I'm not sure. According to the National Association of Realtors, the median house price in the US is $170,500. The most recent American Housing Survey data from 2008 shows median rent at $ 808 per month, and the CPI-Rent index is essentially flat since 2008. This means the cash flow cost of renting is $9696 per year.
If we assume the mortgage interest rate on a 30-year fixed rate mortgage is 4.5 percent, the cost of home equity is 10 percent, a buyer puts 20 percent down on a house, property taxes are one percent of house value, marginal income tax rates (state and local) are 25 percent, maintanence costs are one percent per year, and amortized closing costs are another one percent per year, the cash cost of owning is $12,162 per year.
But the median rental unit is 1300 square feet and the median owner unit is 1800 square feet, so owning the median owner unit costs about 10 percent less per square foot than renting the median rental unit. This means house prices could fall and, in some places at least, still leave the owner better off than renters.
Neither renter nor owner markets are national, but I am hard pressed to think of a time when owning on a cash-flow basis looks so reasonable relative to renting.
Selasa, 30 November 2010
Senin, 29 November 2010
Ingrid Ellen, John Tye, and Mark Willis on Covered Bonds replacing GSES
They write:
Covered bonds have three potential advantages over MBSs as a method of mortgage finance.
First, they have the potential to reduce principal-agent problems, because the banks themselves
would hold the loans underlying covered bonds, giving them an interest in originating better
loans. Second, because the mortgage loans would simply remain on bank balance sheets and not
be put into special trusts subject to the incentives of servicers, banks could modify failing loans
far more easily than MBS trusts can. This could reduce foreclosures and maximize loan value.
Third, depending on how they are implemented, covered bonds also hold the possibility of
improving the options available to homebuyers who find themselves underwater. In Denmark,
covered bonds operate according to the “balance principle.” The balance principle requires a
match between each mortgage written and every bond issued. It permits homebuyers two options
for paying off their debt: they may either pay off their mortgage at par, or they may repurchase
their lender’s bonds on the open market, in an amount corresponding to the size of their
mortgage, and return those bonds to the lender. Falling house prices will often depress the
corresponding bond prices (though this may not always happen). When house and bond prices
fall together, homeowners can sometimes refinance their homes at the new, lower house price,
by buying back their bonds at the lower bond prices, and surrendering the bonds to the original
lender. This new option for refinancing could reduce foreclosures in the event of a widespread
decline in housing prices.
There is uncertainty, however, in the extent to which covered bonds would deliver the same level
of liquidity as GSE MBSs, because in a covered bond system, mortgage loans remain on bank
balance sheets. Moreover, it may be difficult for covered bonds to achieve the minimum efficient
scale to compete with government-backed GSE MBSs. As in Denmark, an effective covered
bond market would require standardized bond forms, and a high-volume market that could
demonstrate liquidity to potential buyers. If covered bonds were issued by hundreds of banks
across the country, each with different underwriting standards and bond structures, the extensive
market fragmentation would seriously reduce trading volume and liquidity for any particular
covered bond issue. The Danish covered bond system is effective because the market is highly
structured and homogenized, with only a few participating banks.
Me again: one of the selling points of covered bonds is that they remain on bank balance sheets, and, in Denmark anyway, have no explicit of implicit backing from the government. But do they really lack such backing? If the government is willing to inject liquidity into banks (and in Denmark, it is), do the bonds really lack a guarantee? I am not so sure.
Sabtu, 20 November 2010
A thought experiment on airport screening and jobs
As noted in earlier posts, my students and I discussed Bill Cronon's Nature's Metropolis this past week. One of Cronon's explanations for Chicago's extraordinary growth was its role as a distribution center: railroads had both eastern and western terminals in Chicago, and so lots of stuff got collected and moved in the city. Chicago is not the only city whose development came about in part because of transshipments; one could tell such stories about Hong Kong and Singapore as well.
Coincidentally, Nate Silver had a blog post this week where he estimates that extra post-9-11 security screening reduced air travel by 6 percent. This begs the question as to how much impediments to movement are also impeding the broader economy.
I wrote a paper a few years back that linked passenger traffic at airports to employment. The finding was that an increase of one passenger per capita per year produced a 3 percent increase in jobs. A typical large city has four boardings per year per capita, so let's run the math: -.06*4*.03 is a .72 percent reduction in jobs. The US has about 139 million jobs, so a .72 percent reduction is about a million jobs. So it is possible that impediments to travel mean we have a million fewer people working than we otherwise would.
This is very much a first cut, rough kind of number, but it does give one pause. Is what we are doing at our airports worth sacrificing a meaningful number of jobs? Perhaps. But we should still think about the trade-offs explicitly.
Coincidentally, Nate Silver had a blog post this week where he estimates that extra post-9-11 security screening reduced air travel by 6 percent. This begs the question as to how much impediments to movement are also impeding the broader economy.
I wrote a paper a few years back that linked passenger traffic at airports to employment. The finding was that an increase of one passenger per capita per year produced a 3 percent increase in jobs. A typical large city has four boardings per year per capita, so let's run the math: -.06*4*.03 is a .72 percent reduction in jobs. The US has about 139 million jobs, so a .72 percent reduction is about a million jobs. So it is possible that impediments to travel mean we have a million fewer people working than we otherwise would.
This is very much a first cut, rough kind of number, but it does give one pause. Is what we are doing at our airports worth sacrificing a meaningful number of jobs? Perhaps. But we should still think about the trade-offs explicitly.
Kamis, 18 November 2010
Is US success a product of bailouts?
Hamilton "cemented" the Union by getting congress to agree to assume the states' debts from the American Revolution; in exchange, he gave up his desire to have New York be the federal capital. Ron Chernow's recounting of Hamilton's genius at getting assumption done.
These thoughts cross my mind as I hear people say that the solution to our mortgage problems is to get rid of non-recourse loans. We have long been more generous about bankruptcy than Europe, and it may explain why our economy is more dynamic and innovative. The US is a country about second chances in so many ways (including education); it is a country where it is OK to fail and then come back. We need to be careful about messing with that.
These thoughts cross my mind as I hear people say that the solution to our mortgage problems is to get rid of non-recourse loans. We have long been more generous about bankruptcy than Europe, and it may explain why our economy is more dynamic and innovative. The US is a country about second chances in so many ways (including education); it is a country where it is OK to fail and then come back. We need to be careful about messing with that.
Senin, 15 November 2010
More BIll Cronon
I just finished my third reading of Nature's Metropolis, which I am teaching tomorrow. It is among the best works on central place theory and aggomeration that I know.
He also paints vivid pictures of wheat being harvested and shipped to the White City's great grain elevators, the lumbermills of Marquette and Marrinette, of timber sliding down ice flows and floating down rivers and lakes; we can smell the entrails from the slaughtered cattle and pigs, and imagine how the Chicago River South Branch bubbles with potions not even the Weird Sisters could have imagined. He established how it became a metropolis by not becoming a new center of the center, but rather the center of the periphery.
We can see how the city raised living standards--standards that 130 years later we would (rightfully) deem appalling. His picture of Chicago, warts and all, is far more entralling than Sinclair's picture.
Couldn't we get him to do Tokyo now? Mexico City? How about Los Angeles? Kevin Starr has written a great history of California, but Cronon's angle would be different.
He also paints vivid pictures of wheat being harvested and shipped to the White City's great grain elevators, the lumbermills of Marquette and Marrinette, of timber sliding down ice flows and floating down rivers and lakes; we can smell the entrails from the slaughtered cattle and pigs, and imagine how the Chicago River South Branch bubbles with potions not even the Weird Sisters could have imagined. He established how it became a metropolis by not becoming a new center of the center, but rather the center of the periphery.
We can see how the city raised living standards--standards that 130 years later we would (rightfully) deem appalling. His picture of Chicago, warts and all, is far more entralling than Sinclair's picture.
Couldn't we get him to do Tokyo now? Mexico City? How about Los Angeles? Kevin Starr has written a great history of California, but Cronon's angle would be different.
Minggu, 14 November 2010
Is Symbian dead? And if so, who killed it?
"We should declare victory and go home."
