds far-fetched today, but so does $50/month for 600 Kbps.

We were interested (but not surprised) to see in Fierce Wireless Europe this morning that Samsung will no longer develop smartphones using the Symbian OS.  The major handset makers are all racing struggling to catch up to the iPhone user experience and realizing that Symbian will not enable them to do so.

This announcement comes on the heels of the launch of Samsung Bada, a new platform for mobile apps to run on Samsung devices.  Bada will be targeted at lower tier “transitional” devices rather than flagship smartphones — the real news here is an increased focus on Android.  Now Motorola, Samsung, HTC, LG and Sony Ericsson are all becoming more aggressive in Android.

The smartphone OS battle is shaping up to be a three horse race between iPhone, Android, and Blackberry.  Apple’s iPhone maintains a strong lead, but the combined efforts of five major device makers is resulting in rapidly improving Android devices (such as the Droid and Droid Eris) and a robust application ecosystem.  As my colleague Michael noted earlier in the week, elements of the Blackberry experience are starting to seem clunky by comparison.  But Blackberry maintains the lead in productivity applications and integration among them (email, messaging, contacts, calendar, phone), and this part of the experience will remain an important driver of smartphone adoption in the near-term.

In this intense competitive environment, Nokia must come up with its own answer to iPhone and Blackberry or will continue to bleed smartphone market share.  And smartphones are where all the money is.  Within 5 years, smartphones will represent over 50% of global device shipments, 75% of industry revenues, and roughly 90% of industry profit potential. The players gaining share in this segment are the market leaders of the future.  The players losing share in this space will face dire financial consequences.

When I was a kid I wanted a pet iguana, and the one thing I remember about iguanas from my childhood is that an iguana will grow to the size of its cage. If you want a small iguana, build it a small cage. If you want a very big iguana, build it a big cage. Unfortunately, this fun fact about iguanas turns out to be a myth.

Do iguanas grow to the size of their cages? Do people find ways to use whatever broadband is available?

More recently, in the age of the dot-com bubble (c.1999-2002), I heard the same theory applied to broadband. “If you build it, they will come,” was the mantra repeated by many long haul fiber network, metro fiber ring, and global undersea fiber companies. At my prior firm we termed it The Iguana Theory of Broadband: Build a really big cage, and people will dream up new and innovative (and profitable) ways to fill it. Unfortunately, this also turned out to be false – or at least overly simplistic – and led to a fiber glut and dozens of bankruptcies.

But now we are seeing broadband speeds soar:

• Comcast launched 100 Mbps service in Twin Cities in September
• Cablevision launched 101 Mbps back in April
• Verizon bumped the speeds and added tiers into its FiOS offer back in June – with plans ranging from 15 Mbps to 35 Mbps to 50 Mbps at various price points

At the same time, however, we hear Verizon CTO Dick Lynch proclaim that metered broadband will be the pricing paradigm of the future and that “the concept of a flat-rate infinitely expandable service is unacheivable.” Which is it going to be? Increasing performance at a flat rate? Or metered rates limiting demand?

New technologies are continually being developed to enable increased download speeds and drive down the cost per megabyte delivered. For most customers most of the time this has resulted in a balancing point: DSL, FiOS, and cable modem services have had fairly constant pricing while increasing download speeds over time.

If the iguana theory of broadband holds true, at least for some period of time, then pricing will remain relatively flat. If the iguana theory of broadband proves false and demand outstrips supply, then prices will increase and metered pricing could work. If the iguana theory proves false and supply outstrips demand, then broadband prices will fall, creating a difficult competitive environment for broadband service providers.

The following diagram lays out these three simple scenarios:

For metered pricing to work, demand for broadband data services must outstrip supply

So, which scenario is most likely? What are we trending toward? As we see data points that suggest one path or the other, we will be sure to point them out.

The great site Tidbits just picked up on the plight of snow leopards, that Amy commented on a few days ago:

Snow Leopard

As I was watching for the umpteenth time the astonishing footage of the snow leopards, with my Mac having just been upgraded to Snow Leopard, I found myself asking whether as a species, in particular an endangered species, snow leopards should have some sort of recompense for Apple using their name, beyond raisingawareness and the activities of independent retailers:

Some of you may have noticed a hiatus over the last two or three weeks in the height of August. We’ve been reveling in the warm weather, and taking a few days off here and there. We’re now all back, and trying to relish the AC rather than the heat. In my case at least, the AC of concern was more the Alternating Current; we spent a few days enjoying the simple life on one of the many Thimble Islands in Stony Creek, CT, where my wife’s family have had summer homes for generations, and one of the delights or dilemmas was no mains electricity.