Design lessons from the Nintendo Wii

"Every time we ship product to the market, whether it's in Japan or here in the U.S. or in Europe, it sells out in a matter of days.... If you see one, buy it. Don't assume that you can come back later and find one." --George Harrison, SVP of marketing and corporate communications, Nintendo of America, quoted by Reuters

For a marketing guy, Nirvana is when the world gives you permission to say something utterly outrageous, without anyone questioning it or even believing that it's marketing. Nintendo reached Nirvana two weeks ago.

Coincidentally, that's also when I wandered into the local Wal-Mart, on the off chance that they might have a Wii in stock. I had been looking for one for eight months, ever since my wife shocked me by telling me that she wanted a Wii for Christmas. (This from a woman who has traditionally had about as much interest in video games as I have in quilting. Her only explanation: "It looks like fun.")

Anyway, I walked into Wal-Mart, and sure enough, there was a single Wii box locked into the glass display case. Did I follow Mr. Harrison's "advice," and buy it on the spot? You bet I did, especially after the clerk told me someone else had called the store and tried to reserve my Wii. Tough luck, buddy. Wal-Mart doesn't do reservations. Try Toys-R-Us.

So I bring the Wii home, and now I find that I'm going through stages in my feelings about it, much like the Kubler-Ross model of the stages people go through when confronting grief (link). The stages of grief are denial, anger, bargaining, depression, and acceptance. The stages of Wii (so far) are delight, disgust, and anticipation. I have no idea what'll come next.

The delight stage was all about discovering the controller. There has been plenty written about the Wii's wireless, motion-sensing controllers, but until you actually play with them it's hard to understand how much fun they can be. I set up the system after everyone else was asleep, feeling that it was my responsibility to do some thorough testing that night, so there would be no risk of the family being disappointed if the system didn't work properly.

The first thing I tried was the Wii's tennis game, which was astonishingly easy, and fun. You just swing the "racket" at the right time, and you'll hit the ball. The controller has a vibrator in it, so you feel a little jump when you make contact. But the best feature is that there's a speaker in the controller too, so when you hit the ball you hear the familiar pock sound from your hand, rather than the television. I didn't notice the speaker when I set up the Wii. The first few times I hit the ball, I kept wondering how Nintento had manipulated the TV's stereo to make it seem like the sound was coming from my hand.

The tennis game's graphics are embarrassingly bad (it's like playing tennis against a salt shaker with a head on it), but the gameplay was so fluid and immediately rewarding that I didn't care.

Great new technology products give you a rush, a feeling of empowerment as you realize that you can now do things you simply couldn't do before. The first time I used a Macintosh was all about that. HyperCard was the same. And WordPress came pretty close. The Wii fits in that company because it opens up a whole new paradigm of gaming.

After testing the tennis game tennis thoroughly, my arm started to tighten up, so I decided to try some different games. That was when I entered the second phase of Wii discovery...

Complete disgust. There have been plenty of press reports about people accidentally throwing the Wii's controller through a window when they got too enthusiastic, but I may be the first person who almost did it intentionally. In contrast to the tennis game, some of the Wii's games are infuriatingly bad. The Wii's golf game is ridiculously difficult to control -- I couldn't even get my golfer to point in the right direction, let alone control a shot accurately. Fortunately, the game requires you to give up on a hole after 20 shots; otherwise, I might still be playing. Even a simple whack-a-mole simulation became an exercise in frustration as I tried in vain to position the hammer on the screen.

The common denominator of these games is bad use of the controller. The golf game has several modes, in which you choose direction for a shot, elevation, and so on. The controller's just not accurate enough to make it work. In Whack-a-Mole, the problem is that you're supposed to move the controller like the tip of a joystick -- forward, backward, left, right -- like the slider on a Ouija board. That's OK on a table, but when you're holding the controller in midair your arm gets tired really quickly. Human arms aren't designed to move like that on an ongoing basis.

The ironic thing is that those games actually work pretty well on a traditional joystick.

There's a lesson here about the strengths and weaknesses of integrated systems design. The controller on its own would not have been successful -- it's terrible for controlling traditional games. But the games on their own would also have failed -- bowling was one of the worst games on the Nintendo GameCube, but it's one of the best on the Wii. To get a breakthrough, you have to design the hardware and software together as an integrated system.

But that same integration also presents a lot of challenges to game designers. The Wii requires a thorough rethink of how a game is structured and what you can do with it. You can't just take an existing game, port it directly, and expect it to work well. At a minimum, the whole interface has to be rethought. But really what we should be doing is rethinking what sorts of things you can do in a game. What about a game in which you draw images on the screen using the controller, or conduct an orchestra? I don't know if either of those would be entertaining, but it's the sort of stuff we should be thinking about.

Which brings me to the third stage of Wii discovery...

Anticipation. I have one word for you: lightsaber. Like every boy who grew up watching the Star Wars movies, I've always had a secret desire to play with a lightsaber. Not one of those plastic things they sell at Toys-R-Us, I'm talking about a real lightsaber that makes that buzzing noise and can cut through steel like butter. I'm not sure what I'd use it for -- it seems a bit like overkill for tree pruning -- but I know I want one.

With the Wii, we finally have a device that can make it happen, at least in simulation. Supposedly there's a Lego Star Wars game on the way for the Wii, which will let you control your lightsaber directly. I am both impatient to get it and dreading it. The dread comes because this is a port of an existing game rather than a redesign. Some reports say you won't really have full control over your lightsaber (link).

The disappointment could be crushing, so I'll have to test it before I let the family try it. To protect them.

One thing's for sure -- if it works, my wife's not going to be wasting the Wii on tennis anymore.

What we're learning from Web apps, part 3: Breeding new types of media

The argument over the viability of Web 2.0 applications misses the point -- most of the applications on any new computing platform die. What matters are the innovations and new business models that we learn from them (link).

Last time in this series I discussed what we're learning from Web 2 about managing a community online (link). This time I want to talk about the role the Internet is playing in the creation of new forms of media.


Is the internet a new medium?

I should start with a definition of what a medium is. Webster calls it, "a channel or system of communication, information, or entertainment" (link). I want to build on that a little. To me, a medium is something that moves information and/or entertainment between people. Movies are a medium, newspapers are a medium, oil painting is a medium. So is the telephone call, when you think about it. Each medium has its own distinct usages, economic model, and audience.

A lot of people have written about the Internet and/or the Web as a new "medium." A quick online search will give you thousands of articles and weblog posts on the subject. But there's something funny about the articles -- although they all call the Internet a medium, they define that medium in many different ways. For example...

--The Internet is a medium for mixed-media communication.
--It's a medium for online music broadcasting.
--It's a medium for making politically-motivated attacks. (And an unregulated medium at that. Heaven forbid we should practice unregulated politics.)
--It's "a perfect medium for the sale of software and other digital products."
--It's a medium for interactive, moving content.
--It's a "new medium for business communication."
--It's "a medium of news dissemination."
--It's "a new medium for design."
--It's a new medium for video.
--It's a new medium for communication by individuals.
--It's a new medium for socializing.

I think that in reality the Internet is not a new medium for anything. It's a transport mechanism. It is to data what a road is to eighteen-wheel trucks. And the Web isn't a medium either; it's a set of protocols for accessing and delivering data. To abuse the road analogy, it's the warehouses and truck stops that load, unload, and service the trucks.


