Apple / Microsoft / Oracle Patent War Agenda – No Free Android?

September 13th, 2011

The Patent Wars are continuing at a feverish pace with claims and counter claims being announced almost daily. But a blog from Google’s chief legal officer David Drummond is asserting its Open Source based Android is the real target of a “…hostile, organized campaign, [with] bogus patents” on the part of Apple, Microsoft and Oracle (holder of former Sun Microsystems’ Java patents.) His blog post is called When Patents Attack Androidseeks to add some insight into the seemingly relentless wave of litigation targeting Android-based OEM hardware providers like Samsung and HTC, both in the news of late.

Drummond’s remarks come on the heels of several lawsuits against Android O/S devices that became more viable after Apple and Microsoft purchased two groups of patents late last year. This included the Novell patents (CPTN a holding company owned by the group mentioned by Drummond above) and Nortel patents (the latter for a whopping $4.5B). Back in April, the USDOJ allowed the Novell purchase to continue, but did so with strong anti-competitive stipulations. See the DOJ ruling here.

To get an idea of what’s on the table, in the case of Oracle vs. Google, the company originally claimed up to $6B in damages from Google’s infringing on Java, but that number was grossly revised down to $100M by US District Judge, William Alsup, back in July. Google claims that Java has been open source for decades. Trial date for this battle is perhaps fittingly set for Oct. 31st (Halloween).

Apple has perhaps had the most visibility, with recent legal victories against CE giant Samsung, in the coveted tablet space. Apple dominates with its iPad and is preventing companies like Samsung from gaining traction with its Android-based tablet, the Galaxy Tab 10.1, on claims the company copied Apple’s design. Samsung cites prior-art stating that Apple ripped-off Stanley Kubrick’s tablet idea from the Director’s film 2001 A Space Odyssey, back in the 1960’s

Most recently (August 9) a German court banned the Korea based Samsung from selling their device until a ruling on alleged copying could be reached in that country. But Apple is getting personal. The company requested Samsung pay a $350K fine per violation, and even went so far as to request imprisonment of Samsung’s management in lieu of monetary damages-Ouch.

The move by Apple seems particularly vicious given the fact the Samsung and Apple just reached an agreement in an Australian court, where Samsung agreed to sell a different “approved version” of its Galaxy Tab 10.1, giving Apple some say in the product that launches in that geography. In the German case, Samsung cried foul stating that, “The request for injunction was filed with no notice to Samsung, and the order was issued without any hearing or presentation of evidence from Samsung,” according to reports that surfaced on CNET.com. The initial pan-European ban was lifted and Samsung is currently restricted from selling just in Germany.

In the Australian case, a federal judge recently said that for the injunction to ban sales of the Samsung tablet there, Apple will have to release sales numbers for the iPad. “Unless Apple puts on evidence showing the impact in the U.S. or U.K., I can’t draw any positive assumptions,” judge Annabelle Bennett said. See the full Bloomberg article here.

But is Google, creator of the Android O/S that is now distributed freely by the Open Handset Alliance, really under attack as is being asserted? Drummond’s logic states, “A smartphone might involve as many as 250,000 (largely questionable) patent claims, and our competitors want to impose a “tax” for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices. Instead of competing by building new features or devices, they are fighting through litigation.”

Drummond also cites the $4.5B cost of the Nortel patents, paid by Apple and Microsoft as evidence that “…this anti-competitive strategy is also escalating the cost of patents way beyond what they’re really worth. The winning $4.5 billion for Nortel’s patent portfolio was nearly five times larger than the pre-auction estimate of $1 billion.”

We think Drummond’s point is well taken, as is his observation that when Microsoft and Apple get in bed with each other, after years of “…being at each others throats,” something is indeed going on. One other thing, Apple may not realize just how much goodwill damage the company is doing to itself with all these court battles. The company that builds computers, smart phones and tablets for “the rest of us” is not one that needs to litigate to deal with the competition. That battle is being won handily in the marketplace by Apple already. – Steve Sechrist

The Evolution of the PC “Device”

August 24th, 2011

With the help of iPad sales, Apple has now pushed past HP to claim the number one spot in mobile PC devices. What will HP do? – get out of PC device manufacturing.

