Christian Renaud's Blog

Apple fumbles 3G iPhone Launch?

Let me get in my time machine for a second.....

Apple predicts that it will ship 10M iPhones within a year from it's July 2007 launch.

Apple ships about 5.7m iPhones (by multiple analysts conclusions) before supplies mysteriously begin to dry up in late March. By early May, even New York City has no inventory and a line for iPhones starts forming.

April 2nd, Henry Blodget at the Alley speculates that non-authorized international demand is consuming 'buffer inventory' and driving the shortage.

When Apple first introduced the iPhone 1.0, they could ship it 30/60/90 days post-announce because they had no shipping revenue product to stall.  You really don't want to induce a revenue stall in a shipping product if you can avoid it, however Apple learned the hard way that you also don't want to anger your installed base of loyal/feral customers as they discovered with the iPhone price drop.  So, you end up walking a fine line between angering your customers with lack of supply (or over-supply of new models) and angering Wall Street with periodic flatlines in your revenue stream.

The answer is to gracefully manage product transitions.  This is an art form in itself, in the timing of messaging transitions, moving manufacturing lines, selling off inventory, upgrade and price protection programs, and the like.

Apple seems to have been caught in a perfect storm of unanticipated demand (Blodget's article about Europe) that they needed to quickly react to in the form of temporarily increasing the production line of iPhones so they could gracefully trickle out of them about May 30th....just in time to release the iPhone 3G and open up the larger price-sensitive and 3G-hungry market, and a new product introduction when they need to ramp down production of the older model in favor of the newer one.

So, do you ramp up or ramp down?  Do you flatline sales of your iPhone line for 75 days during a key fiscal quarter (Summer/graduate presents) or do you enable your overflow production lines and meet demand at the risk of price-protection/exchange/returns exposure on your bottom line for a percentage of the customers who buy in May?  It reads like a loaded MBA mid-term question from a sadistic professor who enjoys handing out 'C' grades to all students.

It appears Apple chose to flatline.  I don't envy the beating they will take from Wall Street for this fumble, even though every Wall Street Analyst is slobbering over themselves today to say how much of a fait accompli the 3G iPhone is to wrest the title from the Blackberry for #1 in sales.  I wonder how they will balance the stick and carrot of beating them for the quarter stall while praising them for the new product.

And it isn't an inevitability that Apple will more than address the revenue shortfall with the 3G iPhone.  Even if Foxconn can overcome their initial production issues and achieve their 10M unit number, the revenue and profit per unit of the $199/$299 iPhone 3G are abysmal compared to the initial 1.0 iPhone at $499/$399.  We used to have a sarcastic punchline back in the early Cisco IP Phone days..."We'll sell it at a loss but we'll make it up in volume!"

It could be worse, you could be the product manager at eTrade who announced yesterday the new eTrade Mobile Pro trading platform for mobile devices, exclusively for the BlackBerry.

The Maturing of the Virtual Worlds Industry

2007 was unquestionably a significant year in the development of the Virtual Worlds industry. It went from a mocking human interest story at the end of the nightly news to the covers of prominent business magazines. As the proverb says however, 'Be careful what you wish for....'

There have been prior attempts at a 3D Internet, particularly around the Virtual Reality Modeling Language (or VRML). There were a number of market reasons that VRML never reached widespread adoption that were independent of VRMLs technical merits. In contrast 2007 featured the ramp of Second Life for public social collaboration and visibility for companies such as Forterra Systems for intraverse simulation and training.

The questions that we were asked during the 'New Ways of Working' panel at the Virtual Worlds 2008 conference last week in New York all seemed to be searching for the elusive initial proof-points to justify and quantify the benefit of virtual worlds in the enterprise. This is not unique to virtual worlds, and is a recurring theme in all of the emerging technology trends I have participated in. Early adopters attempting new projects within their organizations fortify themselves with metrics and other case-studies of successful deployments to demonstrate to their management the benefits of the technology in question, and virtual worlds are certainly no exception.

The current proof-pillars of this industry, however, are still scarce, with elaborate simulations being performed by the U.S. Government within Forterra Olive, as well as the Stanford SUMMIT medical simulations on the same platform. In the consumer area, there have been numerous examples of training and education within Second Life (including my employer) and isolated non-self-referential instances of collaborative design projects (most notably Wikitecture). What has not happened yet are the secondary ripples of these initial 'It can be done' proofs-of-concept, which will begin the snowball effect of more examples feeding more deployments which become examples for subsequent projects. It will take some sobriety on the part of marketing departments throughout industry, making sure to identify real value and not hand-waving, and it will take more time for the existing trials being conducted to bear fruit.

