How Microsoft spent a decade asleep at the wheel

This morning’s Observer column.

Coincidentally, in that same year, Gates stepped down from his position as CEO and began the slow process of disengaging from the company. What he failed to notice was that the folks he left in charge, chief among them one Steve Ballmer, were prone to sleeping at the wheel.

How else can one explain the way they failed to notice the importance of (successively) internet search, online advertising, smartphones and tablets until the threat was upon them? Or were they just lulled into somnolence by the sound of the till ringing up continuing sales from the old staples of Windows and Office?

But suddenly, that soothing tinkle has become less comforting. PC sales are starting to decline sharply , which means that Microsoft’s comfort zone is likewise set to shrink. Last week, we had the first indication that Ballmer & Co have woken up. In a 2,700-word internal memo rich in management-speak drivel , Ballmer announced a “far-reaching realignment of the company that will enable us to innovate with greater speed, efficiency and capability in a fast-changing world”.

Our new software monoculture

This morning’s Observer column.

Apple has to date authorised 500,000 [Apps] for its iPhone. The corresponding number for the Android platform is 600,000. These numbers provide ample justification for the late Steve Jobs’s great insight: phones were really powerful hand-held computers that could run useful applications. And so it proved. Jobs unleashed an explosion in creativity as programmers raced to create apps that people would buy in huge volumes. The result is a world in which smartphones are basically app-running devices that can also make voice calls. Ditto for tablets, except that they don’t bother with the calls.

So that’s all right, then? Not quite. Look closer at this explosion of creativity and you find that much of what it has created is either trivial or downright crap. You can, for example, get an app to put an image of bubblewrap on your iPhone screen. Then there’s the Halloween Sound Machine (“Sneak up on your mates with the sounds of a rusty chainsaw, go on, you know you want to!”). Or how about iBeer (“turns the iPhone’s screen into a showy pint of the foamy stuff”)? And gentlemen trying to decide between a walrus moustache, Victorian sidewhiskers or a goatee beard will doubtless find Beard Booth invaluable.

I could go on, but you get the point. A large proportion of smartphone apps are the contemporary equivalent of those plastic gee-gaws my kids bought all those years ago: impulse purchases that provide a moment’s entertainment – or even delight – and are then forgotten…

Apple: the new Microsoft

Those who are salivating about Apple’s new tools for creating iTextbooks ought to first of all have a read of this.

For nearly two years, Apple has wooed digital book publishers and authors with its unconditional support of an open, industry-leading standard. (The EPUB standard is managed by the International Digital Publishing Forum [IDPF], of which Apple Inc. is a member.)

With last week’s changes, Apple is deliberately sabotaging this format. The new iBooks 2.0 format adds CSS extensions that are not documented as part of the W3C standard. It uses a closed, proprietary Apple XML namespace. The experts I’ve consulted think it deliberately breaks the open standard.

I’m inclined to agree. Like Mr Bott, I see this as a variant of Microsoft’s old strategy of “embrace, extend and extinguish”.

The new Digital Divide

From today’s NYTimes.

The world’s congested mobile airwaves are being divided in a lopsided manner, with 1 percent of consumers generating half of all traffic. The top 10 percent of users, meanwhile, are consuming 90 percent of wireless bandwidth.

Arieso, a company in Newbury, England, that advises mobile operators in Europe, the United States and Africa, documented the statistical gap when it tracked 1.1 million customers of a European mobile operator during a 24-hour period in November.

The gap between extreme users and the rest of the population is widening, according to Arieso. In 2009, the top 3 percent of heavy users generated 40 percent of network traffic. Now, Arieso said, these users pump out 70 percent of the traffic.

Michael Flanagan, the chief technology officer at Arieso, said the study did not produce a more precise profile of extreme users. But the group, he said, was probably diverse, with a mix of business users gaining access to the Internet over a 3G network while traveling, and individuals with generous or unlimited mobile data packages watching videos, the main cause of the excess traffic.

