It’s time for me to gloat. This lowly blogger, sitting on the “high perch” of his blog, once suggested to Microsoft that they buy Barnes & Nobles, specifically, for its ereader and ebooks business. Here were the 3 reasons cited 11 months ago.

1. Barnes & Noble has over 700 stores worldwide and over 600 college bookstores. These books stores are a great showroom for Microsoft’s array of software, gaming & partner made hardware products. Some of these stores may not be ideally located for Microsoft’s store strategy, and in those cases, Microsoft should just sell the location. Large stores, especially in upscale downtown locations or inside major shopping malls should be attractive to Microsoft.

2. Barnes & Noble, just yesterday, announced the new Nook ebook reader. As stated earlier, it is very promising new product. Even the “older” color screen version of the nook has been a hit product. Granted, the color nook runs Android. It’ll not be hard for Microsoft ride the success of nook while preparing to transition the product to something that runs a version of Windows CE kernel.

3. Barnes & Noble sells traditional paper books and, increasingly, the electronic version. Microsoft as a technology company is investing heavily in its online division to compete with Google. This is another way for Microsoft to ensure that they make their presence felt not just in search and related services, but creating valuable information content in its cloud services.

Microsoft did even better than what I had in mind – they just took a stake in the ‘E’ side of B&N’s business without taking over the high overhead paper, brick & mortar operations. This is typically the way Microsoft rolls when it needs to compete with “established” players in a sector, they identify a beaten down yet capable player, and partner with them. They have done it with both Yahoo & Nokia, and now with B&N – WSJ reports:

Microsoft Corp. is making a $300 million investment in Barnes & NobleInc.’s Nook digital-book business and college-texts unit in a move that helps value the prized Nook business, the companies said.

Microsoft will have a 17.6% stake in a new subsidiary for the businesses in a transaction that values them at $1.7 billion, the companies said. That compares with Barnes & Noble’s current market capitalization of about $791 million and could fuel the argument of some analysts and investors that the digital business should be separated from the retail division.

As part of the move, there will be a Nook application included in the new Windows 8, which is scheduled to have a release preview in early June. Later this year, computers and tablets with Microsoft’s Windows 8 operating system are expected to go on sale.

This is an excellent move on the part of Microsoft. I would have hoped that they would take a controlling stake in the B&N unit.

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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.

Two days after its reentry into the U.S market with the launch of its premier Windows Phone, Lumia 900, Nokia reminded investors that all is not well just yet at Espoo. Analysts eager to pass judgement without analysis were quick to pounce on the opportunity – to rain on Nokia’s parade – a seemingly successful comeback to the North American market(the new smartphone models topped the charts on Amazon at best seller phone  1 & 2)

Here is a small list of things that escaped analysts’ attention.

  1. It is no secret that Nokia’s traditional symbian smartphone business is in trouble. Analysts should not be surprised by this, but they were. The question is whether the new Lumia sales will move up fast enough to compensate for the decline in Symbian sales. They should not expect miracles in this department
  2. Lumia line was launched only a couple of weeks before the last holiday season, that too only in 6 countries. With major markets like the U.S and China held of until last week or so, the sales of the new line of smartphones running the beautiful WP Mango at 2 million units look very healthy and promising.
  3. Lumia has received very positive response from consumers and reviewers in general for its beautifully different design.
  4. AT&T is completely on board with the launch. I have been to a couple of AT&T stores, and Lumia had a prominent place in the store with signage all over the store walls. Unlike in the past with other WP devices, store employees were eager to sell you a Lumia.
  5. Nokia has a friend and ally with deep pockets – Microsoft. Microsoft and Nokia both need each other to succeed in the mobile market.
  6. Nokia’s hardware design capabilities are second to none.
  7. Nokia’s software capabilities are ages ahead of the troves of android phone set makers.
  8. There is only one line of smartphones in the market that truly differentiates in both hardware and software(materials, colors and functionality) all the other smartphones available in the market – Lumias.
  9.  It wouldn’t be much of exaggeration to say that Nokia has channels and presence in every single country on the planet. It also has established relationship with mobile carriers in these markets.
  10. If it takes a Microsoft acquisition to make it all work, Microsoft will do it.
  11. Microsoft now has fans – a rather unfair review on The Verge received 2500 comments,(when the usual comment for a blog entry is under 100), much of it coming from people who should be considered fans/well wishers of Microkia.
  12. People love an underdog who is capable, and that underdog is nowMicrokia. Think Different(ly)

While it is still early days in the transition of Nokia from Symbian/Feature phones to Lumia and, possibly, Windows 8 tablets, Nokia will not only survive, but is likely to thrive in the coming years.

 

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.

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.

Writing in the Wall Street Journal, Former COO of Microsoft, Robert Herbold, longs for authoritarianism

Here the differences are staggering. In every meeting we attended, with four
different customers of our company as well as representatives from four
different arms of the Chinese government, our hosts began their presentation
with a brief discussion of China’s new five-year-plan.

Don Boudreaux responds to Herbold

All is not well in the Middle Kingdom

China is a big bubble, I am so biased to believing this

If you don’t believe the China bubble, watch this youtube clip. You will be amazed.

For the last few days, I have been trying out brand new social networking site from Google: Google+. This is a very promising start from Google. The user-interface looks clean and well designed. It is easy to friend people by adding them to one of the circles. A circle is a category – like a family, friend, colleague etc. You can create circles with your naming schemes. A circle is exactly what makes Google+ stand apart from the closest thing to it in the social networking world – Facebook. You can watch the feeds from different circles one at a time or all of them together. You can also choose to share updates/photos/videos with only one or few of the circles.

One thing I did not like immediately is Google+’s integration of Picasa photos into Plus with viewing rights granted to all my circles. I did not know that everyone had viewing rights until one of them asked me if I managed to load so many photos within minutes of opening my plus account. Nevertheless, I like the idea of being able to share the photos with only some of the circles. I also like the fact that it is easy to drag and drop friends photos etc. Like I said earlier, the UI is smooth, clean, and modern.

On the flip side, I am a sophisticated technology user who can find his way around the web, but I have to wonder whether a novice user of technology will find the idea of circles too hard to use.

I will not go as far as to say that Google+ is a Facebook killer. I do not think there is anything radically differentiating about Google+ that is impossible for Facebook to respond to quickly. The concept of putting your friends into groups/buckets is not that hard to build on the Facebook platform. There have been numerous examples in the past, including the most recent “super awesome” video chat. Other such features, to refresh your memory, include features like status updates (Twitter), places & checkins (Foursquare), deals (Groupon), video chat (Google). Facebook’s cozy relationship with Microsoft will help them acquire any features that require major back infrastructure development without having to go through the pain of starting from scratch.

Good news is, this will keep Facebook on its toes, will force them not to rest on their past laurels. I don’t see any reason why Google+ gives everyone a big reason to switch to a platform when their roots are, probably, running deep into the fertile soil of Facebook. It will be an interesting battle to watch.