The bottom line is that Google had to do something.  After having lost the Nortel patent treasure trove and facing an increasingly litigious Apple, Google’s options were limited.  The fact that Apple was able to gain an injunction against Samsung’s Android-based Galaxy Tab in Europe forced Google’s hand.  Google had been sitting on the sidelines while the Android licensees were bearing the brunt of the legal expenses, and risk.  Google has responded with a resounding play.  This acquisition very much levels the patent playing field over which so much is at stake.  (I won’t get into what I think about this whole patent situation but it’s clearly gone horribly awry, from protecting innovation to stifling it.)

Sure the licensees can’t be happy about having to compete with their technology provider.  That’s never a good situation.  However, I think Google should largely be able to assuage their concerns and in fact, I don’t think HTC and Samsung are the biggest target of this acquisition.  Google continues to need them to provide a rich ecosystem of devices behind Android.  And besides, Samsung and HTC are kind of stuck.  What are they going to do?  Throw their weight behind Windows Mobile?  That situation is no better and Google’s acquisition here may even force Microsoft into buying Nokia or RIM.  WebOS?  Nope.  This is still their best bet and they’re likely to be able to compete effectively with Google/Motorola to deliver compelling handsets, assuming some semblance of a level playing field, which I expect to be the case.

Google’s acquisition here really targets two other segments of the mobile space:  Apple and the carriers.  The patent battle with Apple is now on much more even footing although the real winners here are likely to be the lawyers who now get to sort this all out.  As regards the carriers, Google had to be envious of Apple’s ability to pretty much call its shots with regard to full hardware and software design.  Google had to do much more to kowtow to the carriers’ backwards notions of how things should be brought to market.  Now Google can deliver against its own vision even while Samsung, HTC and the others can get cozier with the carriers, dealing with the double-edged sword of carrier favoritism.  That favoritism clearly benefited Motorola with the original Droid launch.  Now we’ll get to see how much that might benefit HTC and Samsung as against Google’s unified vision but potentially weaker carrier relationship.  Google has clearly been trying to develop direct customer relationships beyond the control of carriers; now they have that chance.

Underappreciated in this deal is Motorola’s cable set top box business.  Motorola and Cisco/Scientific Atlanta are the dominant leaders in this space.  (I actually worked for General Instrument back in the middle 80′s, before Motorola acquired it.)  Google clearly continues to struggle with Google TV and its partners have recently slashed the prices of their devices, down as low as $99 (from $299).  All of a sudden, Google TV now has a major market share.  Of course it will take years for this to fully manifest itself as cable box life cycles are pretty long.  (When’s the last time you changed cable boxes?  Probably when you moved, if then.)  But the discussions Google will have with cable companies and TV manufacturers will change considerably after this acquisition.  All of a sudden, Google means more to them.  This might actually drive some business to Cisco but it also present Google with a unique opportunity to reshape its TV and media strategy.  I’ll have to give this one more thought.

Bottom line, this was a great and necessary move by Google.  The Android partners are not as happy as their press release comments indicate but they needed patent protection from Google and this is the best possible way Google had to accomplish that.  They can still compete effectively and anyhow, they don’t really have a choice.

• “Informed consent” is only reasonable where the individual involves is making an “informed” decision.  Are people really going to read the fine print before they opt in?  Of course not.  And even if they did, is Google going to manage things in a “do you really want to do this” fashion or are they going to say “great, you agreed, let’s move on and forget about what you’ve really just done here.”  They’ll do nothing to discourage participation.
• These things are a moving target.  Remember when you signed up for Facebook?  If it was more than a year ago, your privacy options were fairly limited then.  Only under extreme scrutiny and now the threat of governmental intervention has Facebook made its changes and defaults more open and user-friendly.
• We’re doing things we never thought about when we signed up for a platform.  Facebook at first was about connecting with “friends” and sharing status messages.  We’re now sharing pictures and, even more  intimate, location.  I’ve only friended people on Foursquare (a location-based service) who I care to have know where I happen to be.  I’ve got over a thousand friends on Facebook, some of whom I don’t care to have know where I’ve checked in and where I happen to be.  I’ve set up a group on Facebook called “location OK” and have only included those friends whom I’m comfortable having know where I’m located, and I’ve set my privacy settings on Facebook so that Places check-ins can only be seen by members of that group?  Have you done that?  Do you know anyone else who has done that?  Probably not.  You set up your settings for a use case that may no longer be the case, and haven’t adapted.  This “creeping  incrementalism” has made it easy for you to ignore this stuff.  Managing Facebook and Google is no longer simple.
• Deep integration.  You have no idea how much information you’re sharing across networks.  Every time you click “allow” to sign in with Facebook or Twitter, you’ve set up a data-sharing arrangement that goes well beyond what you ever intended.  Go look at your Twitter and Facebook settings and see how many people you’ve enabled to have access to your data and credentials.  I’ll bet you don’t even know what half of the things you’ve got in there are.  When I sign in like this, I change their default setting so that the approval is good for one day only.  Of course the default is “until revoked” which is polite language for saying “forever, because you’ll forget about this 10 seconds after you clicked it.”