Two negative side effects of the excess of positive press in 2007 were that (1) each vendor in the 3D simulation area became an overnight sensation while many of their platforms were not ready for mainstream deployments, and (2) the peripheral/adjacent markets in this space (3D rendering engines, virtual economies, etc.) stampeded over to participate in the virtual gold rush, which made it harder for non-industry customers to get a bead on what this space actually is and how it benefits their organizations.

What this market pressure has exerted is a degree of speciation, in that companies are beginning to polarize into platform providers (intraverse or metaverse?), and component technology providers. An impacting externality to this is the emergence of the 'software as a service' business model within companies, who are evaluating these new virtual worlds not only from a 'should we/shouldn't we' decision, but also from a 'hosted/service' decision as well. One more barrier to adoption.

Speaking of barriers, if you ask most virtual world platform vendors what their top five barriers to adoption are, inevitably one of them will be the issue of 'corporate firewalls'. Given the immaturity of the technology, the non-standardization of ports and protocols used across vendors (which, admittedly, will be the case for some time as is the case in each new technology cycle), and the absence of overwhelming-demand on the part of major corporate clients, the corporate information-security technology departments will be in no hurry to poke holes in the corporate firewalls for a currently unproven application. It will happen over time, or the protocols used may render the discussion moot by leveraging lessons learned by companies like Skype in the VoIP space.

You see the initial furtive steps of companies to offer both a SaaS or Hosted model of their collaboration environments (such as the IBM/Linden Lab announcement) as well as overtures in that direction by companies like Qwaq. That will remove one barrier to adoption.

There have been the overtures towards data standardization with Multiverse and Google embracing COLLADA (and Intel hiring COLLADA people as part of their strategy) and the Virtual Worlds Interoperability Forum (of which I am a member). These efforts will initially focus on interoperability between virtual worlds and Internet data sources (like COLLADA files) rather than avatar portability. In contrast to my prior post about the future of virtual worlds, this degree of interoperability will be sufficient for some time as the broader Internet identity problem is resolved, as a choice of 'presentation layers' (in the form of virtual worlds) of a common dataset will be functional enough to limp along. The difficulty in that scenario will be in cross platform meetings.

The next post will posit some paths that the industry can take at this juncture, and if it will continue to be rather boutique, or will move into mainstream deployments.

The Workplace/Workspace Shift

Last week I had the honor of keynoting the Friday session at the CMP Metaverse Life 2.0 conference.  During the presentation, I mentioned the multiple points of evidence that I had encountered of the evolution underway from traditional workplaces to geographically-independent workspaces.  The summary of the argument is:

We have been gradually migrating from a traditional industrial-age workplace metaphor of individual work tasks performed in a shared setting (think of a cubicle-farm of either call-center representatives or engineers occupying three floors of a building) to a Knowledge-age metaphor of more collaborative, integrated tasks that are performed by virtual, geographically dispersed teams.  So, instead of doing autonomous work in a collaborative setting, we are doing collaborative work in more and more autonomous (or at least geographically distinct) settings. This is the Shift.

As far as proof points for the arguments, consider the trends towards globalization of industry (and therefore a more distance-collaboration-sensitive market) that are an inevitability of the flattening effect of world commerce, outsourcing and off-shoring of labor and other tasks, and an increasing trend towards telecommuting, flexible work arrangements and work-at-home roles. JetBlue stay-at-home call center agents come immediately to mind.

A factor (that I hadn’t really considered until recently reading more about the major impact on the global workforce composition by the retirement of the baby-boomer generation) is that there will be a shortage of skilled labor in many areas that will mandate new tools to allow retired boomers to selectively participate in the workforce.  If these gainfully-unemployed retirees are to be courted in this soon to be ‘sellers market’, the successful ‘buyers’ will be those that provide the tools for frictionless distance collaboration from their balmy retirement locations.

Having recently ‘pitched’ a room full of senior citizens on new technology trends, I can assure you that they are disinclined to buy a computer (if they do not already have one), much less create an avatar.  They are comfortable with the traditional workplace metaphor described above, with autonomous-work/shared-environment, so any tools that are developed for them must be painfully easy-to-use and consistent with their ingrained habits.

