Browser tracking – Private paradox.

 

 

 

 

 

Anti-tracking spells trouble for internet economics but social networks should remain immune.

  • User stubbornness over privacy threatens that which they hold most dear: Free internet.
  • Everyone loves Google’s many applications and Android because they work well but mostly because they are free.
  • There are a great many other examples.
  • Free is the great myth that has percolated through the internet since it was created and has in fact never really been true.
  • Users of Google and other services are in fact paying for these applications, just not in cash.
  • Users are with a part of their privacy creating a happy delusion where they believe themselves to be the customer when in fact they are the product.
  • Until recently, all browsers would track activity via cookies and this information would be shared with other websites.
  • These websites would then target advertising relevant to recent browsing activity within the content served to users.
  • It is well known that targeted advertising is many more times affective in winning sales than random advertising.
  • Hence, advertisers will pay a much higher price for a targeted advertisement than a random one.
  • It is upon the economics of this that the free internet has been built.
  • However, browsers are being increasingly enabled with the option to turn tracking off meaning that only random adverts are served when the user visits a certain webpage.
  • While this is great for privacy, what users don’t realise is that it may just kill the golden goose.
  • Providers of “free” applications and services have to eat too and if the quality of advertising served to users collapses due to the privacy option then so will their revenues.
  • Big, sophisticated players like Google are likely to be less affected as they will still maintain the ability to track activity via the traffic that they manage through their servers, but smaller players could be hung out to dry.
  • As far as I can see, this will not affect the social networks, as it’s the information that the users store on their servers that is used to target advertising.
  • Many users haven’t realised it but they have traded their personal information for the service rendered and as such have no simple means of getting it back.
  • To date, take-up is low with (10% (Mozilla)) on the desktop and 19% (Android) on mobile, but this looks certain to climb as users become more aware.
  • This is bad news for those smaller players trying to scratch a living from advertising revenues but I think that the larger players and especially the social networks will remain relatively unscathed.

 

 

IPR – The weakness of essential Part III

 

 

 

 

 

The clipping of Samsung’s wings by the EU clearly shows the problems associated with prosecuting standard essential IPR.

  • Samsung announced yesterday (Dec 18th 2012) that it was withdrawing from all of its actions against Apple in Germany that were seeking an injunction as a remedy for the infringement of its standard essential IPR.
  • It is worth noting that Samsung has only backed off from seeking an injunction. It has not stopped seeking compensation from Apple for infringement, it just won’t ask for an injunction.
  • I suspect that this announcement has nothing to do with Apple’s failure to get Samsung’s devices banned in the US and everything to do with the EU’s investigation into Samsung’s legal practices when it comes to standard essential patents.
  • The EU announced about a year ago that it had launched an anti-trust investigation into Samsung’s legal practices as they refer to standard essential IPR. I suspect that it has concluded that Samsung is behaving badly.
  • The situation is quite simple. Standard essential IPR is intellectual property that has to be used to correctly implement a standard such as 3G or LTE. It can’t be worked around.
  • When the standard is set, the holders of the IPR to be used have to give an undertaking to the standards body (ETSI in this case) to licence the IPR on FRAND terms.
  • In practice this means that the holder has to licence it to anyone that wants it, at a fair price and the holder is not supposed to seek injunctions.
  • However, Germany is particularly friendly to plaintiffs as it does not rule out the grant of injunctions for infringement of standard essential IPR.
  • This is combined with the fact that it is one of the biggest EU markets is why many IPR related actions have been based there.
  • This again shows the weakness of essential IPR.
  • It is relatively easy to prove infringement but the remedies are substantially watered down.
  • Samsung has been asserting, what it claims, is standard essential IPR against Apple and at the same time seeking an injunction as a remedy.
  • Under the FRAND principle, this qualifies to me as bad behaviour and I suspect that Samsung has been informed as such by the EU.
  • Hence, in order not to completely prejudice its case for asserting these patents against Apple, I think it has withdrawn the application for injunctive relief.
  • This should keep the EU happy and prevent it from complaining to the relevant judge which could have resulted in the whole case being thrown out.
  • Samsung will continue to pursue Apple but will seek royalties instead of an injunction
  • Google, via its acquisition of Motorola is in a similar boat and I suspect that the same result will follow especially as the US is less friendly to standard essential based injunctions.
  • To me, this further underlines the weakness of Samsung’s patent portfolio and its inability to protect its owner from legal assault.
  • However, I think that recent events will have made Apple more willing to negotiate with Samsung which I believe will end up in a royalty based licence with Samsung is a significant net payer.
  • The biggest question is when. I am hopeful that 2013 might prove fruitful in that regard.

