Try, Try, Try to Understand....

Why would Thomas Friedman want Susan Rice to be Secretary of State when he can have a magic man. Alas, if only Steve Jobs were still with us....

Do You Really Want a Touch-Screen Notebook Computer?

I'll admit it, one of my pet peeves is going to my portable computer, opening it up, and finding somebody's fingerprints all over my screen. I have at times found myself telling people, "Please point, don't touch", when they're drawing my attention to a detail displayed on my computer monitor. When I have to sit and stare at a screen, I want it to be nice and clean. And I'm far from a "neat freak".

The idea of touch screens on portable computers is interesting. I can see how some of the elements of the iPad interface would translate well to a portable computer, or even a desktop computer. But even with an iPad, sometimes you move to a new location, experience a shift in the lighting, or find that something is stuck to its surface and... it's cleaning time! I suspect that the few times I would want to use a touch-screen interface on a fully featured portable or desktop computer would be vastly outnumbered by the number of times I would find myself wishing for a clean screen, and that in most of those occasions I can do just fine with a mouse or trackpad.

Perhaps the concept will work better on a computer that's more of a tablet than a portable, an iPad-plus. Microsoft appears to believe so. But I'm presently leaning toward Steve Jobs-style skepticism that, once the novelty wears off, people will get much use out of touch screens on their regular computers.

Attacks on Bain and Romney Aren't Attacks on Capitalism

Although some like to pretend otherwise, and to invoke the age-old tactic of suggesting that a political opponent a hypocrite,

Over the years of his presidency, Obama has not been a critic of globalization. There’s no real evidence that, when he’s off the campaign trail, he has any problem with outsourcing and offshoring. He has lavishly praised people like Steve Jobs who were prominent practitioners. He has hired people like Jeffrey Immelt, the chief executive of General Electric, whose company embodies the upsides of globalization. His economic advisers have generally touted the benefits of globalization even as they worked to help those who are hurt by its downsides.

But, politically, this aggressive tactic has worked. It has shifted the focus of the race from being about big government, which Obama represents, to being about capitalism, which Romney represents.¹

that argument has two significant flaws. First, there's no hypocrisy. Second, attacks on Bain, Romney and outsourcing are not attacks on capitalism.

On the first issue, David Brooks complains that the President seems to like leaders of industry such as Steve Jobs, and has employed people like Jeffrey Immelt. And you know what? Had Mitt Romney been applying for a job as a guy who pioneered a similar program in Massachusetts, and wanted to be personally involved in sharing that success with the rest of the nation, I suspect the Obama team would have considered him for the job. But liking somebody, expressing admiration for them within their sphere of competence, hiring them in one capacity or another... none of it constitutes the expression that "This person is qualified to be President".

I can acknowledge that Steve Jobs helped create Apple, and through that company transformed the way we interact with computers. I can say that he was both willing to make and learn from mistakes, and that some of his business and strategic decisions at Pixar and Apple showed tremendous insight and foresight. I can also say that I don't think that those skills would have translated into his being a great President of the United States and that, given his well-documented personality quirks, he might not have even ranked as good. Would Brooks disagree with any of that? I doubt it. So we're on the same page: Being a good to great business leader does not automatically translate into a qualification to be President.

On the second, the issue is not whether Obama has tried to stop globalization. If we're honest about it, it's a done deal. It would take years of enormous effort to significantly reduce our nation's role in the globalized economy, let alone to stop it, and there would be serious consequences to retreat.

Although Brooks acknowledges the upside of globalization, he brushes off the downside. His suggestion that the President is a hypocrite and his pretense - and I do believe he knows better - that the President is attacking capitalism is meant to distract people from the fact of that downside. Does Brooks doubt that, if interviewed or directly asked about global markets, the President would freely and ably address the upside of globalization? Again, I doubt it. But if not, we're effectively again on the same page: The problem isn't that Obama is attacking capitalism and globalization. The problem is that he's able to recognize and speak to the downside, while Mitt Romney is not.

The problem is that, despite Brooks' hagiographic effort to reinvent Romney's work as that of "an efficiency expert", taking "companies that were mediocre and sclerotic and try[ing] to make them efficient and dynamic". The problem is that, under that narrative, the American workers who are laid off in favor of outsourcing, domestic or international, are actual people, many of whom worked extremely hard for years in ways and under conditions Brooks can't even imagine. Obama's message to them is not "I'll stop globalization", it's "I understand your situation, and we need to work to find ways to get you back into the workforce in a decent job at reasonable pay."² Romney's message, so far, seems to be "We had to fire you because your wages were too high. By the way, it's my opponent's fault that you're unemployed."³

And that's the rub.
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1. Obama represents big government, it would seem, because he obtained passage of a healthcare reform package that is roughly the same as the one Romney ushered through in Massachusetts.

2. Brooks can call that a "big government" attitude if he wants, but this would be the same David Brooks who describes "doubling spending on science, pre-K education and adult retraining" as a "big idea". Does that make Brooks a big government conservative? An enemy of capitalism?

3. Brooks characterizes Romney's role as head of a private equity firm as follows,

It has been his job to be the corporate version of a personal trainer: take people who are puffy and self-indulgent and whip them into shape.

