There are key reasons why the iOS App Store has seen 25 billion downloads, and billions of dollars paid out to app developers: Quality, choice, ease of installation, low price, and a curated store.  It’s incredibly easy for me to find or discover an app, and I feel completely safe pressing the ‘Buy’ button.  I feel safe because I have access to the app’s marketing material as well as customer reviews and star ratings.  But most importantly, I feel safe because of curation.

An army of Apple staffers actually takes the time to examine every app before it hits the store.  They’re not judging whether an app is useful, pretty, easy to use, or otherwise valuable -that’s for the customer to decide.  But they are making sure it doesn’t crash, steal your personal information, or otherwise do things not advertised.  Because of curation, I can install any app on the App Store and know my iPhone or iPad won’t crash, won’t be hacked, won’t get a virus, won’t have malware, or won’t steal my identity.  Curation enables unadulterated instant gratification, because there’s no risk.

The Android OS is suffering because Google’s Market Place [Just rebranded as Google Play] isn’t curated.  Android developers are suffering even more so. Several high profile developers have recently announced they’re dropping Android support altogether.  Google doesn’t curate their store -It’s a free-for-all.  And because of that, 80% of paid Android apps installed on phones around the world are pirated.  They’re pirated because hackers upload cracked versions of the real thing with impunity.  Kinda hard for developers to invest in creating an app, only to have their hard work ripped off almost immediately.

For end users, Google’s store is a nightmare.  Thousands of apps are nothing more than scams, trojans, malware, viruses and identity theft mechanisms.  I haven’t looked lately, but for months, the top app in Google’s store was an anti-virus app.  Anti-virus on your phone?  Are you kidding me?  But Google will have you believe that a free-for-all is better, more ‘open’, and better for customers than Apple’s closed approach.  But Google’s ‘open vs. closed’ argument falls flat on its face: The dollar value of the top 100 apps on Google Play is three times that of the top 100 on the App Store.  If nobody is buying in volume; if everyone is robbing the store, then prices obviously go up.  Apple doesn’t face this problem and likely never will.

Google has a serious sustainability question to answer.  It’s trapped by its own dogma and market-speak about open vs. closed systems. Google’s philosophy seeks to convince people open-source and an ‘open’ marketplace isn’t just better, but morally superior to a closed one.  But as time goes on, the quantity and quality of apps on Apple’s App Store increases while prices decrease.  Millions of people are buying billions of dollars worth of apps for iPhones and iPads.  Developers are cashing in and pushing our iDevices to do more and more -so much so that the iPad is beginning to replace PCs for many people.  It’s a snowball effect that’s become an avalanche.

It should be very clear to Google that convenience and simplicity can only be accomplished with curation.  A lack of quality apps, talented developers, and paying customers, will make Android devices inferior to Apple’s.

When it comes to purchasing mobile apps, convenience, simplicity, and safety aren’t just more desirable -they’re mandatory.  The App Store cash cow proves this fact quite succinctly.  It’s only a matter of time before Google has to backtrack and start spinning the fact that their store has failed because it’s ‘open’.  In the meantime, developers will continue to flock to the iOS App Store, billions more will be spent, millions more iDevices will be sold, and millions of customers will be happily locked into the Apple ecosystem.

The reasons for Apple’s App Store success are relatively simple, but hard to execute. Curation has been the mainstay of shopping in developed nations for more than a century.  Even the stock market (the biggest market in the world), isn’t ‘open’.  If you want your company to be publicly traded, it needs to meet the criteria laid out by the exchanges.  And if you’re not selling, losing value, or otherwise lowering the quality of the exchange, you can be delisted.  If Google’s philosphy for an ‘open’ market place really worked, we’d all be shopping in warehouses and junk piles.  We don’t shop like that.  We need curation.  We demand curation.

