Dell back in charge at Dell

Kevin Rollins is out, and Michael Dell is back in as CEO of Dell. Having met and interviewed both men, I think that this was a necessary move. Kevin Rollins, while a capable executive, never inspired the same confidence that Michael did, both with customers and shareholders. Blackfriars noted back in September that Dell didn't have a chance to turn around until Michael returned. Now they have that chance.

That said, it's not going to be easy. Unlike Apple, Dell has very little innovation or differentiation separating it from about three thousand other computer makers. As a result, Michael has his work cut out for him in turning around Dell. Here are three things we think he should do to make that happen:

1. Make the Dell brand stand for something. Over the last three years, the Dell brand has gone from standing for best value-for-price PCs to overpriced and low-quality products. Our suggestion: make Dell a corporate brand and make AlienWare the Dell consumer brand. Dell's can then be stable, long-lasting corporate platforms since that's what businesses want, while AlienWare computers can focus on pursuing consumer performance and style.


2. Jettison junk from the Dell product line. Dell has no meaningful business interest in plasma and LCD TVs, nor has it made as much as a dent in other markets like music players and video projectors. Low cost in all those markets is a given, but great marketing sets the leaders in those markets apart. If Dell is going to pull out of its funk, it needs to refocus on computers and do them well -- and that means getting rid of distractions that the company has no chance of leading the market in.


3. Move Dell notebook production back to the US. Dell pioneered customized manufacturing of computers -- but only for desktops. Most notebook computers regardless of brand are made by companies like Quanta and Foxconn in China, which poses some serious security challenges for some US governmental organizations. If Dell were to apply its supply chain and manufacturing logistics leadership to the US notebook computer business, organizations ranging from the US Army and Navy to the Department of Homeland Security would be issuing purchase orders like there was no tomorrow, simply because Dell would be the sole US laptop supplier. While this would only be the beginning of a turnaround, it would have huge business, marketing, and political value -- and that, more than technology, is what Dell needs most.
   
   Full Disclosure: Blackfriars and I have no business relationships or positions with Dell.
   
   
   

   Technorati Tags: Dell, Kevin Rollins, Marketing, Michael Dell, PCs, TV

Windows Vista: the end of one revolution and the beginning of another

Yes, Windows Vista and Office 2007 are now available for ordinary consumers. And you needn't worry about being trampled by the crowds; indications are that there are no significant lines at stores. And why might that be? Perhaps because the personal computer experience is now the antithesis of what it began as.

Take the wayback machine to 30 years ago. This is the pre-IBM PC time, the mainframizoic era. Giant dinosaur computers from IBM, RCA, and DEC roam the earth, and mortals tremble when their hear their three-lettered corporate roars. MIS (the name for IT workers in those days) cares for and feeds these monoliths in their glass data centers, their native habitat. And unwashed and unclean business supplicants fill out forms requesting applications, while MIS folk occasionally allow them to gaze upon the wonders of their domain:

"Sssh. That's an IBM 370/168 over there sunning itself on the data center floor. She's feeding on an entire row of disk drives and writing the output to tape. And when she's done with that, she's going to run the payroll. Isn't she a BEAUTY?"

"Your business application? Gosh, we couldn't possibly do anything about that until we run it through the corporate approval committee. With some luck, though, we might be able to get approval for your program in a few weeks and maybe a prototype in about six months."

Now the business people weren't happy with this situation. But nobody ever got fired for buying IBM. However, a few heretics who wanted to get something done brought in Apple IIs from home and put a program called VisiCalc on them. Suddenly, they could build models and simple applications in a few days instead of months. And best of all, they didn't have to go hat in hand to the MIS zookeepers.

The meme of the mainframeizoic era? PCs were rebellion. PCs were power to the people. PCs were revolutionary -- they called into question business as usual.

Now a few years later, IBM legitimized the PC for business. And when IBM stumbled, then Microsoft eliminated all (well almost all) competitors to Redmond's vision of PCs running their software everywhere.

Return to the modern day. The revolutionary cadre of PC rebels now is in charge. But was the promise of fast-moving business and worker productivity fulfilled?

Yes, there's now a computer on every desk and in every briefcase. But while the mainframeizoic catch-22 dialog with MIS (now IT) has been automated, it is no more helpful than it was 30 years ago. Now, the business person's frustration in trying to improve his business is stymied by an anonymous and faceless entity: the dialog box. Even today, business people running the latest and greatest software from Microsoft face these actual Vista messages:

"You must be logged in as administrator to change this setting."
"Upgrade has been disabled."
"Windows is trying to determine why Internet Explorer is not responding."
"To help protect your computer, Windows Firewall has blocked some features of this program."
"Genuine validation required for Windows Vista. A properly licensed copy of Windows Vista that has passed Microsoft Genuine validation is required to enable cert features and obtain non-security updates and product support. "
"This installation is forbidden by system policy. Contact your system administrator."

What began as the democratization of computing to every marketer and business person has now become a distraction from getting work done. Rather than freeing executives to focus on business, PCs now are the policemen of the business, ensuring that no one moves too fast or too far from what's approved.

Want proof? Try installing Windows Vista on your work PC, hook it up to the network, and call IT for help making it work. Despite the fact that this system was five years in development and testing, designed from the ground up to make the business person's job easier and more secure, don't expect a welcome and cheerful response. Instead, corporate management and IT are saying things like,

"Run Windows Vista? Gosh, we couldn't possibly do anything about that until we run it through the corporate approval committee. With some luck, though, we might be able to get approval for the program in a few weeks and maybe get it to you in about six months when the first service pack comes out."

In 30 years, it's amazing how little has changed.

It is time for another worker rebellion. But this time, the tools are different. The revolutionaries today are employing a million free Internet services, personal Web sites, and startups without investments in the status quo. The first shots have already been fired by business people forwarding their email to free GMail accounts to bypass corporate restrictions, airing dirty corporate laundry on personal blogs on Blogger and Weblogs, and launching test versions of new ideas using services from Google, Amazon, and Yahoo. And the famous Windows PC banner is long gone from rebel uniforms. Today's rebel is wearing a Google T-shirt, carrying an Apple laptop and promoting their company from a Linux infrastructure they don't even own.

Everyone from Bill Gates to high school students sees this change coming. But in this revolution, Microsoft is the defender of the status quo with billions of dollars of revenue and profit at stake, not the poor upstart. And for the new rebel generation that has grown up with computers, they see the Windows Vista PC, not as a tool that will help them build their dreams, but a barrier whose end user license agreements, restrictions on content, and closed development processes stand in their way. The high-school developer in a garage with a cool idea isn't thinking about getting her product to Microsoft -- she wants to get it onto the Internet where it make her world famous, not hold her hostage to lawyers and marketers locked into an obsolete business model. She wants her ideas to be used and shared in millions of devices across the world, not locked in a vault with a thousand others, waiting for a competitor's threat to free them.

The instigator of one revolution is never the leader of the next. Bill Gates knows that, and he is moving on from Microsoft. It's time the rest of us did too. We have nothing to lose but our nostalgia for when Microsoft actually mattered.

Technorati Tags: Apple, Bill Gates, Google, Linux, Marketing, Microsoft, Opinion, Product launches, Windows Vista

Good marketing: Apple "Get a Mac" adverts gain British accents and actors

Apple's "Get a Mac" ads have become icons here in the US. Nearly every US TV-watching kid and adult recognizes actor John Hodgeman as the stuffed shirt PC guy and Justin Long as the cool Mac actor. But fun though they are, the humor in the battle of wits between these two actors is, well, just so American.

Which is why Apple very cleverly has reworked the same themes of these ads for UK audiences using the British comedy team David Mitchell and Robert Webb (you can see the Quicktime versions of the ads here). They appear to have adjusted the dialog to be more UK-centric as well as making the humor more subtle and dry. Perhaps non-US readers could give us their assessments of whether they find them more compelling, but our bet is that these will play much better in Britain than the US ones will -- and generate more Mac sales to boot. Any takers?