What about when the "personal trainer" decides it's better to kill his client, carve him into pieces and sell off the parts?

Brooks presents a cute metaphor, sure, but it misses the point. The private equity firm is out to make money, and to maximize the return on its investment over the shortest possible period. That often will involve improving efficiency, particularly if the plan is to sell the company, but the goal is to maximize profit, not to obtain the best outcome for any particular acquisition. If you look at the mismanagement of Chrysler under Cerberus Capital Management, you can see pretty clearly how little regard they had for the long-term viability or competitiveness of the company. They were out to put in as little money as possible while extracting as much value as possible.

If you identify a company with significant real estate holdings, low debt, and a highly paid workforce, the "efficiency" introduced by a private equity firm may be to sell the real estate and lease it back, load up the company with debt, fire its workers and hire replacements at lower pay, and perhaps even to lower the quality of the company's products in order to save money on materials and production - the lease payments and interest become tax deductions, cash flow improves due to lowered production costs and lower wages, the cash holdings and proceeds from the loans and sale of assets can be pulled out by the private equity firm as fees and profits, and "everybody wins" except perhaps for the company, its workers, and its customers.

Leaving aside some of the tax loopholes that distort that process, yes, private equity firms serve a role in our system of capitalism and they can improve a company's efficiency. But it's not going to help Romney if he not only ignores the downside of his work, but also takes Brooks' lead and suggests that displaced workers represent fat that a company is fortunate to have shed. This isn't a narrative Romney wants to implicitly support:

Bitter Pills from Steve Jobs

Steve Jobs' comments to President Obama have been getting a lot of attention, and most of it seems to be critical. I have to say that if Steve Jobs was half as good at taking blunt criticism from others as he was at giving blunt criticism to others, it's no small wonder he was a good business executive. I also have to say that if I were meeting with somebody like Steve Jobs for ideas on how to improve the nation's economy, I would want to hear his actual opinions, not sugar-coated, eager to please, "everything's coming up roses" nonsense. If you want to know what it would take for Apple to open up a manufacturing plant in the United States, it's helpful to know that the CEO perceives a shortage of people with adequate education to oversee workers, and an educational system that is turning out people who are unprepared to be the workers at the plants he would open. His proposed solutions may have been simplistic, and more reflective of his reported propensity to divide people into two camps (the worthy, who will produce ideas and generate wealth, and everybody else) than of viable reforms, but at least you know where he's coming from.

One of the interesting things about major companies is that they have a lot of opportunity to open factories in relatively undesirable locations, with the locals rolling out the welcome mats and competing to offer the most generous incentives. But as the area in which you want to open a plant or put up a large building or warehouse store becomes more desirable, as a general rule, the offers diminish and the obstacles grow. I'm reminded of a Michigan community which had zoned a large tract of land as "light industrial" in the hope of attracting an industrial park, only to have it sit empty. A major retailer made noises about opening a location there - cheap land, close enough to major roads and population centers to be viable. A local store owner who, having spent decades pulling profits out of his store and putting nothing back in, fought tooth and nail to prevent the rezoning and, when it passed, litigated the issue. By the time the dust settled the land was rezoned, but the big box merchant had moved on. In China? The government was behind the redevelopment plan, so it would have happened. (And if the government wasn't behind it, odds are a 'consultant' could have found a way to bribe convince local officials to change their minds.)

Whatever Jobs thought about environmental regulations, I suspect that his objection was more to the inefficiency of local government and the ability of a local business or citizens group to tie things up for years. I suspect he was speaking from comparative experience opening Apple stores in the U.S. versus other nations. And I suspect he was thinking specifically of why the A6 chip was not going to be manufactured in the United States. For somebody in high tech, a six month delay in opening a chip factory may as well be a lifetime. For somebody in consumer electronics, a relatively small increase in production costs can mean the difference between profit and loss.

Jobs was reportedly 'infuriated' by President Obama's "focus on the reasons that things can't get done". That's what you might expect from a man who didn't have to accept excuses from those under him - "If you can't get it done, I'll put somebody else in charge." That's not even the way most industry works, though, and it's certainly not the way our form of government works.

Would I want to reinvent the country in a way that would have pleased Steve Jobs? From what I've been hearing, no, I would not. I believe China would be better off adopting some of our regulations than we would be in adopting their system of... what's the word for a totalitarian state led by a corrupt oligarchy that will treat you like a king if they expect to profit? There's no easy way to avoid problems and delays in rezoning, development and redevelopment that don't trample somebody's toes, and we know how Steve Jobs reacted when it was his own toes that were being trampled.

Will Mini-Tablets Carry the Day

Everywhere I look it seems that I'm reading that Amazon has released a major competitor to the iPad, in the form of a small tablet computer that runs a modified version of Android. Amazon is, of course, attempting to grab market share and is reportedly selling these small tablets at a loss. Apple has a very comfortable lead in the tabloid market and sells its products at very healthy margins, but can be expected to respond to any significant competitor. Good stuff for consumers.