The lack of curation is Android’s Achilles’ heel.  Without a proper store for apps, customers will turn away from Android.  They will realize their devices don’t compare to Apple’s.  No amount of marketing, hardware specs, promotions, price cuts, or subsidies will overcome a lack of quality apps for Android.  Apps are what make mobile devices worth buying and what keep customers loyal.  If Google doesn’t come to its senses, the only place you’ll be able to buy an Android device IS a junk pile - and not the curated stores each of us shop at.

Why would you pay a billion dollars for a lens filter? That’s the question being posed right now in the wake of Facebook’s recent $1 billion acquisition of Instagram. For those of you unfamiliar with Instagram, it’s a social network that allows users to upload pictures they have taken using relatively unique lens filters, that make pictures look as though they were taken a quarter century ago. While this might sound like moving backwards, it really does allow its users to became relatively proficient amateur photographers. Instagram has a huge number of users, approaching 10 million, and as they’ve grown to that size in an incredibly short period of time (2 years), it seems like a good business for Facebook to buy, except that they have never generated a single dollar of revenue.

So why the purchase? Well, venture capitalists around the world have begun speculation on a variety of theories as to why they’ve done this. Perhaps Facebook has finally realized that they can’t simulate the sort of natural evolution that companies Ike Instagram seems to represent. In the past, Facebook has looked at companies like this and said “if 13 employees can build this, we can too”. For the most part, they failed in those endeavors because they didn’t understand that you can’t recreate a phenomenon using a formula. So maybe they’ve finally figured out that if you can’t beat ‘em, buy ‘em? But I don’t think that’s it.

Some have suggested that Facebook is afraid of the potential of a social media network that has such a fanatic following. Let’s get real for a moment. Facebook is not afraid of Instagram. They’re not in the same industry. The photo sharing aspect of Facebook has been dwarfed by the plethora of other features such as gaming, messaging and event planning. Photo sharing has actually been on the decline recently due to a myriad of privacy issues. Instagram is neat. Facebook is big. Instagram is a craze. Facebook is a culture. Facebook didn’t pay a billion dollars to squash a potential competitor, or at least, not that particular competitor. 

Instagram is an app and doesn’t live on the web. You can’t log in using a web browser and upload or edit your Instagram images. To do that, you use the Instagram app. And while Facebook is a web service, they’ve also attempted a foray into apps over the last couple of years. Facebook bought Instagram to prove a point to Google. That point; we can. The purchase of Instagram is a call to arms by Facebook.

Facebook has the power to acquire and build out their walled garden.  They’ve let it be known that they have the purchasing power to do what they want, but more important than having that money is the intestinal fortitude it takes to spend it. Facebook wants to put a dent in Google’s web-centric business model by folding Instagram into the financial, analytical and advertising power behind Facebook’s closed business model.

Instagram has grown naturally and organically on its own, and according to Mark Zuckerberg, that’s the way it will continue. They’re supposedly going to be kept separate from Facebook but already Instagram users have begun to protest. Given the issues surrounding Internet privacy, this seems to be a valid concern. Current Facebook users have every reason to be concerned with where their information ends up and it would seem as though similar problems will eventually pop up in the Instagram-averse. All that being said, it would appear as though the plan for now is business as usual in that users will continue to post their photos for free using Instagram’s service. But don’t expect that to continue for too long.

Another question people are asking is what Facebook will get from its $1 billion purchase.  Facebook has become an incredibly powerful brand. But the money has slowed down. Facebook has had problems generating revenue lately. There are coins in the purse, but the company is used to seeing those coins accumulate at a much faster rate. So at some point, Facebook is absolutely expected to try to find a way to monetize Instagram.