--Apocryphal quote attributed to George David Aiken
I hesitate to write anything about Symbian, because it's a great way to get branded a parochial American, or an Apple fanboi, or a "member of the US-protectionistic mobs braying for blood," to paraphrase a comment from a tech discussion forum in the UK this month.
But there's been a huge cloud of smoke and very little light in the recent online discussions of the changes at Symbian. Is Symbian dead? Is it stronger than ever? What's really going on? I wanted to see if I could make sense of the announcements. Besides, there are some important lessons from the Symbian experience, and I'd like to call those out.
Here's my take on what's happened: The business entity called Symbian was originally designed to prevent Microsoft from controlling the mobile OS standard, without having Symbian itself seize control over the mobile phone companies that funded it. In that task it succeeded. However, as a company run by a consortium, Symbian's governance was politicized and inefficient. This left Symbian woefully unequipped to compete with Apple and Google. A different approach was needed, and Nokia's new management has finally come to terms with that. As a result, Symbian as an organization is now defunct, and Symbian as an OS is becoming background infrastructure that has little relevance to the mobile platform wars.
To explain why I reached that conclusion, I have to start with a quick refresher on Symbian's history, for readers who haven't been following it closely...
There are two things named Symbian: Symbian the company and Symbian the OS. Some of the confusion this month was caused by people mixing up the two things. Symbian OS began as EPOC, the operating system used in Psion's handheld devices. EPOC was spun out of Psion in 1998 as a separate company called Symbian, co-owned by Psion and most of the leading mobile phone companies of the day, led by Nokia. The idea was that all of them would use the renamed Symbian OS in their smartphones, enabling them to put up a unified front against Microsoft, which they feared would rule the smartphone market.
Over time Nokia came to be the dominant manufacturer of Symbian OS phones outside of Japan, largely (in my opinion) because the Symbian phones made by other mobile phone companies didn't sell well. Eventually the other mobile phone companies no longer wanted to pay for a joint venture that was mostly just supplying software to Nokia. Linux was gaining momentum as a free, open source mobile OS, so the Symbian partners, led by Nokia, decided in 2008 to convert Symbian OS into an open source project. Nokia hired most of the Symbian engineers, and gave away their code through the foundation.
Symbian the company was replaced by the Symbian Foundation, a nonprofit tasked with managing the open source process and encouraging other companies to sign up to use the software. The idea was that Nokia, the other Symbian licensees, and a growing hoard of academics and developers would work on various parts of the OS, contributing back their modified code to the shared base. The move to open source kept some level of engagement from several other mobile phone companies, most notably Samsung and SonyEricsson.
But both companies continued to have poor sales for their Symbian phones, and this fall they announced that they had no further plans to use the OS. That left DoCoMo in Japan as the only other major user of Symbian. Nokia was stuck with an open source foundation that mostly just supplied its own software back to it. That wasn't going to be viable. So earlier this month, Nokia and Symbian announced three significant changes:
--The Symbian Foundation is being dramatically scaled back to "a legal entity responsible for licensing software and other intellectual property, such as the Symbian trademark." (link). In other words, it's just a shell. Symbian is now truly Nokia's OS. Nokia will plan, develop, and manage the Symbian code base, and distribute it directly to anyone who still wants it (presumably DoCoMo). You can read a biting commentary on the changes here.
--At the same time, Nokia reaffirmed an announcement it made in October that it is focusing all of its application development support on the Qt software layer that it purchased several years ago (link). Qt will now apparently be Nokia's one and only application layer, deployed on both Symbian and the upcoming MeeGo OS being codeveloped with Intel (link).
--The EU is putting 11 million Euros into a new organization, called Symbeose (which stands for "Symbian – the Embedded Operating System for Europe"), which will help fund the development of advanced Symbian OS features, including asymmetric multiprocessing, dev tools, memory management, image processing, video acceleration, speech to text, mobile payment, multimedia formats, and embedded systems beyond mobile. There are two semi-conflicting explanations of what Symbeose is all about. Some people say it's aimed at turning Symbian into an embedded OS that can run in all sorts of devices (why Europe needs that instead of Linux is unclear to me, but you can hear some discussion of the wrongheaded North American mobile paradigm here). Others say the intent is to resurrect Symbian OS as a smartphone OS used by companies other than Nokia. In a presentation, Symbian Foundation said the investment is intended to "combat mobile device and service homogeneity exemplified by Android and iOS" (link). Apparently taxpayer support is needed because Nokia isn't willing to pay for some infrastructure needed by other phone companies (link). A Symbian Foundation employee explained: "I would say that the main focus of the developments will be advancing existing, as well as building new tools and services relevant for smartphone manufacturing at the beginning of the manufacturing process. We want to make it easier for any manufacturer to take the Symbian codebase and develop new smartphones" (link).
What it means
Symbian isn't dead. It's just irrelevant. After the announcement, Nokia professed its strong support for Symbian OS (link). Nokia has no choice but to support the OS because it's built into the whole middle to top end of the Nokia product line. Given all of the legacy Nokia code written in Symbian OS, the Symbian-based phones still in development, and all of the Nokia development teams who are used to working in Symbian, it would probably take years to flush all of the Symbian code out of Nokia's products even if it wanted to. Symbian at Nokia is kind of like Cobol at IBM -- you're going to go on tasting that particular meal for a long time to come.
But the decision to focus on Qt for applications means that Symbian OS is effectively no longer an app development platform. It's embedded software; the background plumbing that powers Nokia's smartphones (and maybe other embedded systems, if the EU has its way). There's nothing wrong with that, but it makes Symbian irrelevant to most of the folks who talk about mobile technologies online. We don't spend much time online debating which OS kernel a device should use, and that's now the world Symbian lives in. The real competition for developer and smartphone user loyalty in most of the world is now Qt vs. iOS, Android, and RIM. Plus that Windows thing.
What it means for Nokia: Hope. Nokia's app recruitment efforts have been hamstrung for years by what I think was an incoherent software platform story. What should developers write their software on? Symbian native, S60, Silverlight, Qt, Adobe Air, Java...at one time or another Nokia romanced just about every mobile platform on the market. Nokia said that was a strength, but actually it was a sign of indecision and internal conflict. Developers crave predictability; they want to know that the platform they choose today will still be supported five years from now. By flitting from platform to platform like a butterfly, Nokia sent the unintentional signal that developing for it was dangerous.
Many developers did support Nokia anyway, especially in places where the Nokia brand and market share were so dominant that the decision was a no-brainer. But I think their loyalty did a disservice to Nokia in some ways, because it blinded the company to the shortcomings in its developer proposition. When Nokia had trouble recruiting developers in places like Silicon Valley, it seemed to think they were just biased against it. Time and again, I attended Nokia developer events in California where Nokia concentrated on telling people how big its installed base was, and showing off its latest hero device (N97, anyone?). I can see Nokia's logic -- after all, developers in Europe seemed happy. But the reality was that developers in Europe had given it the benefit of the doubt, despite its poor overall proposition.
So the decision to focus on Qt (pronounced "cute," get used to it) is a positive one, in my opinion. This is one of those cases where making any decision is better than the status quo. Qt isn't perfect, but if all of Nokia aligns behind it, any problems in it can be ironed out.
Unfortunately for Nokia, this is just the beginning of the changes it needs to make, rather than the end. Nokia's Qt development tools still reportedly need work (link). And app developers don't just need a coherent technical story, they also need a coherent business story. How do they make money? Although Nokia sells a huge number of Symbian-based smartphones, most of their users seem blissfully unaware that they can add applications. That's why Nokia has a much smaller base of applications than iPhone, even though its customer base is far larger.
To attract more developers, Nokia will need to do a lot of marketing, both in advertising and on the device, to make sure Qt users know they can get apps, and are stimulated to try them out. Nokia has the resources to do this, but once again it'll need consistent and well coordinated execution to make it happen, something that the company has failed to deliver in the past. (For example, spamming people with SMS messages telling them to try other features is probably not the right approach (link).)
To give you an idea of how much ground Nokia needs to make up, Apple iOS has 60 million users and 225,000 applications, a ratio of about 3.75 applications per thousand users. Android is close behind, with 3.5 apps per thousand users. In contrast, Symbian has 390 million users and 7,000 native apps, a ratio of about .02 apps per thousand users. (link). Yes, I know, there are additional Nokia apps written in Java, but that kind of proves the point that Symbian is plumbing rather than a platform.