Interesting data. At the moment, only about 13 per cent of the world’s 6.1 billion cellphones are smartphones, according to Ericsson, the leading maker of mobile network equipment, but the rate exceeds 30 percent in larger markets like the United States, Germany and Britain. My (informal) guess, based purely on observing those around me in the street and on trains, is that the proportion of smartphones is much higher than that in the UK.

The increasing penetration of smartphones is a one-way street — and, as Jonathan Zittrain, Tim Wu and others have pointed out — the destination it’s heading towards is not necessarily an attractive one in terms of freedom and innovation.

As the NYT report puts it:

The more powerful phones are rapidly replacing the simpler, less voracious devices in many countries, raising traffic levels and pressure on operators to keep pace. In countries like Sweden and Finland, smartphones now account for more than half of all mobile phones … About 35 percent of Finns also use mobile laptop modems and dongles, or modems in a USB stick; one operator, Elisa, offers unlimited data plans for as little as 5 euros, or $6.40, a month.

As a result, Finns consume on average 1 gigabyte of wireless data a month over an operator’s network, almost 10 times the European average. As more consumers buy smartphones, the level of mobile data consumption and congestion will rise in other countries.

In the Apple economy, only Apple gets really rich

This morning’s Observer column.

Microsoft is a huge and important company. But guess what? It’s in danger of being dwarfed by an outfit that it once regarded as a joke. In terms of market capitalisation, Apple passed Microsoft ages ago. When I last checked, Apple was valued at $364bn, compared with Microsoft’s $230.5bn. And at the moment, there is only one other corporation in the world – Exxon Mobil – that is bigger than Apple.

Last week, Apple unveiled results that suggest even Exxon may not be safe from the relentless growth of Steve Jobs’s empire. Apple made a net profit of $7.31bn on revenues of $28.57bn for the quarter ending in June. That's the best three months it’s ever had, with revenues up 82% and profits up 125%. The company also revealed that it’s sitting on a $76bn cash mountain. Just to put that in context, Apple could currently buy both Tesco and BT and still have some loose change. The news sparked an 8% rise in the share price, with the stock breaking the $400 barrier for the first time.

So is Apple the new Microsoft? Answer: no – and the quarterly results explain why…

LATER: Even stranger is the revelation that Apple has more cash in hand than the US Federal government.

The Master Switch

My review of Tim Wu’s new book.

At the heart of this fascinating book is one of the central questions of our age – rendered more urgent by recent events in the Arab world. The question is this: is the internet a revolutionary innovation, something that will overthrow the established order? Or will it turn out to have been just an unruly technology that the ancien regime will eventually capture and subdue?

Faced with the upheavals triggered by the network so far in economics, social life and politics, most people would probably say that the internet is indeed sui generis. But Professor Wu is not so sure, and therein lies the importance of his book. If the internet does indeed succeed in escaping the controlling embrace of corporations or governments, he argues, then it will be a historic first. For every other modern communications technology – telephone, radio, cinema and TV – has eventually succumbed to these forces…

Federated social networking

There’s a useful piece on the Electronic Frontier Foundation’s site about federated networking, seen as a way of counteracting the centralising power of outfits like Facebook.

To understand how federated social networking would be an improvement, we should understand how online social networking essentially works today. Right now, when you sign up for Facebook, you get a Facebook profile, which is a collection of data about you that lives on Facebook's servers. You can add words and pictures to your Facebook profile, and your Facebook profile can have a variety of relationships — it can be friends with other Facebook profiles, it can be a ‘fan’ of another Facebook page, or ‘like’ a web page containing a Facebook widget. Crucially, if you want to interact meaningfully with anyone else’s Facebook profile or any application offered on the Facebook platform, you have to sign up with Facebook and conduct your online social networking on Facebook’s servers, and according to Facebook’s rules and preferences. (You can replace “Facebook” with “Orkut,” “LinkedIn,” “Twitter,” and essentially tell the same story.)

We’ve all watched the dark side of this arrangement unfold, building a sad catalog of the consequences of turning over data to a social networking company. The social networking company might cause you to overshare information that you don’t want shared, or might disclose your information to advertisers or the government, harming your privacy. And conversely, the company may force you to undershare by deleting your profile, or censoring information that you want to see make it out into the world, ultimately curbing your freedom of expression online. And because the company may do this, governments might attempt to require them to do it, sometimes even without asking or informing the end-user.