As I said, I could go on and on.  So what’s going to happen here.  The scariest thing is that this mess has created a situation where the government’s going to step in to help save us.  Yikes!  Grandstanding politicians.  Just what we need here.  What we really need is for someone to create a really great privacy management tool that helps us manage all the complex relationships we’ve established and manage all the information we’re sharing in an easy-to-use, coordinated, centralized fashion.  Apple and Facebook and Google and Amazon are going to fight you at every step.  That leaves you, Microsoft.  Symantec?  Cisco (who needs to boost its consumer initiatives anyhow)?

Someone tell me a legitimate use case for this software, beyond stalking.  ”I should know their name but I forgot”?  ”They look familiar but I’m too embarrassed to ask”?  If this were anyone but Google (or other big players), I might ignore this app.  But Google?!  Do no evil??  This will be used for evil.

For those of you who don’t know, the New York Times is instituting a paywall whereby you can read a limited number of Times’ stories in any given month but to get more, you have to pay.  There are a few loopholes to the scenario, however.

• If you’re a subscriber to the dead-tree version of the newspaper (and I am), you have unlimited access via the web or mobile.
• If you come to an article via a social media link (e.g., Twitter, Facebook), you can access the article without regard to how many other articles you’ve already accessed.

Already there are innovators out there, coming up with ways around the paywall.  One Twitter user set up a feed that Tweeted all of the articles in the Times so that you could find all relevant links in one place.  Others are setting up Facebook groups.  The Times has responded by asking Twitter to take the feed down, although their objection was based on trademark misappropriation (the name included the Times’ name) and not on the basis of its content.  Of course, that’s the Times’s only recourse here.  It will be easy to reconstitute the feed via a defensible (and, I’m sure, highly retweeted) feed.

So, is this part of the Times’s strategy?  They knew the holes existed.  They knew people would exploit them in innovative ways.  So now, people are probably Tweeting Times’ stories way more than before.  I’ll bet their page views go up after the installation of the paywall.  So they’ll get some minor subscription money (from the suckers) but more importantly, they’ll preserve a few dead-tree subscribers (who now think they’re getting a better deal) and they’ll grow their page views because it’s now the forbidden fruit.

At a macro level, here’s what’s happening:

• These kinds of patent lawsuits are so common that I’ve almost stopped looking at them altogether.  Usually it goes like this:
  • Someone sues someone else.
  • The someone else counter-sues.
  • The two companies exchange patent cross-licensing agreements, usually with one side or the other having to kick in some cash.
• There’s a slight twist to the whole Android scenario, again though one that’s not uncommon.  Most of these patent lawsuits have focused on Android licensees and not the deep-pocketed Google.  It only makes sense to go after the weaker players, albeit ones with sufficient funds to pony up.

What are all these people suing in the Android space trying to accomplish?  It’s real simple.  If you’re trying to sell an operating system into a market where Google is giving it away, you need to make the OS appear not to be free.  In other words, you may not pay for the OS but by the time you factor in legal costs, your free OS all of a sudden isn’t so free.  Somewhere along the line, Google is probably going to have to ante up to help its partners by resolving all of these patent infringement issues.  It probably means Google’s going to have to write a check.  The good news:  they’ve got $34.9 billion in cash on hand and are printing more each quarter.  So much for the chilling effect on Android licensees.