All of these changes need to be carried out against a backdrop of cost cutting, as Nokia brings its expenses in line with its revenues. One of these days when I get the time I'll write more about Nokia's overall situation, but for now suffice it to say that Nokia is working off the after-effects of several years of growing expenses while revenue was stagnant. Nokia's circumstances aren't quite as bad as the California state budget (if you are in Europe, think Greece), but it's ugly enough to distract from all of the other things the company needs to fix.
What it means for developers: Wait. First, the bad news: The switch to Qt means that current Symbian OS developers who aren't already using Qt will need to rewrite their applications. This is the latest in a series of rewrites that Nokia and Symbian have forced on developers over the years. If they had more developers it probably would be causing a big ruckus right now. The fact that you don't hear a lot of screaming speaks volumes.
The good news is that Nokia may be getting its act together for developers at last. But if I were working on a mobile application today...wait a minute, I am working on a mobile application today. So here's what I'm doing about Nokia: I'm waiting. If Nokia creates a great business proposition for developers and sticks to it, our team would be delighted to support Qt aggressively. Who wouldn't want to sell to a base of 400 million users? But given Nokia's history of whipsawing its developers, we won't take anything for granted. In particular, we want to see if Qt is actually the exclusive development platform for MeeGo, rather than just a secondary option. You've got to show us the consistency, Nokia.
Oh, and ignore Symbeose. I don't know exactly how the Symbeose initiative got started, but to me it looks like the Symbian Foundation lobbied for it for a long time, prior to the recent changes in the Foundation. For the old Foundation, Symbeose made sense, because it was a clever way for a nonprofit to get some OS development done in areas that Nokia didn't care about. But with the Foundation mostly gone, Nokia has no incentive to turn Symbian into a general embedded OS, and in fact it says MeeGo is its OS for use in non-phones. In that situation, I can't picture a lot of other companies committing to build Symbian OS into their products.
Lessons from the Symbian Foundation's demise
I'm seeing a lot of interesting rationalization online about Symbian's fate. For example, Tim Ocock, a former Symbian employee, wrote a fantastic post (link) in which he argues that Symbian was very successful as an OS for phones with PDA features, but was never designed for running browsers and lots of applications. That's a pretty shocking statement, considering how many times I heard Symbian advocates boast about the sophistication of their modern, general purpose OS compared to clunky old PDA-centric Palm OS. Remember, this is a company that until very recently was bragging about its superior implementation of symmetric multiprocessing (link), hardly something you need for a PDA.
But I think Tim is dead-on in most of his analysis. He did a great job of detailing the technical and attitudinal flaws within Symbian itself, so I won't bother repeating them here. Instead, I want to talk about the flaws in Symbian's governance.
Did Symbian fail? The companies that founded Symbian had two goals in mind: to prevent Microsoft from dominating the market for smartphone software, and to prevent Symbian itself from becoming a power that could dictate to the phone companies that funded it. As a result, Symbian's governance structure was designed with a complex system of checks and balances that wouldn't apply to a normal company. To make major decisions, Symbian had to negotiate a consensus among its owners the mobile phone companies, who understood little about the management of a mobile platform and were suspicious of each other and of Symbian itself.
This bureaucratic, highly politicized oversight process repeatedly forced Symbian into blind alleys, and prevented it from doing things that a "normal" OS company would take for granted. When Symbian was founded, there was talk of an eventual IPO. The prospect of an IPO is an important recruitment tool -- it lets you use stock to hire ambitious engineers and managers. But the idea was eventually shot down by the owners; it would have made Symbian too independent.
Crippled by design. Once the threat from Microsoft receded, the owners' second goal for Symbian -- preventing it from competing with them -- seemed to dominate their treatment of Symbian. I'm not saying there was some central evil plan to hamstring Symbian; there wasn't. But everything the company planned to do had to be approved by the handset companies, and on a case by case basis they vetoed the things that sounded threatening to them. Over time, this forced Symbian away from initiatives and features that would cause users and developers to be loyal to the OS rather than the handset.
So Symbian didn't create an app store, and Symbian's developer relations were very confused because Nokia wanted to do a lot of that itself. But the most egregious example was user interface, which Symbian worked on from time to time, but was eventually forced out of by its owners. When I was at Palm, the Symbian project I feared most was "Quartz," the effort to create an icon-driven touchscreen UI for Symbian. Quartz looked very nice, and if it had survived Symbian would have had a dandy iPhone competitor on the market before the iPhone launched. But politics between Symbian's owners forced it completely out of the UI business, and Quartz was spun out into a separate company called UIQ, which went bankrupt in 2009.
You can get more details on the whole sad Quartz saga here.
Quartz circa 2001
An OS without a single consistent user interface is a nightmare for software developers, because they can't write apps that run across the installed base of devices.
Eventually, in the face of all the restrictions, the most ambitious, nonconformist people at Symbian -- the ones who drive innovation in any organization -- seemed to drift away in frustration or were forced out when they irritated the owners. Symbian itself retreated into focusing on technological esoterica like symmetric multiprocessing -- things that didn't really differentiate the platform to users, but that the licensees wouldn't object to.
From one perspective I guess you can say Symbian was a complete success, because it fulfilled the two negatives that its founders wanted: Microsoft didn't dominate mobile software, and Symbian itself didn't exercise any control over its founders.
However, the cumulative effect of the handset companies pursuing their short-term interest was that Symbian was utterly unready to respond when Apple and Google entered the market. I don't think either Nokia or Symbian really understood how the game had changed. Apple designs phones as integrated systems, with the software and hardware tightly coordinated. Nokia could never achieve that level of coordination with an operating system managed through standards committees.
And as for Android, Nokia apparently thought that open sourcing Symbian would create a level playing field with Google's free OS. But I think the structure of the Symbian Foundation made that impossible.
The fatal flaw of the Symbian Foundation. Although Android is a free product, it's supported by a for-profit corporation that has massive resources. The attraction of Android to phone companies isn't just its price, but its safety -- Google stands behind it with marketing and technical support.
In contrast, Symbian Foundation was designed as a rigorously noncommercial institution banned from any business activity. People at the Foundation told me Nokia was adamant about enforcing the ban on commercial activity because it was afraid the tax authorities might rule that the foundation wasn't a nonprofit, endangering the tax credit that Nokia got for donating its Symbian code base.
Most open source companies give away their software in order to make money from some other mechanism -- consulting, or support, or a for-fee version of the same code. Symbian Foundation was banned from making money on any of these activities, meaning it could never become financially self-supporting.
Forget about marketing support; Symbian couldn't even offer enhanced technical support to licensees who were begging to pay for it. That was especially crippling because Symbian OS is notoriously complex and difficult to program (link).
Consider this quote from Tim Ocock's article:
Picture yourself as a manager at a handset company, choosing an OS for your smartphone. The Symbian option has no advertising support, requires customization, is hard to program, has few third party consultants to support it, and the company licensing it won't help you do the programming. Meanwhile, Google Android is more modern, is based on Java and Linux so it's easy to find programmers, has lots of support, and has user-friendly features like an app store. Which one seems the safer bet?
How could the Symbian Foundation ever succeed in that situation?
Although people advocating for a "European" mobile OS often complain that Android had unfair financial advantages, the fact is that Symbian was ripe for the picking, a situation that was almost entirely self-inflicted.
The lesson for other tech companies: Open source is not magic pixie dust that you can sprinkle on a struggling product to turn it into a winner. Open source is a tactic, not a business strategy. It has to be paired with a business plan that says how you'll make money and drive innovation.
This is the end, my friend, of our elaborate plans
Like an army refighting the last war, Symbian was designed to defeat Windows Mobile, but never came to terms with its new adversaries Apple and Google. There's no shame in that for most of the folks who worked at Symbian; they did the best they could to navigate the politics of Nokia and all the other Symbian licensees. But radical change was necessary. I hope Nokia's Qt strategy will be successful. And I'm sure that Symbian code will continue to serve for years as the underlying technology for millions of Nokia smartphones. But except in the dreams of a few EU officials, Symbian OS is now just legacy plumbing.
It's time to move on.
