Unapolegetic Apple fan MG Siegler declared Spec Dead back in Novermber 2011. I, sort of, agree with that sentiment. Yes, Spec is useless unless it serves some useful purpose in terms of user experience and functionality. It is actually even worse – higher specs that don’t  serve any useful purpose actually drains resources like battery, thus contributing to a worse UX than otherwise.

John Gruber another Apple fan blogging at Daring Fireball concurred. That was a widely accepted sentiment across the network of Apple fans – look at the number of “likes” that MG Siegler post received.

I am staring to wonder why the Apple community is trying to beat the Nokia Lumia 900 with the spec schtick? Does anyone know?

To be fair to both Siegler & Gruber, I am not aware of either of them making such an inconvenient 180 degree turn themselves.

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On Sunday I wrote about the suicidal nature of the subsidies that carriers are giving to iPhone, and why it might be in their best interest to end it. I think the end of subsidies will come sooner or later, could be as early as next year.

Now, Brian X Chen of the Bits Blog on NY Times has also noticed the new found love that mobile carriers are showering on Windows Phone.

If it plays its cards right, Microsoft has a great opportunity to get a strong foothold as a third ecosystem in the very important North American mobile market. Microsoft has a lot to lose come this fall – with the risky and exciting move to Windows 8 and now Windows Phone 8 Apollo.

Update:

AT&T CEO shows off White Lumia 900 when asked about iPhone 5

It will be an understatement to say that the U.S mobile market is one of the most important ones in the world – for its size, ability of the customers to pay for more expensive services, and the faster device refresh cycles.

In the U.S, carriers typically subsidize the handsets heavily to cajole their new and existing customers into long term contracts – to buy customer loyalty and more stable revenue streams. All subsidies are not created equal, and some come at a tremendous cost to the carrier. For example a typical high end smart phone running Android usually goes for a full retail price somewhere in the neighborhood of $500-$600 per unit, and they sell for about $199 with a 2 year contract with the carrier.

The unequal amongst equals is iPhone. The lower end 16GB version of the iPhone, with typically much lower specs than the greatest Android, goes for $650 to $700 at full retail. Yet iPhones are sold for the same $199 price with a 2 year service contract. Essentially, iPhones are subsidized to the tune of $450 to $500 per phone. Is anyone wondering why iPhone is one of Apple’s most profitable businesses?

It would be interesting put this subsidy in context of the another product that Apple sells to the consumers – the iPad. The lower end 16GB iPad with much larger display screen sells for a full retail price of around $500 and even the 4G version could be bought for just $629. So why are the carriers lining up to part with their profits for getting the iPhone on their network? Crazy thought, isn’t it? The usual explanation is that the most well paying customers want the iPhone and if the carriers don’t provide it, the customers would flock to the networks that do. There is certain merit to that argument, but the carriers should ask themselves – at what cost?

Take a look at the following chart and see if you can find the magic that iPhone exclusivity brought to AT&T’s share holders!

A miserable marriage.

In case you are still wondering, the answer is, it didn’t! AT&T is now scrambling to promote Nokia’s new sexy Lumia 900 devices as an alternative to hitherto most desired device – the iPhone. Grapevine has it that AT&T the launch budget for Lumia line of phones is a lot higher than what they spent on the iPhone launch. AT&T has even replaced the phone on some of their ads, even in those that don’t make Lumia 900 by name. In the Bay Area, I hear AT&T’s 4G LTE ad on the radio all the time always followed immediately by an ad for “beautifully different” Nokia Lumia 900 4G phone.


AT&T is not alone in expressing an interesting in promoting a viable flagship alternative to not just the iPhone but the plethora of Android handsets. Verizon joined the bandwagon recently during its earnings call. Verizon’s CFO, Fran Shammo, said the company wants a strong third software competitor in the mobile market. Hallelujah, for the late realization. He went on to add that “We’re really looking at the Windows Phone 8.0 platform because that’s a differentiator. We are working with Microsoft on it,”.