But when I read articles that suggest that a smaller, plastic notebook is the first serious competitor to the iPad because "it seriously undercut[s] the iPad in price," I can't help but think that the author has all the sophistication of somebody who would suggest that the Yugo was the first serious competitors to Volvo. No, I'm not suggesting that Amazon's quality is comparable to Yugo's, but you really do have to look at more than "it's a tablet". You should be considering size, quality, components and functionality when comparing products, not just declare, "They both have tires, gas motor, seats - they're cars! Who wouldn't choose the Yugo?"

Rumor has it that Steve Jobs consistently rejected proposals to produce a smaller version of the iPad. I am not going to venture a guess as to whether that was a, "No, it would be a bad product," or, "No, I don't want to increase our costs and divide our market by making a smaller iPad when we're functionally the only game in town," but one way or another Amazon is doing real world market research into the viability of smaller tablet computers. If the "Kindle Fire"¹ sells millions of units, I don't expect Apple to take long to offer a competitively priced mini-iPad.

I don't want a smaller tablet computer - but if I were a Kindle user I might consider the "Fire" if it were time to upgrade. Even there, with the ability to compare products, I would be inclined toward the larger iPad screen, but if cost were a serious issue.... Let's just say, it will be interesting to watch this play out.

What I see in looking at the Fire, and at the expansion of "Amazon Prime" streamed content, is a potential - and the foundation of a plan - to offer serious competition to the iPad, but I see the Fire as being more of a serious attack on the Nook, crossed with a perception that it's a good time to strike at Netflix.
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1. Are Amazon's references to fire in relation to its book readers part of a marketing strategy? For me, they evoke Fahrenheit 451, but I don't think that's the marketing message Amazon intends.

Lessons for CEO's Who Want to be Liked

Will Wilkinson has noticed that life isn't fair... for billionaire CEO's who aren't named Steve Jobs.

As I was watching my social media streams froth with praise for the man in the black turtleneck, it occurred to me that, as lovely as I find Apple's gizmos, Mr Jobs's wealth, like that of other billionaire barons of the information age, was built in no small part upon an intellectual-property regime that I and many others believe to retard progress while concentrating massive rewards upon a privileged few, generating unfair and unproductive inequality.... I endorse [the] point that charity very often does rather less to improve quality of life than selling people ever better products at ever lower prices. But this line of reasoning hasn't convinced very many of us that, say, Charles and David Koch's vast wealth is proof of their successful service to humankind.

There are some obvious retorts:

First, people don't detest Charles and David Koch, or direct wild anti-Semitic conspiracy theories against George Soros, because they're rich, because they ran companies, or for any reason other than how they're trying to use their fortunes to influence legislators and elections. If you could retroactively change the recipients of their contributions, such that the Koch brothers gave to Soros' causes and vice versa, the effect would be to flip the sentiments of those who love and hate them.

Second, while charitable contributions might help a corporation or CEO deal with public relations problems, or even to rehabilitate their public image, for the most part people neither know nor care about a particular corporation's charitable activities. You're more likely to get a strong reaction to corporate "charity work" if it is revealed that what corporation is portraying as charity turns out to be a thinly veiled measure to expand its markets and market share, to advance its lobbying goals, or some other form of self-interested behavior.

Third, few pay attention to the CEO's of the world. Most people don't know or care who runs any given company. When does that change? When there's a scandal or problem that results in media attention. Why does Steve Jobs get good press, while peole like Ken Lay, Jeffrey Skilling, Conrad Black, Bernie Ebbers, Dennis Kozlowski, and Bernie Madoff get bad press? In no small part because Jobs hasn't looted his company, committed massive financial fraud or other crimes, and ended up being criminal prosecuted, convicted and/or jailed.

Wilkinson also forgets how the public perception of Jobs has changed over the years. Jobs wasn't a nationally beloved figure when he was forced out of Apple, and both he and his company were viewed with skepticism when he returned. For that matter, Wilkinson forgets how the public perception of Bill Gates has changed over the years. Gates received considerable praise and acclaim during the rise of Microsoft, and even through the era when, under his leadership, Microsoft stopped innovating in favor of producing products that mirrored the functionality of other people's innovations, then using anti-competitive tactics such as bundling in order to crush their competitors in the marketplace. Although the Bill and Melinda Gates Foundation has helped establish Gates as a philanthropist, and it does appear that Gates wants the public to appreciate his genius, it's never been clear to me that Gates has <em>personally</em> cared whether the perception is that he's a benevolent genius or an evil genius. As a family man, though, he had to start thinking about the impact of his reputation on his family and, frankly, you or I would feel the pinch from a $100 donation far more significantly than Gates has felt the pinch of his $billion+ contributions.

The number one lesson for CEO's is probably to stay out of the public eye. Run your company adequately, avoid major scandals, and retire with your billions. But let's say that you are running a large company, look at Steve Jobs and turn green with envy. What can you do?