--Apocryphal quote attributed to George David Aiken
I hesitate to write anything about Symbian, because it's a great way to get branded a parochial American, or an Apple fanboi, or a "member of the US-protectionistic mobs braying for blood," to paraphrase a comment from a tech discussion forum in the UK this month.
But there's been a huge cloud of smoke and very little light in the recent online discussions of the changes at Symbian. Is Symbian dead? Is it stronger than ever? What's really going on? I wanted to see if I could make sense of the announcements. Besides, there are some important lessons from the Symbian experience, and I'd like to call those out.
Here's my take on what's happened: The business entity called Symbian was originally designed to prevent Microsoft from controlling the mobile OS standard, without having Symbian itself seize control over the mobile phone companies that funded it. In that task it succeeded. However, as a company run by a consortium, Symbian's governance was politicized and inefficient. This left Symbian woefully unequipped to compete with Apple and Google. A different approach was needed, and Nokia's new management has finally come to terms with that. As a result, Symbian as an organization is now defunct, and Symbian as an OS is becoming background infrastructure that has little relevance to the mobile platform wars.
To explain why I reached that conclusion, I have to start with a quick refresher on Symbian's history, for readers who haven't been following it closely...
There are two things named Symbian: Symbian the company and Symbian the OS. Some of the confusion this month was caused by people mixing up the two things. Symbian OS began as EPOC, the operating system used in Psion's handheld devices. EPOC was spun out of Psion in 1998 as a separate company called Symbian, co-owned by Psion and most of the leading mobile phone companies of the day, led by Nokia. The idea was that all of them would use the renamed Symbian OS in their smartphones, enabling them to put up a unified front against Microsoft, which they feared would rule the smartphone market.
Over time Nokia came to be the dominant manufacturer of Symbian OS phones outside of Japan, largely (in my opinion) because the Symbian phones made by other mobile phone companies didn't sell well. Eventually the other mobile phone companies no longer wanted to pay for a joint venture that was mostly just supplying software to Nokia. Linux was gaining momentum as a free, open source mobile OS, so the Symbian partners, led by Nokia, decided in 2008 to convert Symbian OS into an open source project. Nokia hired most of the Symbian engineers, and gave away their code through the foundation.
Symbian the company was replaced by the Symbian Foundation, a nonprofit tasked with managing the open source process and encouraging other companies to sign up to use the software. The idea was that Nokia, the other Symbian licensees, and a growing hoard of academics and developers would work on various parts of the OS, contributing back their modified code to the shared base. The move to open source kept some level of engagement from several other mobile phone companies, most notably Samsung and SonyEricsson.
But both companies continued to have poor sales for their Symbian phones, and this fall they announced that they had no further plans to use the OS. That left DoCoMo in Japan as the only other major user of Symbian. Nokia was stuck with an open source foundation that mostly just supplied its own software back to it. That wasn't going to be viable. So earlier this month, Nokia and Symbian announced three significant changes:
--The Symbian Foundation is being dramatically scaled back to "a legal entity responsible for licensing software and other intellectual property, such as the Symbian trademark." (link). In other words, it's just a shell. Symbian is now truly Nokia's OS. Nokia will plan, develop, and manage the Symbian code base, and distribute it directly to anyone who still wants it (presumably DoCoMo). You can read a biting commentary on the changes here.
--At the same time, Nokia reaffirmed an announcement it made in October that it is focusing all of its application development support on the Qt software layer that it purchased several years ago (link). Qt will now apparently be Nokia's one and only application layer, deployed on both Symbian and the upcoming MeeGo OS being codeveloped with Intel (link).
--The EU is putting 11 million Euros into a new organization, called Symbeose (which stands for "Symbian – the Embedded Operating System for Europe"), which will help fund the development of advanced Symbian OS features, including asymmetric multiprocessing, dev tools, memory management, image processing, video acceleration, speech to text, mobile payment, multimedia formats, and embedded systems beyond mobile. There are two semi-conflicting explanations of what Symbeose is all about. Some people say it's aimed at turning Symbian into an embedded OS that can run in all sorts of devices (why Europe needs that instead of Linux is unclear to me, but you can hear some discussion of the wrongheaded North American mobile paradigm here). Others say the intent is to resurrect Symbian OS as a smartphone OS used by companies other than Nokia. In a presentation, Symbian Foundation said the investment is intended to "combat mobile device and service homogeneity exemplified by Android and iOS" (link). Apparently taxpayer support is needed because Nokia isn't willing to pay for some infrastructure needed by other phone companies (link). A Symbian Foundation employee explained: "I would say that the main focus of the developments will be advancing existing, as well as building new tools and services relevant for smartphone manufacturing at the beginning of the manufacturing process. We want to make it easier for any manufacturer to take the Symbian codebase and develop new smartphones" (link).
What it means
Symbian isn't dead. It's just irrelevant. After the announcement, Nokia professed its strong support for Symbian OS (link). Nokia has no choice but to support the OS because it's built into the whole middle to top end of the Nokia product line. Given all of the legacy Nokia code written in Symbian OS, the Symbian-based phones still in development, and all of the Nokia development teams who are used to working in Symbian, it would probably take years to flush all of the Symbian code out of Nokia's products even if it wanted to. Symbian at Nokia is kind of like Cobol at IBM -- you're going to go on tasting that particular meal for a long time to come.
But the decision to focus on Qt for applications means that Symbian OS is effectively no longer an app development platform. It's embedded software; the background plumbing that powers Nokia's smartphones (and maybe other embedded systems, if the EU has its way). There's nothing wrong with that, but it makes Symbian irrelevant to most of the folks who talk about mobile technologies online. We don't spend much time online debating which OS kernel a device should use, and that's now the world Symbian lives in. The real competition for developer and smartphone user loyalty in most of the world is now Qt vs. iOS, Android, and RIM. Plus that Windows thing.
What it means for Nokia: Hope. Nokia's app recruitment efforts have been hamstrung for years by what I think was an incoherent software platform story. What should developers write their software on? Symbian native, S60, Silverlight, Qt, Adobe Air, Java...at one time or another Nokia romanced just about every mobile platform on the market. Nokia said that was a strength, but actually it was a sign of indecision and internal conflict. Developers crave predictability; they want to know that the platform they choose today will still be supported five years from now. By flitting from platform to platform like a butterfly, Nokia sent the unintentional signal that developing for it was dangerous.
Many developers did support Nokia anyway, especially in places where the Nokia brand and market share were so dominant that the decision was a no-brainer. But I think their loyalty did a disservice to Nokia in some ways, because it blinded the company to the shortcomings in its developer proposition. When Nokia had trouble recruiting developers in places like Silicon Valley, it seemed to think they were just biased against it. Time and again, I attended Nokia developer events in California where Nokia concentrated on telling people how big its installed base was, and showing off its latest hero device (N97, anyone?). I can see Nokia's logic -- after all, developers in Europe seemed happy. But the reality was that developers in Europe had given it the benefit of the doubt, despite its poor overall proposition.
So the decision to focus on Qt (pronounced "cute," get used to it) is a positive one, in my opinion. This is one of those cases where making any decision is better than the status quo. Qt isn't perfect, but if all of Nokia aligns behind it, any problems in it can be ironed out.
Unfortunately for Nokia, this is just the beginning of the changes it needs to make, rather than the end. Nokia's Qt development tools still reportedly need work (link). And app developers don't just need a coherent technical story, they also need a coherent business story. How do they make money? Although Nokia sells a huge number of Symbian-based smartphones, most of their users seem blissfully unaware that they can add applications. That's why Nokia has a much smaller base of applications than iPhone, even though its customer base is far larger.
To attract more developers, Nokia will need to do a lot of marketing, both in advertising and on the device, to make sure Qt users know they can get apps, and are stimulated to try them out. Nokia has the resources to do this, but once again it'll need consistent and well coordinated execution to make it happen, something that the company has failed to deliver in the past. (For example, spamming people with SMS messages telling them to try other features is probably not the right approach (link).)
