"So long, sucker!"

That's Jurgen Appelo's reaction to news that iPhone OS slipped to third in the US smart phone market.

The Android operating system (OS) continued to shake up the U.S. mobile phone market in the first quarter (Q1) of 2010, moving past Apple to take the number-two position among smartphone operating systems, according to The NPD Group, a leading market research company.

Yes, that means there are more Android phones out there than iPhones.  Right on time.

Apple can easily replace Blackberry as number 2, but they will become an increasingly distant #2.  (Blackberry can survive as long as they continue to be the 21st century version of the corporate pager.)

Eventually, we'll see sites filled with Android user angst over mismatching OS and apps, the unnecessary complexity and fragmentation in the Android market, etc.  Compared to the harmonious, unbelievably serene life for all Apple users.  All of which will be based in truth (though not exactly true), none of which will help Apple ever lead the phone industry again.  It really is the PC game all over again!

Apple vs the world

Apples lawsuit against HTC / Android is old (well, a week old) news, but this may be the only good part of it:

not everyone is convinced that Apple's strategy is a wise one, and many are concerned this battle is another example that the US patent system—especially where software patents are concerned—is fundamentally broken.

One can only hope that the visibility of this fight will lead to change.  Maybe Apple wins points on legal basis, but the whole point of patents was to encourage innovation -- the idea that someone won't invest in something unless they get some benefit out of it.  There is some truth to that, which is why Thomas Jefferson eventually established the patent system, but he would be deeply opposed to this lawsuit.

So, perhaps this fight will lead to a rallying cry, much like Amazon's 1-click patent eventually slowed down the silliness going on in e-commerce.

Unfortunately, Apple has always been short-sighted in its understanding of its market.  Today we don't have any Mac clones because Apple wanted 100% of that pie.  Despite having a product out years earlier, it was dominated by IBM's open architecture system.

It is not always appreciated just how fast the rise of the IBM clone market was, and the degree to which it took the industry by surprise. 

Think about how much smaller the PC market would be if we had continued down a path of only proprietary systems.  Meanwhile, IBM has built entirely new businesses around the exponentially larger computer market of today.

Android parallels IBM in that it invites the entire industry to participate.  Apple parallels, well, Apple, in that they seek to own all the revenues in a market where they own all the vertical businesses. 

As usual, I'm pulling for the network, the open market, the combined power of the entire industry, not just the geniuses at one, focusing on turning a small market into a gigantic one.  The end of Apple's reign is inevitable, though the lawsuits may make that painful for the rest of us. 

Microsoft paying for search content is unbelievable stupidity

Microsoft's impending deal to allow Bing to be the exclusive search engine for The Wall Street Journal and other Murdoch sites can only be described as stupid. 

Forget about whether the price is too high (reports peg it at $50mm), if it includes Fox News and MySpace, or if gating news can every work as a long-term strategy.

The real question is: what's in it for Microsoft?  Absolutely no one is going to use Bing more often because the results will include those sites, or a different search engine because they won't.

The die-hard WSJ and Fox readership will simply go straight to the source.  No one else will notice.  Maybe you could argue that the search quality will be infinitesimally lower quality on Google.  It's a weak argument, but still no one will notice.  Tomorrow there will be more free sources of news than there were yesterday.

By the way, I tried to use Bing exclusively when it came out, just to encourage industry diversity.  But after about a month I gave up. 

I liked the pop-up extra text when you hover.  Unfortunately, it takes a second to load, which doesn't sound like a lot, but every extra second or step is a disincentive, especially when you might have to scan through dozens of entries to find the one you want.  I frequently forgot to use it.  Then, the hover text usually didn't have enough info.  Finally, the little bar that prompts the extra text to pop-out is too small.  Again, another second wasted finding just the right spot.  Why not start caching all the hover text as soon as the page loads and then show the text automatically when you mouse over any part of the result?

The killer, though, was that I found I had to go through more entries to find "good" results.  I found myself paging to additional sets of results more often.

If Microsoft has $50mm to spend to improve their search position, how about improving the hover usability?  Or implementing some other innovations?  Or improving their algorithms?  These ideas are too crazy?