Preliminary numbers show 10.7M iPads shipped in Q2′11, with a year-on-year growth rate of 107%, as reported by Displaysearch mobile PC report. These numbers, plus 2.8M iMac’s, gave Apple a total of 13.9M mobile PCs – a 3.9M unit edge over HP in the category. Total second quarter growth was 136% year-on-year.

Consider these facts from an August 19DigiTimes article:

• •Tablet PC shipments were up nearly 70% on quarter and over 400% on year with nearly 16.4M units shipped in Q2′11.
• •Notebook shipments were down 2% on quarter, but up 2% on year with nearly 48M units shipped in the second quarter of 2011.
• •Consumer notebook adoption is slowing and continues to hold back the industry following a 2% on-year drop in shipments in the first quarter of 2011.
• •Worldwide mobile PC shipments (including notebooks and tablet PCs) reached 64.4M in the second quarter of 2011, up 10% on quarter and 28% on year.
• •Among the top-five players, Acer experienced the largest decline in shipment growth in Q2′11 falling 4% on quarter and 12% on year.

The conclusion? – Notebook sales are stagnant, but the mobile PC category is growing nicely driven by tablet sales – no surprise here.

Some analysts predict up to 22M more Apple iPad units will sell this holiday season. In-Stat says that worldwide tablet shipments will approach 250M units by 2017. No wonder some analysts (Jason Schwartz-Seeking Alpha) are calling for the “end of the Laptop era.”

Devices are evolutionary by nature. Laptops dominated for years because they offered mobile access to one’s digital data on a hard disc. But that value proposition has been under attack since Acer introduced the Eee netbook, demonstrating the power of the cloud to deliver similar functionality. Google took the idea one step further with the “Chromebook” concept that also de-emphasized the device, (and displaced the MS Windows platform) using the browser as the O/S.

And as Apple takes the lead with the tablet paradigm, HP reacted last week saying that after 10 years and a $25B investment (merging with Compaq in 2001) they are now looking to abandon the PC manufacturing business and move to a more IBM-like “enterprise approach” (digital services) to provide profits for share-holders. It’s a gutsy move but perhaps the best one for the company. It is willing to ignore sunk costs and focus on what they do best in order to remain relevant in a fast changing world.

We think what really may be going on here is just as Steve Jobs predicted at the Apple WWDC (World Wide Developers Conference) wanting to “…demote the PC and the Mac to just be a device” as the company works to, “…move the digital hub, the center of your digital life, into the cloud.” It’s here that Apple, Google and others will continue to deliver more of its services going forward, and eventually most of its profits long-term. Remember, Apple already makes billions brokering Apps developed by ISDs (independent software developers) with much higher profit margins than hardware can ever hope to achieve. Google gives away its Android software to device makers, so it can deliver highly profitable click-through ads to the mobile space-and beyond.

What Apple and others have done, is identify early-on that it’s not just about the device-but the ecosystem that supports our new Web-enabled lifestyle. It just so happens that into this lifestyle, Apple is brilliant at introducing “must-have” products that are continually pushing the boundaries of what the technology can deliver. For now, this has propelled the company to the top of the mobile device heap. And they will stay there not by focusing on the device alone, but by continuing to support an ever-growing ecosystem that fosters innovation, and ultimately delivers what the customer wants. – Steve Sechrist

Google Buys Moto IP and 17K Cell Phone Patents for $12.5B

August 16th, 2011

Yesterday, Google announced it will purchase Motorola Mobility Holdings Inc. (MMI), the company’s mobile device group spin-off, in a $12.5B cash deal describe primarily as a “defensive move” for the search engine giant. Google plans to use the early day Motorola patents to boost their IP portfolio in a deal that includes Motorola’s 17K patents in the cell phone / mobile space. These already granted US and world-wide patents plus thousands more still under review (about 7500 more) will help Google protect their Open Source Android O/S, now the darling of the Smartphone set, that recently came under vicious patent attack from entrenched players like Apple and Microsoft.