To give you an idea of how much ground Nokia needs to make up, Apple iOS has 60 million users and 225,000 applications, a ratio of about 3.75 applications per thousand users. Android is close behind, with 3.5 apps per thousand users. In contrast, Symbian has 390 million users and 7,000 native apps, a ratio of about .02 apps per thousand users. (link). Yes, I know, there are additional Nokia apps written in Java, but that kind of proves the point that Symbian is plumbing rather than a platform.
All of these changes need to be carried out against a backdrop of cost cutting, as Nokia brings its expenses in line with its revenues. One of these days when I get the time I'll write more about Nokia's overall situation, but for now suffice it to say that Nokia is working off the after-effects of several years of growing expenses while revenue was stagnant. Nokia's circumstances aren't quite as bad as the California state budget (if you are in Europe, think Greece), but it's ugly enough to distract from all of the other things the company needs to fix.
What it means for developers: Wait. First, the bad news: The switch to Qt means that current Symbian OS developers who aren't already using Qt will need to rewrite their applications. This is the latest in a series of rewrites that Nokia and Symbian have forced on developers over the years. If they had more developers it probably would be causing a big ruckus right now. The fact that you don't hear a lot of screaming speaks volumes.
The good news is that Nokia may be getting its act together for developers at last. But if I were working on a mobile application today...wait a minute, I am working on a mobile application today. So here's what I'm doing about Nokia: I'm waiting. If Nokia creates a great business proposition for developers and sticks to it, our team would be delighted to support Qt aggressively. Who wouldn't want to sell to a base of 400 million users? But given Nokia's history of whipsawing its developers, we won't take anything for granted. In particular, we want to see if Qt is actually the exclusive development platform for MeeGo, rather than just a secondary option. You've got to show us the consistency, Nokia.
Oh, and ignore Symbeose. I don't know exactly how the Symbeose initiative got started, but to me it looks like the Symbian Foundation lobbied for it for a long time, prior to the recent changes in the Foundation. For the old Foundation, Symbeose made sense, because it was a clever way for a nonprofit to get some OS development done in areas that Nokia didn't care about. But with the Foundation mostly gone, Nokia has no incentive to turn Symbian into a general embedded OS, and in fact it says MeeGo is its OS for use in non-phones. In that situation, I can't picture a lot of other companies committing to build Symbian OS into their products.
Lessons from the Symbian Foundation's demise
I'm seeing a lot of interesting rationalization online about Symbian's fate. For example, Tim Ocock, a former Symbian employee, wrote a fantastic post (link) in which he argues that Symbian was very successful as an OS for phones with PDA features, but was never designed for running browsers and lots of applications. That's a pretty shocking statement, considering how many times I heard Symbian advocates boast about the sophistication of their modern, general purpose OS compared to clunky old PDA-centric Palm OS. Remember, this is a company that until very recently was bragging about its superior implementation of symmetric multiprocessing (link), hardly something you need for a PDA.
But I think Tim is dead-on in most of his analysis. He did a great job of detailing the technical and attitudinal flaws within Symbian itself, so I won't bother repeating them here. Instead, I want to talk about the flaws in Symbian's governance.
Did Symbian fail? The companies that founded Symbian had two goals in mind: to prevent Microsoft from dominating the market for smartphone software, and to prevent Symbian itself from becoming a power that could dictate to the phone companies that funded it. As a result, Symbian's governance structure was designed with a complex system of checks and balances that wouldn't apply to a normal company. To make major decisions, Symbian had to negotiate a consensus among its owners the mobile phone companies, who understood little about the management of a mobile platform and were suspicious of each other and of Symbian itself.
This bureaucratic, highly politicized oversight process repeatedly forced Symbian into blind alleys, and prevented it from doing things that a "normal" OS company would take for granted. When Symbian was founded, there was talk of an eventual IPO. The prospect of an IPO is an important recruitment tool -- it lets you use stock to hire ambitious engineers and managers. But the idea was eventually shot down by the owners; it would have made Symbian too independent.
Crippled by design. Once the threat from Microsoft receded, the owners' second goal for Symbian -- preventing it from competing with them -- seemed to dominate their treatment of Symbian. I'm not saying there was some central evil plan to hamstring Symbian; there wasn't. But everything the company planned to do had to be approved by the handset companies, and on a case by case basis they vetoed the things that sounded threatening to them. Over time, this forced Symbian away from initiatives and features that would cause users and developers to be loyal to the OS rather than the handset.
So Symbian didn't create an app store, and Symbian's developer relations were very confused because Nokia wanted to do a lot of that itself. But the most egregious example was user interface, which Symbian worked on from time to time, but was eventually forced out of by its owners. When I was at Palm, the Symbian project I feared most was "Quartz," the effort to create an icon-driven touchscreen UI for Symbian. Quartz looked very nice, and if it had survived Symbian would have had a dandy iPhone competitor on the market before the iPhone launched. But politics between Symbian's owners forced it completely out of the UI business, and Quartz was spun out into a separate company called UIQ, which went bankrupt in 2009.
You can get more details on the whole sad Quartz saga here.
Quartz circa 2001
An OS without a single consistent user interface is a nightmare for software developers, because they can't write apps that run across the installed base of devices.
Eventually, in the face of all the restrictions, the most ambitious, nonconformist people at Symbian -- the ones who drive innovation in any organization -- seemed to drift away in frustration or were forced out when they irritated the owners. Symbian itself retreated into focusing on technological esoterica like symmetric multiprocessing -- things that didn't really differentiate the platform to users, but that the licensees wouldn't object to.
From one perspective I guess you can say Symbian was a complete success, because it fulfilled the two negatives that its founders wanted: Microsoft didn't dominate mobile software, and Symbian itself didn't exercise any control over its founders.
However, the cumulative effect of the handset companies pursuing their short-term interest was that Symbian was utterly unready to respond when Apple and Google entered the market. I don't think either Nokia or Symbian really understood how the game had changed. Apple designs phones as integrated systems, with the software and hardware tightly coordinated. Nokia could never achieve that level of coordination with an operating system managed through standards committees.
And as for Android, Nokia apparently thought that open sourcing Symbian would create a level playing field with Google's free OS. But I think the structure of the Symbian Foundation made that impossible.
The fatal flaw of the Symbian Foundation. Although Android is a free product, it's supported by a for-profit corporation that has massive resources. The attraction of Android to phone companies isn't just its price, but its safety -- Google stands behind it with marketing and technical support.
In contrast, Symbian Foundation was designed as a rigorously noncommercial institution banned from any business activity. People at the Foundation told me Nokia was adamant about enforcing the ban on commercial activity because it was afraid the tax authorities might rule that the foundation wasn't a nonprofit, endangering the tax credit that Nokia got for donating its Symbian code base.
Most open source companies give away their software in order to make money from some other mechanism -- consulting, or support, or a for-fee version of the same code. Symbian Foundation was banned from making money on any of these activities, meaning it could never become financially self-supporting.
Forget about marketing support; Symbian couldn't even offer enhanced technical support to licensees who were begging to pay for it. That was especially crippling because Symbian OS is notoriously complex and difficult to program (link).
Consider this quote from Tim Ocock's article:
"The difficulty of writing good Symbian code was hugely beneficial to Symbian as a business in the early days. For many years, 80% of Symbian's revenues were earned through consulting for licensees....Symbian’s licensees...each had their own proprietary telephony chipsets that needed to be integrated and their own customisations to the platform in mind....Despite talk of Symbian enabling differentiation, the reality was licensees' budgets were squandered on hardware porting and making the core platform fit for purpose."
Picture yourself as a manager at a handset company, choosing an OS for your smartphone. The Symbian option has no advertising support, requires customization, is hard to program, has few third party consultants to support it, and the company licensing it won't help you do the programming. Meanwhile, Google Android is more modern, is based on Java and Linux so it's easy to find programmers, has lots of support, and has user-friendly features like an app store. Which one seems the safer bet?
How could the Symbian Foundation ever succeed in that situation?
Although people advocating for a "European" mobile OS often complain that Android had unfair financial advantages, the fact is that Symbian was ripe for the picking, a situation that was almost entirely self-inflicted.
The lesson for other tech companies: Open source is not magic pixie dust that you can sprinkle on a struggling product to turn it into a winner. Open source is a tactic, not a business strategy. It has to be paired with a business plan that says how you'll make money and drive innovation.