And that’s where the cookie crumbles. It’s not about Facebook and how or if they will poorly manage the service or whether users will want to be, at least on the surface, aligned with Facebook. It’s about the fact that everybody wants something for nothing. Right now, that’s what drives Instagram. Instagram has 10 million users not because they offer an amazing service. They have 10 million users not because there is no other option. They have 10 million users not because this is a service that everyone absolutely needs. They have 10 million users because it’s free and it’s neat. But as soon as Facebook gets over the swagger of the deal, they’ll start to look for some way to get their pound of flesh from it.  At that point the same thing will happen that happens every time one of these Internet giants tries to squeeze money out of an Internet phenomenon; people will find the next Internet phenomenon. 

Nobody wants to pay for anything. Ever. Period. People have to buy cars and have to buy houses and while those markets fluctuate, they will always exist, in one form or another. But Instagram isn’t a car and it isn’t a house; it’s a photo effect. And someone will always make a free photo effect and someone will always make a free market for you to share those photos. Instagram didn’t invent the wheel. They didn’t even perfect it. They just offered it for free and people came a running. But they will flee in droves -in any direction, once you attach a price tag to it. 

This brings us to the very first question; why do you pay a billion dollars for a lens filter? The answer is because you believe it gives you a competitive advantage. Twitter was interested in Instagram, but were never willing nor capable of making that size of an  acquisition. Facebook believes the reputation that Instagram has built will transform into monetization.  Facebook will also go out of it’s way to take a swipe at Google. But Instagram has to be ecstatic. It took them two years to make a dollar and when they finally made one, they made a billion more. Don’t worry. This isn’t the dotcom bubble buster that dominated the technology financial markets at the beginning of this millennium.  This time around, it’s guided not by individual investors over-valuing the worth of a company.  So far, it’s about a few companies flexing their muscles. But the result will be the same. Google and Facebook and everyone involved believe that a picture is worth a thousand words. Sure. But that doesn’t make Instagram worth a billion dollars. 

Google is sliding down a path of unsustainability in an attempt to counter Apple’s success.  It’s folly to think since Android has a bigger share of the market, that Google is somehow winning a war against Apple.  I think it’s more useful to compare Google and Apple as COMPANIES, in the context of their respective products.  When you consider how successful each of these companies and their products are, beyond just market share, the comparison is dire for Google.  Here’s what I’m getting at:

Google makes 80% of its mobile ad revenue from iOS.  Even though Android phones outnumber iPhones, Google relies on its competitor for revenue. 

In 4 years, Google made just $550m revenue from Android.  Google makes $1.70 per year, per Android device on average.

In 4 years, Apple has made well over $100b revenue from iPhone.  Apple makes $576.30 per year, per iPhone on average.  Apple has made 180 times the revenue from iOS than Google has from Android in the same period.

Google spent $12.5 billion to purchase Motorola’s patent portfolio to defend Android from patent lawsuits by Apple, Microsoft, Nokia, RIM and Oracle to name a few.  The outcome of several current lawsuits will likely level significant licensing, damages or even injunctions upon Android manufacturers and eventually Google itself.

99% of Google’s revenue comes from web advertising. Web usage is dropping while app usage is skyrocketing.  Google has no advertising presence within Apple’s app ecosystem.

The last quarter of smartphone sales in the US saw Android drop to almost neck-and-neck with iPhone.   Android is a platform with dozens and dozens of models from multiple manufacturers.  iPhone is a phone - not a platform.  It’s one. single. phone.  An entire platform barely outsells a single competing phone.

Apple took 75% of the profit generated by the entire global phone market in 2011.  If that doesn’t strike you as staggering, it should.  Every other phone manufacturer on the planet split only 25% of the profit generated by a billion unit-sales market.

80% of installed, ‘paid’ apps from Google Play (Android Market Place) are pirated.  Android developers are not making money, let alone recovering the costs of development.  High profile developers are dropping support for Android.

The App Store has crossed 25 billion downloads.  Apple’s App Store has paid out over $4 billion to developers.

The iPad outsells all Android tablets combined, more than 10 to 1.  Dozens of tablets from multiple manufacturers have simply failed to compete with one single competing tablet.

