Daily Archives: January 5, 2010

Android Versus iPhone: The Illusory Cage Match

Earlier today, in a post regarding Apple’s acquisition of mobile-advertising company Quattro Wireless, I touched on the different approaches and objectives that Apple and Google bring to the smartphone marketplace.

As I mentioned, it’s fashionable to see Google’s Android-based handset, not to mention the handsets of its Android-based partners, as a cage-match warrior in mortal combat with Apple’s iPhone. It’s a facile metaphor, though, and it doesn’t help us gain a deeper understanding of the actual dynamics at play.

In truth, Apple and Google might have products and services that compete, but they are not in a zero-sum struggle for survival. Not even close. To the contrary, closer inspection reveals that Apple and Google have different approaches, philosophies, and objectives in the mobile world.

Apple wants to make money from everything it does. It closely manages and controls practically every aspect of the iPhone experience, and it wants to generate margin from the device sale, from application downloads at the AppStore, and from content downloads at iTunes. It would like to get a piece of advertising revenue, too, which is why it bought Quattro.

Google, on the other hand, is focused overwhelmingly on extending its advertising empire to smartphones. It will push text ads, displays ads, and any other ads that make sense in a mobile context. To do so, it has come to the conclusion that it needs its own mobile platform, which is where Android enters the picture.

Now, if you consider these two very different companies and their distinct perspectives on the mobile market, you can easily envision circumstances in which Apple and Google each prosper in their respective spheres of influence.

That’s just what Bill Gurley has done over at abovethecrowd.com. In a cogent, eminently readable piece that advances logically and patiently to its conclusion, Gurley explains why Apple and Google aren’t on a path toward mutually assured destruction, despite what the hyperventilation and sensationalism of some commentators might lead you to believe.

Gurley begins by examining the claim from a Morgan Stanley analyst that “Apple is playing is to become the Microsoft of the smartphone market.” By end of his post, he’s refuted that assertion, contending instead that Google is aiming for that distinction.

All of which leads to the obvious question: Where does that leave Microsoft? As I’ve explained before, to the extent that there is a so-called smartphone war, Microsoft has suffered the greatest losses. Google has pillaged Windows Mobile handset licensees and left Microsoft with one last chance, represented by Windows Mobile 7, to redeem itself.

Some reports suggest that Windows Mobile 7 will not ship until the fourth quarter of 2010. That could be a case of far too little, far too late.

ESPN to Go 3D

I wrote yesterday about the marketing push behind 3D television. Understandably, consumers, even in the best of times (which these are not), will be reluctant to part with their hard-earned cash for a 3D television set unless they have a reasonable expectation of being able to use it for the enjoyment of 3D content.

For that to happen, consumers would have to make investments in 3D Blu-ray players, and they’d want 3D movie titles, delivered by DVD or over the Internet, from the film industry. They’ll also want to see support for 3D content coming from television channels and networks, as well as from their cable and satellite providers. Presuming that’s made available, consumers also might have to purchase new 3D set-top boxes.

Essentially, for 3D to become an attractive proposition in the living room, all the vendors in the ecosystem must work together to provide a compelling, seamless experience to the consumer — from hardware and content availability to content distribution and delivery.

Then, of course, they’ll have to hope the consumer is willing to tolerate the inconvenience of having to wear 3D glasses to partake of the in-home spectacle. That’s the last hurdle, and perhaps the biggest one. Even so, I wouldn’t want to underestimate any of the other challenges. If 3D is destined to become a cash cow for all the industry players in the food chain, everything must come together in perfect synchrony. Anything less will result in failure.

Fortunately for the nascent industry, ESPN is jumping aboard the bandwagon. 3D movies have obvious appeal to a mass audience, but sports entertainment is a huge business in its own right. What’s more, most major sports events — football, soccer, basketball, hockey, baseball — could arguably benefit from the 3D treatment. Having accurate depth perception, much less protrusive visual effects, would enhance viewing enjoyment of, let’s say, the World Cup soccer tournament.

ESPN obviously agrees. It is one of the organizations, to which I alluded in yesterday’s post, that has done extensive research into consumer acceptance of 3D television. It now has decided to launch ESPN 3D, which will provide at least 85 live 3D events in a one-year span, starting on June 11 with the broadcast of a World Cup soccer match between South Africa and Mexico.

Other soccer games likely to be part of the broadcast mix, as will Summer X Games (extreme sports), NBA games, college basketball, and college football. ESPN will not provide reruns of sporting events. When there are no live events to show in 3D, the channel will remain dark.

