Industry

The U.S. Court of Appeals made a significant and troubling decision this week: it shut down a 2010 FCC decree that prevented internet service providers (“ISPs”) from selectively enhancing or restricting traffic to certain destinations (websites, streaming services, etc.) The collective term for this idea has become known as Net neutrality.

If you need help understanding what’s at stake, you must read Nilay Patel’s dissection on The Verge. While you’re at it, see Fred Wilson’s brief but brutal take on what it means for entrepreneurs and investors.

At the very least, you should take a good look at this mock-advertisement posted by ‘quink’ on Reddit. It’s the most compelling and succinct illustration I’ve seen. Even the fine print was written with care.

Put simply: the Internet we know and depend on will become something very different. The business relationship with your provider will change its focus from consumption (how many ones and zeros came over the wire) to behavior (what kind of ones and zeros). The latter is much more discriminatory and insidious.

Quink’s illustration is far from the worst-case scenario. Have a look at your cellular bill: most of us have minute allocations for specific times of the day and week. Now imagine a future where Netflix streaming is twice as expensive after 6PM. Where a single Skype call costs as much as a monthly landline.

The privacy implications are just as chilling. A discriminatory model bakes surveillance into the way ISPs do business. Sure, your provider can snoop on your traffic right now, but nothing in the fundamental concept of delivery requires or justifies that they do. With this environment in place, the implications for privacy and anonymity tools like Tor should be obvious: they would be banned in the provider’s terms of service (how else can they know how much to charge and what to block?) and lobbyists would waste no time making them illegal.

It’s sad that this has come to an issue of courts and regulatory bodies. The real problem is that there’s nowhere else to turn. There is no tangible consumer choice. The infrastructure is effectively monopolized. It will not be possible to vote on this with your wallets: you can submit, or cancel your service. But nobody’s going to stop using the Internet — certainly not in the kind of volume that would make a dent in policy.

The picture above resonates so well because we’ve seen it before. We see these itemized, booby-trapped menus every time we buy television or phone service. So it’s quite difficult to call this vision far-fetched when you consider the people who sell us Internet connectivity are the same people who sell us television and telephone connectivity. This is absolutely the future they want. And if nothing changes, they’re going to get it.

(Update: This article originally attributed the ISP “pricing menu” image to a user on Twitter. Iain Delaney pointed out the correct source. Sadly, none of these outcomes will change the way work is stolen on the Internet.)

In the early days of the iOS-Android war, Steve Jobs told his biographer Walter Isaacson “I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.” Everyone immediately anticipated patent claims against the Android OS. I doubt many anticipated claims against Google’s undiversified core business.

ArsTechnica is reporting that Rockstar, the company spawned from an Apple-Microsoft-RIM-Sony alliance which, in 2011, outbid Google for a trove of Nortel and Novell patents, has filed suit against Google:

The complaint against Google involves six patents, all from the same patent “family.” They’re all titled “associative search engine,” and list Richard Skillen and Prescott Livermore as inventors. The patents describe “an advertisment machine which provides advertisements to a user searching for desired information within a data network.”

The oldest patent in the case is US Patent No. 6,098,065, with a filing date of 1997, one year before Google was founded.

If you think that sounds like nearly 95% of Google’s revenue, you’re not alone. This sole patent feels like enough motivation for Google to have won this auction at all costs. Not only did Google not win, it made joke bids. What were they thinking?

Perhaps Google wasn’t thinking. Perhaps it was woefully unprepared for the 2011 auction and lacked a sufficiently clear picture of how valuable the portfolio was  — and conversely, how dangerous it would be in other hands. Or perhaps Google decided to brave court battles and ideally set a precedent that crumbles the patent troll house of cards for good. That sounds very, very risky, and doesn’t explain why it bid up to $4.4B in the first place.