Because of its success, Apple is now worth more than Google, Microsoft and HP combined.  They have on hand, nearly 2/3 the value of Google’s market cap -in cash.

Android is a failure for Google.  It’s a money pit.  But Google is too blind and ideological to see it yet.

I’ve said it before:  Apple isn’t just eating Google’s lunch, it’s cutting off its air supply.  Google decided to go to war with Apple by ripping off the iPhone.  Worse yet, it’s fighting that war by proxy with Android manufacturers.  Those manufacturers jumped into the fray because they saw a cheap, easy way to compete against a superior foe.  They were wrong.  Google was wrong.  But as a company, Google believes its own dogma.  And that company is marching to the edge of a cliff that ought to be in plain sight.

Google continues to spend like a drunk sailor on Android.  Advertising is Google’s single source of revenue.  Android is supposed to ensure Google’s ad network stays relevant as people transition away from PCs.  But how long will Google continue to spend the billions it has earned from web advertising on an effort to prop it up?  So far, Android has cost billions, has made next to nothing in revenue, and exposed Google to serious legal risk.  Google is going to get a wakeup call from the accounting department this year.  It’s time to take a sober look at Google and see the chinks in the armour for what they are.

Yesterday, Russian Customs reclassified the iPad as a personal computer.  As a personal computer, the iPad will now avoid a 5% import tax in that country.  This development isn’t big news but it’s part of a mainstream trend in business, government and the media where the iPad is now being classified as a personal computer.

In general, almost every iPad that came off a shelf represents a PC that didn’t.  Think about that for a minute.  In the last quarter, Apple sold 15.4 million iPads, many of them headed to businesses both large and small.  The new reality is that people are using their iPads as more than just a companion to their PC.  iPads are replacing PCs and with the introduction of the iPad 3 tomorrow, this trend is only going to accelerate further.

The market share held by HP, Dell, Lenovo, Toshiba, Acer and others is shrinking - rapidly.  As PC manufacturers spent the last four years asleep at the wheel, waging a price war with products like netbooks and sub $600 PCs, Apple hired through a recession, dramatically increased R&D, developed iOS to version 5, developed iCloud and a $1b data centre to power it, opened hundreds of high end retail stores, and bought up global supply of electronics and components.

In 2011, Apple took 75% of the profit from the entire mobile phone industry, leaving every other manufacturer to fight over the remaining 25%.  This isn’t Apple eating their competitors’ lunch - it’s cutting off their air supply.  This same scenario is now beginning to play out in the PC market.

With the iPad classified as a PC, Apple now commands 27% of the global mobile PC market.  That’s three times the market share of their closest rival, HP.  A year ago, I was bemoaning the notion that tech journalists and analysts disregarded the iPad as a fad and a tool that could never replace a PC.  Fact is, with numbers like the ones above, they can’t ignore the iPad anymore.

The only way PC manufacturers can turn a profit is to sell their low margin products in mass quantities.  Failing that, they raise prices, which will only exacerbate the transition to iPads.  As the market for PCs dries up, businesses will no longer be able to purchase the cheap Windows boxes they’re used to.  Businesses who don’t adopt iPads  will be forced to reexamine their strategy as PC prices begin to rise across the board.  Here’s what I’m saying: The transition from PCs to iPads is happening as you read this and it’s not a trend - it’s a paradigm shift that’s essentially unstoppable due to the upending of an entire global market.

For the last two decades, software for business has been built for PCs running Windows.  And over the past decade or more, businesses have become accustomed to low priced PCs that could be deployed for every person in the company.  Infrastructure has been built to support the hardware and software that businesses simply can’t survive without.

On the eve of the introduction of the iPad 3, IT managers, CTOs and CFOs need to rethink what the next five years will look like.  Most believe little to nothing will change - that the PC as we know it will continue to be prolific, and most importantly, cheap - and that mobile devices will remain as companion tools for the PC.