Is this a new recognition by the carriers that the partnership with Apple is taking them to the cleaners? It does, from the looks of it and if it is, this is good news for most parties involved – more competition amongst mobile platform will fasten the innovation in the industry, will likely to lead to better consumer products, lower prices, and, last but not least, happier carrier stock holders.

This is not to say Apple’s profit machine is about to come to a screeching halt. Far from it. First, the carriers are not yet announcing any reduction in subsidies for iPhone just yet, and even if they did, Apple still has a lot of the world left to derive its top line and bottom line growth from. Second, it is still too early to say that these new campaigns, new promises, and new strategies will amount to a hill of beans. While I am no qualified expert on financial matters, I am hopeful that Apple’s profit gold mine will continue to crank out nuggets. Apple as a company is in the zone. Momentum, either positive or negative, is a crazy thing, it can go on for a long time and will only stop when no one expects.

He inspired people like no other entrepreneur before him. Here are a few of his words that inspires me:

“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.” -Steve Jobs.

Steve Jobs will be missed terribly by the whole world. I surely will miss him. :(

Much anticipated Apple’s “Let’s talk iPhone” event popped faster than one could poke a cheap balloon with a pin. Expectations were high. Incredible rumors were floating around that had the Apple fanboys in a tizzy – like an all new magical edge-to-edge glass iPhone 5 with wider screen and NFC, a cheaper iPhone 4S for conquering the lower end smartphone market,  a new home button with multi-touch, a new iPod multi-touch,  iOS5, and weirdest of them all – a Facebook App for iPad(I’ll probably blog on this later).

This event was important for a whole another reason – Tim Cook, the new CEO, was taking stage for the first time in place of the legendary Steve Jobs.

I was following the event somewhat live on Engadget.com. The event dragged on as Apple gloated about its recent past, its “magical” new stores in Hong Kong and Shanghai, and a rerun of the WWDC show on iOS5/iCloud. At one point after the new greeting card service announcement, Engadget blogger posted this “That got applause. People seem desperate to clap for something. That was it.” Sad part is, it was an event orchestrated just like any other Apple event, yet it was uninspiring unlike the Apple events that we are accustomed to.

Towards the end of the event came the announcement that there is going to be a new iPhone 4S. It is essentially the same package as iPhone 4 with a faster processor and a better camera – nothing earth shattering in terms of specs – one would normally expect any company to upgrade their hardware a couple of times in 15-16 months. Besides, you could find Android phones with these or better specs and features. My hope for a “one more thing” moment was shattered to more pieces than would a retina display when it drops to a concrete floor. The iPhone 4S, instead of being an all-conquering lower end smartphone is the new premium iPhone. If there was a “one more thing” It was a dud – Siri. It is a feature perfected by Google on its Android devices. Siri is nothing but a catch up act, and if anything a weird way to interact with an inanimate object – voice.

Apple with this new iPhone is not setting the trend, just doing catch up with its competitors. Coming 3-4 months later than usual, this is a big disappointment.  So why did Apple do this in October rather than the usual June schedule? There are two possible reasons (speculations on my part) – First, Apple desperately wanted to do something “magical” again, and they probably tried and could not make it happen. Competition is tightening and it is getting harder to differentiate in the smartphone market. Second, they wanted to launch latest iPhone when iOS5 and iCloud were ready. This second reason is less likely. Given Apple’s penchant for fanfare, they would have prefered the iPhone first in June and iOS5 & iCloud in October. They would have had two opportunities for magical events.

So the question now is – why would anyone  pay premium for an iPhone when he/she can have much of these same features for a lot less money on an Android or a WP7 device? I won’t but I am sure millions will. Apple has the momentum and the brand reputation to continue selling these devices at a premium, at least in the near future. But alarm bells must go off for anyone looking at Apple as a trend setting company and a sure fire investment bet.