1. Start By Doing Your Job

When you look at your stock market valuation and say, "My job as CEO is to bring new value to this company," do your thoughts immediately turn to, "So how do I rent-seek from local, state and the federal government, get massive subsidies, talk up my stock to investment houses, leverage any monopolistic advantage my company enjoys, and otherwise game the system," or do your thoughts turn to, "How do I innovate, create new products and services, improve existing products and services, and increase value to the consumer?" With due respect to the modern idea that a CEO's primary job is to pimp the stock, the public will like you better if you build wealth through innovation.

Don't play the "whocouldaknowed" game. "Whocouldaknowed that if we neglected quality for twenty years, we would go from being the world's number one manufacturer to being bankrupt?" "Whocouldaknowed that 10-20% annual inflation in housing values reflected a bubble?" Since you ask, when that question is applied to your industry, you could have known. Unless we're talking earthquakes and tsunamis, in which case it's your job to be prepared, it's your job to know. You don't think you're paid enough to understand your industry and the competition? C'mon.

2. Present Yourself in a Positive Manner

Don't wait for the press to come to you. You need to go to the press, on your terms. Work with public relations professionals to create buzz and excitement about your company, its products and services. Even when creating that buzz, try to under-promise. Then when you step before the cameras to unveil the genius of yourself and your company, do your best to over-deliver.

If you deliberately take actions that you know are going to alienate millions of people, stop and think about whether you're going to be happy only being liked by some percentage of the remaining population. If the answer is "no," consider putting off your actions until after you leave your company, or finding a different means to your desired end.

3. Perhaps You Need an Alter-Ego

Let's face it. If you're a successful CEO you're probably not the nicest, warmest person in the world. You may be a world-class jerk. That's not the face you want to show to the public. Look for an archetype that works for your industry. Kindly grandfather, cool uncle, something that will resonate with the public. That's the face you need to consistently present to the public. You can't do the cool uncle with wire rimmed glasses and a black turtleneck who doesn't visit very often but, when he does, always brings the coolest presents - that's been done. But you get the concept, right?

4. Perhaps You Need... A Funny Suit, or Clown Make-Up?

Perhaps due you your appearance, personality, industry, or other factors you need to take the alter ego thing a step further. You can't make a silk purse of of a sow's ear - or maybe you tried to convince your customers that you in fact had created "sow's ear silk" and that's why you have a public relations problem. Perhaps you want to benefit your company by having a Steve Jobs-type public perception of the corporation's leadership and, despite being a warm, telegenic person, you recognize that your tenure won't be long enough for the company to truly benefit from making you its public face.

Quickly: Who is the CEO of KFC? Who is the CEO of McDonalds? Who is the CEO of Wendy's? The average consumer is probably thinking, "Colonel Sanders, Ronald McDonald and Dave Thomas," never mind that two are deceased and the third is a fiction. Dave Thomas didn't become the public face of the company until a number of years after he resigned from leading the company. Harland Sanders was never in the military and didn't start wearing his trademark outfit until he was 55. If you can create an effective fictional face for the company, even if it's a fictionalized version of "you", you may find that your public image persists far beyond your tenure with your company.

5. Don't Claim Accidental Successes as Great Personal Achievements

You're the CEO and are stepping forward as the public face of your company, so you get to claim credit for your company's work. But if your company has not done anything noteworthy, an increase in profits due to government subsidies, war, natural disasters, and the like isn't something the public is apt to see as a great accomplishment. Ask yourself, do you actually contribute anything to your company? You may tell yourself that nobody else can do your job, but the odds are overwhelming that it's not true - and even if it's true right now, it won't remain true. Had somebody other than you been CEO of the company, what would be different? If the answer is "nothing", you're nothing special.

6. Be Special

If you want the world to think that you're special, prove that you are special. Let's take a look at Steve Jobs: He started a computer company out of a garage that helped bring about the era of the personal computer, spearheaded the development of a GUI-based operating system that led to a transformation in the way people interact with technology, when forced out of his company started NeXT and acquired Pixar, sticking with the former until he returned to Apple and (in the face of considerable skepticism) rolled the technology into a next-generation operating system and sticking with the latter through its transition from an unsuccessful computer hardware company to a highly successful animation studio, then produced innovations in the manner in which people buy music, in the music player, and ultimately in the cellular phone and tablet computer technology, with the rest of the market playing catch-up and producing copycat devices. You... did what, again?

7. Stop Letting the Bean Counters Define Your Business Model

Steve Jobs has a wonderful list of successes, but he also has a long list of expensive failures, both in terms of product releases and business decisions. Apple gave up market share with the Apple II because he didn't want to market it to small businesses, but the Apple III was a colossal failure. Outsourcing the development of key portions of its GUI OS to Microsoft, without a non-compete? Major fail. Apple computers were bigger and boxier than a lot of competing products because of a fixation on design - with a well-designed computer having no need for a fan. Do you recall the first Apple "portable" computer? The Lisa. The Newton. Not bouncing back from the Newton and letting other companies create then dominate the PDA market. But when you look back on a lot of Apple's discontinued products or failures - those that occurred under Jobs, not those attributable to John Sculley - you often see the kernel of what is to come. Cutting edge stuff that's hitting the market too early, or at too high of a price point, but which ultimately becomes commonplace.