The big question: which continental European countries will get their own "Get A Mac" ads? Personally, I can easily imaging the Mac guy in France, but what does a French PC look like?

Technorati Tags: Advertising, Apple, Europe, Get A Mac, Localization, Macintosh, Marketing, PCs, UK, US

Google voted top brand globally, Apple top brand in the US and Canada

Brandchannel announced its a href="http://www.brandchannel.com/start1.asp?fa_id=352">Reader's Choice Awards for the world's best brands today. Unlike financial brand value rankings such as those done by Interbrand and published by BusinessWeek, this one is a strict popularity contest among readers. That said, the results are usually pretty interesting.

This year, Google actually captured two of the top five global brands. Its own brand was first, and a company it bought, YouTube, came in third. Apple was the number two brand globally, and took top honors in the US and Canada.

Particularly interesting to me was the fact that Wikipedia made it to the number four brand globally and number five in the US and Canada. Why should that be surprising? Well for one thing, Wikipedia is a non-profit brand. For another, they spent little or no money on marketing and advertising. Wikipedia becoming a top five brand under those circumstances is a little like an amateur golfer making it into the finals of the US Open championship. It happens, but not often.

One other brand that I watch closely broke into the top five in Asia: Honda. Honda has been making a slow steady climb in its advertising and branding over the years, and while it isn't yet a threat to the Asia-Pacific leaders Sony and Toyota, the brand seems to be getting more and more traction. After all, who can forget its famous "Cog" commercial that showed the amazing buzz you can generate with a single shot (well, according to Snopes.com, actually two shots stitched together) of a Rube Goldberg contraption built out of Honda Odyssey parts -- if you're willing to do 605 retakes.

One important point to note: this survey took place in November and December 2006. That means that Apple's brand visibility among consumers was measured before its iPhone announcement in January, which generated a huge amount of awareness internationally. It will be interesting to see how Apple's entry into the mobile phone market affects its results next year. With Apple only seven points behind Google last year, Apple might close that gap this year.

Technorati Tags: Apple, Branding, Google, Marketing, Wikipedia

How Apple's iPhone's marketing may disrupt the mobile phone business

MacRumors.com notes that Canadian mobile phone carrier Rogers claims Apple is prohibiting it from subsidizing the $499/$599 price of the iPhone. What does that mean? It means that $499 is the real price of the phone, not some Cingular subsidized price. It also confirms that it is likely the same price a consumer would pay for an Apple unlocked phone, something Blackfriars had rumored late last year.

Why would Apple do this? Because they don't want to have to sell a video iPod without phone features for more than an iPhone. This strategy means that consumers would buy shiny iPhone touch-screen goodness in a music-and-video-only player for price points of $399, $349, $299, and $249 without feeling like they're paying more for less.

Our take: Apple is bringing new transparency to the business of selling mobile phones and service, while ensuring a level playing field for retailers selling Apple products. Without phone subsidies in play, Apple now will be able to sell iPhones through other outlets like Best Buy, provided that they also sell Cingular service. At the same time, the company retains pricing rationality and power over iPods, which contribute greatly to its bottom line.

And consumers? They know that if they buy a new Apple product, they aren't going to experience buyers' remorse by seeing it somewhere else for less. The only people left out are the price-is-the-only object bargain hunters, and they aren't Apple's target market. But more importantly, they're going to be able to make more intelligent choices about allocating their cell phone dollars to cooler handsets or more service. And despite all my concerns about the tyranny of too much choice, that's a choice I'm happy to make.

Technorati Tags: Apple, Cingular, iPhone, Marketing, Pricing, Mobile phones, Telcos

Apple TV: Giving TV viewers what they want when they want it

Those guys over at Apple Recon seem to have a good rumor pipeline going. Just the other day, they found an Apple source who said that Apple TV is blowing away expectations, with the first 100,000 units already sold and Apple doubling that number on the next manufacturing run. Current thinking is that Apple will sell a million by next Christmas.

What's the irresistable attraction of Apple TV? Well, Alan Graham over at ZDNet has done the math, and figured out that Apple TV's value proposition is just downright cheaper than buying cable TV service, assuming you only regularly watch a few shows, even if you buy every single show of your favorite series from iTunes (i.e., you don't catch up on them by watching them for free on the Web or the like). Further, watching TV via Apple TV and iTunes means that you get to watch the shows when you want to, not when they are broadcast. And reruns? Well, you own the shows -- watch them whenever you want.

I currently subscribe to both cable TV and TiVO, and I'm finding I'm watching much less TV than I used to. Most of the content Comcast bundles in my subscription doesn't interest me. The TiVO picks up my favorite series shows, and the nightly news, and those constitute most of my TV watching; the rest is DVDs or on-demand TV (which I can also get via iTunes). So remind me again why I need 140 digital channels, especially when 100 of them are watching people yelling at each other.

Blackfriars predicted that an Apple TV network based on iTunes was coming nearly a year and a half ago. And when Jobs introduced the actual Apple TV product, I said that it was a shot across the bow of competing consumer electronics companies. I'm now beginning to believe that that shot wasn't a warning -- it was the start of a slow and steady attack on cable TV's business model, as well as the recent telco must-lose-money TV initiatives. You know what? With Apple introducing a product that gives TV viewers what they want when they want it and for less money than their competitors, it just might work.

Full disclosure: I own some Apple shares.

Technorati Tags: Cable, Apple TV, iTunes, iTV, TiVO, Digital hub, Marketing, Apple, HDTV, TV

Microsoft admits XBox 360 channel now fully stuffed

Microsoft reported earnings this evening, and with it, they announced their actual results for XBox 360 sales over Christmas. The good news: Microsoft shipped 4.4 million XBox 360 units in the fourth calendar quarter of 2006. The bad news: the company only expect to sell another 1.6 million by July 1, lowering its projection of 13 to 15 million down to only about 12 million. These numbers nicely confirm Blackfriars' earlier prediction that Microsoft was shipping excess XBox 360 consoles to retailers to make its 10 million XBox's sold by the end of 2006.

The money quote on XBox 360 sales:

"We are just being cautious about the second half," said Liddell in an interview. "There is a reasonable amount of inventory in the channel."

Second-quarter sales at the entertainment and devices division rose 76 percent to $2.96 billion, but it lost nearly $300 million.

A quick marketing hint for Microsoft: advertising sales targets is just a bad idea. Yes, you get to set expectations so you can exceed them -- but that backfires on you when you don't. And worse, it makes you do things that from a business point of view make little sense, like stuffing the retail channel with products they don't want. Further, doing silly things to make artificial goals just tarnishes Microsoft's brand -- which probably wasn't the original goal.

But maybe Microsoft is learning that lesson. The entertainment and devices division also makes the Zune music player, which went unmentioned in Microsoft's public statements. No new projections were made for Zune sales, especially since Universal and Sony decided that sharing music via WiFi wasn't so welcome to the social after all and prohibited it. With Christmas over and the Zune WiFi feature losing its differentiation and mojo, that one million Zunes sold by June may turn out to be a tougher target to hit than the XBox 360 one was.

Technorati Tags: Games, Gaming, Marketing, Microsoft, XBox 360, Zune

The hidden technologies of Leopard, or what Mac OS X may have learned from the iPhone

Apple Recon has the first rumors that the next Apple special event will take place on February 20. The rumor is that this event will be used to promote the coming of Mac OS X 10.5 Leopard and iWorks '07 on March 24, the sixth anniversary of the introduction of Mac OS X. Also rumored to be in this release are new Mac Pro computers, probably with eight-way processors based on the Intel quad Core 2 chips.