The future does not look as rosy as it’s past for Apple even in the tablet arena. It’s only a matter of time before Android tablets catch up to the feature set and sleek industrial design of iPad. Then there is the Windows 8 coming and if early reviews are any indications, it is looking real good. Apple has a tough business model – with Apple pulling much of the weight of innovating on its own platforms vis-à-vis Windows/Android with more open environment with many partners innovating on both hardware and software applications. Apple was able to do the near impossible through excellent execution around a tough business model. All good things must come to an end. Apple is not that nimble medium sized company any more. It is the second largest corporation by valuation.

At the risk of looking like a fool in the not so distant future, I would make a prediction–Apple’s best days are behind them, not ahead of them. It has lost an irreplaceable CEO, done the impossible for more than 10 years, and its competition adapting increasingly quickly to a world defined by Apple. That’s not to say that Apple will shrink soon to a fraction of its current size. One misstep doesn’t make a trend. If anything Apple will continue to be at the leading edge of technology. Apple will sell a gazillion iPhone 4S, and probably millions more of future iterations of that once disruptive technology. It will continue to sell gazillion more of iPods, iPads, Macs and other devices. But will they still manage to charge a premium for their product? I would venture to say, no! Disagree? Well, we shall see! If there is one company that has potential to always suprise on the upside, it is Apple.

News came this morning that Google is acquiring Motorola Mobility for a hefty $12.5 billion. Motorola Mobility which focuses its efforts on mobile phones and tablet computers is a spin off from Motorola. Here is the story from Bloomberg:

Google Inc. (GOOG), maker of the Android mobile-phone software, agreed to buy smartphone maker Motorola Mobility Holdings Inc. for $12.5 billion in its biggest deal, gaining mobile patents and expanding in the hardware business.

Motorola shareholders will get $40 a share in cash, the companies said in a statement today. That’s 63 percent more than Motorola Mobility’s closing price on the New York Stock Exchange on Aug. 12. Both boards have approved the takeover.

If this is not about patents(which it most likely is), then it is a completely crazy move on the part of Google. What kind of message does it send to other Android handset makers?

This also shows how well Microsoft has played its hands with their new Windows Phone platform. Analysts and pundits forecasted (and even pressured) a possible Nokia acquisition by Microsoft. Microsoft instead got what it wanted without an outright acquisition of Nokia – an exclusive Windows Phone deal. I have to say that this move by Google has increased the attractiveness of the WP7 platform to handset vendors.

Now, back to the topic of patents – Google’s Android ecosystem was under relentless attack from competitors – not by outsmarting and out-innovating Android, but suing them for patent infringements. Also Android rivals colluded in order to exclude Google and Android from getting their hands on Nortel’s portfolio of patents. Microsoft, arguably, has been making more money from Android than Google itself. Apple was successful in blocking Samsung’s tablet from sold in the European markets. Something is badly broken in the patent system.

These companies are spending money on lawyers and lawsuits instead of spending it on engineers and technology. One has to really question the utility of the patent system itself. All these companies are clearly in violation of each other’s patents, and they use their own patent portfolio as a deterrent(nuclear style) against potential lawsuits. The biggest loser in this system is innovation. Does a new upstart, without the protective shield of a large portfolio of patents, stand a chance against these behemoths? What usually happens is startups are ignored until it achieves a level of success where patent trolling becomes a lucrative strategy.

This blog post from the maverick,Mark Cuban, deserves a more serious consideration. At the very least, I think it is time to rethink the patent system.

On the wee hours of June 21st, I wrote a post about “troubles” that Apple’s management is facing given the staggering amount of cash on it’s balance sheet. I speculated that Apple will have to decide to give out a special dividend, choose to acquire one or more companies or do both. I wrote the following in that post

It could do one of two things or a combination of the two, and, either way, for Apple, it will be a break from its past. So what are these two things? First, Apple could offer a large one time dividend (a la Microsoft in 2003) to shareholders, followed by regular quarterly dividends. Even though Apple is sitting on large piles of cash on its balance sheet, it will be under no pressure, at least not in the immediate future, to do this – for the simple reason that Investors are happy with the returns they are getting, despite Apple’s “inability” to reinvest that money.