Will 85 (or slightly more) live events be enough to make the channel a commercial success? Will they be sufficient to motivate consumers to take the plunge on 3D home entertainment?

One wonders about how the channel will be priced for subscribers, and about how many cable and satellite providers will pick it up and on what terms. Consumers will be sensitive about paying a subscription charge for a channel that’s available on a part-time basis, as well as one that carries only some content in which they might have strong interest. After all, it’s a rare bird who’s interested in World Cup soccer, X Games, the NBA, and college sports.

According to a USA Today news item, ESPN expects deals with distributors will be in place prior to the channel’s launch. It’s not only availability that will matter, though, but also the terms of that availability. It will be interesting to see how ESPN shares risk with, and potentially defrays costs for, its distribution partners, who might be reluctant to pick up the channel without a reasonable expectation of success.

As the USA Today article mentions, 3D broadcasts cost more than high-definition productions. You need two cameras (or specialized 3D cameras) rather that one, for instance, and you have think about whether camera placement should be different for a 3D production than for conventional sports coverage. The USA Today article notes that broadcasters might require a separate set of announcers for 3D productions, but I’m not sure I agree. It should be possible to use a single set of announcers in the broadcast booth, presuming there’s enough space for the additional camera equipment.

One interesting aspect to this story is that ESPN is committing to the 3D network only through June 2011. At the end of one full year of operation, ESPN will decide whether and how to extend the service.

Will ESPN keep the service going? It all depends on how it’s received in its first year. If I were forced to make a wager on the outcome, I’d say ESPN 3D doesn’t get renewed.

I’m not sure 3D home entertainment is ready for prime time, and I’m not confident that cash-strapped American consumers have the disposal income to upgrade from the HD gear they’re just now beginning to enjoy on a regular basis.

Apple’s Uncharacteristic Acquisitions Speak Volumes

Although Apple has nearly as much cash on hand as Cisco Systems, it is not a company known for acquisition-fueled growth. Instead, Apple has grown organically, through its own research-and-development initiatives. Apple has a flat, lean corporate structure and unique corporate culture, both of which militate against acquisitions.

Lately, though, Apple has been going against form. In December, it bought Lala, a digital-music service, for an undisclosed sum. A year earlier, it bought PA Semi, a designer of low-power microchips, for a reported $278 million.

Admittedly, that’s not a blazing pace of acquisitive activity. Still, while some companies are more casual with their acquisition strategies, Apple only pursues such deals as a last resort. When Apple buys a company, you know it’s because the folks in Cupertino felt they had absolutely no chance of building a viable alternative within a reasonable timeframe. You also know that Apple must have genuinely and strongly believed it needed to play in a particular space.

All of which brings us to today’s news, brought initially to light by AllThingsDigital. According to Kara Swisher, Apple will acquire Quattro Wireless, a mobile-advertising company, for approximately $275 million.

Launched in 2006, Quattro had received about $28 million in aggregate venture-capital investment from Highland Capital Partners and GlobeSpan Capital. Based in Waltham, Mass., Quattro was on a revenue run rate of $50 million, according to the Boston Globe. Quattro has about 150 employees, who are expected to remain in Waltham.

The Boston Globe reports that the deal closed before the end of 2009. It says Quattro is expected to notify its partners and customers of the transaction today, though there’s no word on when Apple will make a formal announcement.

In the wake of this deal, many observers will immediately point to the increasingly adversarial relationship between Apple and Google, formerly on friendlier terms, even with cross-pollination at the board level. While that’s an aspect of the story that bears notice, it’s also important to maintain a broader perspective, to resist seeing everything that happens in the industry as a cartoonish cage match between bloodthirsty foes.

Yes, Google recent announced an agreement to buy AdMob for $750 million, outbidding Apple in the process. Now Apple has responded by acquiring Quattro, an AdMob competitor.

However, Apple didn’t bid for AdMob or acquire Quattro because of a vendetta with Google. Apple doesn’t do acquisitions on a whim, and it doesn’t pursue them just to keep a property away from a competitor. Apple pursued both deals for reasons of its own, reasons having far more to do with its own strategic plan than with a preoccupation with Google.

Still, both companies see the same opportunities in mobile advertising. Each company has its own strengths it can leverage. For Google, the predominant player in search advertising, mobile advertising is the next frontier. It developed its Android mobile operating system as a platform for that push. For Apple, mobile advertising is an untapped source of potentially rich revenue in mobile communications and entertainment, realms in which it has established market leadership with its iPhones, iPods, iTunes, and AppStore.

While Apple and Google have intersected in competition, they’ve taken very different paths, with very different motivations and rationales, in reaching this juncture.