But, thats not the point of this message.

Since we last spoke, Apple introduced the iPhone 4 with VIDEO TELEPHONY.  Its yet another bold step into an interesting new market.  And for the most part, they got it right.... well almost.  The video telephony approach that Apple has introduced is going to have some natural limitations which will prevent it from going truly mainstream.

People select their communications media based on the amount of intimacy they expect to need and the amount of effort that they want to expend.  Let me give you an example or two.  

If you want to rip off a quick note in the middle of lunch before you dash to your next meeting, email is ideal.  No "How are the wife and kids" polite banter nor unexpected delays while they get in a quick 35 min story.  Email minimizes the engagement.  If, by contrast, you have accidentally offended one of your customers, you absolutely do not want to try to address this through email where there is sooo much opportunity for misunderstanding a phrase or an intent.  You want to call them or visit them in person to insure that they understand your message.

Another way to think of it is that there are multiple channels in any communication. 

Words only

Words plus non-verbal audio clues

Words, non-verbal audio clues, body language

The more channels that you incorporate into the communication results in a more reliable communication.

But, if video telephony offers the maximum number of communication channels, why isn't it the ideal choice in all situation?  The problem is that visual communications opens up additional problems.  Specifically, TOO MUCH INFORMATION.  

With video, I know that you have a tattoo in the small of your back (and I really don't need that data).  I know that your house is a wreck during the week.  I know that you haven't combed your hair even though it is 11 a.m.  The blissful anonymity of telephony is gone.  You are under the bright spotlight that is video.  This is desirable only in a small number of cases.

If I am talking to family members who already know all of my warts.... and tattoos, it is ok.  If I am already dressed up and at the office where there are no children or dogs to unexpectedly sabotage my appearance, video telephony is safe to use.  Any other time.... not so much.  But, this can be corrected.

Imagine that the camera doesn't capture video.  It captures your facial expressions and gestures and maps those onto a photo-realistic avatar.  Instead of seeing you with a line of dog drool on your pants, you are perfectly coifed and attired at any time of day and night.  Some days, you may wish to convey the message subtly that you are not in a good mood.  For these occasions, you use the Wicked Witch of the West avatar.  Nothing like a green complexion to convey "don't mess with me".  

By solving the "too much information" problem, Apple has an opportunity to shift video telephony from a niche application to a mainstream capability.  And one more thing Apple... Feel free to send royalties to Stephen Wood.  If you don't have my account numbers, send me an email. 

Those are awfully big claims considering that Clayton Christensen, Harvard professor and leading expert on innovation, says that "The future is unknown and unknowable".  But, I believe strongly enough to stick my neck out.

Cisco has created a contest for innovators called the Cisco I-Prize.  They are inviting all of the pointed headed innovators worldwide to submit their best ideas for Cisco's next $1 Billion business.  The winner will receive $250,000. Each innovator can submit as many entries as they like.  I've entered four so far and expect to have eight or so before it is all over.  

On this site, I've made a point of not going into a lot of detail about specific products.  I wanted to keep this discussion at a higher level.  For the Cisco contest, I'm drilling down a couple of levels to discuss specific products and businesses.  Drop in and follow my progress.  The Cisco site is at http://www.cisco.com/web/solutions/iprize/index.html.  After you register, you can find my submissions by filtering by Author (Stephen Wood).

There are more than 400 entries so far.  So, the odds are about 1:100 right now.  Cisco did this contest one time previously a few years ago.  At that time, they had over 1100 entries from about 140 countries.  Am I intimidated? ........ not much......

For those of you who need a little more incentive to go, here is a list of the current entries:

1)  Graphics Based Telepresence

2)  Energy Management via Hockey Pucks

3)  The Service Provider Platform

4)  E-Commerce: Cisco Competes With Credit Cards.

