GILASTATE

Well, I’ve been a bit remiss in updating my blog due to the daily demands of life. While I don’t really subscribe to the fact that life demands anything of you, I have nevertheless been busy with things other than this blog. I have a few follow ups I am working on, so stay tuned.

Well, Google has announced their plans in the wireless phone space.  I have to say I am a bit underwhelmed at this point. Their press release reads like any of numerous other alliances or consortiums where a bunch of firms are getting together to try exploit some market opportunity. While Eric Schmidt says this alliance of over 34 firms is more ambitious than any single phone, I have to say I would have preferred to see an actual gPhone. Any time 34+ firms are getting together to do anything, I’ve learned to not expect much in terms of actual output. Google has typically been fairly aggressive in rolling out new services, so perhaps they will prove me wrong.

Digital music offers an interesting example to evaluate the differences between product and service-centric perspectives on marketing.

What would a traditional product-centric marketing perspective say about a digital music file? Classically, it would say a music file is something the producer has infused value into through the encoding of music into the unique bits that are the file. The bits that make up the digital music file are the value and a customer receives that value from these bits once they possess and use them. Widgets are a great example of this viewpoint in action. While fictional, when you discuss a hypothetical product you can refer to it as a widget and then discuss all the processes to get the widget to the customers. Once the customers received the widget, they also received the value that was “infused” into the widget during the production process.

A service-centric perspective would view the digital music file as merely a conduit to connect the consumer with the producer of the music (think about a band). The band doesn’t just produce music files which contain value, but rather the music files provide a linkage where the consumer and band co-create value. The music file doesn’t actually have any value other than in its ability to optimize this connection between the band and the consumer of the band’s music.

An example may help with this somewhat abstract notion of value creation. My interest in a particular band is a complex set of interrelationships between the music the band creates and my musical preferences. I am not typically going to buy a song sight unheard. I need to have some idea that the band’s music is something I would like. I might think I would like their music because I heard it on the radio, liked their previous music, or heard a sample at the online music store. Basically, my opinion on a particular band is based on interactions with the band. These interactions can be asynchronous as is the case in listening to recorded music or synchronous when I attend a live performance. The purchasing and use of a particular music file is not a discrete event, but rather a single point in an extended set of interactions between me and the band that determine the value I receive from the entire co-creation process.

So, the digital file itself is only a conduit between the band’s performance and and my appreciation of that performance. While this distinction may seem overly complex, it actually has very real implications for how to market digital music products. I’ll discuss these differences in my next post.

Part of the problem of not living in Silicon Valley is that you miss out on some of the cooler applications of technology. While it isn’t new, I just recently came across the idea of unconferencecs. Now that I’ve heard of them, they make perfect sense and I am somewhat peeved this idea hadn’t occurred to me earlier. While the term is most associated with a particular form of conference “driven by the participants” rather than the more traditional guest speakers, this concept is an excellent example of the co-creation of value through an open approach. Instead of just having the conference presenters deliver a one-way stream of value, an unconference creates value through it’s attendees. The attendees actively participate in both structuring the conference itself as well as driving the session.

Certainly there is more risk in depending on the attendees than relying on a proven speaker, so the facilitation of an unconference is therefore key. Without some controls, I’m sure an unconference could devolve into chaos. Properly facilitated, however, I would be interested to see what a smart group of attendees could come up with when compared to a traditional session. I wouldn’t be surprised to see some really interesting discussions emerge from such a technique.

Have any of my readers been to an unconference? If so, let me know what you thought!

Steve Jobs recently announced Apple’s intention to support third party applications on the iPhone. It is great news that Apple is going to offer an SDK for the iPhone, but clearly the iPhone will not be an open source device. Jobs mentioned that the primary challenge of “opening” the iPhone is insuring that the device is secure against viruses and other malware. Of course, what this means is the Apple will maintain strict control of how third party applications can access the underlying OS and hardware. Time will tell how this will benefit iPhone users.

