by Dana Blankenhorn
  Volume VIII, No. VI

This Week's Clue: The House Of Cards, The Toll Booth, and The Volcano

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This Week's Clue: The Center Of Our Lives
SSP (Shameless Self Promotion)
SP (Shameless Promotion)
Who's Copying Whom?
Sony Buying Apple?
Making Laptops Like Desktops
Clued-in, Clueless
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For the Week of February 9, 2004

I believe in business models.

To work, a business model must bring a profit to the vendor and ample value to the consumer.

A good business model can be worse for vendors than what came before. What matters is that the consumer gets awesome value while a vendor still finds a route to profit.

Recently I wrote at MooresLore about what I called Moore's Law of Software. You're right, there is no such thing. And that's just the problem, in terms of The World Of Always-On. Because Always-On applications require a lot of software, which must work seamlessly on a network in order for the application to be bullet-proof.

Unfortunately that doesn't work with present software business models. Not only are software prices going up, not down, but you can't even "buy" it. You can only "license" it, for a fixed term, and thus no matter how old your machine you have to "buy" it and "buy" it again. Worse, the software maker isn't even promising to make sure it works for you -- software license agreements specifically indemnify the makers from crappy products.

Thus, companies like Microsoft (and its brethren, like Symantec) can force you to upgrade, not just your software, but your hardware as well. Simply put out new stuff that requires new hardware, let the clock run out on necessary applications, then force users to junk their machines.

I call this a Hosue of Cards business model. Any card can be pulled out at any time, simply by your failing to renew it, and the whole contraption comes down. This won't work for Always-On. But, the business model works well for the vendors. It's profitable.

There is a second profitable business model in the cellular industry. While you may be used to thinking of your cell phone bill as being like your ISP bill, a fixed monthly charge, the industry itself is really in the business of creating "billable events." This is how the industry was pulled into selling data services, by the promise of "billable events." An SMS message, like a ring tone, is a billable event. A purchase made with the cell phone creates a billable event. A picture sent to a friend is a billable event.

In terms of business models, this is a toll booth model. It works great for the vendors, if they can stimulate demand. And, when you take your Always-On applications into the world it might even work for you, if you restrict your communications to only necessary messages. If you have a heart monitor application, for instance, you want storage on your person, and processing on your person, so that you only send a message over the cellular network when something changes, when a dangerous condition is calculated and the application needs either confirmation or needs to sound an alert to caregivers.

I've said many times here that the key to the future involves modular, scalable, and stable platforms, platforms you can build on. We have this in hardware. We have this in communications with the IP protocol. We need this in software. But we also need a business model for that software.

To get there, we need to separate the aspects of software development that cost money, namely upgrades and support, from those that really don't, like keeping it on a drive or a chip. After all, when software is loaded onto a chip (as it often is) you don't have to buy the chip again-and-again. Why should this be necessary for software that sits on a drive?

This is why Linux is a key Always-On technology. Its business model explicitly separates these costs. The "true believers" in Linux constantly emphasize the idea that it's "free," but that's just a part of it. The people who are making a living on Linux, IBM especially, are doing so by selling services (design and coding) and support (maintenance). They are doing very well for themselves this way.

Let me repeat this. IBM is making money on Linux. So it's not "free" in the sense that it doesn't cost anything. But it is free in the sense that, if you have it and it's working and you need neither upgrades nor maintenance, you don't have to keep paying for it.

So you can build a platform on Linux that you can't build in Windows. You can build it the way a volcano is built, so I call this a Volcano business model. You have an explosion (that's costly) but what's left cools. Then there's another explosion (another cost) and that cools as well. Eventually you build something rather large and impressive, and you keep paying for it (there are always explosions) but you only pay for today's lava flow, not yesterday's.

This is vital for Always-On applications to succeed. Because Always-On applications are built with modules, one on top of another. They must be built through a natural process. And a volcano is a natural feature.

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Shameless Self-Promotion

I work as a business analyst with Progressive Strategies, a New York research firm that has the ear of the world's top technology companies.

My last book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards .

You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know. Remember: it's journalism that keeps the Clues coming...

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Shameless Promotion

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Takes on the News

Who's Copying Whom?

No one has mentioned this, but C|Net is becoming a clone of The Register .

Just look at the News.Com home page . Except for the use of a few small pictures, it's almost identical to that of The Register .

A winning strategy would merge the advantages of both. Junk the pro-vendor writing style for something edgier. Add graphics and tabs for easier navigation. Move the search box up, but organize the results as something more than a set of links. Make it easier for local stores or niche advertisers to get in, through context-sensitive ad plans similar to Google's AdWords.

Now you might think from this that the two should merge, and that C|Net would be the natural survivor. But its current market cap is just $1.16 billion . Sound like a lot? But with the pound at $1.82, that's just 637 million pounds. Or Masayoshi Son, who is making a comeback as a Japanese ISP, could probably buy both - the yen is at a three-year high, at just 105.62 yen to the dollar.

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Sony Buying Apple?

Speaking of exchange rates, my guess is a lot of foreign companies are just licking their chops, watching spreadsheets closely, and waiting for a mid-term top before swooping in to buy America's technology jewels.

The first such purchase is likely to be Sony buying Apple. Sony's ADRs trade in the U.S. market, and the company is worth $36.60 billion . Apple is worth $8.36 billion but remember Sony would be buying with yen, not dollars. A price of under 1 trillion yen sounds like a big number, but in Japan they call that a bargain.

There would be many advantages. Combining Sony's consumer electronics expertise with Apple's computing knowledge is a natural fit. Sony has content, the iPod has none. Also, Sony underperforms in the U.S. stock market, and a big U.S. purchase could change that.

Make it a friendly deal. Let Apple keep its autonomy. Put Steve Jobs on the Sony board. It's a natural.

Making Laptops Like Desktops

It would be natural for desktop computers to collapse into the laptop format. Board upgrades are no longer necessary, when the underlying chassis costs $500-1,000. All screens are flat anyway. Desktops are energy hogs.

The problem is that there is no uniform form factor for laptops. Each brand has its own scheme, leaving a stickiness to falling prices that you don't see in the desktop world. That's why a "white box" retailer like Feather Computers here in Decatur, Georgia doesn't really sell laptops.

So Intel, which wants to accelerate the move toward higher-priced, lower-powered chips, has a cunning plan . It is getting together with its five major Taiwanese OEMs on the equivalent of a "reference platform" for laptops . This would allow the creation of a "white box" market, accelerate the move toward laptops, raise Intel margins (it makes more on laptop chips) and give the chipmaker a slightly bigger piece of the PC profit than they can now get from outfits like Dell and H-P.

Very clever.

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Clued-in, Clueless

Clued-in is Intel moving toward 64-bit architectures . This is a good time for the move, which should re-boot the software industry as well.

Clueless is Gateway buying eMachines , although the deal might make some sense the other-way around.

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