5)  (In Progress) Bugs' Eye Photography

Wish me luck and tell me what you think of the ideas.  My email is wood.stephen@verizon.net

Its not science fiction and its not the Jettsons (for those of you who grew up in the US watching cartoons).  We are on the verge of the driverless car.  Personally, I'm not sure which is the greater threat to life and limb.  Imagine that you are out walking the dog on a dark night.  You begin to cross the street at a poorly lit intersection.  Cresting a low rise above you is:

a)  A teenager who is attempting to text his girlfriend while simultaneously changing the radio station and eating a hamburger which is dripping ketchup onto his shirt.

b)  "Christine" (Steven King's possessed automobile).  No driver at the wheel or even in the car for that matter. 

Assuming that the "blue screen of death" issues have been corrected, I'd have to pick B.  Not by an enormous margin though.

Let me start with a little background and then I'll tie it into some of the forecasts that touch on this type of work.

DARPA, the military version of a slightly mad scientist, decided to fund a Grand Challenge beginning in 2004. www.darpa.mil/grandchallenge/index.asp

Being only slightly mad, they elected to hold a race for driverless cars in the Mojave desert.  Cars had to navigate roads, obstacles and various natural hazards along a course which was provided in GPS coordinates at the beginning of the race.  The results that year were somewhat less than overwhelming.  Nobody finished the course.

The same contest was scheduled for 2005.  This year, five contestants were able to complete the race successfully.  A $2 million prize was awarded to the Stanford entry with a completion time of six hours and 54 minutes.  The DARPA organizers were so pleased with the results, that they decided to up the ante for the 2007 race.

Using an old air force base in California, the DARPA organizers set up a contest wherein entrants were required to not only navigate a course, they were required to operate by California driving rules with traffic.  Carnegie Mellan University successfully completed the contest and won the $2 million prize with a time of 4 hours and 10 minutes at a whopping 14 miles per hour average speed.  Thats not exactly freeway speeds, but it was an amazing feet non-the-less.

The DARPA contest has obviously started a trend.  What started out as a good, old fashioned race for the purse has now just become a race for the fun of it.  A Stanford team is going to attempt to enter the annual race to the top of Pike's Peak (14,000 ft).  In this contest, drivers compete to reach the summit.  One assumes that the Stanford drivers have been successful at advancing beyond the 14 mph level of the 2007 race.  http://www.physorg.com/news184438040.html

All of this fussing with driverless cars is interesting from a forecasting perspective because it is the front edge of the second generation of computing.  In this generation, the industry takes on vision and mobility of compute platforms.  As occurred in previous generations, these new breakthroughs require computing resources that live on large physical platforms, that operate at unbelievably slow speeds and cost extraordinary sums.  For this reason, you see vision being used on an automobile before it comes out on your vacuum or lawn mower.  Once a technically viable path is found that can perform the task, the industry will then work on ways to reduce cost and size.

The ability to process visual inputs is going to be a critical enabling function for robotics of all types.  As Roomba has demonstrated, it is possible to build a domestic robot that wanders the house, but it has a few drawbacks:

1)  You might want to put up the cat.

2)  Don't let it get too near the stairs.

3)  It can't find the power socket when its batteries run down.

With the addition of vision, these problems are readily addressed.  Imagine a few possibilities such as a wheelchair that can come when called.  Consider a robotic gardener which trims the hedges or mows the lawn without risk to the neighbors or the flowers.  For farmers, it represents a means by which to pick fruits such as grapes and strawberries without armies of farm help.  While it will take some time for these things to come about, this is the trend that is being followed.  When vision reaches a price point that allows it to be built into consumer products, you should expect to see a proliferation of new devices.

Just one request to the guys at DARPA.  For the time being, please don't let it carry a weapon.

The team which Mr. Jobs has assembled acts as an exceptionally sensitive corporate radar.  Let me describe how it works and why this is different from what other companies are doing.

1)  We are in a very unique part of the market's evolution.  Normally, the market tends to progress in a very linear manner where features are added incrementally to existing product lines.  Linear evolution is very straight forward for most companies to navigate.  There are few disruptions.  Right now, the market is changing in a very non-linear way.  Telephones are blending with computers to get smartphones.  The music industry is blending with computers to get iPods and iTunes.  Although it is not as visible yet, television is blending with computers as well.  It has already brought us the DVR and will bring innovations such as personalized channels, and non-linear video.  (Video is an area that Apple is still working to figure out.)   