That leads us to the second option in front of the mercurial gang from Cupertino. It could make strategic acquisition in the technology space, and there are a lot of attractive players in this space.

Furthermore I argued that Apple’s weakness is in cloud and not in software or hardware. That lead me to the conclusion that Apple would/should acquire an internet company – my picks were Twitter or Yahoo. Then in the comment section, Rajesh R Shenoy reminded me that Steve Jobs and Apple had a history with media and therefore a pure media company could also be a potential candidate. I meant this to mean a company like Netflix. I wrote the following in the comment section of that post:

Your point about media company  is a good one. I thought about Apple as a potential buyer for a company like Hulu. But I don’t think that is the kind of media company that Apple would be interested in. Apple already sells multimedia over iTunes. I am not sure how interested they will be in a low fixed monthly payment model approach taken by the likes of Hulu & Netflix.

I got two things right. First Apple will break tradition and will acquire larger companies. Second, as Apple tries to fill gaps in its portfolio of product offerings through acquisition, it confirmed my conclusion that weakness lies in cloud. How do I know this? Two stories – first about confirming that Apple is considering an acquisition bid for Hulu.

Apple Inc. , with $76.2 billion in cash and securities on its books, is considering making a bid for the Hulu online video service, two people with knowledge of the auction said.

Apple, the world’s second-most-valuable company, is in early talks that may lead to an offer for Hulu, said the people, who weren’t authorized to speak publicly.

Second is more of a confirmation from a third party - an analyst – that cloud is Apple’s weakness. I came across this video at the bottom of the bloomberg story on Apple’s potential hulu bid.

I also was right in considering Hulu as a potential acquisition target for Apple, yet I completely failed to see what Apple saw in Hulu. To be frank, I do not know what Apple sees in Hulu’s business model. Given Apple’s successes in the recent past, they obviously know infinitely more about running a technology company than this mere aficionado of technology.

People invest money in a business in order to take risk and to get a return beyond what they could get by just keeping it under the mattress or even depositing it in a savings account. While it might be important for companies to have large amounts of cash on their balance sheet, it is always kept for strategic investing purposes – like making an acquisition, or investing in new lines of business, major expansions etc. If all that an investor aspires from his investment is to get an interest rate, he/she could invest in a CD.

In the case of Apple, it is sitting on a ginormous stash of cash valued at 75 billion dollars. The “trouble” for Apple is that cash balance, in all likelihood, will spike further in the days, weeks, and quarters to come. For a company growing as fast as Apple, I do not see it investing that money in to organic expansion plans.

Secret to Apple’s success in recent years is its sharp focus on doing only a few things, and doing them extremely well. Apple has proven over the last few years that its new product lines, instead of being radically different from the existing ones, nicely compliment the existing ones. Apple has managed to create a whole array of products and product lines that work well as a complete ecosystem. R&D is not cheap, yet a new product line like the iPad could be created from the ground up with a really tiny fraction of that 75 billion dollars. So what is Apple to do with all that growing stash of cash?

It could do one of two things or a combination of the two, and, either way, for Apple, it will be a break from its past. So what are these two things? First, Apple could offer a large one time dividend (a la Microsoft in 2003) to shareholders, followed by regular quarterly dividends. Even though Apple is sitting on large piles of cash on its balance sheet, it will be under no pressure, at least not in the immediate future, to do this – for the simple reason that Investors are happy with the returns they are getting, despite Apple’s “inability” to reinvest that money.