Blackfriars noted previously that the iPhone was just the start of Apple's launch plans this year. This calendar appears to have been planned carefully to spread out announcements throughout the quarter. We get the Beatles on iTunes at the beginning of February (and possibly a new Yellow Submarine themed video iPod), new Mac Pros at the end of that month, and a new OS X Leopard in March. That's a minimum of one special event a month, which is just the sort of pace a marketer wants to keep the brand on the tip of everyone's tongue.

But at the end of the day, this all seems too predictable for Apple, whose marketing modus operandi is to keep the best surprises the most secret (skeptics, see the iPhone feature set). So the open question is, is Leopard full of more surprises than we think?

When I look at the technology Apple has announced, both in Leopard and the iPhone, there are some natural opportunities for Apple to differentiate its products and delight it customers with Leopard. Here are some of Blackfriars' speculations on Leopard's secret features:

1. Multi-touch gesture support everywhere. This technology isn't just for the iPhone. We should expect similar capabilities for touch-sensitive computers as well, suggesting that a touch screen notebook may be in the works. But more likely, multi-touch may become part of the standard notebook trackpad support as well; after all, all new MacBooks and MacBook Pros already support two-finger scrolling and right-clicking. Pinching and stretching probably aren't far behind.
   
   How would this serve Mac Pro and iMac users, who don't have touchscreens or trackpads? Simple: Apple currently bundles mice with those machines. It wouldn't be a stretch to replace the built-in mouse with a multi-touch supported external touchpad or keyboard with a built-in trackpad. Oh, and these add-ons would allow older machines to take advantage of multi-touch as well.


2. A redesigned-from-the-ground-up Finder. After thirty years of click-and-drag user interfaces, multi-touch trackpad gestures open up a new vocabulary for human interaction. So why shouldn't the basic operations of moving files on the screen get an update as well? The preliminary builds of Leopard have had no Finder changes at all. Given Apple's interest in improving every aspect of the user experience, that suggests that Apple doesn't want to show its hand there yet. But think about moving the flick-scrolling and Cover Flow-like browsing available on the iPhone to the Finder, and we could see a dramatic change in the day to day Mac experience.


3. New environmental sensing. Jobs made much of how Apple had integrated proximity and orientation sensors into the iPhone experience. Well, Apple's regular computers have been growing sensors by leaps and bounds over the past few years as well. One clear opportunity: using the iSight cameras built into nearly every Mac for such presence-related operations such as logging in users via face recognition and recognizing when the user has left the machine. Using the camera for these security functions could make Macs both significantly more secure and easier to use -- while putting even more distance between the Apple and Windows worlds.


4. New screen sizes supported by resolution independent interfaces. The iPhone demo showed that Apple has resolution-independent applications up and running. Why wouldn't Apple put that in their latest and greatest OS release? Further, Leopard's new Spaces workspaces allow users to multiplex any small display into a larger virtual environment. This suggests that Apple has a small-display platform planned for support this year, such as Apple Recon's MacBook Mini. You don't need a resolution-independent system for those notebooks, but it would certainly make them more flexible -- and open the door to very small form factor devices other than the iPhone.

This isn't anywhere close to a complete list of the opportunities Apple may be pursuing in Leopard. But putting my marketing hat back on, features like these add huge differentiation to Apple products and to the Mac user experience. They also justify Jobs' insistence that Mac's must run on Apple hardware. While you could duct tape on cameras and sensors onto a Dell to attempt to replicate the Mac environment (as dramatized in the Tech Support Mac/PC ad), such a Frankensteinian system wouldn't drive the same user impression or brand value. In short, Leopard could reinvent the user experience with its union of software and hardware -- and makes competing systems look like only half a solution.

Technorati Tags: Flick scrolling, Consumers, iSight, Beatles, Apple, Leopard, Cover Flow, Mac OS X, iPhone, Finder, iMac, MacBook mini, Multi-touch, Opinion, Dell

Marketing and visualization chemistry

As I noted this morning, I'm just catching up on a lot of backlog of cool ideas and techniques for marketing things. Just today, I read Guy Kawasaki's blog entry noting the art of visualization. I'm particularly taken with the periodic table of visualization methods; I wish I'd had that when I was a Forrester analyst trying to come up with concept graphics. That's definitely worth studying, particularly if you're putting together any type of presentation of concepts.

Technorati Tags: Graphics, Marketing, Periodic table, Guy Kawasaki, Visuals

Rounding up marketing for the week

As the result of Apple earnings and the many subsequent articles last week, I've been ignoring most of the regular marketing beat for a couple weeks. To try to address that shortfall, I've put together a few interesting marketing articles and data points I noticed during that period but haven't yet found time to write about.

First, I'm late with this one. The New York Times had an article last week on how small business owners are hiring speech coaches to help them present themselves and their companies better. The article is now behind a subscriber/pay wall at the New York Times, but it's worth noting that this strategy isn't just for small businesses. We've worked with a lot of large companies whose senior executives would benefit hugely from basic speech coaching, but somehow, they think its just for marketers. The same executives who insist on $800 pens and $4,000 suits somehow think that umm'ing and stuttering their way through presentations is just fine. Go figure.

Secondly, there was a great article noting how retailers are starting to identify and retaliate against what they call "devil shoppers", or those who abuse generous store return and warrantee policies. A colleague and I wrote a Forrester research paper back in the late 90s saying that digital businesses would figure out how to fire their most unprofitable customers. Sounds like reality has caught up to that projection.

Thirdly, Microsoft is back in the news today with a Boston Globe article that is part of its Vista PR campaign, touting how much new business activity the release of Microsoft Vista is bringing to Massachusetts. I've seen other releases touting the benefits to other states. The ironic marketing bit around these releases is the fact that Microsoft doesn't realize that most consumers and businesses don't perceive it as a good thing that they have to spend a lot of money on new hardware, software, and services to run their latest release. Yes, lemons to lemonade is good marketing, but only if you can clearly explain the benefit to the users. This one misses the boat, especially compared to systems like Mac OS X and Linux that tend to get more performance out of existing hardware with each release. Microsoft's marketing playbook is starting to show its age.

Technorati Tags: Advertising, devil shoppers, Marketing, Microsoft, Speech coaches, Retail

Beatles library only part of the story for Apple Super Bowl ad

I've speculated previously that Apple's introduction of the iPhone at last week's MacWord was just the start of many announcements to come this year. AppleInsider observes that Apple as picked up rights to air a Super Bowl commercial on February 4.. The rumor is that they'll use that commercial to announce an three-month exclusive deal to electronically distribute some Beatles music via the iTunes Store.

Now wearing my marketing hat, this raises a question: Does this ad buy make sense from an ROI point of view? Current Super Bowl ad rates are about $2.6 million for 30 seconds. Apple makes only about US$0.04 on each song sold via iTunes. So it would have to sell about 65 million Beatles tracks during that limited three-month period to break even on the commercial time, to say nothing of the cost of the ad production. And even if it were to sell 100 million Beatles tracks, that would only make Apple $1.4 million or so. So the open question becomes, "Might there be more in an Apple Super Bowl ad than just the Beatles announcement?"

My call: Assuming it was able to negotiate the rights, Apple will probably announce a Beatles-themed iPod to bundle with the Beatles music, just as it did with the U2 iPods. And given that Apple just talked down iPod projections for the first quarter, that would be a smart way to boost sales during this traditionally slow period -- and again surpass analyst projections.

In my more speculative moments, I wonder whether even that is big enough for a Super Bowl ad. Apple has been sparing in its use of Super Bowl ad spots, usually (but not always) reserving them for times when it wants to announce something really big, starting with the Ridley Scott only-ever-shown-once-on-TV 1984 Macintosh ad. A Beatles iPod that had all the sexy wide-screen and touch-screen goodness of an iPhone without the phone functions would certainly fit that bill, but I don't think Apple would be willing to confuse the market quite this soon after the iPhone introduction. Regardless, my bet is that the Super Bowl ad is about more than just adding the Beatles catalog to iTunes.