Events that involve other convergence with other industries are particularly difficult to anticipate because they involve expertise and players which are different from one's own.  All of this is to say that the market is changing in a way such that there is something out there that will show up on a corporate radar if it is operating well.

2)  Most companies use panels of executives to decide the direction of the company.  These individuals are assumed to be experts in their field and knowledgeable about the market.  It is assumed that they are the best choice for making these calls.  This is a mistake.

In all fairness, I only see the data that Apple elects to make public and am making assumptions based upon that limited data.  So, consider this an educated guess at this point.  I'd be interested in hearing from those of you who might be a little closer to the data.

As most folks in the US are probably aware, newspapers in particular and print publications more generally are in what appears to be a death spiral.  Two of the most frequently cited reasons for this are :

1)  They are competing with free news which is made available on the Internet.  This is causing subscription rates to decline sharply.

2)  Internet sites like Craigslist have seriously undercut the value proposition for classified ads, a major revenue source for most papers.

These trends are not likely to be stoppable.  It would be nice to think that the news outlets can cooperate with each other and withhold news from Internet outlets, but this level of coordination is difficult at best and unlikely to pass anti-trust tests.  What is needed instead is a new electronic business model that today's newspaper publishers can switch to and recover profitability.   The tablet may potentially be the missing piece to this new business model.

Imagine this scenario:

1)  A tablet reader which is about the size of a sheet of paper is used to replace paper.  Check out Plastic Logic at http://www.plasticlogic.com/ to see what one of these devices look like when done well.  I call the device a reader instead of a PC.  This is because it needs to have the ease of use of a newspaper or magazine.  One should not be forced to wait five minutes while you boot the OS and load the security software.  Additionally, the printed product should closely resemble what one gets when purchasing the printed product.

2) The publication(s) would be delivered over a cell phone connection.  Using this method, it would be possible to get you the latest home town paper even when you are traveling.  As an alternative path, one could use a Wi-Fi connection attached to the Internet through a PC or through the television's set top box.  This would allow the data to be delivered at a lower cost than via a cellular connection.

3)  Instead of having customers go down to their local electronics store to purchase their tablet at a cost ranging from $600 - $1000, these devices could be subsidized in the same manner that cell phones and set top boxes are today.  That is to say that the network operators hide the cost of the device in the monthly billing.  This allows more consumers to join up.

4)  If one is attempting to set up this delivery infrastructure just to electronically deliver a newspaper daily, it won't be cost effective.  What will work though is if this distribution channel is generalized to all print publications; newspapers, periodicals, books, etc.  An author or publisher can make their content available to the network for free.  Money only changes hands when the consumer takes delivery as part of a subscription, purchase or other author funded delivery.  In this way, the electronic delivery network removes the cost of printing, transportation and distribution.  

This scenario represents a game of musical chairs.  Newspaper publishers probably can't prevent the game from happening, but they are in a position to decide which chairs they would like to occupy.  They could choose to scale back and restrict themselves to delivery of content.  They could choose to build the delivery network as well as developing the content.  But, while they are making up their minds, other players are moving toward those seats.

You might well ask why Apple is the killer in this drama.  Apple is in in a superb position to deliver the tablet device, incorporate the content into its itunes network (which already has music and video).  If Apple delivers these two parts of the system, they will be a significant force in the market.  If Apple goes a step further and adopts a subsidized model and a generalized content delivery network, they could become king of the market.  Content developers would still have a seat at the table, but under terms that Apple would dictate.

Now, we just have to wait until the 27th to see how much of the puzzle Apple has developed.

  

Most of the manufacturers producing these devices come from a PC type background and tend to think of these products as PCs that have been on a no-carb diet.  One can't really blame them for allowing their prejudices to show, but they missed the boat on this one.  Let me offer an alternative perspective.

Every time a new generation is started, one must stop and look at the business model as if it were starting from scratch:

•   What are the applications?
•   What is the delivery channel?