For 20 yers, the fate of the PC was decided by the collective decision making power of IT managers.  But we’re now living in an era dubbed the ‘commercialization of IT’, where consumer electronics have penetrated the corporate enterprise and IT managers have been forced to support devices their bosses brought in from home.  The fate of the PC is no longer in the hands of IT managers and CTOs.  It’s in the hands of millions and millions of consumers who’ve brought their devices to work.

The iPad is a PC.  It just happens that you can hold it, touch it, sync it with the cloud, use it all day without recharging, choose from hundreds of thousands of cheap and powerful apps, and buy the device for $550.  You could say the PC is dying, but in fact, it’s just being reinvented by the same company who created it in the first place.

I hope Apple re-makes the 1997 Think Different ad to include Steve Jobs.  He’s definitely among the group of people featured in that ad.

Personally and professionally, October 5, 2011 was a sad day.  The world lost an Einstein of our time.  Steve Jobs stood apart.  He was a genius.  He fundamentally understood what people wanted from technology before they did.  And he made that technology a reality, which forever changed our society for the better.

I didn’t know Steve Jobs personally but, any of us who use Apple’s products knows quite a bit.  His world view is manifested in the design of the tools that millions of us rely on and love.

The world has indeed lost a visionary and a person like no other.  Steve Jobs’ legacy will live on because he didn’t just create Apple, the company.  More importantly, he created Apple, the culture -both within Apple’s campus and all over our planet.

Here’s the 1997 ad that Apple ran called Think Different:

http://youtu.be/dX9GTUMh490

After watching it, do you agree that Steve is one of the crazy ones who changed the world?

I just penned an email to Tim Cook, Apple’s new CEO, in hopes that Apple addresses why it’s selling products that its customers can’t use:

Tim,

I hope this reaches you or someone who can explain what’s happening - or better yet, solve my and my client’s problem with Apple.

Between my company, three of my clients and two friends, we’ve collectively ordered seven Promise Pegasus R6 Thunderbolt RAID arrays from Apple.  All but one has shipped.  Apple’s Thunderbolt cables have not.  Six different Apple customers are sitting with what amounts to a $2100 paper weight ($4200 in one case).  In each case, Apple has credited us for free shipping, but in each case, we don’t care about the money involved.  We want to connect our new RAID arrays.  Some of us NEED to.

None of us noticed when adding the Thunderbolt cable to our online orders, that the ship time was out of whack with the ship time for the arrays.  I hope it’s not lost on you that six people didn’t notice the ship times for the cable - that people don’t expect you to be out of stock on a required accessory.  For each of us, Apple’s customer service staff were eager to point out that we SHOULD have noticed the ship times and that it’s our fault.  Well, I have to tell you, that this kind of response has really, really irked me.  It’s a cable.  And it’s the only cable that transforms our new arrays into something useful.  You’re the only company who makes them so our arrays sit idle because we have no options.

Why is Apple selling RAID arrays that require a Thunderbolt cable, which isn’t available?

Apple has created a scenario by which it’s almost impossible not to piss off their customers.  As a long time share-holder, Apple consultant and someone responsible for funnelling lots of business to Apple, I’m thoroughly unimpressed.  It’s bad business. Those arrays should not be available for sale if you can’t get the only accessory in the world to connect them to your Mac.  Why is the online Apple Store so unintelligent as to sell you a product you can’t use?

All of us expect more from Apple.  If we wanted this kind of disconnected customer service experience, we would have shopped at Dell.

So now, each of us waits for upwards of a month with our money tied up in products we can’t use.  I’m asking that someone explain to me how Apple thinks this is acceptable sales practice.  And I’m asking for someone to explain to me what Apple is doing to fix our $2100 problems and what’s being done to improve the online Apple Store.


