Christopher Herot's Weblog

iPhone will not be an open platform

In an interview Steven Levy reported in Newsweek, Steve Jobs said:

You don’t want your phone to be an open platform,” meaning that anyone can write applications for it and potentially gum up the provider's network. You need it to work when you need it to work. Cingular doesn’t want to see their West Coast network go down because some application messed up.

Either he's never heard of the Palm Treo which has supported independently-developed software applications for years without gumming up anyone's network, or the iPhone is peculiarly vulnerable to malware.

John Markoff in the New York Times observed that Jobs may have forgotten that a similar attitude about keeping the Macintosh closed led to his ouster from Apple in 1985:

Indeed, when the Macintosh Computer — which, like the iPhone, was designed by a small group shrouded in secrecy — was introduced in January 1984, it was received with the same kind of wild hyperbole that greeted the iPhone this week. But a year later, the shortcomings of the first-generation Macintosh cost Mr. Jobs his job at the company he had founded with his high school friend Stephen Wozniak nine years earlier.

In light of the iPhone’s closed, appliance-style design, it is worth recounting the Mac’s early history because of the potential parallel pitfalls that Mr. Jobs and his company may face.

Despite its high price of $2,495, the Macintosh initially sold briskly. But Mr. Jobs’s early predictions of huge sales (on Tuesday, in a similar fashion, he set a goal for the iPhone 1 percent of the world’s cellular phone market, or 10 million phones a year, by the end of 2008) failed to materialize.

The Mac’s stumble was in part because of pricing and in part because Mr. Jobs had intentionally restricted its expandability. Despite his assertion that a slow data connection would be sufficient, the gamble failed when Apple’s business stalled and Mr. Jobs was forced out of the company by the chief executive he had brought in, John Sculley.

Of course, Apple did open up the Mac.  With the addition of a hard-drive (something Jobs had fought against) and software from Microsoft (notably Excel) the Mac became a huge success.

One can hope that a similarly enlightened approach will obtain with the iPhone.

P2P and the Efficiency of the Music Business

Seth Belzley has an article in the most recent Virginia Journal of Law & Technology on
Grokster and Efficiency in Music.  You may recall Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. as the US Supreme Court decision that held the Grokster second generation peer-to-peer file sharing  system responsible for copyright infringement by virtue of the way the service was marketed.  Notably the court did not outlaw P2P file sharing per se, which is a balance Belzley says is exactly right.

Belzley illuminates the difference between wealth and welfare.  They are both measures of public good, but wealth is necessarily measured in dollars while welfare encompasses more intangible qualities.  In Belzley's analysis, P2P technology may reduce the revenues to the record companies (wealth) but may actually makw music more widely available (welfare).  He makes a compelling case for how the reduction in the former may not necessarily reduce the total production of music, since most musicians never see any royalties anyway.

IPTV vs. Internet Television

The recent Streaming Media East in New York brought into focus the difference between two seemingly similar terms, IPTV and Internet Television.  Both refer to the use of Internet Protocol and associated technologies to deliver video to consumers.  Both imply that the sound and images are in digital form on their way from the camera to the screen.  But while the technologies are similar if not identical, the business models and thus the user experiences are very different.

IPTV, as the term was used at the recent NAB Conference, is an upgrade to the cable TV business.  It preserves the existing model of content producers, channels that aggregate content (e.g. HBO), cable headends, wiring, and set-top boxes.  The difference is that computer technology is used in the distribution process down to, and including, the set-top box, allowing a number of new services to be provided, such as video on demand and personal video recorders.  While the content could theoretically be viewed on a variety of devices, most IPTV schemes include a set of tightly controlled, overlapping digital rights management (DRM) systems, to ensure that the content is only used in an approved manner.  These systems go as far as encrypting the links among devices so, for example, only an approved screen can be connected to an approved tuner.  This has the practical effect of limiting IPTV to two comparatively closed environments: home TV sets and mobile phones.

In contrast, Internet Television, as described by Jeremy Allaire in his keynote, is the distribution of video on the public Internet.  While some of the content comes from the same sources that supply conventional TV, such as Comedy Central, there is also a long tail of more niche-oriented content, such as Shipwreck Central and the type of stuff found on YouTube.

The business models resemble cable TV in that there are producers, distributors, and consumers, but the hardware, software, and payment options are far more varied and, some would say, unproven.  To the extent that money changes hands, it is mostly for advertising, although various types of subscription and pay-per-view are also possible, and much of the material is offered as a means of promoting content in other venues.  For example, when Beth Lewand of Comedy Central was asked how they felt about clips of their material showing up on YouTube she replied that their feelings were "very mixed."  While they do want to protect their revenue opportunities they also see the promotional value of having their material widely distributed, especially if it can be branded in such a manner as to draw people back to their site and to the cable shows.

The synergy among different formats is becoming more important in a world where digital video recorders such as TiVo are widespread and the consumers have more choice about what to watch.  According to one panelist, at this year's Upfronts where the TV networks present the fall line-up to the ad agencies, the agencies were not interested in a show unless it also came with an interactive Web experience.  In an age where viewers can fast-forward through commercials, and where the young demographic most attractive to advertisers are all digital natives, the PC screen may be the place where advertising may be more effective.

Which brings us back to the issue of DRM.  While both IPTV and Internet Television provide for ways to control how content is stored and used, the IPTV world is obsessed with the idea of total control over every aspect of distribution, storage, and viewing, creating a closed universe of trusted devices, where none of the content can leak out in to the dangerous world of the PC where users can not be trusted to lean back passively on their couches but instead are likely to rip/mix/burn and otherwise personalize the content for their own use.  From what I saw at the conference, the people who produce the content seem to understand that accomodating their viewers and allowing more flexibility will be good for their business and perhaps essential for their survival.  On the other hand, the cable and telephone companies, who were conspicuous in their absence, may find that their rigid, proprietary systems may not deliver them the returns they expect.  To the extent that they can't lock customers in with DRM, they will fight back by witholding bandwidth, but that's a topic for another post as the network neutrality debate heats up.