Do you want to lead your company into making the mistakes of a Sculley, focusing on limiting the experimentation and innovation of somebody like Jobs and ultimately forcing him out of the company? Do you want to be like Bill Hewlett and David Packard, whose investment in HP Labs made the company an innovated and market leader, or a Carly Fiorina who presided over what appears to be an era of outsourcing, R&D cuts and reduced quality control in the name of short-term profits? Do you want to be like Dell, so focused on cost-accouting and increase margins that you don't even realize that you're giving away the core of your business? Maybe your company can't afford to make mistakes on the same scale as Steve Jobs, but don't expect to be as famous or to have successes on the same scale if you eschew quality and innovation in favor of risk-avoidance and short-term profit.

8. Recognize When It's Time to Give Up

Sad to say, some industries and industry practices simply aren't compatible with your having a great public image as CEO. For example, if your company makes its fortune by chopping the tops off of mountains to extract coal, leaving behind a poisoned, scarred landscape, odds are you're better off keeping your head down. "That's not fair", you say? "Steve Jobs hasn't made much noise about it, but under his leadership Apple has taken advantage of tax breaks, funneled revenues through overseas shell companies to avoid taxes, used cheap labor in Chinese factories, and appears to have concerned himself with environmental issues only to the extent that there's a P.R. advantage"? Who said life was fair?

Manufacturing, Outsourcing and Jobs

Forbes recently ran a series of blog posts examining, among other things, how Dell's focus on short-term profits led to their outsourcing more and more of their business, to the point that the company to which they had outsourced their operations effectively became a competitor. The issue, according to the author, is less that Dell outsourced and more that they focused on costs and profit margins without considering what they were bringing to the consumer experience:

This comment is in fact an illustration of the mental guide-rails generated by cost accounting. There is an automatic assumption that when faced with a market challenge the way to be more competitive is to cut costs. The possibility of adding more value is unconsciously eliminated. It would be wrong though to say that cost accounting is the main cause of these problems. But it is a contributing factor. With decisions and thinking and values based on cost-accounting and short-term profits, Dell’s fate was sealed. If decisions and thinking and values had been based on how could Dell deliver more value to customers sooner, the outcome would not have been predetermined, as Apple [AAPL] has shown.

The articles explain how, due to outsourcing, an economy can bleed high tech jobs to the locations at which the outsourcing occurs:

The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to:

• The flex circuit connectors are made in China because the US supplier base migrated to Asia.
• The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.
• The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
• The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.
• The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.
• The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.

An exception is Apple [AAPL], which “has been able to preserve a first-rate design capability in the States so far by remaining deeply involved in the selection of components, in industrial design, in software development, and in the articulation of the concept of its products and how they address users’ needs.”

The series is offered under the theme, "Why Amazon Can't Make A Kindle In the USA", which, as the counter-example of Apple indicates, is not the principal problem. The problem is that when you outsource high tech manufacturing, you make it more likely that a lot of the jobs associated with any given technology will end up being located in the foreign nation. It's much less of a concern that Kindles (and Apple products) are assembled in Asia, or even that components of those products are manufactured in Asia, as compared to the loss of the industrial design, software, and similar jobs associated with the products and industries. This is the source of my skepticism of the conceit of Michael Boskin, that it is irrelevant to our nation's future whether we manufacture computer chips or potato chips. It may be that on the factory floor, there's little difference between making $10/hour frying potatoes as opposed to $10/hour assembling iPods, but when you start thinking about what our economy needs to sustain a healthy middle class, let alone to be a future leader in the design and production of high tech products, you need to avoid exporting the design and manufacturing expertise associated with those products. The articles note that even as our nation talks about developing future technologies, we tend not to ignore the fact that the associated manufacturing job opportunities are most likely to arise in other nations:

The lithium battery for GM’s [GM] Chevy Volt is being manufactured in South Korea. Making it in the U.S. wasn’t feasible: rechargeable battery manufacturing left the US long ago. Some efforts are being made to resurrect rechargeable battery manufacture in the U.S., such as the GE-backed [GE] A123Systems, but it’s difficult to go it alone when much of the expertise is now in Asia.

It's not "all bad" to export manufacturing jobs, particularly low-skilled jobs in dirty industries. Leaving issues of the environment and worker exploitation in those countries aside for the moment, there is a domestic gain in obtaining certain components and products from other nations at lower prices, while minimizing the domestic impact of many of the environmental issues associated with those industries. Even back in the 1980's, computers were packed full of components manufactured in overseas factories.

The view that the migration of mature manufacturing industries away from developed countries like the USA is just part of the healthy natural process of economic evolution that allows resources to be redeployed to new, higher potential businesses is certainly widespread. It is however mistaken. As Pisano and Shih point out in their HBR article, “It ignores the fact that new cutting-edge high-tech products often depend in some critical way on the commons of a mature industry. Lose that commons, and you lose the opportunity to be the home of the hot new businesses of tomorrow.” For instance: once silicon-processing and thin-film deposition capabilities are gone, it’s hard to become a major player in solar panels.