What’s particularly interesting about the Microsoft/Barnes & Noble case is that presages interesting competition in the tablet marketplace.  Why should anyone be worried about Barnes & Noble or, by extension, Amazon?  The Barnes & Noble Nook e-reader actually runs on Android.  In effect, they’re selling a specialized Android tablet for $249.  How can they do that when the rest of the Android tablet marketplace is horribly overpriced as I’ve recently blogged?  Welcome to the new world of ecosystems and razors and razor blades.  Amazon and Barnes & Noble can sell these devices at low (or no) margin because the economics of incremental margin on the razor blades (books and other digital content) is so compelling and predictable that it pays to seed the market with devices.  That’s another reason why Apple, asides from supply chain efficiencies, can sell the iPad so competitively.  It can count on a reasonable income stream from the AppStore while in the Android space, those margins go to Google.

Yes, I know that the Nook and the Kindle are not general-purpose tablets.  Today.  But the color Nook is pretty darn close.  The Wall Street Journal’s Brett Arends even recently told readers how to turn their Nooks into tablets.  He overstated his case to make a point:  Barnes & Noble can do this easily and likely will.  If not, they deserve to follow Borders into bankruptcy.

Netting it out:

• Google is likely to have to share some of its profits with its ecosystem to cover legal exposures.
• Google is likely to have to share some of its app store revenues with partners.  Otherwise, the situation with competing app stores (already a fracturing standard) is going to get (much) worse rather than better.  They need to do this one quickly.
• In other words, Android tablets need to get cheaper and Google will have to share its app and advertising revenues to make that happen.
• Players like Barnes & Noble and Amazon can become strong players in the tablet marketplace because they have the economic model and ecosystem to compete with Apple.  Selling hardware alone is not much fun these days, and is only going to get worse.

Apple begat Android and for a brief period of time, we lived in a world where capabilities and platforms and ecosystems ruled, not carriers with their focus on profits at the complete expense of user experience.  We were already seeing how much carriers hated that world.  Have you seen the crapware loaded on your phone these days, crap that can’t be removed?  Look at Skype on Verizon’s Android.  I can download Verizon’s version of Skype (and not uninstall it after that), which not only just works on 3G, it requires that you turn off WiFi (so that no other applications can access WiFi while you’re Skyping).  I’ve never understood this but I’m guessing that Verizon is scared enough of Skype as a competitor that they want to give it minimal functionality.  This also means that I can’t use WiFi for Skype internationally, even while Verizon’s CDMA technology is deployed only in a few other countries around the world.  Oh by the way, I can download Skype’s version of Skype, but that works only over WiFi.

Get used to it.  This is the world we’re going to see.  We’re likely to see a trifurcation of the app store world.  Trifurcation?  Yes, we’ll probably see app stores emerge from the carriers since they’ll each impose their own requirements for apps to be certified for their networks.  At the very least, since both networks are likely to impose data caps, each with their own byzantine pricing structures, you’ll have to download the app that’s best optimized for the network pricing model.  (You’re going to love that one, app developers.)  And trifurcation?  Well, the cable companies have already banded together to offer unified WiFi in many markets (e.g., TimeWarner and Cablevision in New York City), to better compete against mobile/telco Internet/TV incursion.  We’ll likely see an app store emerge from there, with apps that are designed around a very different model, whereby you do your high bandwidth transactions when connected to WiFi, in an online/offline synchronize model as opposed to the mobile model of perpetually available bandwidth.

This is not progress.  This is not innovation.  In fact, it will stifle innovation and inhibit the deployment of broad-based mobile applications and infrastructure.  What can we do about this?  Not much, I’m afraid.  I’d love to say “write your congressman and write to the FCC,” but I’m not so young and naïve as to believe that would help much.  What would I like to see the regulators do here?  For starters, I’d love to see them disallow the deal on anti-competitive grounds.  If you believe the scenario I outline above is possible or even likely, this clearly is a combination in restraint of trade.  If they won’t do that, at least impose these regulations on the merged entity:

• Limitations on data caps for a period of 3-5 years.  Anyone with an unlimited plan at the time of the merger gets to keep that as long as they maintain a data contract with the carrier.
• A prohibition on a carrier app store.
• Limitations on the crapware installed on phones and/or the ability to remove it, at least after 90 days of phone ownership.
• Serious notifications of potential data overage where there are data caps.  We’ve only recently gotten that protection for call overages — long overdue, and prompted by European regulators, not ours.  In data, it’s much more insidious because we don’t always know when/how much data we’re using.  There should be onerous requirements on the carriers here, such that we can effectively meter our usage.  And there should be rollover of unused data.

