It's all about the platform

I've been following the blogosphere closely over the last couple of weeks and I'm kicking myself that I didn't get this post out a little earlier! When I read articles like this it just confirms everything I believe about the essential elements of a good product and good product strategy.

That's because a successful, long-term product strategy involves a platform, not just a product. A platform has three essential components: an endpoint, some content and a distribution mechanism. Content and distribution are pretty much self explanatory. By endpoint, I mean a place for consumption to occur. In different markets and different products, the endpoint can be quite different, but its essential property is that it facilitates consumption by the end user.

For example, with cola-flavoured beverages, the content is the drink itself, the distribution mechanism is the fleet of vans and supporting warehouse infrastructure that get the soft drinks into stores, and the endpoint is the can or bottle. In the traditional (ie non-digital) music business, content is obvious - its the music itself - and distribution is pretty straightforward as well, it's the record companies ability to manufacture CDs and get them into the hands of the music buying public. What's the endpoint in this case? Devices like CD players and other stereo equipment components that allow an end user to play music.

With PCs the endpoint is the machine itself. The content is the operating system and applications that rely on it. Distribution revolves around the ability of operating system and application vendors to get their software onto the device and into the hands of users. Microsoft managed to create an amazingly (economically) successful ecosystem around the DOS and Windows operating systems by making sure that PC vendors shipped it pre-installed. The mechanisms they used to make this happen have already been the subject of many column inches, so I won't go into them further here.

Domination in a market occurs if a single player (or group of players) manages to gain control over one or more of the three essential components, or if a player manages to commoditise one or more of the parts. This is best understood by example.

In the PC business, Microsoft's great innovation happened a long time ago - way back in the early days of DOS, and it was only partly technical. Whether or not it was Microsoft's intent at the time is another story altogether, but the the real innovation was that DOS commoditised the hardware platform. DOS created a nexus between hardware and applications that allowed the hardware vendors to ignore the application software, and software vendors to largely ignore the hardware. Consumers ended up with choice in hardware, and consequently, choice in application software. The creation of an intermediary "standard" was the thing that really allowed the PC market to explode. With this in place, there was proliferation of hardware vendors and a proliferation of software vendors too.

This is a classic case of commoditising the endpoint. They also managed to wrap up distribution by tying the sale of Windows to the sale of a new PC, rather than the sale of the operating system itself. Cleverly from Microsoft's point of view, it didn't matter whether the machine actually had the operating system installed because the deals that MS struck with Original Equipment Manufacturers (OEMs) were based on hardware sales. For each box they sold, they had to pay Microsoft a license, a trend that continued right through the transition to Windows.

It's worth considering the fact that while the price of PC hardware has dropped by more than an order of magnitude over the lifetime of Microsoft's operating system dominance, the cost of the operating system has increased by more than an order of magnitude. That makes it pretty clear which part of the network ended up being commoditised.

The music business is interesting because we can see the endpoint/content/distribution framework in action in the traditional physical music market as well as with digital music, but with some very different players. In the traditional music business, distribution is more or less completely controlled by the record companies. Up until the advent of the iTunes Music Store (and notwithstanding the small number of independent music stores) the vast majority of physical music sales occurred through large national or global chain stores, such as Sanity here in Australia, Virgin and, HMV globally, and Walmart in North America. The music played on radio stations is also heavily influenced by record companies, by legal means or otherwise. The subtlety of that part of the music business is beyond the scope of this post, but if you're interested, see Wikipedia for "payola".

The difference with digital music is not that the endpoint/content/distribution framework has changed, but rather that the players have changed. And if you have any remaining questions that Apple's iTunes Music Store has changed the game in the music business, then the fact the store sold its 5 billionth song in June this year should relieve you of any doubt.

What Apple managed to do to change the game is create a great endpoint in the iPod that consumers the world over just love, and a highly compelling distribution model in the iTunes Music Store that makes it so easy to buy digital music that it verges on the transparent. The end-to-end user experience enabled by the iPod and iTunes is so compelling that the iPod is now the most successful consumer product of all time. Tellingly, the company that Apple knocked off the perch for most successful product of all time (Sony, with the Walkman) is also one of the companies likely to experience some pain when their control over the distribution of music changes as consumer tastes switch from CDs to digital music.

In many ways, the change in the game that occurred in the music business has strong parallels in the PC business. The pattern is clear: a new player emerges on the back of a compelling endpoint, and then delivers a distribution mechanism that just blows away the competition. The iPod/iTMS combination is vastly superior in terms of the end-to-end experience (but arguably, not sound quality) than the CD/store combination. The Google user experience changed the game on search, which they then went on to overlay with an amazingly profitable advertising business model, as well as a variety of new user services which the competition just do not seem to be able to match.