It also doesn’t explain why Google paid twelve billion dollars (!!!) for Motorola just one month later. It’s harder than ever to see the Motorola purchase as anything but panic: having lost the Nortel auction, possibly not even realizing what they’d lost until after the fact, Google scrambled for countermeasures. Larry Page practically admitted as much when he announced the deal.

Unfortunately, Motorola’s patents have not proven too useful. Florian Mueller repeatedly predicted this mess, chronicling a number of courtroom dead-ends since the Motorola deal was made. And then there’s the small matter of Motorola continuing to hemorrhage cash. I wonder if Dan Lyons still thinks the deal was a “rope-a-dope”.

I’ve said this multiple times in the past, and I’ll say it again: I don’t like this game. Rockstar looks, smells, and now acts like countless NPE’s that have done more harm than good — namely Lodsys, which has been aggressively harassing Apple’s own ecosystem. It’s extremely disappointing to see Apple facilitate this kind of behavior. At the same time, the missed Nortel auction and dubious Motorola purchase look as awful a strategic blunder as ever for Google. They kept their head in the sand for too long.

OK, so I got the price wrong.

In a surprise Labor Day announcement, Microsoft is acquiring Nokia’s devices and services business.

I already said most of what I think about this pairing two and a half years ago. If you get past that melodramatic headline, most of it still holds. But I liked it a lot more when the year was 2011 and the price was (even if rhetorically) free. What’s happened since then to justify going all-in now?Now all I have is a pile of questions:

1) Why was this announcement made after throwing Ballmer out? That news came a mere ten days ago. Combine this Nokia news with the big reorg, and you have a much more lucid claim that things are changing in a big way. If Ballmer were to announce his retirement this week, it’s a lot easier to credibly claim Microsoft is taking a new direction and that it’s time for new leadership.

2) Knowing that Ballmer is a lame duck, is this his deal, or the board’s? If it’s his deal, that straitjacket just became an iron box. If it’s the board’s deal, why is his name on the announcement? (“He’s not gone yet” is not a good answer. He’s gone.)

3) A lot of problems at Microsoft, from a poisonous adversarial culture to a lack of vision, have been illuminated in the last few weeks. Who honestly thinks this merger will solve any of them? (Bad acquisitions, by the way, are a piece of Ballmer’s legacy that has been, in my opinion, underreported since the news of his retirement broke.)

4) The Elop-as-next-Microsoft-CEO buzz has already begun. Why? How’s he done at Nokia? The only “rational” reason to have him succeed Ballmer is that he seems like an appropriate successor to Ballmer in every way — in other words, he absolutely should not get the job. Kara Swisher loves the vapor-video he apparently commissioned. I prefer Bret Victor’s take on these sort of things. Note Victor’s repeated, damning use of the v-word.

5) Nokia was already making very nice Windows Phone hardware. And the Windows Phone software, while not making a huge market share dent, has been routinely praised. What, then, has been the problem — and again, is this merger really the solution? This is easy to answer with another question: How would the Lumia line be selling if it ran Android, and without Nokia as a Google subsidiary?

6) Microsoft just disclosed it only makes $10 per Nokia phone sold. Gross margins per unit are estimated at $40. When, if ever, will this deal pay for itself? What does today’s news have to do with increasing either unit sales or device margins?

One thing must be observed: all the major mobile players — Apple, Google, Microsoft, and oh what the hell, BlackBerry — now own a top-to-bottom technology stack. Alan Kay was right as ever when he said “People who are really serious about software should make their own hardware.”

But Microsoft needs to be thinking big and ahead, and removing burdens. I just don’t think its inherent ills can be cured, or even disturbed, by this deal. Assuming nothing fundamentally changes at the top, I believe it will be a complication that only accelerates the fall of a giant.

An increasingly-justified fear of irrelevance seems to be driving Sony’s every move these days. Its latest public display: yesterday’s clearly-too-soon announcement of the PlayStation 4. It was by nearly all accounts a bizarre two-hour ordeal that featured no launch date, no pricing, and no product.