Quite often, it changes during generational stepping.  This is one of those times.  Instead of doing creation applications like a desktop and notebook do, this device is a reader.  It will do a superb job reading books, magazines, newspapers, documents, email and powerpoint presentations.  If you visit the websites of these manufacturers, you can already see some of them positioning it to be a large e-reader and some of them treating it like a PC, quoting its CPU performance.

There are two other trend lines that one should pay attention to.  First, unless you have been hiding under a rock for the last year (and who could blame you...), you probably know that the print publications are in trouble.  They are losing subscribers and advertisers.  People are getting their news for free from the Internet.  To combat this problem, these publications need to find a way to deliver their product electronically to reduce costs and to improve their product relative to what the web news portals can provide.  

The tablet is most likely the device which enables a solution to the demise of print publishers.  If one can deliver enhanced print content to a user friendly reader, this goes a long way to becoming competitive again.

The second point to consider is which of the dozens of players is positioned to win this contest?  Just as happened in Smartphones, the winner does not win by providing a device.  The winner succeeds by providing a solution with one or more ways to create barriers to entry.  Apple did this primarily with iTunes.  With tablets, the same thing is likely.  Its not the device and its not the content being delivered.  Its the delivery channel.  The company which is first to create an open channel to enable Time, WSJ and even Bob's Parenting Guide to deliver electronic content to a large network of readers will control the platform.

Which brings up another point.  I said a large network of readers.  At $700-$1000 per device, you are unlikely to put one of these into every student's hands to displace textbooks.  You are unlikely to sell a $700 device to replace a $65 magazine subscription.  This market will not expand significantly until the price point is extremely low.  

Consider another possible player who is in a position to overtake the control point and solve the price point problem as well.  Look at cable cellular and IPTV network operators.  If these companies were to subsidize the devices and resell the publication subscriptions, they could hide the initial purchase price from the customer and accelerate market adoption.  They could then get device vendors to compete to supply the readers through streamlined features and reduced costs.  They could also prevent the device players from getting a proprietary grip on the content (as Apple did).  Of these players, the wireless operators are best positioned for the quick kill.  But the triple and quad play operators have the additional capability of delivering content through lower cost wired channels.  The real question is whether the network operators will see the opportunity before it is lost to others.

If the network operators are asleep at the switch, the next candidate is the print publishers.  These guys are desperate to find

a solution to their declining revenues.  If they were to band together to help underwrite the devices and then promote them through their respective publications, it is possible that they could take possession of the control point.  But, this requires broad cooperation which is never easy.

For you industry watchers out there, place your bets on the winner.  This market is going to evolve very rapidly.  You only get credit for predicting correctly if it hasn't already occurred.

The second 

Apple has done extraordinarily well at reading the market and staying consistently at the front of the innovation curve.  In PCs and smart phones, they perform superbly.  They reliably envision the world as it will be instead of what it has been for the last forty years.  They are to computing what Bobby Fischer was to chess.

And then there is television.  Imagine if Bobby Fischer took up sumo wrestling.  It wouldn't be pretty.  Apple's attempts to penetrate television have much the same flavor.  Don't get me wrong.  I would love for Apple to show the world how to bring the third screen into the three screen platform.  To make it work though, its got to be more than just a hobby as Steve Jobs once described Apple TV.  Its got to be an inspired strategic coup.

The first lesson:  TV already exists.  It does what people want it to do quite well.  So well that there are now 2.3 billion televisions installed worldwide.  If you want to displace it, you have to create something that people like more than they like the television with which they are so thoroughly enamored.  Thats one really tall order.  But then again, thats exactly what Apple did with the iPhone.  

With the iPhone, Apple didn't reproduce the mobile phones that were already in the market.  They built the next generation device which converged computing and telephony.  The same situation exists with television.  It is not enough to simply deliver standard video programming over a new network that doesn't work as well as the old one did.  Apple has to look at the evolutionary trends and leapfrog into the future.  Easy to say, but how exactly could they do this?