In both cases, the incumbent didn't really see the change coming, and when they finally did, tried everything to ignore it or make it go away. By the time they reacted, it was just too late. Or at least, it looks like it was too late. Apple's success with the iPod and iTunes represents one of the most amazing turnarounds in corporate history, and although there is a lot of competition, both in terms of MP3 devices and distribution mechanisms for digital music, few apart from Apple seem to have any real traction.

In terms of the operating system market, we are probably a little further away from declaring such a convincing winner, but the signs are definitely there. They must be worrying for Microsoft as it continues to struggle for mind share with Vista. Perhaps more worrying is the fact that its online properties (with the exception of PhotoSynth - which is really brilliant) have little to recommend them. There is no question that the Microsoft business model generates staggering amounts of cash from operating systems and desktop applications, but the point here is simply that its not impenetrable.

What I find fascinating is that few seem to have noticed that Apple looks very likely to repeat the success of the iPod/iTMS combination with the iPhone and the iPhone App Store. All of the pieces are in place: a compelling endpoint in the iPhone and a distribution system that connects application developers with consumers like never before. Analysts have been quick to predict failure for Apple and the iPhone, not to mention the end of the run for the iPod. The reality is that Apple just keeps getting stronger, and if Mac sales continue this kind of growth, there may be some very different conversations about the power base of the PC industry in the future.

The amusing thing for an observer is that the role played by Big Music in the iPod/iTMS product mix is now being played by Big Telcos. They just do not seem to get what is going on. And if you need any clearer proof of this fact, check out the pricing plans for an iPhone on Telstra's NextG network here in Australia. Are they serious?

The risk for Apple is in maintaining this success without looking like its developing a monopoly that harms consumers. I don't think that they will have any problems maintaining this with the iPod/iTMS combination because there are many alternatives (just not very many good ones). Just because you have the most compelling product does not mean you are extracting monopoly rents. However, it might be different with the App Store. If its early success continues, then the 30% margin that Apple takes on all App Store sales might raise some questions. However, as with the iPod, no one is forcing you to buy an iPhone. Which is quite a different scenario to the PC world, where even if you do not want to run Windows on your machine, in most cases you still end up paying for it.

From a product perspective, the takeaway here is how powerful the combination of great endpoint, compelling distribution and engaging content can be. The advice to incumbents at risk of losing their endowments is to consider that all three parts of the platform need to be working effectively. When one leg weakens, the whole stool can fall down, but when all three are strong, then it forms the basis of a truly great product.

M@

Remind me, to what does my $50 iPhone holding deposit entitle me Mr Optus?

When the iPhone 3G was announced at the WWDC last month, I had the misfortune (or good fortune, depending on how you look at it) of being awake at 5:00am in the morning thanks to a pair of restless children. Making the most of the opportunity, I had a look at Apple's web site and noticed that there were some links to where the iPhone would be available in Australia. Again, as luck would have it, the carrier that currently lugs around my BlackBerry, Optus, was mentioned as a source of iPhone 3G goodness, so I followed a few links [1] and found myself in what I thought was the privileged position of laying down a $50 holding deposit. Without really knowing what I was getting myself in for, I happily signed up for not one, but two new 3G iPhones. Of course, the fine print doesn't promise anything of the sort (as we will soon see).

I was quite happy with myself for doing this, and there was certainly more than one occasion between then and today when I had gloated (quietly, of course) to friends and family about how I was on a short list to get an iPhone. I only kicked up my gloating ever so slightly when news spread that both Optus and Vodafone had stopped taking reservations. I though that I was sitting pretty.

However, this is just about when it all started to go pear shaped. After receiving an e-mail from Optus reinforcing my sense of hipness, I was encourged to log onto a special iPhone site, designed only for Optus customers. Perhaps "designed" is overstating the case a little. First of all, I simply could not log on. This was not a load issue, it was (apparently) an "incorrect registration code" issue. I tried again, to no avail, then checked the FAQ, which politely informed me that the problems were "mostly to do with people incorrectly typing in their passwords and registration codes". Sure. The fact that you have to put an entry like that into the FAQ tells me something is wrong, and it's not with the users.

After several failed log in attempts I tried a password reset, and that failed as well. I was starting to get concerned. I shot them off a quick "can you help" e-mail. And guess what? I got not response. Not even an automated one. Hmmm. This is starting to look grim. I tried again the next day (Tuesday of this week), and there you go, I'm in. I wonder if there had been some late night development work behind the scenes ... or was it just that all of the users clued up at the same time? Who knows.

Anyway, what did I get for my efforts? A page that contained details of my deposit. Hot diggity. That was worth the wait.