The Internet is a meta-medium

When we talk about the Internet as a medium, we're confusing the delivery mechanism with the goods being delivered. This is a crucial distinction, because if you think of the Internet as a medium you won't understand its real power. The Internet is a meta-medium. It's a medium for creating new types of media; a general-purpose mechanism that spews new media as quickly as people can think them up.

And spew it does. As I hope you know if you've been reading this weblog for a while, I am not a fan of hype and overblown predictions. But I think the evidence shows that the Internet is enabling an explosion of new forms of media at a faster rate than ever before in human history. I believe this is one of the most revolutionary effects of the Internet, but we're so close to it that we don't think about it much.


Freeing media from the distribution mechanism

In the past, each new form of media was generally tied to a unique distribution infrastructure, technology base, and economic model. For a new medium to arise, you generally had to create a whole new production and distribution mechanism for it. For example:

Novels required the development of the printing press, a distribution infrastructure consisting of publishers and bookstores, and an economic model in which the reader pays and revenue is shared with the publisher and distribution chain.

Radio serial drama required the invention and sale of millions of radios, the construction of studios and transmitters, the creation of production companies and networks, and an economic model in which advertisers paid for the programs.

Movies required not just the creation of motion picture cameras, but also studios to produce the films, modified theaters to show them, a distribution system to deliver the reels of film, and an economic model in which ticket revenue and in-theater food sales combined to pay for the whole thing.

The huge effort and investment involved in creating these distribution chains severely limited the growth of new forms of media. For example, it took about 20 years from the invention of television and movies until either of them reached broad commercial distribution.

In contrast, new media proliferate on the Internet as fast as people can visit new websites and install plug-ins. (Obviously, this applies only to media that can be distributed electronically. But that still covers a lot.)

This chart gives you an idea of how the pace of change has accelerated.


This chart was based in part on a fantastic media history here.

Some people would say that most of the Internet media types I listed on the right edge of the chart aren't actually new media; that they're just a tweak on existing media. For example, Henry Jenkins argued in a great article for MIT Technology Review that you have to differentiate between media, genres, and delivery technologies (link):

Recorded sound is a medium. Radio drama is a genre. CDs, MP3 files and eight-track cassettes are delivery technologies. Genres and delivery technologies come and go, but media persist as layers within an ever more complicated information and entertainment system.

I think he's right from the perspective of classifying things analytically, but if you follow that thinking religiously then it's almost impossible to create a new medium any more, unless smell-o-vision or machine telepathy comes along. I think in practical terms, you have a new medium as soon as you create a substantially different set of audience and business dynamics, because those are the changes that create meaningful new economic opportunities for creative people and businesses.

Here's the test: if you can't take material created for some other medium and replay it unchanged, then I think you've invented a new medium. CDs were not a new medium because they were created and sold in the same way, to the same people, as vinyl LPs. But radio drama was a new medium, because it had its own distinct audience and rules. You couldn't just take a stage play and turn it into a radio drama unmodified.

By this standard, the Internet is spawning new media forms faster than bunnies breed in Australia.

Of course, not all of these new types of media will be successful long-term. But it's exciting to see so much experimentation happening so quickly, and I believe it will have a profound effect on the ways we communicate and entertain ourselves in the years to come.


The revolution in front of you

Okay, so that's the theoretical foundation on what's happening. Let's discuss some examples -- three new forms of media we're creating, the rules and opportunities they create, and what comes next.


Online video

Oh, man. This one's so complex that you could write a book on it. The term "video" includes a huge variety of different things -- music videos, TV shows, animation, movies, video clips from amateurs, even commercials. Each one appears to have a different online audience and different financials.

Some of them have already run through a cycle of excitement and disappointment. For example, some people speak of an "internet animation era" that came and went at the start of the decade (you can read more about the expectations here). Usually the culprit for the disappointment is the failure to find a sustainable business model.

The hottest area in online video today is obviously short clips like the ones you see on YouTube. The ironic thing is that this form of video had virtually no traction prior to the Internet. Meanwhile, movies and TV shows -- which everyone predicted would move onto the Internet quickly -- don't have nearly as much momentum online.

Why YouTube is successful. Using YouTube is like eating potato chips ("crisps" if you live in the UK). When you're bored, it's great to browse short video clips looking for things that are funny or amazing or just plain weird. The brilliant aspects of YouTube (in my opinion) are that the video loads fast (can you imagine eating potato chips if you had to unwrap every chip individually?), and that the YouTube site links you to lots of other related videos, so it's easy to wander. If one video is boring, you're only moments away from something else.

This instant gratification factor turns the rules of traditional video on its head. In traditional video, quality and an immersive experience are king. To suck people into a television program or a movie, you use incredibly high quality images, editing, and sound. (If you want to know how important this is, look at all the enormous amounts of money the industry is spending to move to high-definition broadcasting and higher-capacity DVDs.)

That's why short online video is a different medium. Rather than immersion, the goal is instant gratification.

But how do you make money? The problem with short online video is that no one's sure how to make money from it. You pay to see a movie. You watch ads on television (well, you're supposed to, unless you use TiVo). Many companies are trying to attach commercials to online videos, but the result is often extraordinarily annoying to viewers.

That's not intuitive to the broadcast folks. Depending on what country you're in, to watch free TV you'll typically watch nine to 20 minutes of commercials in order to see an hour of programming (link). That's a ratio of between 15% and 30% commercials.

Apply that same ratio to a short online video, and you're watching a 30 second commercial to see a two minute video clip. Sounds reasonable, right? It's actually borderline intolerable to viewers because it breaks the instant gratification cycle. The whole idea is to beat boredom, not generate it.

Remember, this is a new medium. It has its own rules.

Maybe the answer will be very short ads, but no one knows what's short enough, and if those short ads will even work. Or maybe the answer is putting print ads on the website alongside the video. But unlike search, you don't know what topics a video viewer will be interested in, so it's much harder to target the ads. How will you individually track the demographics of people viewing more than six million separate YouTube clips? You'd basically have to build a database on the individual thoughts and behavior of every Internet user. That, I presume, is why YouTube was a good strategic investment for Google. It's also why I'm deeply skeptical about the high-profile efforts by entertainment companies to create sites competing with YouTube. Without Google's demographic and ad-targeting infrastructure, it will be hard for a competitor to monetize its videos.

And oh by the way, it's not clear that even Google can make this whole video thing work financially.

So let's classify short online video as an emerging medium: Proven audience, unproven economics.

Video in the mobile world. This is the current Flavor of the Month in the mobile data world. (Or maybe it was last month's flavor, and this month is GPS.) Anyway, there are a lot of people predicting that video is going to be very hot in the mobile space.

As was the case with PCs, you have to ask what sort of video you're talking about. The most intuitive use is short video. We know people use mobiles as boredom-busters, and short video is almost custom-made for that. But we run into the same economic problems as we have on PCs, only more so. It's not clear how many commercials people will tolerate in their mobile video.

Broadcast video, viewed on mobiles, is becoming popular in Asia. But by my standard that's not a new medium -- it's just building a television into your phone. And it bypasses the Internet, so it's not relevant to this discussion. (I recently wrote a long article on mobile video; if you missed it you can read it here.)