 

Apple vs. Samsung – Korea equalises.

 

 

 

 

 

Finally, Samsung’s council has pulled its finger out, producing a result worthy of its reputation.

  • It has all been downhill for Apple since its decisive win over Samsung in August and this latest ruling plumbs new lows.  
  • Following the hearing on December 6th, injunctive relief has been denied to Apple on the infringing Samsung products, representing a major setback for Apple.
  • Apple will, of course, appeal the ruling which to me looks very unsafe.
  • In a nutshell the injunction has been denied because Apple has failed to show that the harm to its business was caused by Samsung’s infringement as opposed to normal competitive practices.
  • This is a big setback for Apple, and to be frank anyone seeking injunctive relief for patent infringement, as harm from one specific feature is almost impossible to prove.
  • The appeal process will take around a year by which time any injunction will be moot as the Galaxy SII and Samsung Galaxy Note are very unlikely to be still available.
  • However, the appeal is important because it will have a bearing on future injunction hearings, but Apple’s chances of getting Samsung products excluded from the US have taken a huge blow.
  • Even more relevant is what this means for the next patent infringement trial which is due to begin in March 2013.
  • Here, Apple is asserting patents against the Samsung Galaxy SIII and Samsung Galaxy Note II which are Samsung’s current big earners.
  • It has been my opinion for some time that Apple would file for, and obtain pre-trial injunctions against these devices largely on the basis of the finding of infringement in August.
  • This ruling puts a real dampener on this idea because the same reasoning will apply.
  • At the trial, Apple did not categorically show that it was the infringement that caused the harm to its business and hence I would now expect any application for a pre-trial injunction to be denied.
  • The principle upon which the ruling has been based is being questioned by Apple, but for now it looks like any attempts to keep Samsung products from the US market will be rebuffed.
  • This is the only negative catalyst that I had seen on the horizon for Samsung which now looks to be very unlikely to occur.
  • Hence, 2013 looks like it will be a good year for Samsung.
  • If Windows 8 shows some sign of life then Samsung is in a great position to benefit both with its fledging PC business and its DRAM business.
  • The smartphone outlook is also bright as Samsung will have access to screen technology that will allow it to differentiate in what is becoming a highly commoditised market where very few players make any money.
  • Samsung is one of my top picks for 2013 and is inexpensive on 10.7x 2012 PER and 8.8x 2013.

 

 

Dell – Cloud for dummies.

 

 

 

 

 

Finally an innovation from Dell but it needs to be made available to the right customer.

  • For the last few years Dell has appeared to randomly make acquisitions in an attempt to stave off the ravages of hardware commoditisation by branching out into software.
  • To date this hasn’t helped much as the problems that the company faces in PCs have vastly outweighed any improvements on the software side.
  • However, last week the Dell unveiled something that I think could be of interest.
  • Project FastPaaS is a new take on the traditional PaaS (Platform as a Service) offering that makes the creation and management of applications much more straight forward.
  • Typically PaaS is a blank virtual machine plus a tool kit and the customer builds or ports his own applications to run on it.
  • This is what Amazon Web Services (AWS) and HPQ offer.
  • FastPaaS is not targeted at developers, but at higher level users who are involved in designing IT rather than just coding.
  • Users basically decide what infrastructure they want including the databases, runtimes and what applications they want and the whole system is delivered with a minimum of fuss.
  • This has two distinct advantages that I can see.
  • First. It looks very easy to use, doing away with the need for armies of in house developers.
  • Second. It’s a one stop shop making the job of systems integration much easier.
  • In short this is an innovative approach that I think could resonate well with customers who are new to cloud and want a hassle free implementation.
  • The disadvantage as I see it is that it is on-premise.
  • This means that the customer owns all the hardware meaning that one of the great selling points of cloud computing, fixed IT cost becomes variable, does not apply.
  • For a large company, I don’t think on-premise matters because it is really the SMEs that benefit from having a variable IT cost.
  • However, I think that the nature of this solution will appeal much more to smaller customers.
  • Large organisations already have a lot of in-house development and as long as it is cost efficient, there will be no real saving or benefit by outsourcing it to Dell.
  • A smaller organisation with no in-house development will find this much more appealing but a small organisation is unlikely to want a private cloud.
  • Hence, if FastPaas was to be made available off-premise, then I think it would have a lot more appeal as the IT cost would then become variable depending on usage.
  • This may not be as straight forward as it sounds as the off-premise cloud solution really works when everyone runs the same instance of software on common infrastructure.
  • FastPaas is highly customised which is why the solution seems to be limited to on premise only.
  • This offering has promise but it needs to be directed at the right customer, as in its current iteration, I think it will remain beyond the reach of those that stand to benefit most from it.