If this deal goes down, it will be clear sign that Microsoft simply has too much cash that it doesn't know what to do with, and they should pay it out as a one-time dividend to shareholders.

The end of iPhone

Prediction: this will be the last holiday season that iPhone dominates.

We are on the brink of an Android break-out. I make no claim about the relative performance of one vs the other, but some points are clear:

* Many manufacturers will be producing Android phones. Only Apple will be making iPhones. Android phones will, in short order, offer a lot more features for less money.

* Every network will offer Android phones. In the US, you must have AT&T if you have an iPhone. That in itself is huge, because when you buy a phone, you usually buy a network too (for a year or two). Hardware lock-in to AT&T is a competitive disadvantage for iPhone. Every iPhone user at my office has to go to the other side of the building or outside to make calls. This is in the middle of New York City; I can only imagine how badly the rest of the country suffers.

* Enough dissatisfaction with iPhone itself exists to allow competition. The primary one is battery life.

* Android apps will explode as the user base increases. That may not seem like a big deal, but I think apps (and not hardware or features) are the real strength iPhone has over all other phones on the market.

Perhaps Apple will end its exclusivity with AT&T. It is not a choice they would easily adopt, or else they wouldn't have suffered with AT&T's network over the past year. I have no idea when their agreement ends, but Apple would likely take a big hit to future earnings if they go that route. Other networks have not been willing to fork out the cash that AT&T pays to carry the iPhone.

Their ideal strategy would be to dominate the market so thoroughly that the other networks eventually come crawling to them, begging to be let in to Apple's party. Unfortunately for Apple, Google is today's monopoly buster -- just ask Microsoft. (Tomorrow, they very well could be the monopoly.)

In short, many always beats one in a competitive market. And open always beats closed.

Expect iPhone to have a lovely holiday season, but sometime next year, its market share will peak.

Cloud computing and the financial meltdown

Sidekick's massive data loss reminds me of the financial meltdown.

The big banks became too big to fail because all the world's finances flowed through them. It might seem that we have a lot of banks, but actually on a global level, we relied on just a dozen or so. Not enough diversity for the entire planet. Maybe we'll learn something from that mess.... maybe.

Actually, we've seen this problem many times before.

Agriculture has been around for thousands of years, and has given us some examples of systemic breakdown. One famous example was the Irish Potato Famine. The potato became too big to fail in Ireland. Unfortunately, it did, and around 12 - 15% of the population died. Biodiversity has become a global concern.

The financial system started hundreds of years ago, and, as we saw, has reached the point where the industry needs to be actively designed for resistance and maintenance. Mortgage-backed securities and their offspring are like the potato, and the bubble bursting acted like a blight.

Computers are only decades old, and the information age started more recently than that. Some have already wondered whether Google is the first information company that is too big to fail. No one ever said that about IBM, so things have changed.

I don't think Google is a problem yet, but cloud computing can put it there. Given our reliance on smaller and thinner tools -- netbooks and phones -- we increasingly rely on central storage. It only makes sense for efficiency purposes to aggregate that storage in a cloud. Why should you care where or how your data is stored?

Governments increasingly use technology to improve services. Among other things, they're combining databases. All very good things. Things we often criticize governments for not doing, not being competitive enough, not efficient enough.

Wouldn't a cloud make sense for the same reasons for all that government data? Imagine how big the social security database is or just California's Department of Motor Vehicles. Do you really expect these agencies to have stronger, more robust technology than Microsoft?

Cloud computing clearly offers a lot of benefit. This problem will not stop the growth of the cloud. But if cloud computing takes off, it also implies a future where some of these technology companies will have to be regulated. Sounds strange, doesn't it?

Think about all those rows and rows of Google servers, for which they are famous. Companies always want their systems to run exactly the same software because that makes it easier to upgrade and maintain. Now think potatoes in Ireland, or mortgages in the financial industry. Google has had its outages, but they were small enough to ignore. Not so if they held data used for trading markets or air traffic or personal banking.

