Should Apple be more open?

It is almost religious orthodoxy in the tech community that “open” is better than “closed.” For example, there have widespread complaints about Apple’s “closed” iPhone app approval process. People also argue Apple is making the same strategic mistake all over again versus Android that it made versus Windows*. The belief is that Android will eventually beat the iPhone OS with an “open” strategy (hardware-agnostic, no app approval process) just as Windows beat Apple’s OS in the 90′s.

With respect to requiring apps to be approved, consider the current state of the iPhone platform. There are over 100,000 apps and thus far not a single virus, worm, spyware app etc. (I don’t count utterly farfetched theoretical scenarios). As a would-be iPhone developer, I can report firsthand that the Apple approval process is a nightmare and should be overhauled. But what’s the alternative? Before the iPhone, getting your app on a phone meant doing complicated and expensive business development deals with wireless carriers. At the other end of the spectrum: If the iPhone OS were completely open, would we really have better apps?  What apps are we missing today besides viruses?

With respect to the strategic issue of tightly integrating the iPhone/iPad software and hardware, a strong case can be made that Apple’s “closed” strategy is smart. Clay Christensen has given us the only serious theory I know of to predict when it’s optimal for a company to adopt an open versus closed strategy for (among other things) operating systems. The basic idea is that every new tech product starts out undershooting customer needs and then – because technology gets better faster than customers needs go up – eventually “overshoots” them. (PC’s have overshot today – most people don’t care if the processors get faster or Windows adds new features). Once a product overshoots, the basis of competition shifts from things like features and performance to things like price.

The key difference today between desktop computers and mobile devices is that mobile devices still have a long way to go before customers don’t want more speed, more features, better battery life, smaller size, etc. Just look at all the complaints yesterday about the iPad – that it lacks multitasking, a camera, is too heavy, has poor battery life, etc. This despite the fact that Apple is now even building their own semiconductors (!) to squeeze every last bit of performance out of the iPad. Until mobile devices compete mainly on price (probably a decade from now), tight vertical integration will produce the best device and is likely the best strategy.

*It’s worth noting that Steve Jobs wasn’t the one who screwed up Apple. Jobs co-founded Apple in 1976. He was pushed out in in May 1985 when the company was valued at about $2.2B. He returned in 1996 when Apple was worth $3B. Today it is worth $187B.

Speculation on Apple’s purchase of Quattro Wireless

Apple has entered the online advertising business for the first time with its purchase of Quattro Wireless. They are now also competing head-to-head against Google in the mobile advertising market.

Mobile ads will be displayed to users either in a web browser or in a mobile application. Thanks to the iPhone and now Android, web browsing on mobile devices is becoming just like web browsing on the desktop. Sites are often running the same HTML – and the same ads – whether the browser is on the desktop or mobile web. Thus, if an ad network supplies ads to the nytimes desktop version, they’ll also supply ads to the nytimes mobile version. The battle for web publishers on mobile browser-based ads would seem to be the same battle already happening on the desktop web.  This battle is dominated by Google, Yahoo, Microsoft etc. and I can’t imagine Apple is trying to seriously enter the battle at this late stage.

Thus, Apple’s interest in Quattro must be about ads in mobile applications. Apple is currently in a very strong position with respect to app developers, given their tight control over the dominant app platform. How could Google supplant them there? For one thing, Android and other platforms could gain significant market share. But Google could threaten Apple even on ads in iPhone apps. Unless Apple forced developers to use their ad network, iPhone app developers would select the ad network that provided the highest payouts, which – as with all ad networks – would depend heavily on which had the most advertisers.

So the Quattro purchase seems to be mostly about Apple getting a base of mobile advertisers (not publishers) that will allow them to offer competitive payouts on mobile app ads (not mobile browser-based ads).

Information security – are we experiencing a Pax Romana?

My last startup was an information security company — SiteAdvisor — that was acquired by McAfee, where I then worked for a while. I am no longer working in security, but have many friends that do and I try to stay in touch with what’s going on in the area.

The widespread sense I get is that we are going through a period of unusual calm, especially on the consumer side.   Instead of repeating the historical pattern where new types of threats emerge every few years, we’ve seen the opposite: threat types have actually gone away or been seriously mitigated. Spyware/adware is basically gone, as most of the businesses that were pushing it (yes, it was mostly driven by legal, US-based businesses) have gone bankrupt.  Spam has been mostly controlled, at least if you use Gmail or a good spam filter like Postini.  If you use a Mac you don’t have to worry about viruses or malware.  Mobile security hasn’t ever really become an issue, mostly because the telecom carriers (and now Apple) carefully screen the installation of 3rd party apps.  Identity theft is a real issue but not really something consumers can do anything about – most of it happens offline or through enterprise data center breaches.

