Application developers swarm to iPhone

Call it the iPhone economy.

Apple's soon-to-open online App Store has triggered a scramble among software developers to write business plans aimed at making money off Apple's iPhone, a mini-computer that doubles as a phone.

"I'm seeing an excitement among mobile developers that I've never seen before," said Sam Altman, chief executive and co-founder of Mountain View-based Loopt, a location-based social networking service. "People who said they'd never start a mobile (applications) company because they didn't want to rely on the carriers are now starting companies focused only on the iPhone."

Apple recently provided the tools engineers need to create applications for its popular mobile device. The Cupertino company said some 250,000 iPhone software development kits have been downloaded. The App Store Web site, where applications will be sold or given away, is expected to launch soon, perhaps July 11 when the faster next-generation iPhone goes on sale.

Apple could be creating a billion-dollar industry built around the iPhone, said Piper Jaffray analyst Gene Munster. In a recent note to investors, Munster wrote that the App Store could create a $1 billion-plus iPhone ecosystem by the end of 2009.

Last week, 5,200 software developers packed San Francisco's Moscone Center for Apple's annual Worldwide Developers Conference. For the first time, mobile software writers were invited. Apple offered a taste of the types of services iPhone owners could experience very soon, including near real-time updates and video from Major League Baseball, sophisticated location-based social networking that allows people to find friends, and video games in which users play by tilting the iPhone.

Munster said the applications were "more powerful and attractive" than anything he'd seen on a mobile device before.

What excites many developers are the iPhone's capabilities and its "stable" software platform, which makes writing programs for it relatively easy and quick.

The iPhone "puts the Internet in your pocket, whether it's e-mail, whether it's Web browsing, whether's it's YouTube," Apple vice president Greg Joswiak said. "The entire Internet is in your pocket."

The iPhone's capabilities are sure to become even greater after Apple rolls out its newest version, dubbed 3G for "third generation," which company CEO Steve Jobs says will operate twice as fast as the inaugural device, released just a year ago.

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What a Combined Microsoft-Yahoo Would Look Like

Microsoft’s $31 a share offer for Yahoo is made possible by Yahoo’s slumping shares (Yahoo’s stock was trading at about $31 a year ago). While Yahoo has rejected Microsoft’s entreaties in the past, with Terry Semel stepping down as chairman of the board yesterday, things might be different this time. I ran some quick, back-of-the-envelope numbers to see what a combined Microsoft-Yahoo would look like financially, and how it would compare to Google.

msftyhoo-table.png
* Microsoft figures are trailing four quarters and headcount is from June. Search figures from comScore.

Those headcount numbers and operating expenses could be cut significantly. Microsoft says it can shave at least $1 billion from operating expenses in a merged company.

The real impact to Microsoft, though, is not visible in these numbers because Yahoo represents a new growth opportunity for Microsoft in advertising revenues and online services. During the last four quarters, Microsoft’s revenues for its online services (MSN, Windows Live, aQuantive, etc.) were $2.8 billion and it lost $949 million. So just combining Yahoo with that business, you get revenues of $9.8 billion, but Microsoft would still be showing a net loss for that business of $289 million.

But this is an advertising play for Microsoft. It wants to combine the scale of its recently acquired advertising networks with that of Yahoo’s, along with Yahoo’s vast consumer reach (which is appealing to advertisers, who see all those eyeballs as valuable inventory).

On the conference call explaining the deal, Microsoft CEO Steve Ballmer general counsel Brad Smith points out with glee that, while other companies may make competing bids for Yahoo, one company that clearly can’t is Google. Citing a 75 percent market share in the paid-search advertising market worldwide, Ballmer asserts, “Google is prevented by antitrust laws from buying Yahoo.” (He should know, he does have some experience with antitrust laws). At the end of the call, CEO Steve Ballmer said that another driver behind the acquisition is to move Microsoft towards a more Web-based software-as-services company:

The Windows user wants to be live. There will be a Windows Live. There will be an Office Live.

Yahoo clearly has some strengths in this area, with its continued evolution of Yahoo Mail, acquisition of Zimbra, and other initiatives.

Update: Here are some numbers from Hitwise on the combined traffic reach of Yahoo and MSN properties. Together, they have a 15.6 percent market share of Internet traffic in the U.S. , compared to 7.7 percent for Google properties. But Google still has double teh market share in search of both Yahoo and Microsoft combined.

Small Is Beautiful

Glyn Moody of Digital Life essays the affect of the Asus Eee PC and other low-cost ultra-portables on the fortunes of Microsoft in the article Why Small is Beautiful.

As he noted, until the Asus Eee PC burst into the picture, Linux was perceived as being too complicated to ever become mainstream. The Eee PC's Easy Mode revised that perception, and with the product's success, enabled Linux to gain market acceptance with the average user - a very significant breakthrough given Linux's lack of retail history.