Virtual Reality as a Medium: Second Life

Most people think of Second Life as a game, or maybe a cult. But my Rubicon colleague Bruce La Fetra recently wrote an article (link) making the case that it's a new medium, and I believe he's right. Think about it. Here's the test of a new medium:

--Facilitates interaction between people. Second Life certainly does that.
--Has its own distinct audience. Double check. That's why some people look at Second Life as a cult.
--Has its own economic model. Triple check. This one even has its own currency.

A virtual meeting place. Second Life is so flexible that it's very hard to say what it'll turn into ultimately. It's already a meeting space for some people, and the upcoming addition of voice should improve that dramatically. Supposedly Cisco is providing pre-built avatars for employees, and a number of tech companies are using it for meetings (check out the slightly breathless but eye-opening article here).

Second Life is a tool for holding three-dimensional visual conversations...I know some people can't hold a serious business conversation without a pen and paper to draw with; Second Life is made for those people....One day, you'll be able to import sales data from an Oracle database, create a three-dimensional diagram of that data that changes in near-realtime, and hold a meeting of top corporate executives all over the world in Second Life to discuss the results. --Mitch Wagner

Prototyping the physical world. Another clear use for VR is allowing individuals and corporations to create interactive experiences for others. For example, as Bruce points out, hotels are starting to test lobby layouts using Second Life. Brands like GeekSquad are using Second Life to reach out to customers, giving them another way to engage (read more about it here).

Some of this commentary is so enthusiastic that it reminds me of the commentary we saw in the bubble period. Second Life is definitely a geek playground, but I'm not sure how many "normal" people will want to mess around in virtual reality. We won't know until we try.

Is it a business or a standard? The ultimate business model for Second Life is still up in the air. Land owners pay real dollars for virtual real estate and corporate avatars, giving Linden Lab a revenue stream. However, the company is in the process of open-sourcing its server code. This will make it possible for anyone to create their own "land" without paying Linden Lab, and dramatically increases the likelihood that Second Life's technology will become a generalized standard for virtual reality. That's very healthy for the medium, but leaves Linden Lab without an obvious business model. There's an interesting discussion here.

The process of moving from a captive platform to the base of an open ecosystem is incredibly tricky. I think Linden is right to do it, because otherwise an open standard for virtual reality would have eventually emerged, pushing Second Life completely out of the picture (think of what happened when AOL went up against the Internet). But now Linden will need to find some parts of that open ecosystem where it can provide valued services. I think managing the virtual currency is a good start, but I haven't been able to find any clear statement of what the company's long-term financial model will be; please post a comment if you find one.

So the status of Second Life is similar to that of online video: Definite audience, unclear financials.

Virtual reality and mobile. Virtual reality thrives on large screens and fast processors. I think it's probably safe to say that it'll be limited to PC-sized devices for a long time (at least until we get flexible screens and fuel cells powerful enough to drive high-end graphics processors in a mobile). Until that day, I wouldn't be investing heavily in creating a SecondLife client for Nokia S60.


Feeds

Actually, these are several new media that I have grouped together for convenience: Text feeds, audio feeds, and video feeds. Plus more types of feeds to come.

Different feed types have different audiences. Steve Olechowski of Feedburner gives a great speech summarizing the feed world and what's happening in it. One of the interesting tidbits he gives out is that different types of feeds tend to be dominated by different subjects. Text feeds most commonly focus on technology, while audio feeds are most often about music, social issues, and religion ("Godcasts"). So different forms of communication -- text vs. recorded speech -- attract different types of creators and audiences. I suspect that video feeds are going to be different yet again, although it's probably too early to judge today. You can hear one of Steve's speeches here.

The thing I like about feeds is that they're efficient. Rather than going to a website to read or listen, you can bring the content to you and access it on your terms. A lot of people use online feed readers like Feed Burner, but my favorite is Feed Blitz, which consolidates all your feeds into a single daily e-mail. That lets me scan about a hundred articles a day in a matter of minutes.

Text feed vs. weblogs. One problem with text feeds is that they take readers away from your weblog, meaning they won't see the ads. That creates a lot of concern for weblog authors who rely on advertising. So they do things like putting only article summaries in their feeds, or embedding ads in the feeds, neither of which are popular with feed users.

Olechowski argues that authors shouldn't worry -- that the people who read feeds are different from the people who read websites, so there's little cannibalism. He says that providing a full-text feed from your weblog actually increases visitors to the site, rather than reducing them.

He has an incentive to say that, since his business is distributing feeds. But I think he may also have a point. Let's use Mobile Opportunity as an example: About 80% of the readers coming directly here are referrals from other websites and web searches, not returning readers. I think the general pattern for readers is that they come here from a web search or other link, and if they like the content then they subscribe to the feed. That's why I put extensive introductory information and links to previous articles in the sidebar on the right side of the page. If a web search visitor is interested in the sort of things I write about, I want to make sure they can determine that quickly so they'll either bookmark the page or subscribe to the feed.

The feed readers never see the sidebar, but they don't need it because they know what I've written about before. People who read via feeds have a different set of special needs. Chances are they use a feed reader that consolidates a lot of different feeds, which they then skim quickly. That makes it very important to use self-explanatory headlines for articles, and clear sub-heads within each article so people can skim easily. Web links are a special problem -- because they're colored and underlined, they stand out from the text. But they're not usually the things you want people to skim, because they don't summarize the content. That's why I've started putting links at the ends of sentences, rather than embedding them in the flow of the sentence.

I'm not trying to make money from this site, but if I were, I'd have to think very hard about what sort of ads go on the web page vs. in the feed, and where they get placed.

The bottom line: you write a little differently for a feed than you do for a weblog, and the financial model is subtly different as well. So it's a slightly different medium.

Status of feeds: Text feeds are quite well established, and audio feeds took off rapidly once they were enabled on the iPod. The financial model (to the extent that there is one) appears to be advertising, but I haven't seen a good discussion of the economics of advertising within feeds (please post a comment if you know of one). Presumably Google's recent purchase of FeedBurner is intended to allow them to stream ads into feeds, so we'll probably see more activity there. The dynamics of other types of feeds (video, etc) are still to be determined.

Feeds and the mobile world. Feeds are a spectacular fit for the mobile world; actually a much better fit than browsing. In general browsing is something you do live, while feeds can be fetched in the background, cached on the device, and then read or listened to whenever the user wishes.

A text feed is also much easier to reformat for a small screen. In a lot of ways, it's designed to be reformatted.

If I were working on a mobile data device today, I'd push this feature very hard -- figure out who my target customers are and what feeds they'd be most likely to enjoy, cache the top ten our so automatically, and give a great discovery mechanism so people can easily find more. Feeds are a commodity in that you can get them for free, but easy navigation and discovery of feeds is potentially a very attractive area for innovation.

I know third party developers are already doing this; if I were at a mobile hardware company I'd be making it a standard feature in every device.


What comes next?

What other media are emerging? Many more new forms of media emerging than I've listed here. I'm very interested in your ideas -- what do you think are some others to watch, and what's special about them? One I'd love to investigate more is the rise of casual games -- quickie games, usually based on Flash. Games like this were very popular in the early days of personal computing, and they seem to be making a comeback on the web. You can find some nifty ones on sites like Kongregate (link; check out Fancy Pants).