Full disclosure: I own some Apple stock.

Technorati Tags: 1984 Apple ad, Advertising, Apple, Beatles, iPod, iTunes, Marketing, Super Bowl

Apple blows out estimates again

UPDATE: Well, for once I overestimated iPod sales, but only as the result of the NPD market share update on January 4. Apple, Inc. reported earnings after the stock market close, and they actually only sold a few more than 21 million iPods (for very large values of only). That's up 50% year over year in units and a 24% increase in revenue. I also missed on computer units, overestimating notebook sales by 300,000 or so. But my biggest surprise was the increase in net margin to over a billion dollars, which rose from 9% of revenues to 14%, causing my estimate of $796 million to look positively gutless.

So what does it all mean? Well, here's a fairly mind-blowing thought: Apple sold nearly one-quarter of the 86 million iPods in the world today just in the fourth quarter. No matter what Business 2.0 asserts, that's not slowing growth. And while we'll undoubtedly see some change in mix with the introduction of the iPhone in very late Q2 (more likely Q3), I wouldn't bet on growth slowing soon. After all, while the iPhone may need a lot of refining to meet FCC and Cingular requirements, Apple has no such restrictions on marketing a WiFi-enabled touch-screen iPod without cell phone capabilities. And the year has just gotten started.

Full disclosure: I own some Apple stock.

Technorati Tags: Apple, Financial analysis, iPhone, iPod, iTunes, MacBook, Macintosh

What can we expect from Apple today: Santa or the Grinch?

[Graph of three years of iTunes and iPods sales. Click here for a larger version.]

Apple, Inc. reports earnings today after the close of the market, which, after Intel's decline in profits yesterday, should prove illuminating in how successful Apple has been at distinguishing itself from the technology pack. We're on record predicting 23 million iPods and nearly $8 billion in revenue, which is quite a stretch for us to believe. But given we have yet to make a projection for Apple quarterly sales that the company hasn't surpassed, it will be interesting.

One area that I'm particularly interested in is seeing how MacBook sales have been going. Given how many of them I see in airport lounges and Internet cafes, it's feeling like that product is doing better than expected. This is one area where I suspect there may be some upside surprise over and above the 1.9 million Macs I've predicted Apple sold in Q4.

But the iPod number is the one to watch. Despite a year's worth of predictions that the iPod killer cometh, no iPod killers have actually made even a dent in Apple's domination of music players. And given that nearly every kid I know either got an iPod for Christmas or already had one, and that Apple hit a new low price point with its shuffle this Christmas, the 23 million iPod number seems almost possible. And if nothing else, those types of numbers could really boost that graph above I used to refute Forrester's numbers last month. We'll see after 5 PM Eastern time.



Full disclosure: I own some Apple stock.

Technorati Tags: Apple, iPod, iTunes, Mac OS X, MacBook, MacBook Pro, Marketing

NetFlix's free Internet movie service: free and worth every penny spent

NetFlix today announced that it will provide several hours of Internet movie viewing free to its subscribers. This offer mimics the one that Wal-Mart announced in November, but drops the $2.99 fee that Wal-Mart imposed in favor of restricting the number of hours a subscriber can view streaming movie content.

While this is a nice bit of PR for NetFlix, Blackfriars believes it will be ignored by consumers just as Wal-Mart's offer was. Why? Well, we set out the criteria for a successful Internet movie service last year, and we'll apply them again to this service. Blackfriars sees NetFlix's movie offering falling short because a viable Internet movie service needs to:

1. Have a critical mass of users. NetFlix has more than four million subscribers, so they meet this requirement. Check this one off as a pass.
2. Provide user accountability and billing. NetFlix has credit accounts on file for its users and therefore can easily make users accountable for misuse or illegal redistribution of its content. They pass this requirement too.
3. Be dead simple to use. Sadly, this one isn't true. NetFlix uses Microsoft's video streaming digital rights management system and further requires both Windows and Internet Explorer to function properly. For anyone 1) using a computer not running the latest version of Windows or 2) caring about the security of their system and therefore not running Internet Explorer, the NetFlix service will just be another exercise in frustration. This fact was demonstrated clearly in the New York Times article when the one-minute plug-in installation turned into 15 minutes on the phone with technical support debugging Microsoft's seamless user experience. So this isn't going to be drop dead simple. The service fails this requirement.
4. Work with TVs and portable devices as well as PCs. NetFlix promises that this is in the works and will be available real-soon now. But today, NetFlix's choice to use streaming technology ensures that portable devices won't work with the service, and getting the signal to your TV from your computer will be another exercise in frustration (see requirement 3).

The other fatal flaw in NetFlix's strategy at present is a business one: free services rarely create great loyalty or business value. With NetFlix's video download service driving costs rather than revenue, NetFlix's incentive isn't to make it a great service, but rather to minimize its impact on its profitability. And while Microsoft may feed NetFlix co-marketing dollars to help defray the profit impact, those dollars will never be enough to compete with services that actually have to earn consumers' dollars.

If NetFlix really believes in video downloads, it should figure out a way to charge users for them. If it doesn't, it's in a price war with Wal-Mart for who can deliver the worst service cheapest. And no matter how wonderful the technology, price wars do not great businesses make. Meanwhile, Apple's iTunes Store will keep on adding to the 1.3 million movies and 50 million TV episodes it has sold to consumers -- and show consumers that they get what they pay for.

Technorati Tags: Internet, iTunes, Marketing, Movies, NetFlix

Justifying Apple's iPhone restrictions: they want it to succeed

Dave Winer of Scripting News and RSS fame takes Apple to task today for locking the iPhone to Cingular and not allowing third-party applications.

I don't believe for a minute that Jobs's closed-box approach to cell phones is the right one. Growth is driven by choice. The Internet grew because, for the 80th time, it was the platform with no platform vendor. The Apple II won, the Mac won, the PC won, even Windows won, because you could install any software you wanted on them. The iPod is a wonderful product, but damn it's time we made one that could run our software, could run any software, so users have choice, and so you don't have to buy new hardware to get software features, and so the market can grow at the rate of innovation, not at the whim of one marketer.



Apple is now bidding once again to become the total control platform vendor that they have always been inside. When they introduce the phone software to the Macintosh (seems inevitable, doesn't it?) will they shut down developers there too? I am writing this on a Mac, because it's much better than Windows. Apple didn't need any patents to get me to buy their system. I don't even like the company, I think they're brats, small thinkers. Even though I don't have to, every year I spend thousands of dollars on their products. That says all I need to know about what kinds of locks you need on users. The only lock you need is to create a better product. The rest of it is nonsense.

Winer's last two sentences indicate that this is his model of product marketing:


1. Introduce great new product.
2. Profit!


The reality that Apple has had burned into them over the years is actually a lot more complicated. In Apple's case, it has gotten hammered for a bunch of problems in between those two steps, with the original iPod mini, the story was:


1. Introduce great new product.
2. Make too few to satisfy demand
3. Deal with lots of dissatisfied would-be customers who claim there is a massive conspiracy.
4. Grumble about missed profits


In the case of the iPod nano, it was more along the lines of:


1. Introduce great new product.
2. Discover that some customers don't believe in buying cases for their products and therefore believe the product is fatally flawed because they scratch
3. Deal with lots of lawsuits claiming there is a massive conspiracy.
4. Profit anyway.