Chris

At the All Things Digital conference in 2008, Steve Jobs was quoted in an interview with Walt Mossberg, likening PCs to trucks:

“When we were an agrarian nation, all cars were trucks, because that’s what you needed on the farm. But as vehicles started to be used in the urban centers, cars got more popular. Innovations like automatic transmission and power steering and things that you didn’t care about in a truck as much started to become paramount in cars. … PCs are going to be like trucks. They’re still going to be around, they’re still going to have a lot of value, but they’re going to be used by one out of X people. … I think that we’re [sic] embarked on that.”

With the introduction of the iPad, I predicted the demise of the PC as we know it.  My prediction was simple: over the next two to three years, the only people who will be using PCs as we know them are professionals who create content, manage systems or otherwise need serious computing power to do their jobs.

HP is the biggest PC manufacturer on the planet.  They’re the market leader.  So why on Earth did they just decide to exit the PC business and focus on the enterprise, printing, networking and services?  Because their operating margins on PCs under $1000 are less than 6% - sometimes lower.  Any PC maker competing in this space needs to sell on volume and volume alone.  The flip side of the coin here is that Apple’s market share of PCs over $1000 is hovering around 90%.  Compare HP’s operating margin of ~6% to Apple’s ~28% and it’s not hard to understand why HP is jettisoning what will quickly become a money LOSING operation.

The question is how did this happen?  In a word: iPad.  Since the iPad debuted last year, Apple has sold 30 million units and counting.  Even now, they can’t build them fast enough to meet demand.  The reality is that the vast majority of those 30 million people, laying out between $500 and $750 on an iPad, also didn’t buy a cheap PC.  The end result is that sales of low-end PCs are collapsing.  HP has made a decision to get out before the point of no return.  Considering what’s happening, Dell and Lenovo (neither of which have viable iPad competitors) are in the same boat.  Consumers are buying iPads in droves and this pattern is going to have a direct impact on the cost of IT in business.

Within three years (probably less), businesses won’t be able to buy cheap PCs.  Consumer purchasing trends dictate what options businesses have for deploying technology to their employees.  What will it mean to a business when the only ‘PC’ they can buy costs $2000?  $3000?

Apple continues to push the envelope of what a tablet is, and what it can do.  At this point, tablets are not an adequate replacement for content creators.  For everyone else though, iPad is bringing appliance computing to regular people.  Low hardware costs, low training costs, low support costs, and low software costs (the App Store is the bane of high-priced suite software, but that’s another story).  Over time, iPads will be able to do more, talk to big displays and perhaps offer a desktop-class work environment.

The big question is how long will it take before iPads completely replace high-cost PCs in the workplace, like the ones used by professionals and content creators?

The cheap PC is going away and HP’s about-face confirms that.  For you Mac users out there, I’ll close with a question:  what will happen when the average selling price of a PC matches the average selling price of a Mac?

I don’t think we’ll have to wait very long to find out.

Brian S. Hall’s post on Google failing to innovate pretty much sums up how I feel.  I couldn’t agree more with his assessment of what Google has become and the sinister business model they’re trying to execute:

http://brianshall.com/ 

Warning: some language in his post isn’t fit for work.  However, I think the general idea that Google buys and copies -and no longer innovates, is bang on.  I’ve been very critical of Google in the past year or so.  From where I stand, It’s like their corporate culture developed in a self righteous bubble devoid of morality:  Zero respect for intellectual property unless it’s theirs; zero respect for content rights unless they created it and; continuous double-speak in an effort to look like a victim or good-guy, while doing everything it can to undermine anybody who doesn’t subscribe to their lowest-common-denominator world view.

If you disagree with my assessment, that’s cool, but either way, pay attention to the mountain of lawsuits against Google and its Android OS -49 and counting.  They’re in a lot of trouble and they created it themselves.  I predict that Android will become very expensive to license once Google settles with Oracle, Apple, Microsoft and others.  And regardless of how many copies of Android are out there, depending on the damages awarded or injunctions imposed, it might go the way of the dodo bird.