Regulations might included government-mandated requirements concerning:

• separation of data servers from other applications
• multiple power sources
• replicated data stored in physical locations 100 miles apart
• maximum failover time (in minutes) and minimum uptime percentage (> six sigma?)
  
• monetary reserve to ensure continued operations in case some other project at the company starts draining all the money
• separation of businesses to ensure law suits or problems at one division don't affect the viability of the data business
  

What will not save us is a rallying cry to "back up your data", which just about every article about the Sidekick includes. That will be no more effective than asking people to eat more varieties of bananas.

If H1B ends, should we be happy?

H1B whacked?

A new bill in Washington aimed at tightening the rules for companies in the U.S. that hire skilled workers from abroad could threaten the business model for outsourcing firms... Top executives at [Indian outsourcing firms] say the legislation could also escalate into a trade dispute between India and the U.S.

I'm not a big fan of the H1B. Most people don't like it because it seems to take US jobs from us locals, especially IT jobs. I also think it puts the H1B workers in a bad spot where their sponsor wields too much power over them.

But, think about general immigration policy. If you could design a policy that carried high economic benefit to your country, it would only bring in these kinds of people:

1. highly-skilled professionals. This helps our companies bring better and more innovative products to market. From the perspective of the countries that these people leave, this is called a "brain drain".
2. people from middle- and upper-classes. These people would have more safety cushion, meaning little likelihood of needing public assistance and more likely to be able to go back if things went very badly.
3. people likely to work steadily. This derives from 1. and 2., and of course the fact that they have to leave if they stop working. As a result, these workers will pay a lot more in taxes -- funding roads, schools, bank bailouts, etc. -- than they take out.
4. people likely to speak English and assimilate. I don't really care too much about this, but as a long-term criteria for succeeding in this country, speaking English and getting along with people who are already here help a lot. People in categories 1. and 2. have greater likelihood of meeting this criterion, not to mention that most H1B's come from countries that speak English as one of their national languages.
   

Guess what program hits all these notes?

I'm not saying that, because it's powerful economics, that justifies the program. I am suggesting that in aggregate we all get a lot more out of it than it costs us. The IT industry mostly takes a combative view of the H1B program, but I think that's short-sighted.

And, to put a final point on it, if we didn't bring all the professionals here to fill the jobs, might more of the jobs go out to them?

What's the Google secret?

A final comment on compensation, this one related to options. (Then, like the bonus cycle, we'll be done with this subject... until next year. That's the way the financial industry works -- for now.)

Google gets a lot of press about how great it is to work there and how people are lined up for interviews, like the lines for American Idol auditions. Stories about their 20% free time policy, creative culture, self-organization methods, and of course free food sound very appealing. I admire them for their innovative products and efforts to balance business with "not doing evil". And yes, some of my best friends are Googlers.

Recently, Google decided to reprice options that it had given out to employees. Due to the stock market cliff-dive, the options became worthless.

This reminded me of another tech company that was once considered the greatest in the world, hiring only the smartest of the smartest people. They minted many millionaires through stock options. People dreamed about working there.

The company? Microsoft, which many would say epitomizes everything that Google is against. It wasn't that long ago that Microsoft was the beautiful company.

Which led me to wonder: is the warm glow coming from Google really just a function of their (previously) red-hot stock price? Will Google be perceived as just another company now that the options payoff has disappeared, and their pay matches most other companies (i.e., now that even their masseuse can't become a millionaire).

Obviously, this is a simplistic view. Google represents the cloud revolution against the desktop, just as Microsoft represented the desktop revolution against big hardware. That's also important.

But what I'm interested in is whether Google is actually a fundamentally different type of company, or they just have a good business at the present time. I think if you asked Google management which they would rather have, they'd choose the former. (Of course, everyone would want both.)

The typical justification for options is to align both the long-term benefits of the employee and the employer, via the stock price of the company. At the point that the company reprices options, the options are no longer acting as an alignment tool, though. The employee benefited despite how the company fared. The company's options program is exposed as just a form of deferred compensation.

There's nothing inherently wrong with that. Any manager would be foolish not to exploit a cheap way to fund super salaries for great people, as long as the shareholders don't mind.