Everything about this event, from the lack of specifics, to the Office Space slides with MS Paint brains, to the creepy old man head, points to a rushed announcement. Why? Why did Sony need to talk on February 20th? Why not wait for a presentable product? Some playable games? Anything real? And why release the technical specs after the event, having just filled a room with reporters for two hours? Even the official press release feels sloppy, listing PlayStation 4 itself after the new controller and camera. Everything about the announcement is weird.

It’s easy to get sidetracked and ridicule Sony (again), but this is a teachable moment. People would have happily waited longer for a comprehensive, exciting product launch. It’s been nearly seven years since the last PlayStation was revealed; would another month or two have tipped some scale? Whoever this was aimed at — developers, hardcore gamers, casual gamers — the utter lack of usable information makes the timing questionable at best.

There are also competitive repercussions: Sony has now shown its hand way ahead of time. Microsoft is not expected to announce its next-generation Xbox until E3 in June, leaving more than three months to respond accordingly. If Sony’s offering ends up superior to the Xbox when that announcement happens, then Sony hasn’t gained much, because we still don’t know what it has or what it can do, and it’ll be months-old news. If Sony’s offering ends up inferior, it will be upstaged and stale.

If you’re going to strike early, you must strike hard. A strong offering is strong at any time. The same goes for a weak one. The difference is knowing what you have, and adjusting the message accordingly. Sony did not do that yesterday, and has now lost the opportunity to do so tomorrow.

Apple cannot afford to get too big or too disorganized. That’s my takeaway from yesterday’s shocker that not only is Scott Forstall out at Apple, but also that his fiefdom is being split between Craig Federighi, Eddy Cue, and Jony Ive. We learned a lot about Tim Cook yesterday.

First: retail chief John Browett was surely done before we on the outside even heard about his scorched-earth penny pinching. My first thought when those stories started to hit was, If this is true and Tim does not fire him, there’s a problem in Cupertino. What’s telling is how long it took. I suspect Forstall had worn out his welcome long enough ago that Cook held onto Browett for a single press release. Canning Browett so soon after hiring him, then losing Forstall just a few months later, would have shaken a lot of confidence. Losing Forstall sooner would have disrupted teams and product launches. There’s only one headline now, and it’s framed in a proactive manner. From a cold business and PR perspective, I’m very impressed. Tim clearly knows every side of how Apple does things.

Forstall’s star shot upwards from a low level to standing alongside Bertrand Serlet — the man he worked under for years. When Bertrand left Apple, I was sure that Forstall would press to expand his influence, even if he wasn’t given Bertrand’s turf. When Steve departed, I felt the same way. I’m not surprised his style continued to ruffle feathers, but I’m shocked that it cost him his job. I underestimated Cook. Scott’s absence from the iPad mini event last week should have been more alarming to everybody.

If this was only about Forstall being a problem, though, Apple would replace him. They clearly aren’t: the same press release explicitly states a search is underway to replace Browett. Not only is this a profound increase in responsibility for all three of these top executives, it’s a profound change in Apple’s organization going as far back as I can remember. There’s a long-standing pattern of separating watershed products important to the company’s future. The Mac and Apple teams. Mac OS X and Classic. The iPod division. iOS and Mac OS X. Suddenly, Tim Cook has pulled the reins in. Federighi owns software. Ive owns design. Cue owns services. Period.

Apple’s insane growth has pushed the situation over the edge. Too much size and separation inevitably bring politics, chaos, dropped balls, and finger pointing. None of those things are good for Apple’s products or customers. What we don’t know is whether burdening Cue, Federighi, and Ive even further will actually improve things. These guys already had enough to worry about. The worst case scenario is one where good leadership is spread too thin, and everything suffers. These are real growing pains.

Four hundred million devices and five hundred billion dollars later, Apple is different. It’s just finally starting to look that way.