(addendum- Some people have mis-interpreted this prior paragraph to imply that I am making some ageist comments about the technical abilities of people older than my 40-year-old-self.  Before everyone gets more fired up than they already are, let me assure you that I have worked for/with/managed young and old alike who are technophilic or technophobic, and that age has little to do with it.  I will say, and gladly stand by, that my six and three year old daughters are more inclined to go-to-work as avatars than nearly all people I work with regularly in Silicon Valley.  The point being, we need easier to use tools that leverage workplace metaphors we are all familiar with, not something orthogonal and disruptive. Unless you are three or six years old, at which point, 'disrupt away')

To return to the Shift, what tools will we need to develop to enable technophobic retirees to participate in a Hollywood-style of work?  Is it easy video-conferencing, shared whiteboarding, avatars?

Suggestions welcome and encouraged.

The Human Touch

I received a nice note from John Jainschigg over at CMP Metaverse this morning about last week's Future of Work blogpost.  He had resonated (as had I) with the idea of 're-intermediation' that was put forward by one of my colleagues (who at this juncture should feel free to chime in on the comment roll and remind me, pretty please with sugar on it) at the MetaverseU a few weeks ago.

Someone once said that every challenge is also an opportunity, and the converse is true as well.  The workforce is being rapidly globalized, and roles you would have never envisioned being outsourced are migrating to Bangalore or Beijing at a breakneck pace.  I was personally shopping prices on personal assistants from three different shops in India earlier this week, something which would have seemed insane half-a-decade ago.

At the same time, you have the demographic mass of baby-boomers who are frustrated with the first generation of outsourced service, and are demanding a higher-touch model of customer care.  This is going to have two effects if it 'gets legs', which isn't such a BIG IF:

1) Operational Expenses (OpEx) of the firms switching to providing 'domestic' customer care  is going to go up in most cases.  Despite the vaunted examples of JetBlue and others in having stay-at-home-moms-in-Utah provide call center support, US labor is inherently more expensive than other parts of the world can currently provide.  The rising cost of living in India and China combined with the falling value of the dollar are driving those forces towards some equilibria, however it's not going to resolve for another decade or more.

2) A gray-dawn contract workforce. The boomers aren't ready to sit back and accept a uni-directional money flow.  They want to work, and wouldn't mind if you offered some health care while you're at it.  There are some amazingly well-trained people in the boomer generation just now retiring, like 12 percent of the engineers and 21 percent of the scientists at NASA for starters, who are ready to tackle whatever technological marvels you throw at them.

If you don't think that the AARP (American Association of Retired Persons) isn't already the strongest lobby in Washington D.C. already, wait until their numbers swell with the boomer bolus.  They will be in a position to not only harangue your CEO for making them wait an hour for a call center representative, they will also exert pressure in the form of regulatory measures and tax laws to drive macro-level patterns of business.  Think of how large of a group of people this represents, how well-educated, and how much free time they will have on their hands to do nothing but what fix the aspects of their life that annoy them most.  Pretty much the customers from hell.

So the latte-slurping freelance workforce I posited in the last post, while agreeing with all of Prokofy's comments that delivering babies, pizzas and taxis will always exist in meatspace and are immune to the transition from manufacturing to knowledge workers, will be both servicing the baby boomer generation, and will also be comprised of a number of those boomers who will work-at-leisure to finance their vacations and second-home-property taxes. 

And for those that are concerned that boomers and seniors will be discriminated against directly or indirectly because of their age,  how about their avatar?  Their Brad Pitt/Angelina Jolie looking one.

A metaverse outpost would allow them to provide value to the workforce from their snow-bird homes in the desert or on the Gulf coast.  In the Metaverse, no one knows that they are a retired engineer sitting on his/her back deck enjoying a margarita while resolving your customer service problem.

More later, the treadmill beckons.

[Mirror post from Cisco Blog] Metaverse Roadmap and MetaverseU

From February 15th through February 17th, people from industry and academia gathered at Stanford University to participate in two events.

The first was a continuation of the excellent Metaverse Roadmap work that had started two years ago, which is an attempt to capture and forecast the coming changes in the user interaction model with the Internet.  If you haven't read the original MVR, you can find it here.

The second event was (or rather 'is', as it is still underway) the MetaverseU, which is a combination of presentations and open discussion covering various facets of the virtual worlds, augmented reality, and lifelogging, with a particular focus on the human factors and societal impact of an idealized Metaverse.

The event is being streamed live (and freely) into Second Life here, and Henrik Bennetsen has taken a further step of creating a time capsule of where we are in this technology cycle by interviewing all of the participants and attendees with four questions regarding the best and worst things of current technology, and the opportunities and unforseen downsides of the future adoption of same.  His interviews will be published on YouTube under the group 'MetaverseU', as well as tags on Flickr and elsewhere tagged 'MetaverseU' Henrik has also blogged about what he is doing on the MetaverseU blog here. 