The solution:  Understand how the Mac and the iPhone connect into the television to create the three screens platform.  Understand how this creates new functionality that you can't create with a TV alone.  Then go out and build the first article.  As my little contribution to your efforts (feel free to forward any percentage of the profits that you feel appropriate)  I'll give you a few thoughts about how this can be done:

 

There are several evolutionary trends that are affecting the television sector.  Actually, there are too many trends to discuss, but I'll list a few:

1)  The television, PC, car and smartphone are being connected into a single system to share content and data and to improve ease of use.

2)  Personalization is emerging to harness vast volumes of content in a manner that consumers can easily find and acquire.

3)  Intelligence in television will begin to explore non-linear video which provides a more personalized viewing experience.

4)  E-commerce through the television, allowing you to easily buy things that you see.

5)  Personalized channels that collect Internet video and low volume video and assemble it into logical channels.

6)  The exploitation of the television as the largest viewing screen in the home to employ as part of home security, energy management, home health and gaming applications.  This is all part of an integration of adjacent applications surrounding the set top box.

The trend that Apple is best positioned to exploit is the emergence of the three screens platform.  Within that trend, Apple has the ability to connect the MAC and the iPhone to the Apple TV platform.  Its not the whole story, but its a solid start.

Connecting the iPhone to the television:

In the three screens platform, the television and the smart phone are a team.  The television creates the premium experience in a stationary location and the smartphone allows you to take some of that with you wherever you go.  When they are in the room together, they cooperate to create a superior experience that neither device can provide alone.  Here are a few examples of what can be done with a little cooperation:

  

1)  The smarphone (and/or tablet) acts as a remote control.  

2)  The iphone acts like a picture-in-picture to let you watch a second program or to look at the electronic programming guide without using the main screen.

3)  The iPhone acts as an e-commerce terminal, allowing you to purchase goods that you see on television.  The unique identification functions which are possible on the smartphone makes it possible to verify purchases in a way which would be very challenging on the television.

4)  The iPhone acts as a PVR to take television and audio programming away with you to be viewed in planes, trains, cars, etc.

5)  The iPhone acts as a gaming terminal for consoles.

6)  The iPhone combines personalization data collected from consumption of music, voice calls, gaming, and navigation with the television and ad consumption data that is available on the television.  This data can be combined to drive personalized advertising, parental controls and other personalization features.

7)  Show content captured in photos and video on the television screen.

8)  Create virtual video and radio channels that are delivered through the Apple TV box to the iPhone to be viewed on the iPhone or on the car's entertainment systems.

Connecting the MAC to the television:

The second part of the video equation is connecting the MAC into the television system.  Like the iPhone, the MAC would act as a PVR.  It would accept downloads from the Apple TV system to create logical television and audio channels to be played on the MAC.  It would combine personalization data from Internet consumption with television and iPhone consumption data.  In addition to that, it would:

1)  Enable broader personalization of the Internet by using personalization data to hunt for content on the web.

2)  2 ft interface

3)  Whole home PVR capability that allows content to be captured in one location but viewed from anywhere in the home.

4)  It would use the TV screen to integrate with other home applications, home security, energy management, home health, video telephony, etc.

5)  It would create unique, logical "channels" using mash ups such as stock tickers, combined with weather and traffic for business people.  For soap opera fans, it offers captured soap opera summaries from the web, but available for viewing on the television on demand.

If you know anybody who works at Apple, feel free to point them here for hints and suggestions.  If you work at Apple, remember... its completely your choice.  Whatever profit split you want is amenable.  I try to be easy to work with.  

In the first blog entry on Apple and the Three Screens Platform, I talked about Apple being in possession of all of the pieces needed to create the Three Screens Platform.  This fact alone puts Apple well ahead of most of their competitors.  But thats about the same as being in the lead after the first couple of laps of the Indy 500.  Very good.  Worthy of praise, but a long way from the checkered flag.

To reach the checkered flag, Apple is going to have to assemble those pieces into the Three Screens Platform first.  The next few blog entries will talk about what is needed and what opportunities Apple has to influence the Three Screens Platform.  This data is coming from the market theory work that you will find discussed throughout the papers on this site.  Start with "Overview of Market Theory." if you are curious.