How does it work?

To join a federated social network, you’ll be able to choose from an array of “profile providers,” just like you can choose an email provider. You will even be able to set up your own server and provide your social networking profile yourself. And in a federated social network, any profile can talk to another profile — even if it’s on a different server.

Imagine the Web as an open sea. To use Facebook, you have to immigrate to Facebook Island and get a Facebook House, in a land with a single ruler. But the distributed social networks being developed now will allow you to choose from many islands, connected to one another by bridges, and you can even have the option of building your own island and your own bridges.
Why is this important?

Why does this matter?

The beauty of the Internet so far is that its greatest ideas tend to put as much control as possible in the hands of individual users. And online social networking is a powerful tool for the many who want a service that compiles all the digital stuff shared by family, friends, and colleagues. But so far, social networking has grown in a way that concentrates control over that information — status posts, photos, and even your relationships themselves — with individual companies.

Distributed social networks represent a model that can plausibly return control and choice to the hands of the Internet user. If this seems mundane, consider that informed citizens worldwide are using online social networking tools to share vital information about how to improve their communities and their governments — and that in some places, the consequences if you’re discovered to be doing so are arrest, torture, or imprisonment. With more user control, diversity, and innovation, individuals speaking out under oppressive governments could conduct activism on social networking sites while also having a choice of services and providers that may be better equipped to protect their security and anonymity.

Old Europe takes on Google

The news that the EU has decided to investigate whether Google is abusing its dominance of the market for internet searches naturally led your columnist to type "Google abuses market dominance" into, well, Google. In 0.19 seconds it reported 4.4 million results.

The same query typed into Bing, Microsoft's search engine, produced only 362,000 hits. On the other hand, typing "Microsoft abuses market dominance" into Bing produced only 218,000 results, whereas the same query produced 665,000 results in Google. From which we can draw two conclusions. The first is that the algorithmic machinations of search engines, like the Peace of God, passeth all understanding. The second is that the EU is about to spend a few years, and several million euros, coming to the same conclusion…

This morning’s Observer column.

Apple’s Suez canal

This morning’s Observer column.

At the centre of the Appleverse sits a single, crucial piece of desktop software – iTunes. You can do very little with an Apple device without hooking it up to iTunes. Until now, this has given Apple a key strategic advantage over all other competitors. But, as Britain discovered with the Suez canal in the 1950s, being unduly dependent on a single strategic asset can also have serious downsides.

The problem is that iTunes is now a pretty ancient piece of software. When it first appeared in 2001 as a reworking of SoundJam, a program Apple bought from a Californian company in 1999, it provided an elegant way of doing just one thing: getting songs from CDs on to your computer’s hard drive. But over the years, more and more functions have been added: first the management of iPods, then the Apple online store. Then iTunes became the conduit for managing one’s iPhone. The latest addition is the Ping social-networking function.

This is what the industry calls “feature creep” on an heroic scale…

Growing pains

This morning’s Observer column.

Over the past two months, Apple’s market capitalisation (ie its value as measured by the stock market) averaged out at $229.8bn.

The corresponding figure for Microsoft was $215.9bn. And yes, you read those numbers correctly: Apple is now worth significantly more than Microsoft, and the difference isn’t just a flash in the Wall Street pan.

This has implications for all of us who follow these things. The mainstream media, for example, need to discard the rose-tinted spectacles through which they have viewed Apple ever since Steve Jobs returned to the helm in 1997. Apple is no longer the Lucky Little Company That Could but a looming, secretive, manipulative corporate giant.

Recent developments suggest that Apple itself also needs to adjust to its new status as just another company…

Apropos the Microsoft comparison, Randall Stross has a useful piece in today’s NYT. Microsoft continues to be a formidable company, but from the viewpoint of investors it’s become more like GE or Big Oil (excepting BP, perhaps) — a good ‘banker’ stock for a part of one’s pension portfolio.