The transcendent need for a billing mechanism. When I said that the Web is a tool for creating new media, I left out an important detail. It's three-quarters of the tool. We have a great delivery system, and Google is well on its way to dominating the advertising part of the financial model. What's missing is a standard mechanism for people to pay for content that's not supported by advertising. Some types of content work fine with ads, but I think some other types are better when paid for. Novels, short stories, music, and research reports all qualify. Creators and readers would both benefit from a system in which people could easily pay a few dimes or a few dollars directly to the author, but today we generally have to fumble with credit cards and awkward systems like PayPal. And credit card vendors strongly discourage small payments.

Minipayments vs. micropayments. The Web community chewed over this issue and spat it out several years ago. They believe that micropayments are dead, and the subject is closed. You can find examples here and here and here and here. Wikipedia has a nicely balanced discussion of the debate here.

This is one of those cases where the groupthink tendency of the tech industry is a liability. It reminds me of MP3 players before the iPod -- a lot of people have tried something, nobody's gotten it right yet, and therefore it must be impossible. It'll continue to be impossible up until someone does it right, at which time everyone will suddenly agree that it was inevitable.

(Quick aside: Whenever everyone in the tech industry agrees on something, bet against them. A perfect consensus is a sign that healthy questioning has ceased, and there's bound to be a blind spot.)

In this case, I think the blind spot was that people predicted the wrong role and features for micropayments. Some people made it a payment vs. advertising debate (link). It's not -- some types of media are good for advertising, some good for payment. We need both, with a creative tension between them.

Another problem is that some of the advocates of micropayments envisioned a very fine-grained payment system, in which people would pay hundredths of cents for all sorts of content, like the way natural gas or water is metered. That sounded logical, but it didn't work in practice because gas and water are predictable commodities; you don't mind metering because you know exactly what you'll get. You don't know how good a website will be until you've visited it, by which point you have already paid if you're metering. We need larger payments for content that people can preview and read reviews about before they pay. Apple has proved decisively that on the wired Internet a payment system that charges about a buck for discrete chunks of content can indeed succeed.

Call it minipayments.

We desperately need a generalized minipayment system for content on the web. Because people have to trust it, it needs to come from a major vendor, and it should be exposed to developers as a web service so it can grow rapidly. Ideally, it should be tied to a lot of existing content with an easy discovery mechanism (again, like iTunes). Yahoo would be the perfect company to provide this service. Microsoft could do it too. Unfortunately, a lot of companies are focusing a huge amount of their energy on the almost hopeless task of beating Google in search advertising, when the better opportunity is owning a different piece of the infrastructure, one that doesn't have a dominant vendor yet.

Other companies that could do it include Amazon, Apple, eBay, and even Linden Lab. Google could do it too, of course, but it appears to be more interested in stealing PayPal's customers than in building something new.

I'd put this service on the list of computing products I want desperately, right after the info pad. Somebody's going to do it eventually. When they do they'll get a great business franchise, and the explosion of new media on the Web will accelerate even further.

I can't wait.

Next time: The Web as a software development platform.

Why is Apple porting its browser to Windows? To take over the world, of course.

There are so many interesting things going on in the industry that it's frustrating, because I don't have time to write about them all.

Jerry Yang is now in charge at Yahoo, which in my opinion means a lot because a founder is often much more willing to revisit old assumptions and make radical changes than is someone who came in after the fact. (I know the stereotype is that founders resist change, but I've found that the exact opposite is often true, especially if the founder is moving up after spending time lower in the management chain.)

Google bought Grand Central, which underlines their interest in providing client software for mobile phones. It's a significant change for Google because up to now they have focused mostly on providing mobile versions of their existing web apps, like Maps. Grand Central is different; it's a call management system that embeds Google deeply in the life of a mobile user. It implies a much tighter relationship between Google and the user than most other Google products, and it's not something that you can easily monetize through advertising -- which makes me wonder whether Google is planning to run it standalone or integrate it into something bigger.

But the strangest recent development was Apple's decision to port its Safari web browser to Windows.

It is not easy to port a browser to a new platform. There's a huge amount of programming involved -- to do the actual port, to debug it, and to maintain and upgrade the code as people identify small incompatibilities and ask for new features. I lived through PalmSource's effort to get a good browser for Palm OS, and talked with the Be veterans about their browser work. The quick summary: it's a huge pain in the butt.

What's Apple hoping to get? The engineers at Apple who are spending their time on Safari for Windows could be creating new features for the iPhone, or helping to finish the next version of Mac OS X. Although Apple is rich enough to hire a lot of engineers, the supply of really good ones is limited, so Apple's definitely paying a price to do the port. And for what? To get people to use an alternate browser, you have to give it away for free. So there's no immediate benefit to doing the port.

A lot of Apple enthusiast sites have asked what's going on, but I'm not persuaded by most of the answers they came up with. For example, a site called Apple Matters gave four possible motivations: for bragging rights, to show Windows users what it's like to use a Mac, to give iPhone website developers a tool to test their sites, and to get revenue from search referrals to Yahoo and Google (link).

Apple Matters seems like a very good site, and to give them credit, even they were skeptical about some of the possible explanations. None of them work for me. Apple doesn't need more bragging rights, a browser is a very awkward way to show off the Mac UI, iPhone developers can buy an iPhone to test their sites, and the search referral fees from Yahoo and Google can't be all that big or everyone would be writing browsers.

I think the motivation runs deeper. It turns out that Apple didn't just port the browser to Windows; it ported the browser, the underlying Web rendering engine, and the Mac OS X programming frameworks that the browser relies on. In other words, Apple ported an entire OS layer onto Windows, and the browser is riding on top of that (link).

Now that's interesting. Apple is backing into the cross-platform OS layer business. Maybe the OS layer is just a convenient way to do the browser port. Or maybe the browser is just a trojan horse to get the OS layer on a lot more systems.

Add to this situation Apple's other recent strange announcement -- that it's "enabling" iPhone applications development by supporting Ajax web software on the iPhone. The problem with Ajax/Web2 applications is that they rely on a constant network connection in order to work. They're just thin clients to a server on the Web. Considering the iPhone's lack of true 3G connection speed, and AT&T/Cingular's well-documented data coverage limitations, Ajax-style development is about the worst thing you could do on the iPhone. What the developers wanted was the ability to create native Mac OS X applications, and Apple blew them off.

Why piss off the developers, and why put such a huge handicap on people supporting your critical new product?

Maybe the iPhone is so screwed up internally that it can't support third party apps. Sure, and maybe Apple wants to port Safari to Windows just for ego.

If you want a single idea that explains both actions, it's this: Apple realizes that in the long term, the development platform that matters is not the OS on the hardware, but the software layer that the web apps run on (I believe that; you can read more here). Apple realizes that this layer will eventually become good enough to displace native personal computer apps. Web apps then become both an opportunity and a challenge for Apple. The opportunity is that they're a way to take down Microsoft. The challenge is that the same process that obsoletes Windows obsoletes other PC operating systems, including Mac OS.

This makes it vital for Apple to create its own Web apps layer, so it can control its own destiny and increase its power. That goal would be so important that Apple would be willing to handicap iPhone apps development in the short term in order to make developers focus on the web apps platform in the long term.

If that's Apple's thinking, then the next thing to watch for will be Apple gradually adding more features to its OS layer, in the guise of browser APIs and feature enhancements. Those features will be deployed at the same time on the Mac, the iPhone, and Windows Safari. And Apple will start evangelizing web app developers to use them.

The war to come. This could set up a brutal competition in software layers, between Adobe Apollo, Microsoft Silverlight, Sun's revised Java, Firefox's platform, and Apple. Google fits in there somewhere as well, but it's not clear if they'll try to create their own platform or work with several other players.