Asus expects to sell 3.8 million units this year alone. That's 3.8 million reasons to force Microsoft to buddy up to Asus and encourage it to bundle Windows XP as well. But because Windows XP requires considerable more computing power, Asus had to beef up the models that will be bundled with the Microsoft OS. Consequently, the Windows-based models will generally cost 30% more than comparable Linux-based models. The disparity will increase more if Microsoft replaces XP with Vista as originally planned.

What is even more worrisome for Microsoft is that several companies have introduced products intended to compete with the Asus Eee PC - all using the same production model, specifically the choice of Linux as the bundled OS. As a Sony executive put it, it is a race to the bottom, referring to the downward trend in price.

And that downward trend in hardware price invariably means a downward trend in software price. The pressure is even greater in developing countries, where the low-cost ultra-portables have huge appeal, so much so that Microsoft has started to sell Windows for about USD3 as a means to discourage sales of pirated copies. Obviously Microsoft's profit margin is taking a huge cut, and this could eventually affect how it conducts its business, including plans for buying out other companies.

But the more lasting effect is that if the low-cost ultra-portables succeed in establishing Linux as a mainstream OS alternative, Microsoft will find itself competing with open source software that are essentially free. That indeed, is something to think about - especially for Microsoft.

Cuba lifts mobile restrictions

Cuba on Friday announced it is to allow all Cubans to own and use mobile phones for the first time, as part of recently-selected leader Raul Castro's initiative to lift restrictions on consumer electronics, according to press reports.
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"Priority will be given to the municipalities with the lowest phone density and to areas with more than 300 inhabitants that are still lacking a telephone service," said a report in Cuba's Granma.

Phones will be offered on prepaid contracts in convertible Cuban pesos (CUCs) – essentially a tourist currency - which, according to Reuters are worth 24 times more than the Cuban pesos in which ordinary wages are paid.

A report by the Associated Press said that although Cuba's Communist government provides people with free housing, healthcare and education, and food ration cards, the average monthly salary is just below $20.

Still, state telecom operator ETECSA Friday said the lifted restrictions will pave the way for an investment programme which will be used to extend telecommunications services across the country, which are already available in ordinary pesos.

"It was an obvious measure. There will have to be more like it to get rid of the thousand and one obstacles that make life bitter in Cuba," said 23 year-old university student Jofre Valdes, in the Reuters report.

Until now, mobile services have been restricted to foreigners, and government officials and employees.

However, some Cubans already have handsets registered under names of foreigners or their companies.

Since succeeding his ailing older brother Fidel in February, Raul Castro has pledged to lift restrictions on the lives of ordinary Cubans.

Indeed, from next month, ownership of computers and DVD players will also be permitted.

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Telecoms takes on the IPTV challenge

IPTV has been acknowledged as a strategic priority by fixed-line operators across Europe for many years, but to date only a relatively small contingent of European operators have succeeded in offering viable IPTV services.
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There's no doubt that IPTV offers opportunities that operators cannot afford to miss.

For some commentators, however, IPTV represents much more than a way for operators to redress a downturn in revenues by offering a new set of standalone services. According to this worldview, traditional wireline operators have two choices: reinvention as a converged content and service provider; or reduction to a commodity supplier of the infrastructure – the pipes - that other companies will use to make the real money.

IPTV can serve as one of the cornerstones of IP-based entertainment-on-demand offerings that will not only allow operators to deliver high quality television services, but also deliver Video on Demand (VOD), Subscriber Video on Demand (SVOD), messaging, Internet access, music streaming and interactive gaming, all accessible through a single end-user device. These offerings can also be integrated with traditional communications services to deliver a variety of enhanced features, such as displaying phone-caller-ID on the television screen, and automatically pausing the VOD movie when the phone is answered.

Certainly, IPTV is still a market that has yet to achieve anything like its full potential. According to research by Screen Digest, European IPTV subscriptions should have almost doubled in 2007 to reach 5.6 million. Screen Digest also predicted that IPTV revenues would grow to over €1 billion from €470 million, with the U.K. contributing the fastest growth - a 250% increase (to 300,000 subscribers from 80,000).

However, since IPTV made its first appearance on operators' planning agendas, the market itself has undergone substantial change. There are more players from different sectors now competing for their share, increasingly with notable success. There is also a growing recognition that realising IPTV's true potential will require creative packaging and bundling with other communication services. All of which underlines the fact that operators have little time to lose if they want to make an impact on the IPTV market.

Operators already have many of the attributes needed to support an IPTV offering within their existing business and technology frameworks. They have robust and reliable network capabilities backed with experience in network management. They also have many systems and processes that support a customer-focused culture that will be of value in supporting an IPTV infrastructure. Looking longer term, the insight operators have into customer needs and expectations could fuel development of creative converged offerings and personalised content and services that are seen as defining the next evolutionary stage in IP-based services.