Apart for the mind blowing 12 point Courier <pre> copy of my deposit, there were some instructions about what to do on iPhone day. The main nugget of advice was to bring a printed copy of the receipt, along with appropriate ID, to the Optus store where you had registered your interest. And it also informed me that I was very, very lucky indeed to be eligible to line up on iPhone Day in the priority queue. Tops.

To be perfectly honest, I wasn't all that interested in going out of my way just to get an iPhone on the first day. I would have much preferred to have put in an online order (which I would have been happy to pay for in advance) and then just waited in the comfort of my own home for the thing to arrive. But no, for whatever reason, all of the local Australian telcos have decided that the only way to get an iPhone is to line-up like an knob out the front of a store. Like I've said before, I'm a fan of Apple kit, but I really don't get all of this product worship crap. The beauty is in the use, not in the worship.

However, in this case, I was on a priority queue. So off I trundle this morning at about 7am for a nice morning walk up to my nearest Optus phone store. When I get there - perhaps not surprisingly - there was a lineup of about 250 people. Fair enough. But I'm in a priority queue. As it turns out, no I'm not. In fact, there is no such thing as a priority queue, it's every person for themselves. All 250-odd of them.

And it's right about now that it gets even better. I poked my nose into the front of the queue where there was a pair of Optus phone drones handing out raffle tickets to people in the line and asked them about the priority queue. Nope. No priority queue. You have to line up. Great. Next bit of news. There are only 5 16GB iPhones in the store. And they were already gone.

At this point, I shrugged my shoulders in disgust and walked off. There was no way - NONE - that I was going to wait in a line with 300 other people (yeah, it'd had grown by 50 people by now) to wait for the opportunity to be frustrated that I would not be able to get the phone I wanted. So, all I managed to get for my pair of $50 deposits was a nice walk through North Sydney on a crisp but clear winter morning. I'll just have to wait a little bit longer to my hands on an iPhone. The really bizzare thing, however, is that when I checked my credit card transactions after the walk, I noticed that Optus had already given me a refund on the deposits. Very strange. Perhaps they knew something that I didn't.

The puzzling thing about all this is that it would have to be the complete antithesis of my recent Mac purchase experience. Traditionally, Apple is an organisation that likes to exert significant control over the entire, end-to-end user experience. And for the most part, that experience is a very, very good one. In my case today, it wasn't. It sucked.

How'd you go with your iPhone quest?

M@


[1] For those of you playing at home, the Optus website is perhaps only exceeded in its maddening horribleness by the Telstra BigPond website. For example, the Optus site is so bad, that if your session times out, you have to close the browser before it will let you back in. Both of these organisations are Telcos. I think there's a pattern developing here ...

[2] And to top this all off, we heard this evening that the first nutter in the queue at the George St Sydney Optus store ... wait for it ... was an Optus employee. Not a plant, says Optus. No, of course not! On reflection, I'm probably prepared to believe them on this - they couldn't organise a simple priority queue, so why would I expect them to be able to pull of this stunt? Never ascribe to conspiracy what can be explained by incompetence.

An interesting spin on the net-neutrality debate

Here's an interesting spin on the net neutrality debate:

The Internet vs The Internet Dynamic

What I like about this is the way Bob Frankston is really asking some very tough "Elephant in the Room" type questions. You can see precisely the type of thinking that underlies Telco's activities in some of the pricing decisions around data plans for the iPhone 3G, here, here, here and here.

What a mess!

M@

Is transparent synchronisation the next killer app for mobiles?

So we are finally (officially) getting the iPhone in Australia! In what would have to be one of the most un-secret secrets in recent technology history, Steve Jobs today announced the second generation iPhone, along with a host of new countries where the uber sexy little gadget will be available.

Amid all of the fanfare about the iPhone, something struck me about the new Mobile Me service Apple will release in July. There has been past criticism from some quarters that Apple's .Mac service was poor value. I think you could probably make that argument pretty easily. However, this new service seems to be something else. For a start, it has some truly amazing web design (possibly, even as amazing as this, or this). [As an aside, the kinds of things that people are doing now in rich Internet applications and with the full toolbox of Web2.0 tricks is simply mind blowing. I don't think anyone considered 2 years ago that we would have applications of this quality.]

Mobile Me does two things. Firstly, it elevates all of a typical user's electronic stuff into the cloud. This is great, but certainly not unique - Google has been doing precisely this for some time. I think we can be sure that Apple will bring all of their usual user experience aplomb to the task, so the service will certainly be pleasurable to use. However, I think the real trick comes in the second part. Mobile Me also (at least on paper) appears to seamlessly synchronise this stuff across all of a user's devices.

As anyone with more than 1 device (desktop PC, laptop, phone) will know, synchronisation is a total nightmare. I currently use a BlackBerry [1], and even today I find myself fragging the BlackBerry calendar and overwriting it with the Outlook calendar on each sync because if I don't, then the BlackBerry will constantly double-up entries (particularly recurring appointments).