What prompted the multi-billion dollar move by Google was what some are calling the year of the patent wars. As recently as last month the US ITC (International Trade Commission) ruled in favor of upholding two of Apple’s software patents against smartphone rival HTC, a leading user of the Android O/S. Samsung, also depending heavily on the Android platform, had even worse luck against Apple in court and is now restricted from selling its Galaxy Tab 10.1 in Australia. A similar ban in Europe was temporarily lifted while the original ruling is under review. For details see this BBC story that broke today.

At the heart of the software code in the ITC ruling is one Apple patent (no.: 5,946,647) filed back in the Motorola “beeper era” of 1996-way before the advent of the smartphone. This is software code that highlights data like web links and phone numbers for quick access to e-mail or number dialing, by simply touching (or at the time clicking) on the relevant text.

And that’s the point… if Apple’s (and Microsoft’s) long history in the computing space gives it ammo against Android, Motorola’s history is even deeper in the cell phone space. The company helped create the cell phone market almost 30 years ago with the advent of the first portable cellular DynaTac (brick) and later (1996) the popular StarTac (flip) phone. Both were popular, and ground breaking, but it was the launch of the Motorola Razr in 2004 with new innovations like touch sensitive external screen and portability that helped usher in the mainstream cell phone era. Razr sold a whopping 50M units by 2006, and another 80M by 2008, making it the best selling clam-shell phone in the world.

But for now the industry is abuzz with predictions that Google will disenfranchise its OEM smartphone customers by jumping on the hardware bandwagon-moving from Android O/S provider to direct competitor. But don’t forget, Android is not sold to anyone, it’s part of the Open Handset Alliance, and given away to the OEM’s. Also, the software is hugely successful, particularly for top handset maker Samsung.

For example, IDC numbers recently quoted in PC Magazine said the Samsung Galaxy S line “…shipped 17.3 million devices, a 380.6 percent change from the 3.6 million smartphones it shipped in the second quarter of 2010. That, IDC said, was the largest year-over-year growth of any vendor in the top five.”

We think this move by Google is a necessity, given the unfortunate (and unproductive) direction in how some technology companies chose to focus on the courts and litigation rather than the lab and innovation to improve market share and profits.

As characterized by Google CEO Larry Page on his official BLOG: “…companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”

For now it’s hard to predict the long-term consequences of this move. We think Google may simply spin-off its new hardware group, once the deal is official, and the Android O/S secured from patent attack. The company is more interested in getting back to business as usual, with yet still billions to be made in untapped ad revenue, on all Android platforms, phones, Tablets, and yes-even TVs. With this kind of gold mine, who needs to do hardware? – Steve Sechrist

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Google TV Down but Not Out…

News wires are abuzz of late with talk that Logitech is upside down on the sales of its Google TV-powered Revue box with more sets being returned than being sold. It started with a recent fiscal quarter earnings call and comments from Guerrino De Luca, acting chairman of Swiss based Logitech. In his financial speak regarding the Revue box, De Luca said, “There was a significant gap between our price and the value perceived by the consumer.”

To be fair, the Logitech “customer” is the retail channel, where distributors and retailers are returning the product, primarily due to weak demand. This is not really a case of hordes of end users lining up to get their money back. Although, the next move by Logitech may prompt some of that consumer backlash, as the company announced a 60% price drop on the $249 Revue STB (now selling at $99) down from an original launch MSRP of $299.

Another consideration is the fact that Logitech is not really in the driver’s seat when it comes to delivery of “the goods.” While the company makes the hardware, it is the lack of programming content on the software side, the unrealized “promises” from Google, that is hamstringing the product. As De Luca said, “Google TV has not yet fully delivered to its own promises.”

Google TV had a rough start from the beginning, after launching its Smart TV solution with much fanfare, and a pocket full of CE vendors ready to jump on board. Logitech and Sony were first to sign, and launch, in 2010, and at CES 2011, Toshiba, LG Displays and Sharp were also getting ready to announce the partnership with the Internet search king-only to have Google pull the plug at the last minute. In reality, Google left these CE makers flat, with no Smart TV strategy just weeks before their major US consumer showcase event-due to “lukewarm reception,” according to the company.