On the enterprise and government side, things are more turbulent.   Distributed denial of service attacks using botnets remain almost impossible to defend against. There have been a number of breaches of sensitive consumer information and those will likely only get more common, especially as more information gets centralized in the cloud. Military and terrorist computer attacks also seem to be a likely future threat.

All in all, though, the good guys have been keeping the bad guys down.  This relative calm is generally great news for the computer users, but – let’s be honest – bad news for the computer security industry and venture capital investors.  As an investor, I’ve only made one security investment in the last few years — in a cloud security startup called Vaultive. Everything else I’ve seen seems to be trying to solve non-problems or rehashing solutions that were developed years ago.

Inevitably, the calm will end and new classes of threats will emerge. But for now we should enjoy the relative peace.

If Verizon’s Droid is good, that’s bad for the wireless ecosystem

I carry around an iPhone and a Blackberry Tour.  I know that’s ridiculous. The iPhone is a great device on an awful network; the Tour is an awful device on a great network.  If the rumors are true and the Verizon “Droid” is a great device on a great network, I’ll be the first in line to get one.  But for the wireless ecosystem as a whole, it would be a bad thing.

Some people are saying a great Droid would mean more competition amongst handsets.  But you can’t really choose a handset – you choose a handset-carrier pair.  The real innovation inhibitor in the cellular world has been the power of the carriers to dictate what devices you can use and what apps go on those devices.  Just ask an entrepreneur who tried to create handsets or cellular apps.  They are completely beholden to the whims of the carriers.

Apple has gotten very close to breaking the carrier stranglehold – just look at how many people put up with AT&T’s atrocious network to have one.  Had Verizon capitulated and accepted Apple’s presumably stringent terms in order to carry the iPhone, we might have finally started to see a true decoupling of handsets from carriers.

Finally, don’t think just because the Droid runs Android it’s going to be truly open.  Verizon knows a truly open OS – one that allows you to run Google Voice, Skype, 3rd party SMS apps – would make their network a dumb pipe.  They’ve shown in the past they won’t let that happen.

What carries you up will also bring you down

In Rules of Thumb, Alan Weber quotes legendary venture capitalist John Doerr discussing the original business plans for companies he invested in such as Google, Intuit, and Amazon:

In every case you can find the one sentence or paragraph that describes their unique business model advantage.  It could be their unique distribution system or the retailing model.  It’s the factor that accounts for their success. It turns out the factor that explains their success at the beginning is what accounts for their failure later.

As a former philosophy student, I was reminded of Aristotle’s concept of “hamartia,” sometimes known as a “fatal flaw”:

In Aristotle’s understanding, all tragic heroes have a “hamartia,” but this is not inherent in their characters, for then the audience would lose respect for them and be unable to pity them; likewise, if the hero’s failing were entirely accidental and involuntary, the audience would not fear for the hero. Instead, the character’s flaw must result from something that is also a central part of their virtue, which goes somewhat awry, usually due to a lack of knowledge.

It’s an interesting exercise to apply this principle to technology companies:

1) Google’s strength is its uber-engineering mindset.  This seems to increasingly be a liability as the web becomes ever more social.

2) Yahoo’s strength was its breadth.  Now they call it the “peanut butter” problem.

3) AOL’s strength was being a closed garden.  As users became internet savvy, they were no longer afraid of venturing outside of it.

4) Apple’s strength lies in its genius, authoritarian leader.  Apple’s decline will begin when he leaves (sadly).

5) Facebook’s strength is authenticity and privacy – your friends are (mostly) your real friends, and only they see your activity.  Facebook has been trying to respond to Twitter’s rise with “open” features like the public micro-messaging.   It remains to be seen whether they can successfully go against their own core strengths.  I’m skeptical, but give them credit for trying.

6) Twitter’s strength is its simplicity and openness.  Will its openness be its downfall?  For example, will Twitter end up fighting its apps?  Or will it be its simplicity?

This principle also implies how to use incumbents’ strengths against them (sometimes called the “Judo Strategy”).  In the chess game of competitive strategy, you can usually bet that incumbents won’t make moves that undermine their core strengths – until it’s too late.