 

Mapping Wars – Gritted teeth.

 

 

 

 

 

Google map’s return to iOS heralds the irrelevance of Apple maps.

  • It will have been with gritted teeth that Apple allowed Google Maps to return to iOS.
  • Not only has Google brought the world’s best map application back to iOS, but it has also released an SDK (Software Development Kit) that will allow the makers of other applications have direct access to its mapping data.
  • For once Apple is on the back foot.
  • Its own mapping application is woefully inadequate and the outlook for it to improve in the short term is poor.
  • This is because maps are a hard, long grind to get right and Apple has really only just started.
  • This is a nasty situation for Apple as could not really refuse access to iOS to Google Maps.
  • Refusal would have brought the ire of many users and substantially increased the risk of defections to platforms where better maps are available.
  • Now that the Ferrari of maps is back, I suspect that the unhappy users of Apple maps will drop it like a ton of bricks.
  • The problem is that the damage is done. Everyone thinks that Apple maps are rubbish and there will be a strong disinclination to try it again even when it has been fixed.
  • This is further evidence that the days of differentiation within the user interface are coming to an end.
  • Graphically rich user interfaces are something of a commodity these days and unless Microsoft really gets some traction or integration becomes important, it is likely to remain that way.
  • The fact that people in Australia had to be rescued by the police after following bad directions on Apple Maps shows how important the mapping function has become.
  • Hence, I can see maps becoming a factor in the user purchase decision which was probably what forced Apple’s hand but it also plays nicely for Android.
  • Google now has some influence in iOS. It can make the Android version better than the iOS version and therby try and influence people to switch.
  • However, I think this point is really moot. The battle that really matters will be Google Maps vs. Nokia Maps.
  • This is because Apple remains in a category by itself and I don’t believe that poor maps is enough to make people give up all that they love about iOS.
  • The real threat to Android, and I believe its main competitor, is Microsoft which is running with Nokia Maps.
  • Nokia maps are much better than Apple maps but they are not yet in the same class as Google.
  • As Microsoft gains traction, battle will be joined but for now the momentum remains with Google and Android.    

 

Microsoft Surface – The thin ice.

 

 

 

 

 

  • Microsoft has a commanding position in the market for PC software but it cannot really afford to antagonise its partners.
  • By making its own hardware, Microsoft risks doing exactly that but the slow take off of Windows 8 appears to be forcing its hand.
  • I have long held the view that the main reason for Microsoft to make the Surface is to demonstrate to hardware makers and to consumers exactly what Windows 8 is all about and what if offers.  
  • This is why the circulation of the device has been limited to Microsoft’s own retail stores and through its website.
  • However now it seems that the frustration of the slow take off of Windows 8 has gotten the better of Microsoft and it is trying to jump start the market on its own.
  • This is why I believe it has decided to expand its distribution channels to Best Buy and Staples earlier than expected.
  • Making the device more widely available should help shipments as well as stimulate interest in Windows 8, but it’s a very fine line between jump starting a market and competing with one’s partners.
  • Despite public protestations, the PC industry is not happy with Microsoft moving to do its own hardware.
  • This is because no one can be dependent on the software of a competitor and so Microsoft, despite its power, should always remain neutral in the hardware space.
  • For now, volumes are low enough for it not to matter much but that could change.
  • January should see the Windows Surface Pro arrive which is a fully fledged tablet that can perform exactly as a laptop.
  • If that proves to be what the market is looking for and demand rises strongly then Microsoft faces the problem of competing against its partners.
  • But for partners, where else are they going to go?
  • The short-lived fad that was the netbook clearly showed that a Linux based OS gets no real interest from users.
  • Android? Impossible to compete with Apple at one end and with Amazon at the other.
  • Chrome? One is in the same boat as with Microsoft. Google is racked with engineering disease and is showing every intention of continuing to make hardware.
  • Hence, Microsoft is unlikely to lose any partners over the Surface but it is always better to have a good relationship with your partners.
  • Furthermore, a large slice of Microsoft’s market is showing every sign of vanishing into iOS and Android while the rest is sluggish and uninterested in Windows 8.
  • Microsoft needs all its pals around it to make the Windows 8 ecosystem fulfil its great potential.
  • Execution remains the key risk as it has been for the last 16 years of unmitigated failure in the mobile arena.