Well, “lukewarm reception” may be generous, as, the New York Times reported back in December “…38% of shoppers on Amazon.com gave the Logitech Revue box three stars or fewer, and 19% gave it the lowest rating of one star. The main complaints were that it was slow and did not offer more features or programming than other, less expensive set-top boxes.” This may be one of the reasons for the 66% price drop off the original MSRP, that now puts the Logitech Revue at parity with AppleTV’s $99 MSRP.

Since CES-2011 we’ve been waiting for a Google TV upgrade, and Toshiba’s digital products VP, Jeff Barney said at that time: “We have an understanding with Google about the future product roadmap and will bring the right product out at the right timeframe,” he said. Well, it’s now seven months later-and evidently still not the “right time” with no sign of Toshiba’s version of Google TV anywhere in sight. The company went with “Plan-B” at CES, and is still executing to this day with a bare bones NetTV solution it includes on select LED and 3D flat screen sets. Ditto for LG Displays.

We think ultimately, Google will get its Smart TV strategy on-track, as time, and an eroding Pay-TV business model are both on the side of the Google Ad / App-based, over-the-top solution. It may come in the form of a hybrid strategy that includes Comcast’s “TV Anywhere” that requires a subscription to gain Internet access to the digital content. Or Google, may just up buying a major MSO like Comcast to open the floodgates of content to the next generation of web hungry viewers who have already cut the cord-or never got into the traditional TV viewing habit to begin with. Ask a teen how they get most of their TV these days…

In the meantime, look for the CE companies like Toshiba to provide an interim strategy that delivers content without too much disruption to the status quo. While Google TV partners may have been burned in the short-term; Google, and this market are simply too big for CE makers to ignore, so stay tuned. – Steve Sechrist

Did Apple Just Lock-in the e-Magazine Space?

May 10th, 2011

With its solid dominance in the tablet space, hovering somewhere between 75% and 90% market share, Apple’s iPad may have just solidified long-term supremacy by locking in top magazine content providers Time, Hearst and now Condé Nast (CN). The most recent CN deal announced today and a Hearst Publishing deal on May 5th, offers the high profile magazine content providers access to an irresistibly large install base of tablet users-with the recent promise of counting those extra eyeballs toward total circulation numbers. The ability to count those users is perhaps the most important ingredient in this deal.

For Apple iPad owners, they can now purchase subscriptions to The New Yorker, Wired,Glamour and even GQ Magazine, not on glossy published paper, but delivered digitally to the high resolution, 10-inch iPad display.

As noted, it was advertising that held the key to the breakthrough for Apple and the Manhattan publishing world. As David Carr of the New York Times (NYT) reported last month, the iPad publishing deal was realized with a slight change in circulation counting methods adopted by the powerful http://www.accessabc.com/ board (ABC). It determined that “…each of those digital subscriptions will count toward the all-important rate base – the number of copies used to sell advertising – even if the electronic version is not precisely identical to the print edition.”

This ability to count eyeballs on digital platforms is a big deal to publishers. Magazine owners can command upwards of six figures for a single full-page print ad (i.e. $141K in the New Yorker example cited by the NYT article above.) That’s orders of magnitude above the page rate for a web publication.

For its part Hearst, who initially planned to launch its own flexible e-Magazine tablet reader called the Skiff, even went so far as to show a prototype device at CES-2010 based on a Marvell chip set and LG flexible display (for details see the Jan-10 issue of Mobile Display Report, p.24.) But the company may have found CE tablet devices much harder to get to market than the next issue of Esquire, Popular Mechanics, or O, the Oprah Magazine, that the company now makes available on the iPad for $1.99/ issue or $19.99/year.