The technology industry has been talking about convergence since at least the 1984 break-up of AT&T. The idea of convergence is really more of a technically based term that has come to mean literally bringing together technologies that were once separate. AT&T has a whole microsite dedicated to discussing how they will integrate voice, video, conferencing, and messaging all over a single network (IP). Convergence is juxtaposed against the past where these service required their own special delivery technologies. Clearly, having once network/technology where you previously had several is probably better to some extent- think operations, training, and equipment costs.

For the most part, the communication technology wars are over. In the past we used to question the Internet’s ability to be a network for real time communication and rich media, but that time is long past. IP effectively won the last war. Sure, there are lots of yet to be determined standards and protocols, but it would be hard to argue that IP is anything but dominant.

So, if everything (communication-wise, anyway) is converging around IP, then what is next? My opinion is a that to truly progress, we have to move beyond considering technology convergence to considering how customer value is created through services. This next step requires a different perspective on what is the nature of customer value. This step views technologies as nothing more than containers for value. The true value comes from the needs that the technologies address through intelligent service design.

Sure, we have historically considered the source of customer value as being the technology itself. The problem with this approach is that it places limitations on what technology can accomplish. If we start with the customer needs first and then assemble the technologies to best meet these needs, we may find that many technologies and combinations of technologies can break out of what they have traditional been good at.  The only way for this to happen is to focus on the customer and not the technology.

Here is recent article talking about a new DoCoMo service “mash up” that integrates an exercise application with mobile phones. The phone uses various sensors to track activity, heart rate, body fat, and a host of other data points in order to provide for fitness tracking and recommendations. The phone also provides inspirational advice depending on the data collected.

This is another interesting application that departs from traditional notions of service delivery over mobile devices. While in this case, the application may be developed by DoCoMo and Mitsubishi, the opportunities for open source developments are even more intriguing. If the platform were open, there would be developers around the world developing amazing new uses for such devices. As an example of what’s possible, check out the Carman application for the N800. The developers of this application took advantage of the standard data port on my late model cars to develop a really slick application that can report on many different sensors that already exist in these cars. While it is not health related, it isn’t too hard to make the leap to body diagnostics.

Imagine the applications that could be developed with both general fitness and medical uses if such a device were available. 1984 fears not withstanding, a usable device in this market space could be quite a breakthrough.

UPDATE: Here is a new article talking about Google’s desire to develop the OS and not the hardware.  I think many of my thoughts are still valid as the OS is obviously a critical part of any phone. 

While it is impossible at this point to determine whether Google is actually developing their own phone or not, such a development would certainly have much to offer consumers and, in turn, Google. Ive spoken about the significant restrictions that most wireless providers have placed on their phones previously. These providers want to create a monopoly over the applications that use their network. From a simplistic business point of view, you can see the logic. For example, why let people use the music they currently own for ring tones when you can charge them $2.50 for virtually the same thing by enacting strict controls over the hardware functions.

The rumors on the GPhone are that it will be Linux based and be an open platform unlike the iPhone. For consumers, the benefits are obvious. An open platform would create a new outlet for open source developers. Such a platform would also allow firms with proprietary software to offer owners of such a phone. This is exactly the approach that Nokia is taking with the N800. Google may stand to benefit even more than Nokia, however.

Google’s core competencies center around information indexing and advertisement delivery. Nokia obviously is not even close in this regard. If Google created a phone that was optimized for their competencies, it would only serve to dramatically increase their advertising reach in the mobile market. Many in the start-up crowd are already taking about the yet to arrive mobile web as Web 3.0. And while I hate this moniker, I think there is far more potential for mobile applications that is being realized today.

But, what about all the open source developers that would be competing with Google on their own phone? Certainly, Google would want their search and mapping applications to be in an obvious, fixed location on the phone UI, but I think the rest of the platform being open would only benefit them. The open source community would add value to the GPhone by offering all of the “long tail” applications that appeal to a large number of consumers. The phone would actually become a platform for services versus a container exclusively for the applciations that Google develops or supports. Such a platform would allow users to address their specific needs which might result in the GPhone attracting a significant customer audience. And, assuming Google continues to offer robust information products, the GPhone would effectively allow Google to break out of the locked down cell phone market they are confined to today. Of course, this is not a simplistic business model and is not without risks. Only time will tell whether Google want to change the wireless game or continue supporting the providers’ application monopolies.