Google’s recent behaviour with the Nortel patent auction is very telling.  They start the bidding just shy of US $1b, are offered to join a consortium with Apple and Microsoft but refuse, and then when they lose the auction, they complain that everyone is banding together in a conspiracy to destroy Android.  The simple truth remains, however: Google wanted those patents for themselves and were not interested in cross-licensing any intellectual property.  If that sounds familiar, it’s because the same thing happened when Google decided to copy Java and not pay licensing to Sun (now Oracle).  Just days ago, evidence was presented in the Oracle vs. Google suit that Google executives made it clear to Larry Page and Sergey Brin that Android indeed infringed on Java IP and that they should license it.  Google chose not to, and now they’re being sued by a company much larger, with deeper pockets and a massive patent portfolio.  I can’t feel sorry for anyone who pokes a dog with a stick and complains when they get bit.  I use that analogy because to me, it feels like Google is acting like a child.

When your unwillingness to share, results in you losing the thing you wanted, don’t complain to the world that it’s unfair.

In the end, there’s only one reason Google wanted Nortel’s patents to themselves:  They know Android infringes on valid and original patents held by their competitors.  Google doesn’t have a deep patent war chest as it’s a young company.  It needed those patents to defend itself and now they’re owned by the people already suing them.

I hope Google reaps what it sews and faces facts.  You can’t rip off people’s ideas and give them away for the purpose of creating a platform for your products and services.  As software developers, we feel exactly where Oracle, Apple and Microsoft are coming from.  The patent system is not perfect and needs reform.  However, it’s obvious that it’s still required because companies like Google are actively copying their competitors, refusing to pay licensing fees and making a profit in doing so.

What’s happening to Google is not a case of open vs. closed systems, or patent trolls, or conspiracies.  It’s about companies who actually produce original ideas, products, and services being entitled to protect their investment and get paid for their hard work.  Google needs a reality check and I think it’s coming.  Soon.

It occurred to me recently that something disturbing is at the core of Google’s business model and overall strategy.  I’m not talking about specific products like Android, Google Docs, Chrome, etc.  I’m talking about Google’s practically singular source of revenue: Advertising.  Advertising is the only thing that makes Google any money.  Most would agree that an overarching aspect of Google’s model is to push advertising via free offerings like email, chat, productivity suites, even mobile phone operating systems.  Products like Gmail, platforms like Android, and services like YouTube exist almost entirely to create millions and billions of portals into the Google advertising and algorithm machine.

If you consider the products Google makes and the services Google offers, one ought to consider what is ultimately most valuable to Google as a company.  It’s not the products and services themselves, it’s Google’s advertising, integrated at a deep level, that’s valuable.  Advertising is extremely important to Google because officially, that’s where 99% of the company’s revenue comes from.  In fact, Google doesn’t want to be in the business of selling anything except advertising.

And there’s the trouble.  Google ultimately sees premium content the same way it sees the products and services it gives away: A conduit to advertising views and the collection user data.  Ultimately, Google’s business model seeks to devalue Internet based products and services through advertising.  Their business model seeks to devalue content and creativity in the exact same way.

So why is that problematic?  Why would having access to all the music, movies, tv shows, books and magazines for free be a bad thing?  Because devaluing content will also devalue the people that produce it.  Looking forward, if all the content you consume was ‘free’, our society will cease to value musicians, actors, writers, singers, even athletes.  If premium content becomes nothing more than an avenue for advertising, and Google becomes its gatekeeper, what motivates talented people to challenge the status quo with their creativity?  Not much if Google’s the only one making any real money.

The current market for TV shows, movies and music is far from perfect.  Artists are paid too little while studios and labels pull down big bucks for minimal effort.  But, at the end of the day, people pay to watch and listen because only a select few among us are talented enough to entertain.  I pay for songs because I can’t sing and I love music.  I pay for movies because I can’t act and want to be entertained.  Most creative people do what they do because they love it.  Money is a side-effect.  But without significant reward, exclusivity or prestige, why would anyone become a musician or an actor?