The first part of the Three Screens Platform that will be discussed is the connection of the PC to the Smart Phone.  There are two things here that you should know.  First, the smart phone IS the next generation computer.  The second thing is that customers want these devices to work together.  Just as consumers wanted the desktop PC to work with the Notebook PC like they were from the same family of devices, the consumers want the Smart Phone to work with the desktop and the notebook in a seamless way too.  But unlike the notebook and desktop, the smart phone is about things you do when you are mobile.  Its not about applications that you use when you are stationary. This is why you won't see Word and Excel used much in the smart phone.  For the same reason, you won't see GPS on a desktop.  

So, one of the things that are needed to create the Three Screens Platform is a smooth way to transfer data between the PC and the Smart Phone.  Think of this as an advanced synch function ("Data Shuttle") except able to operate WITHOUT THE USER'S INVOLVEMENT.  I'm yelling because the PC guys don't understand this.  Its not enough to enable the user.  You have to make the work for the user intuitive or invisible.  So, the data shuttle function needs to operate under the radar with very minimal user interaction.  It will be used to collect consumption data to drive personalization.  It will be used to move content between various devices.  Its uses include electronic coupons, loyalty cards, content services, etc.

The second major capability that Apple needs to put in place between the iPhone and the Mac is docking.  The purpose of docking in this context is to temporarily allow the iPhone to hijack the larger user interface of the Mac.  This allows the iPhone to shift out of a pure mobile context to temporarily do work that is normally limited to stationary or nomadic platforms.  Imagine it this way.  A user takes his iPhone into an Internet cafe and docks with a terminal.  The terminal lights up as the user's full Mac.  The user creates a letter or modifies a Powerpoint file.  When he is done, he picks up his iPhone and leaves.  

With the creation of the data shuttle and the docking functionality. Apple will be doing no more than filling out the intended functionality of the smart phone.  It is correctly building the next link in the chain.  Or, for those who have followed some of the market theory, it is being driven as part of a line of progression.  

There is a different force that is also in play that must be discussed.  There is an integration force that is occurring simultaneous to the line of progression forces.  What this means is that there exists some collection of services, functionality or businesses that have the potential of being incorporated into the smart phone.  I mentioned GPS earlier.  This is one of the first functions to be integrated.  The camera was another and the music player yet another.  There are more.  If one looks at anything carried in a purse, pocket, or wallet, there is a good chance that it will be integrated into the phone.  This includes identification, access control, financial instruments, keys, photos, etc.  This cloud of mobile functionality all stands the potential of being integrated into the iPhone as new businesses.

As this integration is taking place, Apple has to decide how much of this functionality should come with the iPhone.  This is a question about what constitutes the core platform.  It also is a question about how many competitors Apple will allow near the core of their business.  The usual answer here is not many.  Note how Microsoft incorporated word processing and spreadsheets into the office suite?  This provides control for the platform by limiting competitors near the core.  It also captures the revenue from those elements. This is most likely to manifest itself on the iPhone by Apple writing and providing a core set of applications with the iPhone.  This is a bit of a balancing act.  Apple needs to encourage others to support them and so it must feed its application suppliers.  However, it can afford to consume a few too.  If they do this gracefully, they will buy out the apps provider rather than kill them.

As the final element in the PC to Smartphone link, we'll go back to the line of progression for a second.  The desktop, notebook and smart phone make a chain of platforms.  The next link in this chain is the wearable device.  Just to give you a feel for this, imagine a wrist watch type device that measures your energy output, your steps (pedometer), heart rate, respiration, etc).  The data is transferred to the iPhone via Bluetooth or other short range wireless connection.  In this scenario, the wrist watch is the wearable compute platform.  To the iPhone, it behaves like a peripheral.  To the wrist watch, the iPhone is nothing more than a gateway into the Internet.

It is not required that Apple develop devices which fill the role of wearable.  However, for the iPhone to play a part in this business area, it is necessary for the iPhone to have a means by which to connect to the wearable devices.  It is entirely possible that the combination of existing wireless technology and the addition of a data shuttle function will be sufficient to fulfill this need.  However, Apple will likely make this path clear at some point in time. 

In the next blog entry, we'll look at the connection between the iPhone and Apple's television system, Apple TV.