So, is DRM evil? My opinion is maybe.

First off, you really have to consider who the potential evilness applies to. Take the case of music. While the music labels predictably trot out artists when they talk about the harm piracy causes, the story of whom gets hurts is significantly more complex. There is an interesting paper that examines this question with an economic focus called Rockonomics.

While I can’t given an adequate summary of the paper here, I’ll nevertheless try to some extent. One of the more interesting points in the paper is that most bands don’t make any money off of media (e.g.- CDs), but instead make most of their profit from touring. Only the most popular bands sell enough albums to make any money above and beyond the initial advance the band may get for an album. These advances are used to cover the production of the album, marketing, and associated activities. So, if you’re in a small band and can take advantage of the Internet and new technologies to reduce your up-front costs of producing, marketing, and distributing an album, then it would be in your best interest to avoid the whole record label business arrangement. Just let your music be free and then hope the consumers find your music, like it, and subsequently attend your concerts where you would have made all your money anyway (unless you’re U2 or another of only the most popular bands).

Of course, DRM doesn’t really have anything explicitly to do with piracy, so the preceding argument is only peripherally related to DRM- it is really more about trying to enforce payment for music or giving it away. Record labels obviously couch this all in terms of theft and piracy given they stand to lose a lot. They don’t make anything off of concerts, so protecting the sanctity of the current distribution model is critical to them. There probably aren’t too many Internet business models that end with them being better off, so DRM is evil incarnate to them.

So, it’s all good for the consumers and musicians? Even assuming we don’t care about the top artists (for example, we might think they are all sell-outs), there might be some broader issues at play that would hurt consumers and smaller bands. First, if you can’t find music easily (aka- marketing), then small bands can never develop a large enough fan base to support touring and the consumers never hear about that album that ended up changing their lives. Of course, the Internet and social networking tools might help here, but there doesn’t seem to be any clear evidence of this model working yet that I can see. Most bands still pursue the record label path, so they are caught up in that entire system and it is not a clean example of what is possible. The other potential downside is what happens to the albums that do require large up front costs. A smaller band could never cover the costs associated with a large production. Whereas, now, the labels can produce huge albums (cost-wise) assuming they think they can make that money back.

Beyond music, think about movies. As much as I like small bands and can see how the quality I get from a band is independent of how much the band spends up front to some extent (what did Surfer Rosa cost to produce?), I do occasionally enjoy movies with lots of sfx. While music and movies are different, the same copyright rules apply, so I doubt we could say DRM is evil for music, but not movies. We could also examine the same questions in regard to software.

Hence, I think DRM is maybe evil.

Osaifu-Keitai is a service from NTT’s DoCoMo which is yet another example of how the U.S. carriers are missing the boat in terms of mobile convergence. With the small form factor of a standard mobile phone, Japanese carriers like DoCoMo are providing needs based convergence in ways that only exist in VC’s dreams here in the States. While there is some noise about m-commerce here, it is a long way off- especially if it relies on the marketing prowess of the U.S. wireless carriers.

While I can’t read all of the DoCoMo site, it seems that they are providing a much more open platform for content and applications than firms like Verizon. On the commerce side, they seem to allow many firms to use the Osaifu-Keitai prepaid platform. DCMX is apparently the credit version of the same platform. While one could debate that the platform is only open in respect to DoCoMo’s service, it is still more open than Verizon and therefore seems to indicate some openness is better than none. What if Google is really able to offer a popular and truly open application platform as the rumors seem to suggest they may? Might openness take the day?

Interestingly, in terms of technology convergence, Osaifu-Keitai is a combination of RFID and Internet based mobile phone services. The term for these devices is wallet phones which is appropriate given it offers needs based convergence by incorporating the need to be able to pay for things on the go (traditionally met by the wallet).

It is definitely going to be interesting to see how this market evolves in the U.S.