I wish I believed any of this would happen, but I don’t.  Instead, I think we’re about to enter a period where the ironically named Long-Term Evolution (LTE) is actually a major step backwards on the evolutionary scale.  We’ll have faster speeds…and much less ability to exploit them in interesting and game-changing fashion.  It’s a shame that AT&T, who was once broken up by the regulators, is so adept at the regulatory game that it is about to win via acquisition what it could never win the open marketplace.

Some 20 years or so ago, in the early days of the Internet, marketing consultants Don Peppers and Martha Rogers came up with the notion of 1:1 Marketing.  The core proposition behind it is to treat consumers like individuals.  Sounds good, right?  Well, I think it has been a fool’s chase and I can’t begin to imagine how much money has been spent in its pursuit.  And the more data we accumulate, the further we get from being able to realize this “vision.”  What’s wrong with the vision?

• From a marketer’s perspective, you don’t need to get to 1:1.  Let’s use beer as an example.  What do you need to know?  Probably just my gender and IQ.  To make a gross generalization:
  • If female, then light beer.
  • If male and IQ>93, then imported beer.
  • If male and IQ<93, then Budweiser.
• From a consumer’s perspective, do you really care to have that close a relationship with your deodorant or your automobile?  At some point, it even gets creepy.  It’s just a deodorant for God’s sake, not a lifestyle expression (unless you use Axe).

Instead of 1:1 marketing, we — both sides of the equation — want sufficiently meaningful differentiation.  I’m not going to ® that term.  It’s not particularly catchy.  But that’s what serves both marketers and customers very well.  We don’t have to drive to deeper and deeper levels of differentiation.  We just need to get to some degree of meaningful differentiation.  Light beer or not?  Import cars or domestic?  Museums or baseball?  As brands drive to get finer and finer, bad things happen:

• Costs go way up to accumulate and process all the unnecessary data.
• You slow down your decision-making because you’re considering too many variables.
• You get further away from what the customer self-identifies as their relevant affiliation.  I’m a Mets fan (I know, I know) and identify as a whole with that group, not an upper-middle class, educated professional with two kids, a dog and, occasionally, a job.  When you differentiate me from the rest of the group on some vague 1:1 notion, you diminish your attractiveness, not enhance it.

As a consumer, I generally identify as part of a tribe.  Identify those meaningful tribes and market to them, not some ridiculous notion of 1:1 that we’ll never achieve and would never deliver on its promise even if we could.  It’s time to say “the emperor has no clothes” to this whole 1:1 marketing thing.  Social media has given it new life.  Stop it now.

It’s easy to dismiss these solutions in the short-term.  No, Amazon doesn’t have the library of a Netflix.  No, the Facebook experience isn’t optimized for long-form video consumption.  If, however, you dismiss these two based on these shortcomings, you’re missing the point.

Let’s look at Amazon first.  For Amazon, this is a shrewd, and necessary move.  Amazon Prime, which offers free two-day shipping for all Amazon purchases for $79/year, is increasingly irrelevant as Amazon’s book sales move to digital.  By the middle of last year Kindle sales on Amazon surpassed hardcover books, by the four quarter that extended to paperback books as well, and on Christmas day Amazon sold more e-books than physical books combined (although that number may certainly have been skewed by the number of people opening Kindles as presents that day).  Thus, it is clear that Amazon had to do something to enhance the value of Prime for its most valued customers.  Of course, Amazon sells much more than books so Prime still has considerable appeal even for those who consume their books digitally.  Amazon wins either way.  If you get value because of the free shipping offer, the availability of streaming video for no extra cost is a compelling value-add.  And if you’re evaluating the competing streaming video options, Amazon is cheaper than Netflix ($100/year) and offers more than just streaming.  (Here’s an interesting analysis of the customer overlap between Netflix and Amazon.)  What’s most notable about Amazon’s offer:

• It’s cheaper than the market leader, without any other considerations.
• It’s bundled with other value, making it appear free to a significant range of customers.