It think this is a good example of forward thinking in being able to tag content distributed around the Internet as a distributed transcript and record of the event.  Consider it 'Distributed Lifelogging'.  Now, if we could incorporate Twitter and Second Life chat transcripts.....in one portal.........

Another perspective on AppleTV

You know what, it honestly never occurred to me that Apple's movie-rental expiration model was analogous  to the original expiring Divx discs of Circuit City fame.  Dead on.

Penny Arcade! - What Goes Around

Tags: AppleTVPennyArcade

"One more thing..."

Tis the season (the week, to be more precise) when Apple Fanboys around the world stay glued to liveblogs during Steve Jobs' keynote address at the MacWorld Expo.  There are classes of day-traders who speculate on Apple stock at these times, people who line up in the wee hours to get a coveted seat at the Moscone convention center, and legions of people in the blogosphere who make and compare predictions of what Steve will be announcing.

One of the more common predictions this year is a 3G iPhone, since the CEO of AT&T evidently leaked the information during an interview that there would be a 3G iPhone during Q4 of 2008.  Ok, lets say this is actually the case and not just the CEO of AT&T smacking Apple in a backhanded way by stalling revenue growth of existing iPhone sales.

Why would Steve, months in advance of shipping (6 months, 9 months?), announce a product that would cause every potential iPhone buyer to sit back and wait for the 3G model?  It would stall his sales on iPhones, which are (as the iPods) causing a lot of foot traffic in Apple stores and associated pull-through Macintosh sales?

He wouldn't.  Unless there is a mandatory public declaration of intent that is required with each FCC certification for use, which would pretty much create a 6-12 month 'telegraphing my competitive strategy' tool for all of those in the mobile industry, then the best advice is to wait until a week or two prior to availability to announce.  Preferably during a historically weak sales time like early summer, so parents can purchase the new iPhones and Macs for their kids during back-to-school season when production volume has caught up with demand so the book-to-bill ratio on their quarterly earnings looks close to 1:1.

One of the things you learn in shipping multi-billion-dollar product lines is that it is a really bad idea to stall revenue.  You take great pains in not disclosing any information that will, say, make a current $100M/month-run-rate product go flat in anticipation of version 2.0 which is shipping in 3 months.  I learned this first-hand when we were starting up the enterprise voice business at Cisco, as I was on the (then tiny) voice team and interfacing regularly with our (really big) switching group.  When we decided to put powered Ethernet on the switches, we had to be very careful how we disclosed this information to customers when promoting the future of IP Telephony.  We could talk at length about the future benefits of IP Phones and Call Processing, because we weren't in that business and had no business to stall (except for Nortel and Lucent (at the time, now Avaya)).  What we couldn't do was intimate that we'd ship something other than our existing switch products, as that would induce an order stall on a very large product line.  Bad idea for career viability.

This is same situation at Apple.  Unless the FCC forces disclosure for licensing reasons, Steve does NOT want to stall existing unit sales by pre-announcing product.  Think about the (really admirable in a non-fanboy way) same-day announcements he has made the past few years in new computers.  For product lines they are already in, he does 'available now' announcements.  For product areas they were not in, say AppleTVs or iPhones, he could easily announce upcoming products without negative booking impact.

I'll be happy to face up if I am proven wrong tomorrow, but I doubt that a company as business savvy as Apple will purposely stall existing product sales by advance-announcing product in an area they already ship product in.  If there are any big future announcements, they will be in an area that is relatively flat for existing revenue (AppleTVs, sadly) or net-new markets for the company.

My 'Dear Steve' Letter

[Sent 1/10/08]

Dear Mr. Jobs,

On behalf of the silent minority, thanks for releasing the AppleTV.  I know it has been accused of being a flop, and before it's time, however my family makes extensive use of our four AppleTVs.  We've digitized our extensive DVD library (as we had done with our music library years ago), and being able to access our movies, music, photos and podcasts from any room in the house is just plain useful.  Great price point too.

Two favors to ask.

First, can you please incorporate an advanced sorting and categorization interface for those of us with more than 10 movies/cds in the tool?  It takes me about 10 minutes to locate my chosen film on the long alphabetical list as there are >800.  Even a Genre subtab somewhere would be great, and it works just fine for iPods.

Second, would you please consider removing the YouTube (or making it a removable option like the iPod menu customization) for those of us who have difficulty stomaching low-rez YouTube videos on large HDTVs and replacing it with a menu driven iChat client?  You could utilize that vestigial USB port in the back of the unit for an iSight camera and walk away with the home video telephony market if you made it as easy as iChat.  Imagine a sea of HDTVs with AppleTVs below them and iSights mounted to the top.