I think this is where the most interesting action's going to be in applications development in the next few years. Stay tuned.

Mobile video: Is there a there there?

[Reposted due to a correction. Sorry if you get this twice on your feed.]

I recently I spent a couple of days at the Global Mobility Roundtable, an annual conference that brings together mobile-related academics and a selection of people from the mobile industry. This year's conference was in Los Angeles, so it also drew a number of attendees and speakers from the major entertainment firms. It turned into a kind of a mobile meets entertainment event, and the results were interesting. Mostly, they underlined how far we still need to go in bridging the gaps between the tech industry, mobile, and entertainment.

There's a lot of information to cover, so I'm breaking this post into two parts: mobile video in this part, and in part two the status of mobile data in general and the relationship between Hollywood and the operators.


Is there a pony in the stable? If so, it's a very small pony.*

There was a lot of disagreement about whether mobile video will take off, which may be just as well because the economics of it are seriously dodgy. It's not certain that users really want it, no one knows whether the revenue will come from sponsors or from user fees, and even if video does take off, it's not at all clear that the mobile operators can deliver it without bankrupting themselves.

Other than that, the prospects look great.

One panelist compared the situation in mobile video to a company running a health club: they want to sell a lot of memberships, but they don't want anyone to actually use the facility.

The information below is drawn from a series of different sessions I attended. I've mashed them together so I could organize the information by topic. All quotes are as accurate as I could make them. They are definitely correct as to message, but I probably missed a few words here and there.


Who wants mobile video? A segment of the market.

There are plenty of people in the industry who are enthusiastic about mobile video. One presenter quoted Rob Hyatt, executive director of mobile content at Cingular, as saying, "Watching video on cell phones could eventually easily surpass [demand for games, ringtones, and wallpapers], to reach 100% of the population." That's pretty remarkable, since even SMS doesn't reach 100% of the mobile population yet. (You can find the original quote from BusinessWeek here).

Telephia, a mobile industry research firm, reported that revenue from mobile video is growing rapidly, from $35m in Q3 2006 to $146m in Q1 2007. In that same period, the number of mobile subscribers in the US using video services grew from 5.7 million to 8.4 million (for comparison, there are 77 million MMS users and 148 million SMS users). The Telephia numbers imply that revenue per video user has grown from $2 per month to $5.80. Unfortunately, they didn't give any details on which particular services are growing.

The base is still very small, so it's dangerous to extrapolate from those numbers. But they're definitely hopeful. A number of other speakers were much less optimistic, though.

At the conference, USC presented the results of the sixth annual Worldwide Mobile Data Services study. It showed that about 30% of 18-24 year olds and 20% of 25-34 year olds in the US felt that video downloads to mobiles were an important feature, about the same percentage as wanted games on their mobiles. That's nice, but not the universal usage that Cingular talked about.

Sanjay Pothen, CEO of Pliq (a mobile video production company), claimed that 44% of mobile users are interested in mobile video -- but only 4% are willing to pay for it. That's the typical pattern for mobile data features -- most people don't want them if they have to pay anything for them.

Frank Chindamo, CEO of Fun Little Movies, which produces short video for Sprint, asked the audience how many people in the audience had Sprint phones. About five people raised their hands. "If you all subscribe, that will double our revenue for next month," he joked. [For the record, Frank asked me to make clear that he was only joking; he says he's actually quite happy with the Sprint relationship.]

Is the glass half full or half empty? As I've said before, I think there's abundant evidence that the market for all mobile data products is highly segmented, and we need to learn to make money from products that appeal to ten or fifteen percent of the users. I heard nothing at the conference to change that view.

But overall demand for mobile video is just the beginning of the story...


What sort of video will people watch on mobiles?

This one is still very much undecided. The usual assumption is that because short video is popular on the Web, it'll also be popular on mobiles. For example, Funny Little Movies is creating original short animated films for mobiles. (The place is run by a USC film professor who has his students create a lot of the content.)

Pothen of Pliq said the ideal sort of video for mobile is neither short individual clips (like YouTube) or long-form video (like a TV show), but chunked content -- an engaging story told in two-minute segments. He said excerpts from reality shows can work well -- highlights from America Idol, for instance. But original content seems to be his main target: soap operas, telenovelas, and cooking for young women, comedies and dramas for young men. The goal is to get people hooked by an ongoing story so they'll keep coming back to watch every segment.

Derek Brose, SVP of business development for Paramount Digital, was also excited about short video. He said the company is cutting all its movies into clips of different lengths, for various mobile usages. Two second clips -- something like Harrison Ford saying, "trust me" -- are for embedding in an MMS message. Twenty second clips are for use in ringtones. Two minute clips are for streaming your favorite scene from a movie. Paramount's goal is to teach consumers a variety of different things that they can do with mobile video.

But some people were skeptical about the prospects for short video on mobiles. Bill Sanders, VP of mobile programming at Sony Pictures, said that in Japan people are watching broadcast TV shows on their mobiles rather than short video streamed over 3G. He said 3G in Japan is great for certain kinds of applications, such as e-wallet. But he said data is priced so high that streaming video barely exists on 3G at all.

"The only thing you find in 3G is porn, because it's the only form of video where people will pay $10 for three minutes of content." --Bill Sanders, Sony

USC's mobile survey also strongly implied that the biggest demand is for broadcast TV. More than 40% of users said they thought that was the most interesting type of video for a mobile, compared to about 20% for short video.

David Tilson of Case Western University supported that view. He said that in a UK test of DVB-H (a broadcast video standard for mobiles), users watched three hours a week of television on their mobiles, with viewing concentrated in the lunch break and commute hours. That's very intriguing, because it implies that mobile video might add new television viewers at times when people don't usually watch TV. Unfortunately, the users were not charged anything in the test, so it's very hard to tell how much usage mobile TV would get if operators started charging for it.

I have no clue what the answer is on this question. People may say they prefer broadcast television just because that's what they're used to. Their actual purchase behavior might be very different. I think price will make a huge difference in adoption, which brings us to the next subject...


Who will pay for mobile video?

You've got two choices -- users pay, or advertisers pay. There are good arguments on both sides.

Sanjay Pothen of Pliq made an interesting case for having the advertisers pay. Since his company is involved in that business, his argument was not a surprise, but it was still interesting.

Pothen claims that neither paid nor ad-supported video are taking off today in the mobile world. As I noted above, he said few users are willing to pay for video, which stops the user-funded scenario right there. But ad-supported video is also problematic on both PCs and mobiles because users are not very tolerant of watching even a short commercial in order to see a two minute video. So what Pliq does is build the sponsor into the video itself, through placement and other promotion within the video.

Pothen said advertisers are willing to pay significant sponsorship fees for these videos. He wouldn't go into details on his financials, but someone I talked to privately said the revenue can be dollars per viewer for a three-minute video. That's impressive, and far more than you could charge a viewer for a few minutes of video.

Unfortunately, Pothen said, the operators want to take 50% of the revenue from these videos. He said that's not acceptable, that the revenue split should be more like 20% of revenue to the operator. "If we work in collaboration and the walled garden is down, we're willing to create original content (for mobiles)....We can drive mass adoption." But he said that won't happen in the current revenue situation.