This is the end, my friend, of our elaborate plans
Like an army refighting the last war, Symbian was designed to defeat Windows Mobile, but never came to terms with its new adversaries Apple and Google. There's no shame in that for most of the folks who worked at Symbian; they did the best they could to navigate the politics of Nokia and all the other Symbian licensees. But radical change was necessary. I hope Nokia's Qt strategy will be successful. And I'm sure that Symbian code will continue to serve for years as the underlying technology for millions of Nokia smartphones. But except in the dreams of a few EU officials, Symbian OS is now just legacy plumbing.
It's time to move on.
Rabu, 10 November 2010
One hand clapping for the Deficit Commission Co-chairs' powerpoint
It is not much of a report, but it emphasizes two things that do matter:
(1) Tax expenditures are about $1.1 trillion, and deficit reduction requires scaling them back. While there has been gnashing of teeth about a proposed top marginal tax rate of 23 percet, the powerpoint contemplate this only in the context of full elimination of tax expenditures. This would surely be more efficient--it is also possible that it would be more progressive, as the biggest tax expenditures (exclusion of the employer contributions for health care, exclusion of employer contributions to pension contributions, and the mortgage interest deduction) tend to go to those with higher incomes. It is an empirical question as to how these things net out, but it is an empirical question worth answering (a similar analytical exercise was done in the middle-1990s, but the world is now different). If someone can create a tax code that brings in more revenue under static assumptions (i.e., is not projecting revenue based on Voodoo economics), is more progressive, and has lower rates because of the phase out of tax expenditures, I am all for it. FWIW, as someone who has a California mortgage and pays California state income taxes, this is probably not in my personal self-interest.
(2) I do think we need to do something about the retirement age, but it should somehow be linked to occupation. I have a cushy job, and there is no reason why I can't keep doing it until I become demented. But those who do physical labor just wear out, and it is not reasonable to ask a 60 year old lineman (the telephone kind, not the football kind) to "retrain."
(1) Tax expenditures are about $1.1 trillion, and deficit reduction requires scaling them back. While there has been gnashing of teeth about a proposed top marginal tax rate of 23 percet, the powerpoint contemplate this only in the context of full elimination of tax expenditures. This would surely be more efficient--it is also possible that it would be more progressive, as the biggest tax expenditures (exclusion of the employer contributions for health care, exclusion of employer contributions to pension contributions, and the mortgage interest deduction) tend to go to those with higher incomes. It is an empirical question as to how these things net out, but it is an empirical question worth answering (a similar analytical exercise was done in the middle-1990s, but the world is now different). If someone can create a tax code that brings in more revenue under static assumptions (i.e., is not projecting revenue based on Voodoo economics), is more progressive, and has lower rates because of the phase out of tax expenditures, I am all for it. FWIW, as someone who has a California mortgage and pays California state income taxes, this is probably not in my personal self-interest.
(2) I do think we need to do something about the retirement age, but it should somehow be linked to occupation. I have a cushy job, and there is no reason why I can't keep doing it until I become demented. But those who do physical labor just wear out, and it is not reasonable to ask a 60 year old lineman (the telephone kind, not the football kind) to "retrain."
Selasa, 09 November 2010
Will E-Readers Eat the Tablet Computer?
The consensus prediction in the tech industry is that tablet computer sales will swamp sales of ebook readers. The Huffington Post is taking bets on which e-readers are dead meat (link), and Informa predicts that e-reader sales will start declining in 2014 as tablets out-compete them (link). I've seen similar (and more pessimistic) private forecasts from other analysis firms. They all argue that it's just a matter of time until general-purpose tablet computers displace more limited e-readers.
Yes and no. I think tablet features will eventually take over, but it would be very premature to assume that tablet computer companies will be the long-term winners. They're actually at a huge disadvantage that almost no one is talking about.
What brought this home to me was a brief hands-on experience I had last week with the Barnes & Noble Nook Color. I usually think of Nook as the poor stepchild to Amazon Kindle, and in unit sales it certainly is. But Nook Color isn't just an ebook reader. It's a full tablet computer, or at least it will be if Barnes & Noble allows it to be. And it sells at a great price.
The easiest way to explain my reaction to Nook Color is to compare it to the Samsung Galaxy Tab. The first thing I noticed was basic ergonomics. As I wrote recently, when I first picked up the Galaxy Tab it worried me because it was hard to hold -- its slick plastic surface felt like it was going to slip out of my hand, and so I couldn't hold it comfortably without putting my thumb on the screen (link). The Nook Color is almost identical to the size and weight of the Galaxy Tab, so I expected to have the same problem. But the Nook has a brushed metallic-feeling surface that's much easier to grip. Attention to detail has a huge impact on mobile products, and Nook Color shows far more attention to detail than the Galaxy Tab.
The Galaxy Tab definitely has more features than the Nook: two cameras, 3G options, and an accelerometer. But Nook Color has all the basics, including Android OS, a touchscreen, and very nice color display that I think is the equal of Samsung's. And it has one important feature that The Galaxy Tab lacks -- an affordable price. A Nook Color with WiFi is $249, literally half the price of a similarly-equipped Galaxy Tab.
That's a stunning difference, especially considering that Samsung usually tries to be a price leader in new technologies. At $499, I think the Galaxy Tab will be a very difficult purchase for the average consumer. At $249, Nook Color isn't cheap, but it's a mainstream consumer product.
So how in the world does a book-seller get a 50% price advantage over a major consumer electronics company?
The difference isn't mostly due to features. I bet the accelerometer and cameras in the Galaxy Tab don't add more than $20 to its cost, probably less. The Tab probably has a faster processor as well, but no way does that justify the cost difference. I think two other factors are involved. The first is that B&N owns its own retail stores, and so it doesn't necessarily have to mark up the price of the Nook with the full traditional retail margin. In contrast, Samsung will be expected to fork over the usual 20 points or so of margin to its dealers, plus additional comarketing dollars to buy shelf displays and Sunday newspaper ads. Second, since B&N makes money from the content it sells to Nook users, it can afford to sell the hardware at lower cost.
In other words, the Nook is a subsidized product, like a cellphone. So is Kindle.
I think the people predicting that tablets will swamp e-readers haven't thought through the economics of the situation. As long as e-readers are based on e-ink displays, they can't compete directly with tablets, because the displays are grayscale and are too slow to display animation and video. But an e-reader with an LCD display is physically a tablet, at a much more attractive price.
Subsidized products usually beat unsubsidized ones. Even Apple had to move the iPhone onto subsidies after it first launched it without.
The only thing stopping Nook Color from competing directly with tablets is software. Although Nook Color runs the Android OS, same as Samsung, Barnes & Noble is reportedly planning to severely restrict the applications that will run on Nook Color. The idea is to keep the device focused as an e-reader rather than allowing it to become a general-purpose tablet.
It's unusual for a company to artificially restrict what you can do with a computing product, but there is a perverse logic to what Barnes & Noble is doing. If someone buys Nook Color as a tablet and doesn't buy any books or other content for it, Barnes & Noble will make less money. By restricting the apps, Barnes & Noble can chase away those lower-margin customers who aren't hardcore readers.
But I think that's a very short-sighted policy, for two reasons:
First, as a dedicated e-reader, Nook has important drawbacks. Its battery life is much shorter than an e-ink device, and it's a lot more expensive. If the apps are restricted, Nook Color is a tweener. It's inferior as an e-reader and as a tablet.
Second, B&N is missing a huge opportunity. It's not like they're losing money on Nook Color sales (the hardware cost is probably in the $150 range, or lower). As long as you're making some money per unit, I think it makes sense to grab as many customers as you can now, while you have a structural advantage in the market.
The ultimate payoff for an ebook distributor like B&N is to displace the publishers and start selling ebooks (and other content) directly to the public. To get to that goal, B&N should be trying to grow the e-reader installed base as quickly as possible. Instead of restricting Nook Color to people who already want ebooks, B&N should sell it to everyone and then entice them into becoming e-reading users.
Historically, some of the most successful computing products were sold first as single-purpose devices that then blossomed into multipurpose devices. PCs were first adopted in volume to run spreadsheets, and the first successful PDAs were sold as electronic calendars. Nook Color could be the e-reader that ate the tablet market.