Thank you again for releasing such a useful unit.  In the future, if the rest of the industry or customer base doesn't financially validate it enough to retain it in your product line, please make sure you don't discontinue support for it in iTunes 8.0. 

Thanks, Christian

Techno-Balkans

I was having a conversation with an industry colleague last week, and we both had multiple examples of where the United States was lagging the adoption of technology (Interactive Television, Mobile phone applications, etc.) versus the rest of the world.

During VW2007, one of the efforts announced was the Beijing Cyber Recreation district, an ambitious project to bring together virtual world efforts within China. When I was asked a question about it by a reporter, I switched into engineer mode and started listing the pros and cons of the proposal, including the fact that standardization (by the government or otherwise) would have the same beneficial accelerating effect on content creation that standardization on GSM provided the European mobile phone community. In some cases, all my libertarian rantings aside, government standardization accelerates value to the customer. She jokingly said "I can see the headline now, 'Cisco executive endorses totalitarian approach to virtual worlds'".

At the time I didn't dwell on it, but in retrospect there are a few examples of where early standards have accelerated the value for an industry. One of those that I am reminded of daily with my locked iPhone and crappy cell coverage is the United States cell phone industry. Here you have a case study in unfettered capitalism (all overtures by other communications providers to enforce painful regulatory strictures aside) and it has resulted in redundant buildouts of poor coverage, byzantine pricing plans, and locked phones. Techno-Balkans.

If you look at what China is endeavoring to do in virtual worlds, it actually makes sense in the same way that early standardization resulted in considerable user benefit in Euro GSM markets. If we can skip the foreplay of competing proprietary implementations and focus on the value to the customer, the content, we'll be able to reap the benefit of early standardization and the utility of the function and not have to focus on the platform.

Queue Google. For those of you who missed Google's market-stall-inducing press-release yesterday, they announced a platform for mobiles with a number of operators. They are claiming (albeit a year in advance, which coming from industry means 'we dont know what we are doing yet but we needed a press release to appear relevant in this market and stall it for everyone else') is that they are going to develop an open platform for mobile phones to allow a mainstream developer community to develop for their Mobile platform which will then run on each vendor's hardware.

Other than the fact that I will fight vociferously on any incursion by advertising into every nook and cranny of my existence, this is also a bad idea for privacy reasons. Google shamelessly admits that they collect a considerable quantity of metrics and history about you to tune your search experience, and now they will be in a position to do the same for your telephone calls. Great, so now I don't have to worry about Carnivore or some other wiretap program by the government, I am going to voluntarily allow a third party to do so so they can more effectively advertise to me? I think not.

Google has done a few things right, like hosted apps and targeted advertising. Everything else they do, including search, has been less useful to me. If I knew what I was looking for, I wouldn't need to search, but I need to know what I am looking for in order to search? That, or I get 50 million semi-useless hits. This would fall in the category of 'I'm going to use the word 'open' to jam my foot into the door of the mobile market so I can eavesdrop on your sms, calls, mobile search histories, and then target advertise to you on your mobile phones'. What amazes me is that people are not up in arms about how they are being treated like a bunch of sheep by Google here, and that this is a good thing.

(Mirror) E-Meetings and the Environment

It's Blog Action Day!

I had written previously about the opportunities to reduce air travel by substituting virtual meetings for physical meetings, however reading through the excellent work already being done for Blog Action day has really got me motivated to make a change today.

I'd like to make a bargain with you......

For the remainder of the year, don't fly. Neither will I. Instead, we will use the amazing array of tools at our disposal, from Telepresence to WebEx to avatar-mediated communications, to approximate the magic of physical proximity.

What's the bargain? I promise to pay $1000 out of my own pocket per airline trip that I take between now and the end of the year. Where does that $1000 go? The Nature Conservancy. So the result is a win-win, either I fund the Nature Conservancy to look into solutions for combating rising emissions, or I reduce my share of airline-related emissions. I don't drive to work or else I'd suggest the same for cars. If you are game, then publicly promise to do the same.

There are a number of us in the virtual world space that travel from virtual world event to virtual world event to speak and do business, and the question always arises 'why cant we do this virtually?'. Well, if 30 or more speakers were looking at $1000 fines each for flying, I bet you'd see a really big virtual world event conducted in the virtual world.

Feel free to track me on Dopplr to confirm I am keeping my side of the bargain. How do I reach you again?