I think ad-supported products, services and content have their place as loss-leaders.  But at the same time, many people chose to pay for things so they can avoid advertising entirely.  Google wants to create the expectation that advertising is attached to everything you consume. And then there’s the issue of quality: most of the music, TV shows, movies and books out there, frankly, aren’t very good.  But some if it is just stellar and that keeps us coming back for more.  Ads are the same way - most of them suck, with only a few being either entertaining or otherwise captivating.

Google wants to create an environment where you can’t escape advertising because you can’t do without its offerings.  I get the model, but I have little interest in seeing Google devalue content while permanently marrying ads to everything I listen to, watch or read.  Google’s model is in direct conflict with artists that seek to be rewarded for their talents and anyone who seeks to consume or own content divorced of advertising.  Fundamentally, I think Google’s model will ultimately fail as people realize that good content is and always has been worth paying for -and that most of us want less advertising in our lives, not more.

So, does Google’ value content?  Short answer: No.  The only value that content provides to Google is advertising views.  Google as a content gatekeeper is scary.  As a company of engineers, they have no appreciation for art, design or creativity you can’t capture in code or math.  Google doesn’t understand creative people or the value they create in our society. Because of that, they will fail to convince the world that everything should be freely available, generic, typical, and polluted with ads.  Google doesn’t set out to create the best products and services.  They set out to be a dominant provider by offering a lower standard that costs little to nothing.  That future sounds awfully boring and drone-like.  Ultimately, that’s not a future people want.  Google’s in for a shock once people realize that ‘free’ actually has a very high price tag.

Sooner than later, there’s going to be some serious fallout in the mobile phone industry.  At this moment, Apple commands approximately 7% of the global mobile phone market.  This includes non-smart phones or ‘end & send’ phones.  The crisis brewing is not that Apple has 7% market share, but that it now rakes in 57% of the mobile phone industry’s profit. We’re on the verge of mobile phone manufacturers shutting their doors just as iPod competitors did over the past ten years.

In fact, Apple’s share of the phone industry’s profit has increased from 47% this time last year to 57%.  So think about it this way: 93% of phone market has to fight over 43% of the profit left over from Apple.

I wrote in one of my past blog posts about how this scenario will have drastic consequences on the mobile phone industry.  To paraphrase my earlier assessment: No company can survive on unit sales.  If you’re not profitable, life in business is short.

More troubling than Apple owning 57% of the phone industry’s profit is that they’re doing it with premium devices.  The iPhone costs between $99 and $299, yet competes well against phones costing as low as $0 with a contract.  People who pay good money for phones are the same people who pay good money for apps, music, movies, TV shows and books.  So not only is Apple more profitable by an order of magnitude than its competitors - Apple retains the customers it wins by way of its massive eco-system.  Developers continue to gravitate to the App Store because they’re making money.  The eco-system in turn drives device sales. This is something Apple’s competitors still haven’t figured out.

I have no doubt that before 2011 is out, several phone manufacturers will bow out of the market and that even the biggest ones (read: Nokia) will be sliding into oblivion.  This scenario is exactly the same as what Apple managed to pull off with the iPod, yet companies like RIM, Nokia, HTC and Motorola don’t seem to understand that they’re finding themselves in Creative and Microsoft’s shoes from the last decade.  Those companies didn’t react to Apple and its business model fast enough and ultimately canceled their iPod-competing products.  With phones, it’s only a matter of time before R&D stops, and even the best efforts of sales people and marketers fail to compete with Apple.  We’re almost there.

Expect to hear some stark news coming from the likes of Nokia, RIM, HTC and Motorola in the coming months.  The gravy train is about to pull into the station because it’s out of fuel.  At the end of the day, no company can operate without making money and this has been happening for well over a year now.  Apple’s share of the market continues to increase where even a single percentage point eats a lot of someone else’s lunch.