That leads us to the second option in front of the mercurial gang from Cupertino. It could make strategic acquisition in the technology space, and there are a lot of attractive players in this space. However obvious this option may be to any other company, it is far from obvious for Apple to do such a thing. Apple has achieved all that growth without making any large acquisition, and I believe this has been a key to the success of Apple as a company – going back to my point about products complimenting each other and working well as one single ecosystem. Besides, acquiring and integrating another large organization is a risky, and tedious process. For a company that nurtures a special employee and customer culture, integrating an established alien work culture would be tricky, to say the least.

Let us just speculate for a moment that if Apple, indeed, were to acquire another company, which one should it be?

Before we answer that question, let us break down the Apple ecosystem for a moment –  one could break it down into 3 pieces – Mobile, Desktop, and cloud. In the mobile space they have the iPods, iPhones, iPads & iOS; in the desktop (including laptop), they have the MacOS books and cubes; and in the cloud they have the music, video, books etc. Then, of course, there is the Apple TV, which could, in the future, lead to a successful home entertainment console that, in addition to bringing multimedia into living rooms, could bring a lot of popular gaming. Apple also has its own browser, Safari, across all these platforms. Apple is gaining momentum and market share against competition in most of these product lines. If there is a slight weakness in their armor, it is in the cloud, especially communication, sharing, and social. Ping has not exactly been a rip-roaring success. More over, biggest success stories in the cloud/social space are not exactly cozy with Apple – Google and Facebook with its close ties to Microsoft.

First and most obvious candidate for potential acquisition, I will say, is Twitter. It is very successful, not quite as large as Facebook, and has not aligned itself with any other behemoth in the, increasingly, tripolar technology industry. Apple could easily digest this acquisition. Besides, iOS5 comes with Twitter integrated into the OS. They could easily integrate Twitter into iTunes, to iCloud, and into the Safari browser itself.

A more risky acquisition would be Yahoo.  Yahoo clearly is a company in decline, yet it has a lot of assets in the cloud that could be valuable to a company like Apple which is battling it out with other giants like Microsoft and Google. Yahoo has a few popular internet properties in news, finance, movies, email etc. Yahoo was once involved in a search engine project code named Panama, which they later canned in favor of a partnership with Bing. Apple could even breathe some new life into the search effort with Yahoo. Apple already has Safari browser that could be already collecting a lot of data valuable to search engine technology. Yahoo Search could become the default search across all Apple devices, and Yahoo Maps could become the default Map/Local application across those same devices. The biggest challenge for Apple, if they ever end up acquiring Yahoo, will be integrating a company that is on the fast elevator down on the track to oblivion, a company that lacks excitement, and (from what I have heard from former Yahoos) a company that has a lethargic culture. A lot of heads will need to roll to transform Yahoo culture into a winning culture that is Apple.

The “trouble” for Apple is the cash acquisition costs of these companies are likely to be replenished in the balance sheet in a couple of quarters. At the same time, a bad acquisition could cost the company dearly, not just the investment but the impact that a rotten apple could have on the barrel full of excellent ones.

Apple Led Group to Buy Nortel Patents:

Apple Inc. (AAPL) joined with rivals Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIM) to outbid Google Inc. (GOOG) for a patent portfolio from Nortel Networks Corp. and gain rights to technologies for mobile phones and tablet computers.

The group, which also includes Sony Corp. (6758), Ericsson AB and EMC Corp., agreed to pay $4.5 billion in cash for the assets, Ontario-based Nortel said in a statement. The companies aim to complete the sale this quarter pending approval from U.S. and Canadian courts, it said.

So who is the loser in this War?

The winning offer came after several rounds of bidding and was five times the $900 million Google had offered before the auction for Nortel’s remaining intellectual property.

What was Google’s response?

“This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition,” Mountain View, California-based Google said in an e-mail. “We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”

Although I am very sympathetic to this view, I see double standards here from Google. Are they really open about innovation in areas that really matters to them as a company? Will they open source their search algorithm?