And it's easy to do -- all B&N has to do is say yes to all types of third party apps. Get out of the way, and the customers will take care of the rest.
Yes and no. I think tablet features will eventually take over, but it would be very premature to assume that tablet computer companies will be the long-term winners. They're actually at a huge disadvantage that almost no one is talking about.
What brought this home to me was a brief hands-on experience I had last week with the Barnes & Noble Nook Color. I usually think of Nook as the poor stepchild to Amazon Kindle, and in unit sales it certainly is. But Nook Color isn't just an ebook reader. It's a full tablet computer, or at least it will be if Barnes & Noble allows it to be. And it sells at a great price.
The easiest way to explain my reaction to Nook Color is to compare it to the Samsung Galaxy Tab. The first thing I noticed was basic ergonomics. As I wrote recently, when I first picked up the Galaxy Tab it worried me because it was hard to hold -- its slick plastic surface felt like it was going to slip out of my hand, and so I couldn't hold it comfortably without putting my thumb on the screen (link). The Nook Color is almost identical to the size and weight of the Galaxy Tab, so I expected to have the same problem. But the Nook has a brushed metallic-feeling surface that's much easier to grip. Attention to detail has a huge impact on mobile products, and Nook Color shows far more attention to detail than the Galaxy Tab.
The Galaxy Tab definitely has more features than the Nook: two cameras, 3G options, and an accelerometer. But Nook Color has all the basics, including Android OS, a touchscreen, and very nice color display that I think is the equal of Samsung's. And it has one important feature that The Galaxy Tab lacks -- an affordable price. A Nook Color with WiFi is $249, literally half the price of a similarly-equipped Galaxy Tab.
That's a stunning difference, especially considering that Samsung usually tries to be a price leader in new technologies. At $499, I think the Galaxy Tab will be a very difficult purchase for the average consumer. At $249, Nook Color isn't cheap, but it's a mainstream consumer product.
So how in the world does a book-seller get a 50% price advantage over a major consumer electronics company?
The difference isn't mostly due to features. I bet the accelerometer and cameras in the Galaxy Tab don't add more than $20 to its cost, probably less. The Tab probably has a faster processor as well, but no way does that justify the cost difference. I think two other factors are involved. The first is that B&N owns its own retail stores, and so it doesn't necessarily have to mark up the price of the Nook with the full traditional retail margin. In contrast, Samsung will be expected to fork over the usual 20 points or so of margin to its dealers, plus additional comarketing dollars to buy shelf displays and Sunday newspaper ads. Second, since B&N makes money from the content it sells to Nook users, it can afford to sell the hardware at lower cost.
In other words, the Nook is a subsidized product, like a cellphone. So is Kindle.
I think the people predicting that tablets will swamp e-readers haven't thought through the economics of the situation. As long as e-readers are based on e-ink displays, they can't compete directly with tablets, because the displays are grayscale and are too slow to display animation and video. But an e-reader with an LCD display is physically a tablet, at a much more attractive price.
Subsidized products usually beat unsubsidized ones. Even Apple had to move the iPhone onto subsidies after it first launched it without.
The only thing stopping Nook Color from competing directly with tablets is software. Although Nook Color runs the Android OS, same as Samsung, Barnes & Noble is reportedly planning to severely restrict the applications that will run on Nook Color. The idea is to keep the device focused as an e-reader rather than allowing it to become a general-purpose tablet.
It's unusual for a company to artificially restrict what you can do with a computing product, but there is a perverse logic to what Barnes & Noble is doing. If someone buys Nook Color as a tablet and doesn't buy any books or other content for it, Barnes & Noble will make less money. By restricting the apps, Barnes & Noble can chase away those lower-margin customers who aren't hardcore readers.
But I think that's a very short-sighted policy, for two reasons:
First, as a dedicated e-reader, Nook has important drawbacks. Its battery life is much shorter than an e-ink device, and it's a lot more expensive. If the apps are restricted, Nook Color is a tweener. It's inferior as an e-reader and as a tablet.
Second, B&N is missing a huge opportunity. It's not like they're losing money on Nook Color sales (the hardware cost is probably in the $150 range, or lower). As long as you're making some money per unit, I think it makes sense to grab as many customers as you can now, while you have a structural advantage in the market.
The ultimate payoff for an ebook distributor like B&N is to displace the publishers and start selling ebooks (and other content) directly to the public. To get to that goal, B&N should be trying to grow the e-reader installed base as quickly as possible. Instead of restricting Nook Color to people who already want ebooks, B&N should sell it to everyone and then entice them into becoming e-reading users.
Historically, some of the most successful computing products were sold first as single-purpose devices that then blossomed into multipurpose devices. PCs were first adopted in volume to run spreadsheets, and the first successful PDAs were sold as electronic calendars. Nook Color could be the e-reader that ate the tablet market.
And it's easy to do -- all B&N has to do is say yes to all types of third party apps. Get out of the way, and the customers will take care of the rest.
Senin, 08 November 2010
Paul Willen says self-amortizing mortgages were abundant before the 1930s
He sends me the following table:
It has long been "established" that self-amortizing mortgages were rare before the existence of the Home Owners Loan Corporation, whereas this source suggests they made up 40 percent of loan originations between 1925-1929. What this table doesn't tell us is how long the amortization period was. So the importance of the HOLC may have been the establishment of long-term self-amortizing mortgages.
I would love to get actual mortgage contracts with their terms from the 1920s.
It has long been "established" that self-amortizing mortgages were rare before the existence of the Home Owners Loan Corporation, whereas this source suggests they made up 40 percent of loan originations between 1925-1929. What this table doesn't tell us is how long the amortization period was. So the importance of the HOLC may have been the establishment of long-term self-amortizing mortgages.
I would love to get actual mortgage contracts with their terms from the 1920s.
A really nice paper on the Home Owners Loan Corporation
This morning I read a July 2010 NBER paper from Charles Courtemanche and Kenneth Snowden. The abstract:
Unfortunately, the paper is behind the NBER firewall, but if you belong to a subscribing university, you can get a link to a downloadable version sent to you.
The Home Owners’ Loan Corporation purchased more than a million delinquent mortgages from private lenders between 1933 and 1936 and refinanced the loans for the borrowers. Its primary goal was to break the cycle of foreclosure, forced property sales and decreases in home values that was affecting local housing markets throughout the nation. We find that HOLC loans were targeted at local (county-level) housing markets that had experienced severe distress and that the intervention increased 1940 median home values and homeownership rates, but not new home building.
Unfortunately, the paper is behind the NBER firewall, but if you belong to a subscribing university, you can get a link to a downloadable version sent to you.
Minggu, 07 November 2010
The change in time today reminds me of one of the many things I learned from William Cronon's Nature's Metropolis
Until the railroads came to prairie towns after the Civil War, each town set its clock using the sun. It was impossible to run railroads under such circumstances, and so railroads developed "standard time zones," for the United States. They became the standard well before they were codified into law.
Rabu, 03 November 2010
I comfort myself with the opening of Adam Smith's Theory of Moral Sentiments
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.
Senin, 01 November 2010
I have started a classical music blog
It is here:
http://richardsmusicblog.blogspot.com/
This is just fun for me--we will see how it works.
http://richardsmusicblog.blogspot.com/
This is just fun for me--we will see how it works.
Please make it stop
A friend of mine posts a query to my Facebook Wall:
The three terms in which GDP grew fastest: FDR III, FDR I and FDR II. Even if one removes III because of the special circumstance of World War II, he still gets the best two four year periods. Do people really want to argue the counterfactual? [BTW, #4 is Truman II, and # 5 is JFK-LBJ].
I was listening to an Economist this AM on the radio [who is] part of a group of Economists who believe FDR's policies prolonged the Depression, rather than helped it. This goes against everything I learned in my vast High School and Community College experience. What's the real deal, Green?Just to make sure, I calculated four year GDP growth by presidential term, going back to Hoover. I count as a term as the period from inauguration to inauguration, so 1929-1933, 1933-1937, etc.
The three terms in which GDP grew fastest: FDR III, FDR I and FDR II. Even if one removes III because of the special circumstance of World War II, he still gets the best two four year periods. Do people really want to argue the counterfactual? [BTW, #4 is Truman II, and # 5 is JFK-LBJ].