My take: I don't think it has to be one or the other. Apple's selling a lot of video downloads to iPods, and that won't just dry up. But I think it's going to be very hard to make paid downloads the leading mobile video product, because they'll be competing with free video from places like YouTube, and because ad-supported TV teaches people to expect their television for free. Besides, if advertisers really are willing to pay dollars per viewer, there's no need to make people pay.

The revenue split is an ongoing problem in every mobile data category. There's no immediate solution, at least in the US. I think we're stuck in a chicken and egg situation in which the revenue split discourages the kind of programming investment that might drive a lot of usage, thereby justifying a more generous split.

That may be just as well, though, because video might break the mobile networks if it did take off.


Can mobile video be delivered?

This was the most disturbing topic of all. Even if we can find the right users, the right product, and the right pricing scheme, most of today's 3G networks are not well suited to delivering video.

Tilson of Case Western quoted some very sobering statistics on the economics of mobile video. He said one megabyte of data delivered as SMS messages yields £268 of revenue to an operator in the UK. That same megabyte delivered as video yields 20 pence of revenue, roughly 1/1000 the revenue. Of course, a single user of video is much more likely to consume a meg of data than is an SMS user, so the billing per user might still be fairly good. But video quickly exceeds the capacity of a typical 3G data network. He said no more than six viewers per cell can watch video at one time, and if 40% of users on a typical 3G system watched six minutes of video a day, they would saturate the entire network.

Hardly the basis for achieving Cingular's dream of 100% viewership.

Some of the operators at the conference confirmed this perspective. Francois Thenoz, Director of Strategic Marketing at Orange, said it takes seven minutes to download a 60-90 second video clip on a standard 3G network. 3G "evolved" takes 90 seconds (so you can just about stream in real time). The CDMA 1X network I use to connect my notebook PC is a lot faster, but GSM is the standard for most of the world, so his point was that in most places the wireless network simply isn't ready for video.

Higher-capacity networks are in development, of course. But Tilson said that in the UK, spectrum for a DVB-H wireless video system won't be available until 2102 at the earliest. That implies that for the next five years, mobile video in the UK is more of a science experiment than a serious commercial project.

In the US, the functional equivalent of DVB-H is MediaFlo, which is already deployed in Verizon's VCast system. MediaFlo transmits video one way, using a separate wireless signal, so it gets around the network saturation problems you get in 3G. Similar systems are already being used in Japan and Korea, and reportedly account for most of the mobile video usage there.

A drawback of the broadcast technologies is that they're not streamed on demand. You watch whatever's been programmed at that time. It's like a cable television system, but with far fewer channels. Tilson said one driver of mobile video usage is the availability of a lot of different programming, so limits on the number of channels might eventually restrict usage.

The other challenge for broadcast systems like MediaFlo is that they compete with people using SlingBox or similar products to retransmit their home cable television signals to their mobile devices. "Why get HBO Mobile when you can already get HBO home slinged to your phone?" asked Sanders of Sony. He pointed out that the Three network in the UK is bundling Sling services with its flat-rate 3G service offering.

"Three is like an airline that just bought a bunch of 777s and now they're flying with a bunch of empty seats," replied Brose of Paramount. He claimed that Three has to be betting that video usage will grow slowly enough that faster data networks will be available before the usage of video saturates the network.


The "encoding nightmare"

Then there's the question of standards. Unlike the PC, there aren't one or two video standards for mobiles. Because of the huge array of different screen sizes and software environments, a company that wants to stream video to mobiles supposedly needs to encode it in up to 150 different formats (seriously, that's the figure I was given by a couple of people). An executive I talked to called this the "encoding nightmare." Some companies are starting to offer server appliances that encode the video in real-time from one or a few base formats. But this adds expense to the business model, and real-time encoding is not as high-quality as pre-encoded video, especially if you're trying to compress the video heavily -- which is exactly what operators need to do in order to conserve bandwidth.


What does it all mean?

I think there's a role for mobile video, but considering the limits on user interest, and the huge technical and business challenges, it's not going to be the great horizontal application that drives the mobile data market. At best, it'll be a nice add-on for entertainment-focused users who want video in addition to their MP3s and games.

_______________
*This is a reference to an old joke about a boy who desperately wanted a pony. One day he saw a stable stall full of manure, and began furiously shoveling it out. "What are you doing?" his parents asked. "Well," the boy replied, "with all this manure, I figure there has to be a pony in here somewhere."

Good deal: Palm's new ownership

Several people have asked what I thought of the recent change in ownership at Palm. I don't have any inside information, so all I can do is speculate like everyone else, and try to apply the lessons I've learned from working at other companies.

Overall, I'm very happy for the folks at Palm, and cautiously hopeful about what this might mean for the company's prospects. I think this outcome is a lot more encouraging than any of the buyout rumors that were floated in the last few months. Palm's new part-owners clearly understand the value of systems design, which is Palm's biggest potential advantage in the market. I think we really need another great systems company to challenge Apple, and I would love to see Palm step up to that task.

Although a purchase by a Motorola or Nokia would have been very entertaining from a soap opera perspective, they don't really understand systems design, and it's very likely that they would have digested Palm without a trace. I'm reminded of a joke we used to tell at Apple in the 1990s when there were rumors that IBM would buy the company:

Q: "What do you get when you combine Apple and IBM?"
A: "IBM."

The other buyout option what was circulating, a full purchase by private capital, would have left the company independent, but with a load of debt that might have been crippling. Hardware companies must have a big reserve of cash to fund inventory and tide them over if they launch an unsuccessful product. I don't pretend to understand all the terms of the Elevation deal (they're wickedly complex), but from my perspective it looks like the financials aren't crippling. I am a little worried about Palm's cash levels, though; a lot of their current cash is going into the stockholder payout.

A couple of other thoughts on the impact of the deal:

Bye-bye 3Com. Palm gets three very well respected people for its board, and removes Eric Benhamou, the last vestige of the 3Com legacy. Somewhere I have a photo of the Palm and PalmSource combined management teams from just before the two companies were separated. The photo includes everyone in the company from Mr. Benhamou down to senior directors. That was about 30+ people. Every single one of them is now gone. So if you didn't like Palm's management back then, you should take another look at the company because it's now 100% different.

Irresponsible speculation about politics. After a change like this, the standard sport in Silicon Valley is to speculate about what it means for the job status of the people involved. In that vein, the thing to ask is, "Who's running Palm in the long run?" The weirdest part of the whole Elevation deal is the arrival of Jon Rubinstein as both Chairman of the Board of Palm and head of product development. As Chairman, Jon is technically the boss of Palm CEO Ed Colligan. As head of product development, Jon technically reports to Ed. So Jon is kind of his own second-level manager.

That feels...unstable.

Palm seems to now have a surplus of product leaders. Jon is in charge of product development, Jeff Hawkins is the designated product visionary, and marketing SVP Brodie Keast is supposed to control the product road map, according to the press release Palm issued when he was hired. It's hard to picture a car with three steering wheels. Who will really be in charge? In the conference call Palm said that Jon would be the execution guy and Jeff the visionary. "The combination of those two guys is one of the most dynamic... combinations on the planet." Maybe. Any organization structure can work if the people involved get along well, and I presume they would not have made this arrangement unless they were all comfortable they could work together. So good for them and best wishes.