Facebook’s entry is much more limited and complex but longer-term perhaps more impactful.  Much more limited.  A single movie at launch, The Dark Knight (incidentally, one of my 10 favorite movies of all time).  But this one is much more potentially transformational.  So what’s interesting about Facebook’s entry here?

• While initially a standalone experience (and probably a sub-optimal one at that), given its market position I expect Facebook’s movie-viewing experience to rapidly evolve to a social experience.  From a marketing perspective, that talks to the viral potential.  More importantly, though, from a viewing experience, you could envision how Facebook could leverage its platform to increase the social elements in movie viewing in both synchronous and asynchronous fashions.  For instance, you might not only chat with other friends in real-time while you’re both watching a movie, you might also see the comments from other friends appear at the same point in the movie even if they’re not watching it at the same time.  Facebook can significantly shape the social movie viewing experience in a way that doesn’t exist today.  Twitter leads the real-time synchronous market today (e.g., we all Tweet during the Academy Awards) but the non-real-time and asynchronous markets are very much in play and Facebook can lead the way here.
• The role of Facebook Credits in paying for movies is very interesting.  I have long been a believer of “count down” models vs. “count up.”  A count-up model is one where you pay for each purchase.  Every transaction counts up the amount of money you’re spending on the particular activity, and thus is an individual purchase decision.  In a count-down model,  you have a pool of credits you can “count down” against.  In your mind, the money is already spent and it’s just about how you’re going to spend the money.  With Facebook Credits, users will have a variety of ways to spend their currency (games, movies, other products and services) and a variety of ways to acquire it (you can even buy gift cards at Target).  This will make it easy to make an impulse buy of a movie (whereas Netflix and Amazon at their price points are considered purchases).

For different reasons, the entrance of Amazon and Facebook into the streaming video marketplace change the landscape.  The net result is that the marketplace has new competitive requirements.

• Movie viewing alone may not be enough to sell a movie service.
• The social experience of watching a movie online is in its infancy but is likely to change very quickly.
• The payment models for video consumption are expanding, and will include:
  • Subscriptions
  • Virtual payments
  • Bundling with other services

• HP desktop
• HP convertible tablet laptop
• Android cell phone
• Sansa MP3 player

I can see the utility of a pure tablet given how much I travel (which I think is its optimal use case:  on the train/plane/Starbucks).  I’d like to buy an Android tablet.  With yesterday’s introduction of the iPad2, I am however left scratching my head.  Even before this, I was wondering “how in the world can the Android tablets be priced 20-50% more than an iPad?”  Hence, my list of the top 10 reasons someone would buy/pay more for an Android tablet.

1. What’s an iPad?
2. I’d pay anything to avoid enriching Apple.
3. I work at Google…although Google employees may hold out until the holidays to see if they’re getting one free.
4. Google Maps.  Oh, you mean I can buy a third-party GPS solution that is every bit as good and works off
5. I’m too unhip to be let into the Apple Store.  (There are those who actually posit the Apple Store as part of the reason.  Apple doesn’t have to worry about retail margins so they can price below those who must support those margins too.  I don’t think this is an excuse, though it is a factor.)
6. I hate waiting in lines to get technology products.
7. I drive a Lexus and have gotten used to paying premium pricing for the same products.
8. There must be a TCO argument in favor of Android, right?
9. XOOM sounds so much cooler than iPad.
10. If I’m stupid enough to buy an Android tablet right now, I’m stupid enough to pay a premium for it.

Truthfully, I really don’t understand it.  I’d expect Android tablets to cost $100 less than an iPad.  At least.  At current price points, they’re going to kill the market.  So, what do I think the real reasons are?  I’m stretching here.

• They know Android isn’t really ready yet for the tablet form factor so they’re pricing it so only the really committed will buy in now.  Purposely keep the market away even while you’re dipping your toe in.
• The various parties to the ecosystem are really that clueless to think that their Smartphone success will translate to the tablet market and that they can support comparable/premium pricing.