As the author puts it, focusing on "short-term financial gain at the expense of core capabilities is a very dangerous way to go if the company wants to survive." Apple almost died at the hands of its bean counters who, having forced Steve Jobs out, neglected product development and quality control, and authorized clone-makers only to yank the carpet out from under them the moment they realized that the clone-makers were building cheaper and arguably better machines. I don't know if Jobs had to remind people of that history as he rebuilt the company, or if by the time Apple was again turning real profits the major shareholders decided that you don't argue with success. While I have no particular reason to be optimistic, let's hope that at least some U.S. companies are taking a longer view of profit and asking, "Why can't we be more like Apple?"

What's the Benefit of an Amazon Tablet

According to the Wall Street Journal, an "analyst" has proposed that Amazon could produce a low-cost tablet computer that could "disrupt a tablet market dominated by Apple".

Forrester Research analyst Sarah Rotman Epps wrote that while "Amazon taking on Apple is a bit like David taking on Goliath," if Amazon proves willing to sell its tablet relatively cheaply and leverage its brand and surplus of online content, it could make a significant mark.

Specifically, if Amazon prices the as-yet-undisclosed tablet at less than $300, the Seattle-based company could sell up to 5 million units in the fourth quarter of this year, the analyst wrote.

By the same token, any electronics manufacturer could produce a high quality, low price tablet computer and "disrupt" the tabloid market. I recognize that the key factor here is "Amazon" - the idea being that Amazon sells a ton of ebooks and manufactures the Kindle, and thus could in theory achieve economies of scale that would be difficult for others to achieve. Even a Photoshopped logo on a medium-sized tablet can create a certain level of excitement.

What we all want is a hybrid of the [Kindle and iPad] - a kindle that is a full blown tablet computer with a browser, apps, and an OS. It looks like Amazon is going to bring that to market this fall. I'm getting one for myself and one for the Gotham Gal. And I'm pretty sure my mom and dad are getting them too. It looks like a killer product.

Except what I hear from Kindle fans is, "It's small, light, easy to hold, and liquid ink is wonderful to read," versus the larger format, heavier iPad with its much greater functionality and color display. Why not read ebooks on your smart phone? Too small, and no liquid ink? To me it seems like the "hybrid" misses the mark: You lose the larger screen size and quality display of the tablet, but you also lose the liquid ink offered by the Kindle. (It is theoretically possible to create a display that incorporates both LCD and liquid ink, and I believe I saw an Apple patent application for such a display, but I have no reason to expect that the early generations of those screens will be available on entry model devices.)

If you end up with a table that's too small to be an effective tablet, too large to replace your cellular phone, needs to be carried in a purse or briefcase instead of a pocket, and is best used for reading ebooks, you're really talking about a Kindle. When you add color, apps and additional Internet functionality, you have something that's much more of a "Kindle plus" than an iPad-Kindle hybrid. That is to say, rather than appealing to people who might be choosing between a Kindle and an iPad, such a mid-sized, mid-functionality device seems aimed at people who want a device that falls between a smart phone and a tablet - something to buy in addition to or (for those who are willing to forego liquid ink) instead of a Kindle. I'm reminded of Steve Jobs' reaction, a while back, to rumors of a smaller-sized iPad. Once you use the iPad, I don't think you yearn for a smaller version. But people who use the Kindle seem eager to get a color version, or an Android model that runs a browser and their favorite apps. So the excitement isn't, "Apple might make a smaller iPad," but, "Amazon might sell a branded version of a small tablet that could have some of the functionality of an iPad." When phrased that way, it's not particularly exciting.

Something else to consider: Apple's control of its supply chain and manufacturing allows it to sell iPads at a highly competitive price while achieving significant profit margins. When it saw the first round of competitors' tablets on the horizon, it came out with the iPad 2 so that it would stay equal to or ahead of those products while it prepared to leapfrog them with the iPad 3. Amazon can afford to sell a smaller, inexpensive tablet at close to cost, but how would that help Amazon? Amazon will add functionality to the Kindle in order to maintain its position as the market-leading ebook reader, and it would no doubt try to boost its own app store through the next-generation Kindle or "hybrid" device, but it's difficult to imagine that a smaller sized tablet, sold near cost, is going to have a significant impact on the tablet market, and without the generation of profits for R&D it's difficult to see how any short-term market gain would be sustainable. If in fact Amazon reveals a significant market for smaller tablets, Steve Jobs' past dismissals aside, Apple will produce a product for that niche.

Here's something for Apple's competitors to consider: Do you want to take the path of pharmaceutical companies, trying to design products that do the same thing as your competitors' blockbuster drugs but which provide little additional benefit to patients, or do you want to be like the company whose products you're copying - and produce well-engineered, breakthrough, market leading products in your own right? If Amazon decides that its future Kindles should be mini-iPads, it would be abandoning the latter approach in favor of the former.