But if you want to be a cynic, you'd speculate that Jon probably didn't leave Apple just to be the head of engineering execution at a much smaller company. You wonder if the current situation is just a stage in a longer-term changing of the guards at Palm. I don't have any evidence that's the case, and I am not trying to start any rumors. But when you see a nonstandard reporting structure like this, it usually triggers speculation that another shoe is going to drop later.

Only time will tell.

What's the effect on products? That's the most important question, and it's impossible to answer at this time. Hardware product development usually takes 18-24 months, so the earliest Jon could change the Palm road map would be very late 2008. But that's the middle of the Christmas selling season, and you can't announce products then. So realistically, the Rubinstein product era doesn't start until spring 2009.

In the meantime, there's a lot he can do to make the development of the currently-planned products be more efficient and predictable. Palm has said publicly on numerous occasions that its on-time product delivery needs to improve, and presumably Jon can help with that.

But personally, I think Palm's bigger problem has been its lack of innovative new product designs. Unless Palm has a bunch of surprise products already in development, it will take quite a while to turn around the product road map.

_____________________

Thanks to Twofones for including last week's post on the Palm Foleo in the latest Carnival of the Mobilists (link).

Palm Foleo: It's a PC, dummy

Wow, what an interesting day this was in the mobile and web world:

--Apple hinted that it will allow third party developers to add applications to the iPhone, potentially overcoming one of the device's biggest shortcomings (link).

--Google announced Gears, an open source project to enable web apps to work offline -- injecting Google into the growing effort to make PC operating systems irrelevant, and linking Google with Adobe (link).

--Livescribe previewed its pen computing device, the latest in a long series of efforts to turn Anoto's pen sensing technology into a commercially viable product (Livescribe link, Anoto background).

And oh yeah, Palm finally announced Jeff Hawkins' secret project, the Foleo.

A lot of the online commentary on the Foleo hasn't been enthusiastic. Engadget called it the "Foolio" (link). Ars Technica's article was headlined, "Palm officially out of ideas, debuts 1990s palmtop concept" (link). The discussion on the Palm Entrepreneurs Forum (an e-mail list for Palm application developers) was more balanced between admirers and detractors, but even there a lot of people were very lukewarm.

I think a lot of this is Palm's fault. They're trying to position the Foleo as a "mobile companion,"* a device that smartphone users can carry with them when they need a keyboard and bigger screen. In other words, it's for a small subset of the smartphone market, which itself is a small subset of the phone market. A niche inside a niche. The Stowaway keyboard folks should worry.

But I don't think the Foleo really is a "mobile companion." Back when I started to work at Palm (before the turn of the century) one of the old veterans of the company pulled me aside and passed along a little wisdom. "Michael," he told me, "Ya gotta think in terms of real estate. If you're in another device's real estate, you're competing with that device. Palm lives in your pocket; it competes with other things that go in your pocket. If you get bigger than the pocket, you're living in the briefcase, and you're competing with the notebook computer."

Foleo lives in the briefcase. It's displacing the notebook computer from your bag. I don't care what they call it, I don't care if Palm fully realizes it yet, but the fact is that Foleo's a notebook computer.

More to the point, Foleo is the most significant new consumer PC platform introduced in the US since the Macintosh. All you Linux heads who have been asking for a true consumer Linux PC, you finally got your wish.

Wow. That's kind of cool. It may be crazy, but it's a craziness I like. Palm has reimagined the PC for the wireless Internet era, simplifying and stripping away everything they thought was no longer necessary. So since most people carry a phone, you use the phone as your wireless modem. The device also has no hard drive. Since everything is stored in flash RAM, you never actually shut it down -- you just turn off the power, and when you turn it on again all your data and apps are still there, waiting for you. This is normal in a handheld, but it's long overdue in a PC.

"Desktops and laptops were too large, expensive, complex. You're not going to build billions of these complex machines, you build mobile computers....But it became clear the smartphone wasn't going to fill that role....You need a full size screen and keyboard." --Jeff Hawkins, quoted in Engadget

How well will the Foleo sell?

I don't know. It's not the product I would have built (my long wait for an info pad continues). The most successful mobile devices in the last decade have been specialized products that solve one problem for one type of customer -- iPod plays music for entertainment hounds, GameBoy plays games, BlackBerry does e-mail, Palm Pilot does your calendar, etc. The Foleo flies in the face of that. Although Palm talked a lot about e-mail today, the device also has a browser built in, and clearly has ambitions to be a general-purpose computer. I think we should judge Foleo on those terms, not by measuring it against other products we all imagined or wanted. Here are a couple of quick thoughts, and I'll probably post more in a few days after I've had more time to think about it...

Palm can now succeed even if Treo fails. Palm implied that the Foleo will be able to work with any smartphone, not just the Treo. This potentially gives Palm a larger market, and also sidesteps the operators, since Foleo can be sold through consumer electronics stores. Palm execs have been very public in saying that they are happier selling through retail rather than through operators, so today they must feel a little bit liberated.

Beware the Windows CE factor. I have seen many products very similar to Foleo fail over the years, and that worries me a lot. For years Microsoft and the Windows CE hardware companies produced a series of sub-notebooks that looked eerily like the Foleo. Like Foleo, you were supposed to use them to do light browsing and e-mail. They all died quickly, mostly because they looked so much like Windows that people expected them to run Windows apps. When people didn't get the full Windows experience, there was an immediate backlash.

Foleo's a little different because it doesn't pretend to be any flavor of Windows. But the hardware design looks an awful lot like a Windows PC, and that's going to create the wrong impression. Maybe Foleo looks nicer in person, but in the photos it looks like an anonymous gray box, disturbingly like a Dell subnotebook. It doesn't seem to have the lust-inducing look of the Treo 600, let alone the Palm V. I wish they'd made the case more distinctive, or at least a different color, because then people might expect different things from it.

Success probably depends on the apps. Like other PCs, Foleo doesn't do all that much out of the box. It apparently comes with Documents to Go (a well respected suite of Office apps, ported from Palm OS), an e-mail client, and a browser. That's all nice, but it's definitely not enough to make me put down my notebook computer. I think Foleo will eventually live or die based on whether it attracts a lot of third party applications that do interesting things you can't do with a notebook PC.

Palm has been evangelizing a number of developers to create apps for Foleo, but for some strange reason it excluded them from the Foleo announcement today. Instead, the announcements are going to be dribbled out one by one over the next few weeks and months. I presume the idea was that they'd create a sense of momentum, but I think instead what Palm did is make today's announcement less impactful than it could have been.

That means we haven't heard the full Foleo announcement yet. There's more to come from the third parties. We won't be able to really judge the device until we see the totality of what it'll do at launch.

My bottom line, based on what I know today: As a standalone mobile data device, the Foleo is uninspiring. As a potential challenger to the notebook PC, I want to believe, but the proof will be in the third party apps.

_______________

*By the way, the term "mobile companion" is perilously close to "PC Companion," one of Microsoft's early terms for Windows CE devices. The phrase gives me hives, but I think that's just me.

Nokia, the computer company?

Ten years from now, Nokia's going to be the subject of an interesting business case study. It'll either be the stirring story of a company at the height of its power that had the courage to challenge its deepest beliefs. Or it'll be the cautionary tale of a company that had it all and blew it.

Nokia says it's planning for what comes after the mobile phone.

I've heard this from Nokia before, but I always used to think it was posturing. Companies say that sort of thing all the time -- "we're looking for the next big growth driver" or something like that, meaning they plan to keep doing all the same stuff they do today but also desperately hope they can grow another line of business alongside it. That's typical in business; you try to have your cake and eat it too.