On the theme of personal responsibility
Investors in second (and third, fourth, fifth...) lien mortgages knew that they were subordinate to first liens. Such investors bet that the higher rates paid to such mortgages more than compensated for taking a first loss position. They bet wrong.
People in a position to know such things tell me that one of the impediments to private renegotiation of first lien mortgages is second lien mortgage investors. If there is a place we could use a reckoning, it would be a recognition that such liens have been wiped out.
People in a position to know such things tell me that one of the impediments to private renegotiation of first lien mortgages is second lien mortgage investors. If there is a place we could use a reckoning, it would be a recognition that such liens have been wiped out.
Should everyone get debt relief?
Paul Krugman in his column this morning argues that debt relief is crucial to economic recovery. I think he is basically right, but it is not clear to me to whom he would extend debt relief. If we don't draw any distinctions between those who actively put themselves in trouble and those who are victims of circumstances beyond their control, we will leave the whole concept of the responsibility to repay debt in tatters. Even if we don't care about the moral implications of this, we should care that if we do blanket discharges of debt, it will be much harder for consumers to obtain debt in the future.
With this is mind, we should probably draw distinctions among different types of borrowers. Here is a rough ranking of borrowers in some sort of difficulty from most to least culpable for their misfortunes:
(1) Those who committed fraud: for example, those who willfully overstated their income on a loan application.
(2) Speculators who put little or no money down on a house, and then walked the instant house prices fell.
(3) Borrowers who used cash-out refinances or second liens to buy stuff--vacations, televisions, boats, etc. Michael Lacour-Little estimates that about half of underwater borrowers in Southern California took equity out of their houses.
(4) Borrowers who used cash-out refinances or second liens to pay for education or health care. Am I drawing a distinction between (3) and (4)? Yes.
(5) Borrowers who had adequate income to repay their purchase money mortgage, did not take money out of their house, lost a job (or took a serious pay cut), and are underwater.
(6) Borrowers who are current on their mortgages and are underwater. People in buckets (5) and (6) may well be equally responsible; people in (6) may have just gotten a better draw.
As a policy matter, I cannot see providing debt relief to (1)-(3). While I agree with Krugman that we cannot let worries about moral hazard prevent us from engaging in all debt relief, we cannot just ignore moral hazard altogether. The tough part, from a policy perspective, is distinguishing between (3) and (4). I am not sure how we do that, but it is worth thinking about.
As for (5) and (6), at minimum we could allow such borrowers to refinance into today's low interest rates without any fuss: this would both lower payments and the present value of the mortgage, and hence reduce the amount by which people are under water on a mark-to-market basis.
If I had my druthers, people in (5) would be offered a debt equity swap, where the amount owed (the bond) would be reduced, but a large share of any future profit would be shared with the lender. The Wisconsin Foreclosure and Debt Relief Plan is also worth considering.
Those who were treated fraudulently by lenders (particularly those who had equity stripped via fees) are in another group altogether, and deserve relief. I am not sure what the correct policy lever is for delivering it.
With this is mind, we should probably draw distinctions among different types of borrowers. Here is a rough ranking of borrowers in some sort of difficulty from most to least culpable for their misfortunes:
(1) Those who committed fraud: for example, those who willfully overstated their income on a loan application.
(2) Speculators who put little or no money down on a house, and then walked the instant house prices fell.
(3) Borrowers who used cash-out refinances or second liens to buy stuff--vacations, televisions, boats, etc. Michael Lacour-Little estimates that about half of underwater borrowers in Southern California took equity out of their houses.
(4) Borrowers who used cash-out refinances or second liens to pay for education or health care. Am I drawing a distinction between (3) and (4)? Yes.
(5) Borrowers who had adequate income to repay their purchase money mortgage, did not take money out of their house, lost a job (or took a serious pay cut), and are underwater.
(6) Borrowers who are current on their mortgages and are underwater. People in buckets (5) and (6) may well be equally responsible; people in (6) may have just gotten a better draw.
As a policy matter, I cannot see providing debt relief to (1)-(3). While I agree with Krugman that we cannot let worries about moral hazard prevent us from engaging in all debt relief, we cannot just ignore moral hazard altogether. The tough part, from a policy perspective, is distinguishing between (3) and (4). I am not sure how we do that, but it is worth thinking about.
As for (5) and (6), at minimum we could allow such borrowers to refinance into today's low interest rates without any fuss: this would both lower payments and the present value of the mortgage, and hence reduce the amount by which people are under water on a mark-to-market basis.
If I had my druthers, people in (5) would be offered a debt equity swap, where the amount owed (the bond) would be reduced, but a large share of any future profit would be shared with the lender. The Wisconsin Foreclosure and Debt Relief Plan is also worth considering.
Those who were treated fraudulently by lenders (particularly those who had equity stripped via fees) are in another group altogether, and deserve relief. I am not sure what the correct policy lever is for delivering it.
Where is ‘marketing’ headed from ‘social marketing concept’? ‘Customer Life Growth Monitoring Concept’ seems to offer promise!
Where is ‘marketing’ headed from ‘social marketing concept’? ‘Customer Life Growth Monitoring Concept’ seems to offer promise!
A marketer who is interested in keeping with him his customer quite longer or for ever have till now traversed many stages- from production-orientation to sales-orientation to product-orientation to marketing-orientation to social marketing orientation. The evolution of marketer’s love and protective inclination for the customer extended further to the creation of life-time customer value and co-creation. These apart, the Porter’s value chain analysis has set out to explore all possibilities of giving the best service to the customer. What is the next marketing philosophy that can guide the marketer’s efforts? Is there any space left for further exploration by the marketing scholars?
What all the previous concepts fail to capture and can do further is: can the marketer monitor the growth ladder of the customer’s life and the corresponding upgrading of the customer to the next life stage in terms of what the marketer’s next product category can offer a customer. For example, an automobile company has sold its customer a scooter, which has later been replaced with a bike, which, in turn, later by an entry-level car, and later a medium-range car, and later, a luxury car.
The marketer’s main function of this philosophy is : take back the product first sold at its salvage value and give the upgraded version of product that new life stage of the customer requires, and later next cycle starts with a new product category as required by the growing customer. In the process, alongside of it, the customer’s network and their references are also brought into the marketer’s fold.
The main planks of the this concept are:
The customer is under eternal protective cover of the customer, which is an aggressive pursuit of customer’s life time value.
A customer’s life success growth graph is monitored for a very long period by the marketer by giving the customer’s product upgrades for ever.
His ramshackle clunkers are taken care of the marketer.
His network of relations are also tracked to bring them into the marketer’s fold.
Research scholars are challenged to take this further and establish its value for the marketer.
A marketer who is interested in keeping with him his customer quite longer or for ever have till now traversed many stages- from production-orientation to sales-orientation to product-orientation to marketing-orientation to social marketing orientation. The evolution of marketer’s love and protective inclination for the customer extended further to the creation of life-time customer value and co-creation. These apart, the Porter’s value chain analysis has set out to explore all possibilities of giving the best service to the customer. What is the next marketing philosophy that can guide the marketer’s efforts? Is there any space left for further exploration by the marketing scholars?
What all the previous concepts fail to capture and can do further is: can the marketer monitor the growth ladder of the customer’s life and the corresponding upgrading of the customer to the next life stage in terms of what the marketer’s next product category can offer a customer. For example, an automobile company has sold its customer a scooter, which has later been replaced with a bike, which, in turn, later by an entry-level car, and later a medium-range car, and later, a luxury car.
The marketer’s main function of this philosophy is : take back the product first sold at its salvage value and give the upgraded version of product that new life stage of the customer requires, and later next cycle starts with a new product category as required by the growing customer. In the process, alongside of it, the customer’s network and their references are also brought into the marketer’s fold.
The main planks of the this concept are:
The customer is under eternal protective cover of the customer, which is an aggressive pursuit of customer’s life time value.
A customer’s life success growth graph is monitored for a very long period by the marketer by giving the customer’s product upgrades for ever.
His ramshackle clunkers are taken care of the marketer.
His network of relations are also tracked to bring them into the marketer’s fold.
Research scholars are challenged to take this further and establish its value for the marketer.
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