Going forward, it will be interesting to see whether Google's creative organization continues to be heralded as their secret weapon, or whether their exalted image will follow their stock price.

The end of H-1B?

Thomas Friedman notes:

the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H-1B visas.

Not only will "buy American" sentiment continue to grow, but the original purpose of the H-1B program -- to fill the shortfall in technology workers -- begins to look silly as the numbers of laid-off tech workers increase. I personally know several good technologists searching for work. If this downturn continues for any amount of time -- and it appears that it will -- then that shortfall will surely disappear.

At the same time, like everyone else in the industry, I have worked with plenty of H-1Bs, and have become good friends with many of them, so I wouldn't be in favor of shipping people out.

Ironically, it's probably in the best interest of countries who send their H-1B workers to the U.S. to keep them at home. But, what's good for the team (country) in the long-term may not be what's good for the individual in the short-term.

Currently, the U.S. acts like the New York Yankees of the world. The Yankees hire the most expensive and best players, tilting the odds of a championship in their favor. Smaller teams constantly have to re-tool with young, unproven players. Similarly, the best and brightest come here for better pay and working conditions, tilting the odds in favor of exciting new innovations being created in the U.S. They help start new enterprises that make their solutions available first to U.S. companes. Their countries of origin have to constantly train new talent to stock their own companies.

In general, I am in favor of more immigration. Economies with greater immigration prove to be stronger than those with less. Japan has suffered economically since the 90s in large part because of a lack of immigration, combined with a very low reproduction rate.

I'm not sure that targeting immigration to a specific category of worker is the best way to go about it, but it may be the only way to achieve the desire ends politically.

Thus, let me say: long live the H-1B!

Remind me I said this if I get laid off. But, you have to believe in your own value, that quality wins out in the end. As a result, I have confidence my friends, currently out of work, will find something soon, being smart and highly capable guys.

Difficult times put your beliefs to the test. That's when you find out what you truly believe.

Even cost-cutting measures are now too expensive

BusinessWeek reports:

The economic slump has become so pronounced that even outsourcing is getting scaled back. Executives who once relied on outside firms to handle certain IT tasks to cut costs are now reining in some outsourcing plans on concern they're too expensive.

The article is specifically talking about off-shoring.

I disfavor any work arrangement where half the team is located somewhere else, unless a clear division of responsibility can be identified (in which case, you really have two teams). Great camaraderie helps you form a great team. "Negotiations" -- meaning, any agreement that has to be reached between 2 or more parties -- done in person have twice as much success than those done over the phone, and four times greater than email. (They haven't studied twittering yet...)

Outsourcing adds the additional problem of agency, where the development team's incentive is to benefit the outsourcing company, not the client. Yes, the two often overlap, but not always. Similar problems can occur when a big company makes its IT team a silo that reports to no specific business unit. Developers should have frequent interaction with the client, whether internal or external.

Off-shoring adds additional layers of problems involving culture, language, and time difference.

The poster child for off-shore outsourcing is manufacturing, where you can hire assembly line workers at crazy low wages. Yet, recent studies show even that may be false savings.

Can't control quality in manufacturing -- think how much more difficult software is.

Reverse H1B?

There may be some good aspects of this program, but comes across very badly:

The climate is warm, there's no shortage of exotic food, and the cost of living is rock bottom. That's IBM's pitch to the laid-off American workers it's offering to place in India. The catch: Wages in the country are pennies-on-the-dollar compared to U.S. salaries.

Under a program called Project Match, IBM will help workers laid off from domestic sites obtain travel and visa assistance for countries in which Big Blue has openings. Mostly that's developing markets like India, China, and Brazil.

India, China, Brazil... sounds like IT development-type jobs. If they were business consulting jobs, I would think you'd have to speak the local language.

One good aspect is that it creatively solves a problem for both sides. These are people who have been laid off, after all.

Unfortunately, it smells very much like shipping jobs overseas, which, in a time of financial crisis, is not a good odor. The other problem: if it works well, it creates the incentive to use it to actually ship jobs overseas, even if that wasn't the original idea.

Thanks to Tyler Cowen for the pointer.