Innovation, Imitation, and Intellectual Property

Either the era of "cloud storage" is upon us, or it isn't. As you have likely heard, Amazon has announced cloud storage, directly inviting its customer base to upload their music collections and stream them to their mobile devices. For years, Apple has been rumored to be "about to release" a cloud storage product for your iTunes library, video rentals and purchases, etc., but apparently due to strong resistance from the entertainment industry those plans appear to be on indefinite hold. Google has danced around the edges of cloud storage, and you can already store incredible amounts of data on Google's servers for free (or purchase even more for a reasonable price), but having settled its YouTube lawsuits, struggled to settle its dispute with book publishers, and perhaps having concerns about various advertising and licensing contracts, has not offered the type of service announced by Amazon. I have no doubt that Amazon is aware of the risk it is taking in announcing this product under a philosophy of "It's better to ask for forgiveness than it is to get permission," but has concluded that (as with YouTube) it's better to be first to market even if it potentially means paying tens or hundreds of millions of dollars to settle lawsuits. Amazon's move could actually help Apple, Google, or any other company that wants to offer a similar product (Facebook?) by testing the legal waters for them and potentially creating a precedent for any necessary licensing deals.

Although for many years, large companies often seem to ignore each other's intellectual property rights until one or another sues, followed by either a huge settlement and licensing deal or a mutual settlement that allows the companies to use each other's technology without actually testing the viability of the underlying patents. Ever since the release of the iPhone, that seems to be the story of cellular phone software. Apple's also having to deal with the fact that although it remains difficult to innovate, imitation is easier and faster than ever. Android devices now have greater market share than iOS products, with Palm and Microsoft struggling to maintain their share.

An interesting blog post suggests that the creation, promotion, funding and distribution of quality, open source software is a big part of Google's strategy to protect its market. I expect that is Google's plan, but there's a serious side-effect to that approach: Google doesn't directly profit from the Android OS, and its store for Android Apps (awkward phrasing, but...) is nowhere near as profitable as Apple's App Store. Although companies making Android phones will customize the software and will offer a variety of phones at a variety of price points, the competition is increasingly seen as "Android vs. Apple" - the brand of the Android phone is marginalized and the value of an Android phone is commoditized.

Apple has been incredibly innovative at various points in its history, including in recent years, but under Steve Jobs it has excelled at producing premium products. In the recent iterations of the iPhone and in its production of the iPad, Apple has also leveraged its volume to produce highly profitable products at price points that, for its competitors, appear to be difficult to match. Yes, some will point to one Android device or another and argue that it's cheaper, has a higher resolution screen, has more memory, is more expandable, and may even be faster than the iPhone, but put one next to the other and you can immediately see why - plastic vs. aluminum case, bulkly vs. compact, etc. Such products highlight another reality: Apple is fully prepared to produce mobile products that will satisfy 90+% of consumers "out of the box" and to leave to others the production of products that can be easily expanded. Yes, Apple is also better at marketing, but that's a small part of the story.

The genius of Steve Jobs is sometimes overstated. Apple has managed to produce premium products within markets that are largely commoditized (cell phones) or to reinvent markets that others viewed as commoditized (portable music players). I don't want to understate Jobs' ability to spot trends in technology and culture, but (as with any computer product) there are aspects to Apple products that anticipate that people will use the product in a specific way and, should you want to do something else... tough. Some of that results from licensing deals. The easiest way to send text messages on an iPhone is through your contract with your cell phone carrier. (Just like GPS features are often expensive add-ons for smart phones.) You don't mess with the profit centers of companies you rely upon for the promotion and distribution of your products. iPods don't play well with computers other than the one you use to sync their libraries, and if you somehow crash the computer with your music library you'll need a third party product to recover your files from the iPod. OSX left Microsoft playing catch-up, but (IMHO) Windows has long offered a better finder. And we shouldn't overlook that Jobs' prognostications have involved attempts to bring technology to market too early, as well as some design innovations that did not attract consumers or introduced problems or complications. As with any strong, innovative company (seriously), Apple has released a lot of products that failed - and continues to introduce products and services that will fail. Google fails a lot as well. If a company bats 1,000, it's not taking chances.

As Apple profits from the tablet market, Microsoft correctly implies that tablets aren't different from any other computer hardware, and will eventually be commoditized. Or at least, that's how I interpret Craig Mundie's comments. But in their estimate of tablets as a potential flash-in-the-pan, Microsoft appears to be overlooking how tablets are much less an entity to themselves as much as they are part of a spectrum from tiny electronic devices to desktop computers, and that there are many contexts in which a tablet could prove valuable. The Hyundai Equus uses an iPad instead of a paper manual. There are increasing numbers of electronic and mechanical devices that can interface with iPads and iPhones (or similar devices) instead of standard remote control. And if you've seen a toddler with an iPad or iPhone you have a sense of how intuitive the interface is - and I expect that a generation that comes of age using touch screens and virtual keyboards is going to have a different perspective on traditional computers and keyboards than us "old folks". The commoditized touchpad screen is, I think, the interface of the future. (Microsoft suggests that the Kinect is the interface of the future - I guess it's more literally a game changer, but I expect that type of body tracking to remain specialized as opposed to ubiquitous.)