Perhaps more annoying is the fact that I have to start this bizzare and idiosyncratic little synchronisation application to make it all happen. As a consequence of the generally poor quality of synchronisation applications, most people have data that is out of sync or inconsistent, or they just don't bother with the process at all.

If Mobile Me delivers on the ability to push my stuff to the cloud, and then allows me to have a seamless, consistent, up-to-date view of that stuff from any device - from desktop, to laptop to mobile phone - then Apple will have pulled off a real coup. My guess is that they will deliver on this promise, underlying again their ability to "innovate through simplicity".

Which brings me to an observation about the relative approaches of Apple, Microsoft and Google - both in terms of technology and business model.

As we all know, Microsoft concentrates on the endpoint (at least traditionally), both on the PC and on the mobile device. It's all about Windows Vista and Windows Mobile. To play in the Microsoft ecosystem, you need to buy a license of some sort, and in the case of the vast majority of PCs, you don't even have a choice about it because the license comes as part of the purchase of each new machine.

Google is at the other end of the scale. Their entire service offering is in the cloud, and they give everything away for free, making (lots of) money on targeted advertising. Microsoft is certainly trying to respond to Google, but if you need any proof that they don't have a plan or a clue about how to compete online, then just check out their recent attempt to buy Yahoo.

So where does Apple fit in? Clearly, they have a strong story at the endpoint. The entire Mac hardware range, from laptops to desktops, is well regarded, and if recent sales figures are to be believed, are selling amazingly well. The Mac operating system is also a stand-out, and in stark contrast to Vista, seems to get almost nothing but high praise.

In my view, Apple's new Mobile Me offering places them equidistant from Microsoft and Google, with a service that makes the best use of their endpoint and operating system expertise, adds a cloud-based service layer that (on the surface) solves many of the traditional problems with synchronising multiple devices, mixed in with a subscription based charging model.

Such an economic proposition almost certainly means that Apple won't achieve the user scale of Google Apps (Mail, Calendar, Docs, etc) for Mobile Me, but it does allow them to target the premium end of the market - precisely the same market that they target with hardware sales, and one that is exceptionally profitable for the company.

In many ways, you could probably think of Mobile Me as a premium version of Google Apps in the same way that you can consider the Mac and Mac OS X as a premium version of a Windows PC. Of course, some would argue that these things are not even playing the same game, but allow me to stretch the metaphor for the sake of the discussion.

The real question is this: Where does it leave Microsoft? As an organisation, Microsoft lacks Google's capability in search or scale in advertising; Vista appears to be losing the operating system battle (at least in mind share, if not in volume) to OS X; and they do not appear to have anything nearly as compelling as Mobile Me as an online application. They will almost certainly attempt to turn the ship to deliver a suite of competitive services over the next 12 months or so, but where will Apple be in that time?

One final point that I think ties into this thread is the constant call for Apple to license OS X to third parties. Leaving aside all of the Hackintosh projects that are popping up, I do not think there is a snowball's chance that Apple will ever license their OS to anyone (again). And in any case, why would they bother? A compelling Mobile Me service that generates US$99/year per subscriber will generate a tidy revenue stream that will not in any way jeopardise Apple's healthy margins on the sales of Mac hardware. At the same time, Windows-based Mobile Me and iPhone users might be seduced to switch in the same way as the droves of iPod users who liked the seamless integration between the iPod and iTunes have done so up to now.

I expect that Apple has done its numbers properly to the point that any revenue lost through foregoing sharing argeements with carriers is more than compensated by a US$99/year subscription to Mobile Me. That is, of course, assuming that they can get enough subscribers. So I also expect that they will be trying to convert a big percentage of all new iPhone owners into Mobile Me subscribers as well.

The extent to which this is possible, I think, comes down to the success of Mobile Me. We have all been looking around for the next real killer application in the mobile space for some time [If you are wondering, the first two were obviously voice calls and SMS texting. UPDATE: Of course! Photos is number 3. Thanks Jen.]

Interestingly, the next killer mobile application may not be a mobile application at all, but rather, an application that makes it completely irrelevant and transparent that I am mobile. Regardless of whether I sit down at my desktop at home, my laptop in the airport lounge, or my phone on the go, I get the same, live, consistent view of all of my electronic stuff.

Apple really looks like they have cracked it with this one.

M@


[1] I was waiting for today's announcements from Apple before I replaced my entire technology kit. It's been over three years since I last splurged on decent technology infrastructure. So, come 9am this morning, I'm off to buy a new laptop and a new desktop. And I've already put my order in with Optus for a couple of 3G iPhones.