Time is last to the content party on Apple iPad, offering a digital version of select magazine content, free to subscribers with paid print subscriptions. But the recent deal represents a content breakthrough for the Cupertino, CA based Apple, struggling of late to get the high-profile content providers to sign up with Internet-based digital distribution. This is also reflected on the TV / video side, where both AppleTV and GoogleTV are having similar problems securing premium video content on their respective set-top box offerings.

While circulation numbers are a critical part of the story, it’s huge installed base of the Apple iPad that no doubt played a major role in bringing the big publishers to the table. Recent industry sources put tablet shipments somewhere close to 40M iPads (of either vintage) by the end of 2011. Apple’s growth rate is strong, even if it is affected by Tsunami related supply issues in Japan. By the end 2012, Apple’s installed base could be approaching 100M units – a huge audience that can’t be ignored. Does this start to sound like what the iPod did to the music industry?

The two Apple tablets now enjoy at least 75% of the market share, and if you drill in a bit, looking at number of units shipped verses what has actually sold, we may be closer to 90% market share for the Apple iPad. See the BusinessInsider.comarticle for a good discussion on “channel stuffing” and Android tablet market share vis-à-vis iPad.

The new ABC publishing ruling combined with incremental changes from Apple, seemed to tip the balance in favor of pubs moving forward on digital distribution on the iPad. And like the music business, magazine publishers faced with the winds of change from digital distribution and the Internet, may just have found a safe harbor in partnering with Apple. – Steve Sechrist

The Golden Age of Television Once More…

This is one of those “how to boil a frog” stories-you know, try to put a frog into boiling water, and he’ll jump a mile-but place him a nice cool bath and gradually increase the heat, and you get him every time. Now imagine the subscriber TV space is trying to get consumers to pay for content that over-the-air broadcasters have been providing free for decades. I’m old enough to remember the pre-cable days (yes that really dates me) when hoards of door-to-door sales folks were unleashed on neighborhoods with the promised nirvana of pay-TV. No more commercials, was the mantra and not four, but a whopping 30 channels of programming including full-run movies-every night, all for less than one dollar a day. For the record, John Walson started one of the first cable systems in the US at a cost of a $100 hook-up fees and just $2/month.

Well the cool sweet water of cable was simply too much for us frogs (uh… consumers) to resist. Fast forward to today’s subscriber TV market and you have the boiling water of an ARPU (average revenue per user) of closer to $79, not 30-channels but 130 (too much of a good thing?) And, we still have to sit through commercials – in fact, much more than in pre-1972 regulated TV era (but that’s not cable’s fault.)

What this move to subscriber TV did, among other things, was change the dynamic of TV program funding. The original over-the-air (OTA) broadcast networks were built on the economics of free. That is, free TV programming paid for by advertisers. The system worked – people were entertained and informed through a very narrow pipe of the three major networks plus local affiliates. There was plenty of choice, (i.e. 1972, Thursday night prime time: The Mod Squad, The Waltons or Flip Wilson) and a regulated system that included protection for children (caps on sex and violence) and limits on time dedicated to TV ads.

But the biggest change for content providers was the move away from advertisers to an affiliate fee-based system, fed by the boiling water of subscriber monthly fees from pay-TV. Just how big is this? Well, Business Week covered this space last Spring and recons the number is somewhere around $32B / year. Here’s how Bill Gruley put it in his abovethecrowd.com blog last April. “Over the past 30 years, these fees have become the lifeblood of the TV content business – affecting how the major aggregators think and operate, and also affecting how content is produced, financed, and packaged.”

Enter the age of the Internet and IPTV. The so-called over-the-top delivery of video provides a different viewing experience, essentially removing the traditional broadcaster from the content-viewer equation. The only problem is, content providers are hooked on the $32B entitlement. This is the real reason why Silicon Valley icons like Apple and Google had problems signing up content providers to their respective IPTV solutions. The promise of click-through ad-based revenue simply doesn’t match the enormous revenue generated by Affiliate fees. In fact, past IPTV deals with Netflix, Hulu and others exempted them from paying these Affiliate fees, prompting the big boys, like Comcast to recently cry foul-as Netflix and Hulu subscribers grew, while concerns over cord-cutting began to materialize.