But after hearing several senior Nokia people repeat the message over the last couple of months, I've started to believe they're saying something different. Don't get me wrong, I'm not trying to say they are about to abandon mobile phones. But I think they sincerely believe that business won't last forever, and they're starting to lay the groundwork for what will replace it.

The message really hit home last month, when I heard it from Nokia CTO Tero Ojanpera and Bob Iannucci, head of Nokia Research Center, at a Nokia strategy briefing in Silicon Valley. Iannucci pointed out that Nokia started as a paper mill and has a history of completely changing its industry from time to time -- from rubber boots to monitors to mobile phones. He said it is once again "a company in transition to the next phase." That next phase is mobile computing.

Not smartphones, not converged devices, but full-on mobile computers intended to replace both PCs and mobile phones. Nokia says it expects these devices to eventually sell in the billions of units, and to become the world's dominant means of accessing the Internet.

Even though these future devices will still be mobile, if you take all of Nokia's statements at face value the changes from mobile phones will be so extensive that it's fair to call it a new business.

The fact that Nokia's even talking about this is a remarkable change. Five years ago, Microsoft was charging hard in mobile and the big topic of discussion was how could a company like Nokia possibly defend itself. Now Nokia's talking about how it will put the PC industry out to pasture, and oh by the way take over the Internet as well.

Although the goal is almost insanely ambitious, I can't say that Nokia is wrong to try. Mobile phones are gradually becoming a commodity. The biggest unit growth is in low-end phones, a strength for Nokia because of its volumes and efficiencies. But even Nokia managers will tell you that creating low-end products in a saturating market is not a fun business. It certainly won't produce the sort of growth and margins that investors expect.

Nokia's not predicting the instant death of the mobile phone business. It's a very large and divisionalized company, and I'm sure big chunks of Nokia are hell-bent on staying a mobile phone company forever. But it sounds like the senior management feels the mobile phone business is becoming uninteresting, and they want to get started on the next thing before the current business rides off into a long Nordic sunset.


The hard part is implementing

Becoming a mobile computing company is a lot harder than talking about it. The mobile phone world is based on managed competition, in which operators, handset vendors, and governments create shared standards even as they compete. It's a closed circle in which new features flow down from the top like molasses running down a cake of ice, driven by fiat from the leading vendors.

The computing world is much more Darwinian. Barriers to entry are lower, and innovation often flows up from the smallest players. Companies compete in something that resembles a free-for-all, with the marketplace choosing winners.

So what Nokia's talking about is not just a change in product design. It's more like a wholesale remaking of the company's culture, processes, and partnerships. The advantage of this for Nokia is that if it successfully makes the transition, it will have put everyone else in the mobile phone industry -- handset vendors and operators -- at a permanent disadvantage, unless they can make the same wrenching transition.

The disadvantage is that the change is pretty darned wrenching for Nokia as well.

Nokia seems to understand at least some of the changes it has to make in order to be a computing company. Iannucci acknowledged that the "Internet model" of product development is to create and ship products first, and then bother about standards later (if at all).

He said Nokia's research labs, formerly fairly closed, have re-oriented themselves to work collaboratively with universities and other parties in the industry. The collaboration part is essential because "we can no longer fuel...internally" the amount of technology the company has to develop now that it wants to be a computing company.

Thus the briefing in California -- they want to be a part of the peculiar hive mind we call Silicon Valley.


The transition will be awkward

One amusing example was when a Nokia speaker solicited feedback from the audience on what barriers to success they see in the mobile marketplace.

A VC shot up his hand: "Operators."

Dead silence for a second. Then the Nokia speaker asked uncomfortably, "what in particular about operators?"

And you had to laugh a bit, because the question didn't really need to be explained. What the questioner meant was: "we want the operators dead; are you going to help make that happen?" Everyone in the room knew that. Nokia knew that. The question was a test of Nokia's seriousness.

Nokia didn't exactly pass the test. They won't answer that question on stage because it creates too many political issues for the current mobile phone business. So what could have been a nice bonding moment between Nokia and the Silicon Valley folks degenerated into a carefully nuanced spiel about "we're working together to address many issues" and bland verbiage like that. They ended the Q&A soon after.

Lesson: If you want to bond with somebody, be prepared to discuss the issues they care about. And don't ask for feedback unless you're prepared to answer tough questions.


Next steps

Here are some other issues that I think Nokia will need to work through if it really wants to bond with Silicon Valley.

Get real about the role of mobile computing. As far as I can tell, Nokia's hoping that the mobile computer will literally replace PCs. I think that's both naive and unnecessarily limiting to Nokia's prospects. Mobile usage is a different paradigm from personal computing. You use a PC in a long sessions at a static location; you use a mobile while on the go, in places where a PC isn't convenient. That different usage pattern means the users are likely to have different requirements and different expectations for mobiles than they have for PCs. If Nokia tries to just make mini-PCs, it's probably going to end up with products that don't deliver on the great new stuff that mobile computing can really do.

To give a rough analogy, if the mobile phone companies had focused only on making land lines mobile, would they have ever invented SMS?

Nurture developer communities. Nokia has a very extensive developer support organization, but I'm not yet seeing the sort of broad-scale evangelism -- developer recruitment -- that an Apple or Microsoft practices. To really win over the best developers, it's not enough to just make their development tasks easy, you have to make sure they have the opportunity to make money. No one's doing that well in the mobile space today. Including Nokia.

The mobile software companies continue to flail around trying to figure out which company can build a business opportunity worth committing to. The opportunity is there for Nokia, but it has to invest in building the market.

Manage Adobe vs. Microsoft vs. Sun. Nokia said it's working very closely with Adobe on Apollo, the new software operating layer derived from Flash and Acrobat. The implication is that Nokia will distribute the mobile version of Apollo on its phones, just as it distributes Flash today.

There are two potential downsides to this. The first is that Adobe might lose -- it's facing strong competition from Microsoft's Silverlight, and apparently from a revamped version of mobile Java from Sun (I'm planning to write about that one in the future). If one of the others wins, Nokia might end up deeply committed to a failing standard.

The second danger is that Adobe might win, leaving Nokia at the mercy of a mobile software standard controlled by a different company. Replacing the Microsoft monopoly with an Adobe monopoly would be delightful for Adobe, but it isn't going to feel like much of a win for Nokia.

Learn to design solutions, not gadgets. I think this is Nokia's biggest challenge. The most popular mobile computing products so far have been integrated hardware-software systems aimed at a single usage: GameBoy, iPod, BlackBerry, and of course the mobile phone itself. Nokia hasn't been notably good at designing this sort of integrated system. In fact, its most prominent effort so far, the nGage, was an epic failure on the scale of the Edsel and the presidential campaign of Michael Dukakis.

But if Nokia really wants to be a mobile computing company, this is a skill it absolutely must learn. It is an incredibly hard change for Nokia, because computing systems design requires a very strong culture of product managers who understand the customer and have dictatorial control over the features and interface of the product. A good computing system is a product of idiosyncratic vision. Collectivist Nokia, with its endless conversations and responsibility fragmented across dozens of teams, is in a terrible situation to pull this off. Frankly, I'm skeptical that they can do it.

But on the other hand, if they can turn a pulp mill into a mobile phone company, would you really bet against them?