Let's assume, though, an era in which computer hardware is commoditized across-the-board. If you look at companies like Facebook (which has nothing to leverage that is not, or cannot be, replicated by others other than its large user base) and Apple, they are intent on creating a future in which they profit from any commercialization of their platforms. Google and Amazon perceive that future, as well, so they both offer apps for sale and Amazon is reportedly automatically placing copies of your digital media purchases into your cloud storage. I think that Apple has an advantage over Android, as with tight control over both the hardware and OS it will be much better able to assure content producers that it has effective DRM (digital rights management) and can quickly patch security holes that allow unauthorized copying or sharing. Google has no similar control over Android, and no control at all over the hardware that runs it. Amazon and Facebook can control things only at their end. Facebook doesn't have to deal with these issues (yet) because you have to connect to a social gaming network in order to participate in the online games that produce so much of its revenue. It's not clear what Amazon's plan is, to protect its cloud service from being abused - I saw somebody quip that you could have one Amazon cloud drive with 1,000,000 authorized users. So far, despite the slow and painful negotiating process that often seems to involve Steve Jobs giving a "Here's the deal, and it's not negotiable" offer to content providers, the long-term advantage seems to be Apple's. (Microsoft? It's only in the picture if you're talking about Xbox Live and, while I don't want to discount that service, it's self-limiting.)

Which Type of College Degree Program To Drop Out Of....

The New York Times shares the opinions of Harvard drop-out Bill Gates and Reed College drop-out Steve Jobs, who respectively urge students to pursue "work-related learning" and "technology married with liberal arts, married with the humanities". Before, I assume, dropping out to start multi-billion dollar companies. I agree with Stephen Joel Trachtenberg, that they're both right, although my rationale is a bit different.

I know some people in the engineering and tech fields who are avid readers, interested in ideas, like the arts... and others for whom the liberal arts and humanities are beneath their interest, a waste of time. It's in no small part a matter of personality, and those (presumably like Bill Gates) who see little value in the liberal arts shouldn't be pressed to take course after course in the vain hope that they'll wake up and learn to like those subjects. If things don't click, it's a waste of everybody's time (not to mention tuition money). Some people will develop a greater interest in the arts and humanities as they mature, others won't. There's room in our society and workplaces for that personality type - and apparently lots of room for it at Microsoft.

What has Microsoft done very well over the years? Leverage the ideas of others into its products? Microsoft is largely evolutionary, while Apple tries to be revolutionary. Both are important, but the latter is more likely to emerge from somebody with Steve Jobs' mindset than Bill Gates'. While Trachtenberg justifiably praises Gates' philanthropy, his recent statements suggest that he endorses a colorless "work-related learning", "test, measure and retest" approach to education starting at the earliest grades. I'm skeptical that his own children would attend a school that offers a KIPP-style learning environment - if not, perhaps he recognizes that the rich have luxuries that the poor do not, and among those luxuries are allowing their children to explore, experiment, play, paint and develop at their own pace. (But if so, that's not the sort of thing you would expect him to say out loud.)

"He Said 'Pad'... Huh huh huh huh"

A surprising number of media outlets seems to be going into "Beavis and Butthead" mode over the Apple iPad. Either repeating or "covering" the "joke":

Then there are the jokes bouncing around the Web about the name's suggestion of a feminine-hygiene product. A headline in the Winnipeg Free Press reads: "The iPad Is a Really Bad Name. Period."

You know, there's just nothing particulary funny or taboo about the word "pad".

If Steve Jobs declares a larger version, branding the two options as 'mini' and 'maxi', I'll concede that it would be a bad branding decision. (But guess what - he hasn't.)

Watch Ads and Earn...

Apple received a bit of media attention recently for a patent that describes hardware-based verification that somebody has watched an ad on their computer or mobile device. There was some speculation at the time that the goal might be to give away free hardware, with users watching ads in order to keep (for example) a free iPod or iPhone unlocked and working. Then Apple acquired a music streaming service - ten cent songs. Then it acquired Quattro Wireless, a firm specializing in mobile ads.

Some have speculated that Apple may use its aforementioned patent to offer free or steeply discounted hardware, requiring people to watch ads to keep it unlocked. That's possible, sure, but I am not betting on it. I don't think it's much fun to have to keep unlocking your hardware, nor do I think it's particularly sensible to give away hundreds of dollars of hardware in the hope that people will actually watch ads as opposed to dumping it in a drawer, while also diminishing any sense of exclusivity among those who have (and would continue to) pay for the same hardware without the ads.

I suspect that what we're going to see is a set of products aimed at people who might otherwise be inclined to get their music through unlicensed sources. Rather than trying to find an mp3 file online or through P2P services, they can watch an ad on their iPhone or iPod to get access to the song, or possibly even access to a streamed library of music otherwise available by subscription. Advertisers are happy because the demographic they're targeting can be confirmed to be watching their ads. Record company executives are happy because they get more revenue. Apple is happy because it sells more hardware to people interested in 'free music' - and those customers are happy because, although they have to watch ads from time to time to access everything they want, they don't pay anything out-of-pocket. Meanwhile the very broad patent language warns other manufacturers (such as you known who) that they aren't allowed to implement the same feature on their products.

And for people who are happy with the status quo, nothing changes.

Then again, based upon my track record of trying to anticipate moves by Steve Jobs, I'm probably completely wrong. ;-)