Do you see a theme here? Any flaw, any blemish, any mistake in estimating demand is fair game for consumers to state that Apple isn't living up to its brand promise. So what do you think goes through Steve Jobs' mind next time he has what he sees as a killer product? He thinks, "I've got to do everything I can to control the consumer experience and make it a good one." The result: Apple's release process looks a lot more like this:




1. Negotiate a carrier deal in secret so that you have a place to sell your new phone.
2. Set a goal of reinventing the consumer experience for your phone. Test extensively.
3. Spend two and a half years developing a great new product in utmost secrecy.
4. Announce the actual device when you are forced to reveal the details to the FCC.
5. Work on controlling the phone design and parts to ensure the phone can be manufactured in the millions.
6. Restrict applications and add-ons to guarantee to FCC that phone will work as advertised and to Cingular/AT&T that the phone will have no negative effect on their revenues.

manufactured in the millions.
7. Spend millions marketing your product to high-end consumers.
8. Release product.
9. Discover what falls short in the consumer experience (manufacturing? network owner and restrictions? sales channel? GUI?) and fix issues (this step may be repeated in some circumstances, although Apple hopes not).
10. Spend millions refining your marketing to align with actual consumer experience.
11. Receive sales (and profit!) validation from the market (or not) for the product
12. Create guidelines for software that won't degrade the user experience or regulator approvals and develop certification program.
13. Develop and announce third-party software program.
14. Profit finally (whew!).



Why wait so long to open it up to third parties? Because Apple wants market feedback on its design principles and details so it can develop better devices in the future. If it allows third party software from the beginning, it won't get clean feedback from ordinary consumers on the phone. And worse, bad third-party software -- say, a nice little Mac OS X app that simply spams you address book via email -- would sully its brand value, which is one of the highest value brands in the world.



There's no guarantee of success in the phone market for Apple. Yes, they are being conservative. But this is a multi-hundred million dollar bet in both product development and marketing spend.



For those for whom third-party software is an absolute must, another large software company uses this development model:


1. Develop a phone OS based upon other existing products.
2. Launch third-party software developer program.
3. Struggle to get phone makers interested in their phone OS.
4. Struggle to get phone makers interested in their phone OS.
5. Struggle to get phone makers interested in their phone OS.
6. After five years in the market, continue to lose money with single digit market share.



Why does this development model work for Microsoft and not for Apple? Because the brands that get tainted by bad consumer experiences are the phone brands like Samsung, Motorola, and Palm, not Microsoft directly. It has insulation from the consumer experience and likes it that way.



There are plenty of Windows Mobile smart phones out there that allow third-party development. For developers for whom HSPDA and third-party software are an absolute requirement, target a Palm 700w or a Samsung Blackjack, and call it a day. Or better yet, develop your own phone platform to compete with the iPhone. After all, if this is key attribute for consumers, they should flock to your device. But because Apple bears all the responsibility for the iPhone consumer and brand experience, its conservative approach to add-ons is just good, smart marketing. And at the end of the day, it's that marketing, not the attitudes of a few developers, that will spell the success or failure of the product.



One final note. The fact that the iPhone runs Mac OS X widgets is significant and may mitigate many concerns about third-party apps. Mac OS X 10.5's (Leopard's) widgets allow any piece of a Web page to be used as a widget. And since Leopard comes out before the iPhone is released, my bet is that the iPhone widgets will be Leopard-compatible. So if you want to develop great apps for the iPhone, the right approach might simply be to put your unbelievable mobile application on a Web page.



Update: if you want more dispelling of myths associated with the iPhone, Roughly Drafted does an excellent job of it, including the myth that the lack of third-party apps will doom the platform. Further, Scott Karp accurately notes that Apple is in the business of selling experiences, not platforms, and that has been the essence of its success, not third-part applications.

Technorati Tags: Apple, , iPhone, Mac OS X, Third-party software, Marketing

Goodbye to MacWorld

Well, it's time for me to hit the airport and say goodbye to my first MacWorld San Francisco. It was terrific to be here for the iPhone announcement and to experience the Steve Jobs reality distortion field in person. But more significantly, it was a blast to catch up with so many other writers whom I only know from the online world, folks like John Gruber of Daring Fireball and Bryan Chaffin at The MacObserver.com. And special thanks to Adam Jackson of DailyTechTalk for the 4 am keynote meetup and the great donuts to keep away the cold.

See you on the other coast.

Technorati Tags: Daring Fireball, MacObserver.com, MacWorld, DailyTechTalk.com

CodeWeavers' CrossOver environment for the Mac: Windows apps without Windows' gaps

For those of you not familiar with CodeWeavers, CodeWeavers produces products based upon the open-source WINE environment (WINE standing for WINE Is Not an Emulator) that puts a Windows environment on Linux or now the Mac without ever loading a copy of Windows. How does it do this? It translates every Windows application interface, both documented and undocumented, into Linux or MacOS system calls. And if you just heard a sound, that was the sound of millions of programmers screaming, "Ouch! That's insanely hard!"

Blackfriars had the opportunity to sit down with Jeremy White, CEO and President of CodeWeavers to talk about their new product, CrossOver for the Mac. Jeremy noted, "We’ve made a living selling CrossOver to the Linux world and we love those customers. But having the Intel Mac market adds three times the potential customers for our products. What is great about it is that 90% of the work that we do works for both platforms, so everyone benefits, both Mac and Linux users."

We then moved on to talk about the upcoming Mac OS X 10.5 release, Leopard. Jeremy said, "We're pretty excited about Leopard -- kind of. See, [Mac OS X 10.4] Tiger has a really nasty bug that keeps us from doing some low level stuff in a fast way. Leopard fixes that. The only problem: Leopard introduces another nasty bug that we have to work around a different way. Oh well."

Regarding the Mac platform overall, Jeremy added, "We’re very excited because if we can get extra support in the Mac market, we can get more and more compatibility on all platforms. We still run those old Windows 95 binaries. We may eventually reach the point where we run more apps than Vista does. And that would be interesting. And I’m excited that there are so many notebooks that are Macs. I’m a geek, and I like lots of choices."

I did ask one technical question that I thought might be of interest to readers: does CrossOver introduce any security vulnerabilities because of its Windows environment? In other words, can Windows compatibility be too much of a good thing? Jeremy countered, "Only the application vulnerabilities are of interest, since we don't have a Windows kernel, so we don't have Windows kernel vulnerabilities. But the application vulnerabilities are there, so we do provide mechanisms within CrossOver to allow you to run antivirus programs. And you don’t want to run Internet Explorer on Crossover because of all the application vulnerabilities there. It’s a bad idea. Word, for example, has a zero day exploit that hasn’t been fixed by Microsoft, but we have exactly zero reports of viral infections. And if there were an infection, it would only affect that environment and application, so it would be easy to clean."

And finally, what about competing products like Parallels and VMWare? Jeremy noted, "Look, if you really want to run Windows in its native form, those are great products. But at some point, you have to decide: would you rather send your money to Redmond for Windows licenses or to us? Obviously, we'd rather you sent it to us, but more importantly, you actually have a choice. I like lots of choices."

Technorati Tags: Apple, CodeWeavers, CrossOver, Jeremy White, Macintosh, Parallels, VMWare, Windows, WINE

Why the iPhone doesn't do high-speed mobile phone networks

One of my colleagues in the ex-Forrester Mafia is Paul Callahan, who rightfully questions why Apple's iPhone doesn't support high speed, third generation (3G) phone networks and/or High Speed Download Packet Access (HSDPA; who comes up with these absurd and untypable acronymns?). Instead, iPhone only supports the ubiquitous GSM/EDGE standard. I'd argue there are three pretty compelling drivers for this conservative decision:

• The exclusive Cingular deal. Despite its marketing, Cingular doesn't exactly have a ton of support for HSDPA yet in its network. Further, the chip support for this standard in the iPhone would raise its cost dramatically, and the price is already at the upper end of what the market will bear. Rather than advertising their exclusive partner's lack of coverage to the leading edge adopters of iPhones, Apple chose instead to save high-speed support for another version -- possibly one that could make use of the multi-megabit wireless networks outside the US.