Honestly, I’m baffled.  If they’ve got me ready to buy an iPad, they’ve really accomplished something very bad.

I suppose I should have realized things were going to be a little different when I went to pick up my press/analyst badge (for which I had received email confirmation).  ”No, you don’t qualify,” I was told on-site.  Instead, they gave me the badge for financial analysts.  I tried to explain the difference between the two but was met with blank, uncaring stares.  I was told, however, that my badge would get me pretty much everywhere the press badge did except the press room (and I didn’t really want to spend time there anyhow).  In retrospect, it was a great advantage.  At times the show floor was pretty barren so if I had a press badge or, even worse, a buyer badge, I’m sure I would have been besieged by booth personnel wanting to tell me about their wares.  But with the red badge I was wearing, no one particularly wanted to talk to me.  (At least I assume it was the red badge.)

Having immersed myself for the last five years in social, mobile and cloud technologies, I was shocked how little of this there was on the show floor.  There were lots and lots of toy blocks, lots and LOTS of stuffed animals (referred to in the trade as “plushes”) but not so many microchips or web connections.  I’ve become accustomed at tech trade shows to 90% of the booths having iPads for demonstration purposes; here, it was more like 4% (no exaggeration).  It was so low-tech, there were some booths who had old traditional CRTs and not flat-screen TVs.  I think the industry is missing HUGE revenue and engagement potential by not only not having toys that contain intelligence but also by not linking them to web sites that add functionality, engagement and further revenue opportunities.

In its story about the show, Time Magazine pulled together an article on the 100 all-”Time” greatest toys.  It’s amazing how consistent themes remain over, um, time.  Clearly this is an industry that doesn’t like change.  Even more, look at what Time picked as the top 10 tech toys they found at the show.  They included:

• Monopoly Live.  I would characterize this as how not to add technology to a classic.  Gratuitous technology aimed at “appealing to interrupt-driven kids” does not an improvement make.  This approach should die a quick death.
• Angry Birds.  Yes, if you haven’t had enough of it on your iPad, you can now play the board game.  The video game industry understands the concept of “brand extension.”  Not so the “traditional” manufacturers.
• A “kid-tough” camera.  With full-featured adult cameras going for under $100, I’m not sure there’s much of a market here.  In fact, I’ll bet most five-year olds can better handle the new generation of touch-screen, feature-rich cameras than can most adults.  Maybe they should repackage these as cameras for seniors.

Three things did catch my attention.

• The richness of really good scientific experiment kits is wonderful.  As a kid growing up, I was pretty much contained to a microscope and slides.  Kids today have an amazing array of real science kits focused on timely issues like potable water, renewable energy and the like.
• I don’t remember exactly where in Disney World I saw this for the first time but they have this set-up where you wave your arms and motion-detecting devices sense your movement and turn it into music, varying the pitch and speed with how you wave your arms.  This has now made itself into home-sized and -priced technology.  And at the very low end, you can build your own musical device by just painting a piano.
• You’re probably already seen ads for the Parrot AR Drone, a flying device that uses the iPad or iPhone to control it.  It makes for great demo though it strikes me as one of those toys where after 10 minutes of using it, you’d get bored.  The gimmick may be better than the reality.  More broadly, though, you’d think the toy manufacturers more broadly would understand the appeal of (a) the iPhone and (b) a device containing accelerometers.  If it’s useful in a phone, surely they can think of ways it would be interesting in a toy.  And price is probably not an issue here.  The componentry is cheap enough.

All in all, Toy Fair was a wonderful retro journey for me but caused me to reflect on how much of mainstream industry still hasn’t understood the power of technology, now available at incredibly low price points.  ”Gamification” is a growing trend in technology (“funware,” as my friend Alan Berkson calls it).  Technology is embracing games.  If games/toys don’t embrace technology, there stands to be another industry where the technologists take over and the traditional players get shunted aside.  To their credit, the largest players in the toy industry (e.g., Mattel) seem to be the most advanced with technology.  That’s perhaps not as I’d expect it.  The disruptors should be driving the trend.  Maybe it’s because of the tech savvy required, or the capital investments.  For whatever reason, though, this is a space likely to see a lot of change in the next few years.  Here come the technologists.