Samsung Software– Move to fix

 

 

 

 

 

  • What more evidence does one need of the weaknesses of Android than its lead vendor moving to fix them.
  • This is what Samsung’s Premium suite part II aims to do.
  • I have long been of the opinion that the weakness of Android lies in its usability which I think ranks far behind that of iOS. see here).
  • The result of this is that Android users use their phones less, gain less utility from them and critically are far less loyal to them.
  • Hence when something better comes along (could it be Microsoft?), there will be plenty of willingness to jump ship.
  • The problem with Android is simply that you have to get it all working yourself which, for most people, is just too difficult and too time consuming.
  • Premium Suite part II from Samsung in my view attempts to fix these problems by making the device much easier to use as well as adding functions that cannot be found elsewhere.
  • This is what Easy Mode and Setup Wizard are all about.
  • If the device can be made to appear to be better integrated, easier to use and with better apps, then users are far more likely to latch on and start using the device more.
  • A device that one can simply turn on, login and have work well is a dream that very few have been able fulfil and the rewards for success are rich indeed.
  • It is here that I believe that Samsung is trying to make a difference.
  • If users like Premium Suite then there will be a preference for a Samsung device and for Android when it comes to the next purchase.
  • This will enhance Samsung’s ability to differentiate in what has become a highly commoditised market and allow premium pricing.
  • Premium prices combined with its volume, distribution and increasingly brand are the bedrock of its superior profitability.
  • Will Premium Suite work? I doubt it. The shortcomings of Android are so widespread that a few apps and a glossy layer on top are unlikely to bring the user experience up to the gold standard of iOS.
  • However, I don’t think it matters for Samsung yet.
  • Firstly because Samsung can still differentiate on hardware and secondly, because it can easily switch to Windows Phone 8 should that prove to be very popular.
  • For the moment, the margins are fat and juicy on Android and there is no immediate sign of that ending.
  • I like Samsung long term but am concerned in the short-term regarding the impact that Apple’s legal strategy may have on sentiment. (see here).

 

IPR Clubs – Pals in a pickle

 

 

 

 

 

  • The crazy dash to own patents to protect ones business has meant that the prices paid for patents these days have reached crazy levels.
  • One only has to look at Google’s $12.5bn acquisition of Motorola Mobility and the Rockstar consortium’s $4.5bn purchase of the Nortel assets from bankruptcy for evidence of this.
  • This has led to a rise in companies clubbing together to purchase patent portfolios as they become available.
  • The latest is the rumoured collaboration between Google and Apple to bid around $500m for the Kodak patent portfolio.
  • While this is great for keeping costs down and reducing the number of competitive bidders, it is fraught with problems.
  • The first question to answer is how the patents will be split up between the different consortium members.
  • Originally it was thought that the patents could stay in a pool and be drawn upon by the consortium members for protection when under assault by a third party.
  • But as Google found to its cost, one cannot assert a patent that has been borrowed. One has to own it outright.
  • This makes the whole “borrowing” idea moot.
  • So either the consortium members split up the patents between themselves or the patents remain in the consortium which then attempts to earn a return on them.
  • The problem with splitting up the patents is that everyone will want the same ones making the whole process tortuous and painful unless agreed in advance.
  • Earning a good return will also be tricky especially when taking into account the astronomical prices paid.  
  • In the case of Nortel, Apple took around 1,024 of the patents for itself leaving the rest within Rockstar to be managed for a return on investment.
  • Using the appallingly bad $ per patent measure one could conclude that Apple paid around $800m to own those patents leaving Rockstar with Rockstar with 4,000 patents in which its owners invested $3.7bn.
  • Rockstar needs now to earn a decent return on $3.7bn using 4,000 patents which looks like a tall order to me.
  • Many of these patents are already licensed and I doubt that they are generating significant revenues as this would have helped keep Nortel from bankruptcy.
  • Hence I struggle to see that Rockstar is going to generate especially good returns for its holders.
  • Likewise the rumoured consortium of Apple and Google bidding for the Kodak patents.
  • These two are arch-enemies who are indirectly fighting tooth and nail for the hearts and minds of mobile phone users.
  • How the patents will be divided up or a decent return made on them is very unclear and looks to me likely to end in tears.
  • Hence, the only advantage of these consortia is that it takes out of circulation a block of patents that could be acquired by a loose cannon and then used to hold everybody hostage. (as was the case with OMA DRM).
  • At the end of the day these look like very expensive insurance policies that time is likely to show were hugely overpriced.