• The bundled apps. Think about the applications demonstrated on the iPhone. Which of them require high-speed real-time data? Email doesn't unless you're getting huge attachments. SMS and chat doesn't. And all music and video is sync'ed via the dock, not done over the air. Only Web surfing has the possibility of dramatically illustrating the low speed of the EDGE network, and that's only one element of the phone experience. As Jobs said, the iPhone emphasizes a great phone experience first and foremost, and GSM/EDGE is going to satisfy 90% of the iPhone and Internet experience just fine.


• Built-in WiFi. The reality of consumer usage is that not that much Web surfing goes on while you're driving or taking the train, while a lot of it goes on in areas that have WiFi wireless coverage. So even for high-bandwidth apps like Web surfing, the iPhone can still deliver a decent high-speed experience if the user is in a location with WiFi. I say decent because anyone expecting Mac Pro Core 2 Duo speediness from a hand-held processor is going to be sadly disappointed, regardless of how fast the network is.

Remember, Apple's design goal of the iPhone was to reinvent the mobile telephone to become more powerful, easier to use, and a great multi-media device. Every design decision has tradeoffs. The iPhone pushed the envelope with radical hardware design, more radical software, and a completely new user interface. Apple went conservative on the phone network since it was, after all, their very first phone. If this one works and sells well, they'll get to do more versions with more bells and whistles, just as they did with the iPod. If it didn't work because of some glitch or chip availability problem with the high-speed networking gear, they wouldn't sell any, and that would be that for Apple phones. Which decision makes more business sense?

Even using good old GSM/EDGE technologies, my prediction is that Apple will sell every single one they can build for the next 18 months. Those that just have to have high-speed can wait for iPhone 2.0. But for the majority of phone users, iPhone is plenty drool-worthy as it stands.

Technorati Tags: Apple, Cingular, EDGE, GSM, HSDPA, iPhone, Wi-Fi, WiFi

Dissecting Steve Jobs' reality distortion field

[Steve Jobs presenting the iPhone at MacWorld 2007]

As of this instant, Google News is showing 2,152 stories today about the iPhone. Any way you slice it, that is serious buzz about a product that isn't even shipping yet. And since Blackfriars' brief is to examine how companies communicate their own value and that of their products, those numbers are pretty interesting.

One of the benefits of being at MacWorld this year was that it gave me the chance to dissect Steve Jobs' presentation style in person (you can stream it yourself from Apple's Web site). And while I was madly blogging on my cell phone while the keynote was going on, I did jot some notes about just how he sets up what is fondly referred to as his reality distortion field. My conclusion: there's no magic here. He simply does all the things that a great communicator is supposed to, including many techniques that we teach. Jobs is so persuasive because he:

• Rehearses -- a lot. Jobs is extremely comfortable on stage. You can see in his eyes that he knows his content cold before he even starts. He isn't trapped behind a podium. He knows when to get excited and when he needs to pull back. All of these things aren't hard -- provided you have the entire story you want to tell in your head. Jobs does -- and that only happens if you have done the story over and over again in rehearsal.


• Is himself. Jobs doesn't try to imitate other people or be something he isn't. He's not afraid to get excited and emotional over what he is talking about. As an example, when he thanks the families of Apple employees at the end, you can hear him getting choked up about the commitment and dedication they had. The audience can feel the emotion behind his words, and that adds impact to anything Jobs says.


• Uses visuals effectively. Jobs doesn't clutter up his presentation visuals with a lot of words. In fact, the slide shown above probably had the most words of any slide he used. Most of his slides have such illuminating reading as 2.0B (the number of iTunes songs sold to date), or "Ads". Without a lot of reading to do, the audience listens to Jobs more, giving the words he says more impact. Jobs also uses demos effectively; all of them use very simple examples rather than complicated ones. Why simplicity? Because simple ideas are easier to convey and easier for the audience to absorb.


• Focuses on the problem he's solving in detail. Watch Jobs' first 7 or 8 minutes of the iPhone introduction (starting about 26 minutes in and running until 33 minutes). All of that time he spends setting up why smartphones are dumb and clunky. He doesn't even talk about his solution to the problem until he's told the audience no fewer than three times what criteria a successful product in this market must have. And amazingly, the product he introduces has exactly those criteria. It's not only an effective marketing technique, but it creates drama and tension where there would be none otherwise.


• Says everything three times. Jobs always introduces new ideas first as a list, then he talks about each member of the list individually, and then he summarizes the list later. And, he always uses exactly the same words each time. A great example is the three functions that the iPhone has: an iPod, a phone, and a revolutionary Internet communicator. Every aspect had its own section of the keynote, and its own icon that kept being repeated. He even got the audience to chant the three items sequentially with him over and over. The result: even listeners who aren't paying attention get the message.


• Tells stories. At one point late in the presentation, Jobs' slide advancing clicker failed. He switched to the backup, and it wasn't working either. So what did he do? He told a story about how he and Steve Wozniak build a TV jammer and used it in college TV rooms to stealthily mess up TV signals. The story had nothing to do with the presentation, but it kept the audience laughing and amused while the backstage crew fixed the problem. Yet, the story fit beautifully into the larger iPhone story overall.


• Isn't afraid of the dramatic pause. When Jobs switches topics or is about to say something important, he doesn't rush into it. Often, he will go to the side of the stage and grab a drink of water. Or, he'll just stand to the side of the stage and say something like, "Isn't that amazing?" and just wait. The pauses both keep the audience from getting tired out and allows them to absorb what he has said. And more importantly, they create drama and anticipation for what is to come.


• Uses comparisons to demonstrate features. When Jobs has a feature he really wants people to remember, he always compares it to something else. In the iPhone introduction, he compared the iPhone with other smartphones. When he introduced the iPod nano, he compared it with other flash players. Comparisons allow him to emphasize the unique selling propositions of his products and paint the competitive landscape on his terms. This one feature of Jobs' presentations puts his presentations head and shoulders above others.

If anyone needs more convincing of how much of a difference presentation technique makes, just contrast Cingular CEO Stan Sigman's presentation beginning at 1:34:50 in with Jobs'. Despite his professionally written content, his presentation just falls flat on too many words and not enough life. The audience starts clapping at once point just to try to convince him to cut it short. Ouch.

Apple has built its reputation by sweating the details for its customers. Jobs does the same for his audiences. Few companies will effectively compete against Apple until they start doing the same. Until then, Jobs' reality distortion field will be as powerful as ever.

Technorati Tags: Keynote, Stories, Differentiation, Apple, Presentations, Communications, Steve Jobs, Marketing, Public speaking

Nine ways Apple, Inc. just changed the landscape of consumer electronics

[Apple TV box]


[Apple TV display]



[iPhone with Google Maps display]



[iPhone displaying video]

Steve Jobs heralded yesterday's Macworld keynote address with the words, "We are going to make some history today." While the introduction of Apple TV and the multifunction iPhone certainly are a new direction for Apple, we believe that Apple's marketing muscle will have a big effect on the rest of the consumer electronics and telecom industries will be just as profound. Just how is that? Here are nine effects we see:

1. Apple TV is a wake-up call to cable TV companies for unbundling.With high-definition outputs and iTunes' library of nearly every hit TV show, suddenly it's no longer so clear why consumers should subscribe to big packages of TV channels they never watch. With many consumers now weaned from real-time TV watching by digital video recorders, a lot of those consumers will now look at the fact that their $50 a month to their cable provider buys at least 20 TV episodes from iTunes AND a NetFlix subscription. At least some of those consumers will give up their never-watched subscriptions to the Watch The Paint Dry channel and opt for Apple's pay-as-you-go plan -- especially since Apple's shows can moved to laptops and iPods as well.