And that’s the whole point. IPTV offers the return to Ad-based TV programming, now on the viewer’s terms. Unlimited choice via video streaming with the promise of well crafted ads, tailored to a specific demographic. The advertisers now know exactly who they are talking to, and specifically what message I want to see-to motivate a transaction. In fact, a transaction I can initiate right on the screen, as I continue to view the program-if I wish.

The problem is how to get programmers to the party? Can they be weaned from the monthly cable / satellite revenue? I say, it’s time to take back TV and jump out of this boiling pot of water-that we ourselves are fueling. How about a mass appeal for national Cord-Cutting month? Help programmers kick the Affiliate fee habit… Cold Turkey. Let’s reclaim our TV and show the network bosses who’s really in charge. Cut your cord and send a message to the entrenched media that you want TV delivered over the top, …the alternative, 130 channels and still nothing to watch. So what do we really have to lose? Who knows, maybe united, we can change the world-or at least this small part of it… – Steve Sechrist

Google Sees Life in the Cloud w/o Windows

December 14th, 2010

In honor of Nostradamus’ birthday (December 14, 1503), I’m going to make a prediction. I see the future of humankind controlling the weather — No, just the clouds, actually. They will eat of the clouds and have knowledge, and the “Windows” will have no light, and there will be no “Gates” to slow them down, or to pass through…

GoogleTV Knows Old Habits Die Hard… Unless You Don’t Have the Habit…

October 26th, 2010

In a world where old habits die hard, some now think a hybrid content delivery approach can create a new sweet spot between traditional linear broadcasting and over the top IPTV. By hybrid, we’re talking about a blend of live TV broadcast and internet-based on-demand content. The linear broadcast schedule helps to create “demand”, while time shifting and Internet delivery offer convenience.

Apple and Google–Giants of a New Age

September 21st, 2010

A recent Adam Sharp article in Seekingalpha.composes the interesting question, “Which stock will reach $1T (trillion) market capitalization first?” The publication argues that market cap (a stock’s price times total shares outstanding) is the best measure of a company’s worth as “…it takes everything into account: assets, liabilities, growth, and more.” Interestingly Apple and Google are two of his top contenders with market cap at $251B and $161B respectively.

Even though it is in third place today, Sharp believes Google will take that top prize, perhaps a decade from now citing “unparalleled talent” and opportunity, with the comment, “So far, they’ve only seriously capitalized on search. Watch for YouTube, Docs, Android, Doubleclick, and other services to make increasingly large contributions to the bottom line going forward.”

Of these, perhaps the biggest opportunity for Google comes in the area of “measured marketing.” It is the “Holy Grail” in the advertising industry to deliver a message to “…the actual customer who wants to buy what you’re selling.” Put another way, it is the ability to calculate a return on investment for your ad, which many see as the pay-off of the digital age.

According to Techpoint, a state wide initiative based out of Indiana defined the phrase, measured marketing as “…a category of business in which companies use electronic means to gauge consumers’ response (or non-response) and other interaction, and then use that insight to shape management and marketing effectiveness.

Google’s move into smart phones with the purchase of Android in 2005, and now Google TV, a joint alliance announced in May of this year (using the Android O/S), are extrapolations of that idea—and a whole hearted attempt to “…deliver [an advertiser’s] message to one in a million” (…borrowing from themeasuredmktg.com web site.)

Apple too has figured this out and recently announced iAds for it’s Apps independent software developers (ISDs). Steve Jobs recently said the company would split ad revenue with ISDs 60/40 in order to provide them with a continuing revenue stream, so they can continue to create great applications for Apple products. Apple’s new iTV initiative has also just begun and will ship a new set top box this quarter, according to the company.

So, even though both companies are starting out on the small screen, the long term goal is the living room TV and delivering this measured marketing technology with its pinpoint sharp advertising to viewers, and the valuable feedback to those paying for the content. And, the economics of free content once again will blossom.

What will it take to make a company with a $1T market cap? From what we have observed in both these companies, it’s a steadfast vision of the future, with the courage and confidence to act, and thus create it.