Folks,

iPhone Day 2

A couple of quick notes on the iPhone, based on conversations with some of the staff at the Bethesda Row Apple store:

1. Almost no one is buying the 4 GB models. Interpretation: given that people are already spending $500+ for the thing (with tax), an extra $100 to double the capacity with no other downside (weight, bulk, etc.) seems to be a no-brainer.
2. Very few of the questions are about how to operate the iPhone. Most of the questions are about the service plans. Interpretation: Apple has hit another home run with the UI. I spent a few minutes observing people who came in to try out the phones at the store. People wandered up, poked at the phones for a while, and then turned to ask if they were in stock. They had no trouble using it, even without asking for help. How many consumer electronics devices get sold to the average consumer without the customer asking a salesperson to demonstrate how to use it?

Amazing Conversation

I had an absolutely jaw-dropping conversation with a kid in my son's Boy Scout troop. He didn't realize that "SQL" meant the language, not the database server from Microsoft. He also didn't realize that (depending on the application) there were lots and lots of alternatives to ASP.NET, and that the AJAX support might be better across browsers without so many problems if you don't focus on IE. Shudder

Once I pointed stuff out to him in a gentle way (he is just a kid, after all, and is pretty quick to pick up on things), he realized just how much he had to learn. I don't fault him at all; I fault the people who have been advising him on the tools to use, most of whom don't really know what they're doing. But really, I find it amazing that Microsoft has so brainwashed many people that they don't even realize that there is an alternative, and that the Microsoft way is more difficult and more expensive, both in terms of licensing and in terms of time.

Disruptive Change

I read about Universal's latest shot at trying to win leverage against the iTunes store, and thought, "here we go again." The same bunch of not-too-bright record company executives are trying to get more money out of the consumer by just squeezing, instead of providing more value. They're trying to roll things back to where they were before the digital music era; it didn't work back in 2005 when Warner Music CEO Edgar Bronfman, Jr. tried it and it's not going to work any better now. It all goes back to the concept of disruptive change in markets — and once the market is disrupted, it won't go back to the way it was.

There are many management/business/whatever books that talk about disruptive change in markets. The idea goes back to Joseph Schumpeter, an Austrian economist, who coined the phrase "creative destruction" in the 1940's. His insight was that as old industries fail, they release resources that are used by new industries that have a much greater growth rates. The logical conclusion in macroeconomic terms is that using economic policy (tax breaks, subsidies, protection from imports) to prop up old, established industries is a losing proposition. This has been shown many times over in real life — e.g., studies have shown that simply paying displaced steelworkers their annual salary would have cost us half of what the import tariffs used to try to save their jobs actually cost us. (And the tariffs didn't save their jobs in the long run anyway.)

On a microeconomic scale, the same holds true — a company should go ahead and kill an existing product if a new product comes along that is better and more profitable, even if the old product is still making money. However, how many businesses actually accomplish this? How many of you, faced with the choice, would actually say, "I will close down my retail storefront and move entirely to a web/phone-based business model"? Most companies are loathe to do this, even though their web-based business needs more people and office space to grow, and is growing very quickly.

Apple is one of the rare companies that has actually done this. It replaced the iPod Mini (released in January 2004) with the iPod Nano (released September 2005), even though the Mini was the hottest, best-selling iPod at that time; it was only in early 2005 that iPod Mini supplies finally caught up with demand. How many companies are willing to go that route?

Contrast this with a known set of dinosaurs — the record companies and the RIAA. All of them are bemoaning the drop in CD sales. All of them are trying desperately to gain control of the digital download market, with various schemes that seem destined to cut off their noses to spite their faces. EMI has gotten a clue and realized that non-DRM-encumbered music will gain market share, vs. Universal which is waffling on a long-term contract and trying to gain more leverage. The digital download market is where the growth is, but the record companies are too hung up on CD sales to realize that they ought to stop bothering with them (or at least de-emphasize them) and look for where the growth is. The record companies can assist in the digital download market in many ways, such as by coordinating the various national-level copyrights and publishing restrictions into a consistent international practice. But they haven't, and as far as I can tell, they're not even trying.

One More... Teaser

This newsletter is a bit light on technical content, because I've been trying to get a new release of my MOSXSWebPassword app out the door. Unfortunately, there's a persistent bug in the Directory Services frameworks that's causing problems. I hope to work around it soon.


--Paul