2. If it doesn't have an Apple deal yet, TiVO should camp out at Apple looking for one. Apple TV's price point of $299 proves that Tivo's $800 high-definition TiVO box is priced way too high. And just as cable company subscriptions will feel the pinch of iTunes-fed TV, so will TiVO subscriptions. With TiVO's future already threatened by cable company digital video recorders, TiVO needs a company who market the value of its technology in ways that it just can't afford. A TiVO application on Apple TV would do just that.


3. Nokia and Motorola just got Excedrin headache #15. No one wants to be in Motorola CEO Ed Zander's shoes today. After announcing fading demand for Motorola's hot product a few days ago, a product that Motorola has no chance of replicating takes the press by storm -- and it isn't even shipping yet. Motorola and to a lesser extent Nokia both now have a huge marketing challenge to go up against one of the strongest brands and technology players in the world, and it's going to take much better programs than "Hello Moto" to even compete.


4. Microsoft's Windows Mobile now looks dated. Every cell manufacturer that has bought into the Windows Mobile business model where Microsoft dictates a bad user experience and makes the phone manufacturer pay for the privilege should be looking very carefully at their Microsoft contract today. Microsoft won't have anything comparable to the iPhone for years (despite Windows Mobile now being on version 5), so phone makers will face tough choices: discount their products to offset the poorer user experience, or license more software to improve the experience over and above what Microsoft provides. Either way, it's going to get ugly. Palm and RIM stocks are already suffering and there's lots more of that to come.


5. Mac OS X software development got a huge shot in the arm. Any Mac OS X software developer just saw the market for their products expand, since the iPhone runs Mac OS X. With a common set of development tools and APIs and world-class networking code, the iPhone is likely to have hundreds, if not thousands, of add-on software applications when it starts shipping, with more to follow in years to come -- and that will only increase its attractiveness as a new platform.


6. Microsoft's Zune marketing just had its legs cut off. Microsoft's Zune music player captured nearly 2% of the music player market in December on the promise of its WiFi sharing capability. But iPhone has just eclipsed Microsoft's bet on Zune by incorporating both WiFi and cell capabilities, making Zune look so last year. And no one should be expecting that Apple won't extend its existing iPod line with iPhone technology. The result: Apple could host another of its famous "Special Events" in just a few months and trump all of Zune's existing capabilities with an iPod featuring iPhone's touch interface and sexy form factor at a $299 price point -- and Zune will be over.


7. AT&T's acquisition of Cingular now looks like a huge advantage -- sort of. With US availability of iPhone contingent on a Cingular contract, AT&T will see customers flocking to their services just to get Apple's hardware. Expect to see entrepreneurial consumers to create a black market for iPhones by signing Cingular contracts to get iPhones, selling the iPhones on eBay, and paying for cell service for their old GSM phones with the profits.


8. Skype voice over IP client will make its way to the iPhone. One of the reasons Cingular won't benefit as much from the iPhone as expected is that many consumers will prefer Skype over WiFi networking to using Cingular calling services for many of their calls. And with the Mac OS X underpinnings, the Skype software will likely be available for the iPhone before it ships.


9. Apple will create huge competitive changes in consumer electronics. The iPhone is just one of the many handheld products we can expect from Apple in the next few years. The music and video industries will soon have to compete with full-screen iPod players, remote control makers like Harmony can expect sleek touch-screen remotes, and Internet tablet makers like Nokia and IBM can expect to see competing products as Apple incorporates iPhone innovations into its Macintosh computers. But more importantly, Apple's usability and marketing will create a new gold standard for consumer electronics that most companies will have a tough time matching. Apple will leave the low end market for others to fight over, but it will rapidly become the player to partner with or beat at the high end. Regardless of who wins those battles, the bar for successful products is going to be higher.






Technorati Tags: Apple, Apple TV, at&t, Cable, Cingular, Google, Google Maps, iPhone, iPod, Microsoft, Motorola, Nokia, Skype, TiVO, Windows Mobile, Zune

Apple reinvents TV and phones -- and itself

The following are my notes from this morning's keynote by Steve Jobs at Moscone Center West in San Francisco. I've consolidated the five parts I wrote on my cell phone into this single, more comprehensible version. Quickly, the keynote can be summarized as follows: Apple has reinvented itself into a consumer electronics company, reaching beyond computers to introduce Mac OS X-powered TV content media centers and cell phones. And it is serious enough about that reinvention to change its name to Apple, Inc. That by itself should indicate how big a change this is.

Steve Jobs took the stage just about 9:10 am, and began with "We are going to make some history today." He started by recapping the success of Apple's transition to Intel processors, which he had said would happen in less than a year, and actually only took seven months. And he had data to demonstrate the success of that transition: half of mac sales are now to switchers. He suggested that Microsoft's Steve Allchin might be among them, now that he is retiring.

Jobs started the music section of the talk with iTunes. iTunes has now sold more than two billion songs. Unlike what some analysts have said, growth is not slowing. They have also sold 50 million TV shows and 1.3 million movies. They have now added Paramount to Disney as providers of movies.

The iTV device that Jobs previously had mentioned will now be known formally as Apple TV. He showed the device in action, noting that it sports 720p high-definition HDMI output, a 40 gig hard drive, and support for all WiFi standards. It will sync with content one computer, and it will stream content from up to five computers. It has an amazing user interface that takes advantage of stored user photos. It uses the Internet that allows you to watch movie trailers and movies.

Apple TV also turns your TV into an iPod to play music, and it does amazing photo slide shows in high definition. And of course it is $299, available for order today.

Now Jobs is talking about an announcement that will change everything. He is announcing three new products: a widescreen ipod, a phone, and an internet communicator, all wrapped into one product.

The iPhone (yes, that is the name) has a touch screen interface and a giant screen that reaches to the edges of the screen, and stop Mac OS X. They have patented the multitouch user interface, that allows multiple finger touches. They have desktop class applications and networking, because the os has it, and they have built on it.

It syncs with your pc via a dock, and moves all your email, music, etc over. The iphone has a 2 megapixel camera, as well as a proximity sensor to lock the screen when the phone is to your ear. It also has an accelerometer and allows switching from landscape to portrait mode. It has only one button, called the home button. It does have a SIM card, implying GSM.

The user interface user finger gestures and flicks in very natural ways. Its music playing capabilities are better than any ipod to date, including video. It also has a speaker and does cover flow.

The phone functions are new too. It has quad band, as well as WiFI and EDGE. It has visual voice mail, allowing you to select which voice mails to listen to; this is a collaboration with Cingular. It uses the same flick scrolling for the address book. The address book has favorites too.

SMS texting includes multiple sessions with a virtual keyboard on the screen. It looks like iChat.

Now the Internet communications. They have put rich HTML email, as well as Safari on the phone. They have Google Maps as well. The phone detects WiFI and uses it when possible.
The phone does full web pages. You pinch the page with your fingers, and it expands. It also does multiple pages of browsing simultaneously.
Apple did a deal with Yahoo to provide push IMAP email to all their users. Phone numbers in rich email can be dialed with one touch.

The phone also does widgets, allowing stock checking, weather, etc. But Google Maps is killer, with gorgeous animations not on the Web. Steve ordered 4000 lattes to go in the demo. Of course, it has Google satellite images as well.

"It is the Internet in your pocket." He brought out Eric Schmidt to talk about the Google integration and Jerry Yang to talk about Yahoo.

Steve showed how phone calls fade out music playing and reinvents the whole interface. They are introducing new headphones, both wired and Bluetooth. The phone gets about 5 hours of battery life doing Internet or phone, 15 hours with music. It will sell for $499 for a 4 gig model, and $599 for an 8 gig model. It will not be shipping til June because of the need for FCC certification.

Apple has signed a multi-year exclusive deal with Cingular to innovate on services integrated with the Apple iPhone. Steve's clicker jammed, so he told some personal stories. Steve targeted selling 10 million iPhones in 2008. To reflect the change in focus, Apple will change its name to Apple, Inc. John Mayer performed to close the show.

The bottom line: Apple's keynote today was a shot across the bow of not just companies like Motorola and Nokia, but Sony as well. And given the marketing powerhouse that Apple is, Job's prediction of changing the world is more than likely to come true. Perhaps MacWorld will soon be renamed to the Consumer Electronics Show, West.

Technorati Tags: Apple, Consumer Electronics, MacWorld, Marketing

Celebrities at the keynote

In rapid succession, we just saw both Walt Mossberg of the Wall Street Journal and Steve Wozniak ride into Moscone west on Segways. Paul Otellini, CEO of Intel followed close behind, but he preferred arriving on foot.

in line for the Appe keynote

I arrived at the keynote line at about 415. Our group was about 150th in line then. Now at 530, the line stretches for blocks.

Twas the day before MacWorld

As should be obvious from the above pictures of Moscone, satellite trucks outside Moscone, and media registration, we've arrived here at MacWorld San Francisco. And in the process of getting here, we did get information about one announcement being made tomorrow: Apple and Berklee College of Music in Boston are launching a free national music education program for underserved youth. I know because the 10-piece band from Berklee was sitting behind me on the plane, and I was sitting next to Lynette Gittens, Associate Director for Berklee City Music Programs. And if their energy is anything like it was on the plane this afternoon, that concert after the keynote is going to rock Moscone in a serious way.

Technorati Tags: Apple, MacWorld, Berklee College of Music

Live blogging from the MacWorld keynote

WiFi and cell coverage permitting, Blackfriars will provide live coverage of Steve Jobs keynote tomorrow. Our twist: we will focus on the changes in Apple's marketing, messaging, and strategy as well as the cool gadgets. And you can look for photos from the show as well.

The fun starts tomorrow at noon eastern time, so check back then.

Off to MacWorld Monday

Well, the time has come. I leave for MacWorld on Monday, meaning you can expect a fair amount of blogging next week. Readers can also expect photos from my CES-deprived digital SLR.

This message is testing one of my little-used capabilities, namely, being able to post to my blog by cellphone. If Wifi coverage in the convention hall or at the keynote is spotty, you may see a lot of posts like this one.

Apple's marketing may pay off with nearly $8 billion in revenue

One company that hasn't been cutting marketing budgets is Apple Computer, which was named Marketer of the Year over at MediaPost's Marketing Daily. And NPD released some new data today, showing that Apple increased its market share of the MP3 player market from 45% in 2005 to 57.5% in the five weeks around the holiday season in 2006.

Now this data has some notable omissions. Among them are sales from Wal-Mart (a big factor) and the Apple Stores themselves (a huge factor in iPod sales). And the data only covers five weeks, not the entire quarter.

Nonetheless, the data is probably somewhat representative of the quarter, so I did some estimates of the omitted effects. I predict that the Apple stores will be responsible for about 2 million iPod sales on their own, and Walmart will be responsible for another million or so (these numbers are pulled out of the air, so if anyone has better guidance on what I should use for those two estimates, leave me a comment or send me an email). So I plugged it into my model for Apple financials and iPod sales. And below is what I got:

Category	Units (in thousands)	Revenue (in millions)
Desktops	700	$976
Portables	1,200	$1,637
iPods	23,000	$4,106
Other (Software/iTunes/Periphs)	N/A	$1,220
Total	N/A	$7,938
Net margin	N/A	$760
EPS (basic)	N/A	$0.89
EPS (diluted)	N/A	$0.87

The bottom line: I was a piker in my previous prediction of 20 million iPods and $7 billion in sales for Apple's holiday quarter. Assuming that these numbers are somewhat in line, Apple may see a nearly $8 billion holiday quarter, with $4 billion of that revenue coming from the sales of 23 million iPods.

Full disclosure: I own a small number of Apple shares.

Technorati Tags: Apple, Finance, Financial analysis, iPod, iTunes, Marketing, Opinion, Projections, Stocks, Stores, Zune

US Marketing spending continues to struggle

We announced availability of our fourth quarter 2006 report yesterday, titled Marketing 2006: A Make Or Break Fourth Quarter. The press release is up on Yahoo.com for those interested.

In that report, we noted that while marketing budgets for Q4 rose from those of Q3. But we never completely believe budget numbers, so we always ask our executive panel to look back a quarter and tell us how much of those budgets they actually spent. The results were sobering: average marketing spending in Q3 was only 74% of what it was in 2005. That's not good. We further don't expect much improvement when we get the Q4 actual spending numbers, meaning that 2006 will likely be the worst year for marketing spending in the three years we've been collecting data.

Now for the kicker: I claim we can already see the results of low marketing spending. According to the Wall Street Journal today, we're already seeing reports of lower retail sales from the fourth quarter. While there may not be a direct connection, we regularly see declines in sales after declines in marketing spending.

Now, if you're like me, you'll likely be saying, "Hey wait a minute! I see advertising on nearly every Web site I visit! And it's not like I'm getting any less direct mail or spam either. How can marketing spending be declining?"

The answer is pretty easy to explain. It's just supply and demand. Online media like Web sites, podcasts, sponsorships, and community-based marketing have vastly expanded the supply of marketing venues over where the business world was before the Internet. This oversupply has decreased the value of every venue as a marketing tool, since people only have a fixed amount of attention they pay to marketing. Yet, the total number of businesses marketing themselves and their products has not grown nearly as much. So we actually have marketing venue oversupply, which is driving down prices. Said another way, we're suffering through a tyranny of too much marketing and not enough attention.

This is why Blackfriars researches marketing. Done well, marketing can actually help us find what we want and need. Done poorly, it's a complete waste of money. But if companies cut back on marketing spending, we do know one thing: they shouldn't expect their revenues to rise as a result.

Technorati Tags: Marketing spending, Retail sales, Marketing, Blackfriars

Microsoft and Sony fall short in holiday video game console sales

UPDATE: According to Engadget.com, NPD has refuted the numbers that are the basis for the story below. So take the below with a grain of salt, although they don't sound wildly off to us. But it certainly explains why I couldn't find the original press release link on the NPD Web site.

New NPD estimates of US sales of video gaming consoles for the fourth quarter were as follows:

XBox 360:	2,000,000
Nintendo Wii:	1,800,000
Sony Playstation 3:	750,000

Now, Blackfriars did some estimates back in December of the sales of XBox 360s and predicted that Microsoft had to sell about 4.1 million units in the holiday quarter to make its press release goal of selling 10 million units by the end of 2006. So the open question is how Microsoft did outside the US, since NPD's estimates are US-only.

Blackfriars' estimate is that international XBox 360 sales were only about another million units, meaning that XBox 360 sales are currently at about 8.9 to 9 million units as of the beginning of this year. Now this isn't a significant problem for Microsoft, since it probably just shipped another million units to retailers on December 31, since its press release explicitly counted units that were in transit or storage for subsequent sale. However, for video game producers and retailers, though, those units don't really count in the installed base.

Now Microsoft isn't the only company falling short here. Sony had predicted selling 2 million PS3s this holiday season, and while it undoubtedly sold well in Japan, we estimate that supply constraints kept its total sales only to about a million or so world-wide.

But of course, the big winner here is Nintendo, who managed to sell 1.8 million Wiis in the US last quarter with only six weeks of product availabilty. And when you add in Japanese sales, where Nintendo is much favored over Microsoft, odds are that Wii actually outselling XBox 360 world-wide at the moment.

Technorati Tags: Blackfriars, Sony, Playstation 3, Microsoft, XBox 360, Nintendo, Wii, Marketing,