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Why VR Could be as Big as the Smartphone Revolution

Technology in the 1990s and early 2000s marched to the beat of an Intel-and-Microsoft-led drum.

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via IT Portal

Intel would release new chips at a regular cadence: each cheaper, faster, and more energy efficient than the last. This would let Microsoft push out new, more performance-hungry software, which would, in turn, get customers to want Intel’s next, more awesome chip. Couple that virtuous cycle with the fact that millions of households were buying their first PCs and getting onto the Internet for the first time – and great opportunities were created to build businesses and products across software and hardware.

But, over time, that cycle broke down. By the mid-2000s, Intel’s technological progress bumped into the limits of what physics would allow with regards to chip performance and cost. Complacency from its enviable market share coupled with software bloat from its Windows and Office franchises had a similar effect on Microsoft. The result was that the Intel and Microsoft drum stopped beating as they became unable to give the mass market a compelling reason to upgrade to each subsequent generation of devices.

The result was a hollowing out of the hardware and semiconductor industries tied to the PC market that was only masked by the innovation stemming from the rise of the Internet and the dawn of a new technology cycle in the late 2000s in the form of Apple’s iPhone and its Android competitors: the smartphone.

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via Mashable

A new, but eerily familiar cycle began: like clockwork, Qualcomm, Samsung, and Apple (playing the part of Intel) would devise new, more awesome chips which would feed the creation of new performance-hungry software from Google and Apple (playing the part of Microsoft) which led to demand for the next generation of hardware. Just as with the PC cycle, new and lucrative software, hardware, and service businesses flourished.

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But, just as with the PC cycle, the smartphone cycle is starting to show signs of maturity. Apple’s recent slower than expected growth has already been blamed on smartphone market saturation. Users are beginning to see each new generation of smartphone as marginal improvements. There are also eery parallels between the growing complaints over Apple software quality from even Apple fans and the position Microsoft was in near the end of the PC cycle.

While its too early to call the end for Apple and Google, history suggests that we will eventually enter a similar phase with smartphones that the PC industry experienced. This begs the question: what’s next? Many of the traditional answers to this question – connected cars, the “Internet of Things”, Wearables, Digital TVs – have not yet proven themselves to be truly mass market, nor have they shown the virtuous technology upgrade cycle that characterized the PC and smartphone industries.

This brings us to Virtual Reality. With VR, we have a new technology paradigm that can (potentially) appeal to the mass market (new types of games, new ways of doing work, new ways of experiencing the world, etc.). It also has a high bar for hardware performance that will benefit dramatically from advances in technology, not dissimilar from what we saw with the PC and smartphone.

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via Forbes

The ultimate proof will be whether or not a compelling ecosystem of VR software and services emerges to make this technology more of a mainstream “must-have” (something that, admittedly, the high price of the first generation Facebook/Oculus, HTC/Valve, and Microsoft products may hinder).

As a tech enthusiast, its easy to get excited. Not only is VR just frickin’ cool (it is!), its probably the first thing since the smartphone with the mass appeal and virtuous upgrade cycle that can bring about the huge flourishing of products and companies that makes tech so dynamic to be involved with.

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Reading the Tea Leaves on PlayStation 4 Announcement

Sony’s announcement of the PlayStation 4 today has gotten a wide array of responses from the internet (including, amusingly, dismay at the fact that Sony never actually showed the console itself). What was interesting to me was less the console itself but what is revealed about the tech industry in the pretty big changes Sony made over the PlayStation’s previous incarnations. They give a sign of things to come as we await the “XBox 720” (or whatever they call it), Valve’s “Steambox” console, and (what I ultimately think will prevail) the next generation of mobile platform-based consoles like Green Throttle.

  • Sony switched to a more standard PC technology architecture over its old custom supercomputer-like Cell architecture. This is probably due to the increasingly ridiculous costs of putting together custom chips as well as the difficulties for developers in writing software for exotic hardware: Verge link
  • New controller that includes new interface modalities which capture some of the new types of user experiences that users have grown accustomed to from the mobile world (touch, motion) and from Microsoft’s wildly successful Kinect product via their “Eye Camera” (2 1280×800 f/2.0 cameras with 4 channel microphone array): Verge link
  • Strong emphasis during the announcement on streaming cloud gameplay: It looks like Sony is trying to make the most of its $380M acquisition of Gaikai to
    • demo service letting users try the full versions of the games immediately as opposed to after downloading a large, not always available demo
    • drive instant play for downloaded games (because you can stream the game from the cloud while it downloads in the background)
    • provide support for games for the PS3/2/1 without dedicated hardware (and maybe even non-PlayStation games on the platform?)

    Verge link

  • Focus on more social interactions via saving/streaming/uploading video of gameplay: the success of sites like Machinima hint at the types of social engagement that console gamers enjoy. So given the push in the mobile/web gaming world to “social”, it makes perfect sense for Sony to embrace this (so much so that apparently Sony will have dedicated hardware to support video compression/recording/uploading in the background) even if it means support for third party services like UStream (Verge link)
  • Second screen interactivity: The idea of the console as the be-all-end-all site of experience is now thoroughly dead. According to the announcement, the PlayStation 4 includes the ability to “stream” gameplay to handheld PlayStation Vitas (Verge link) as well as the ability to deliver special content/functionality that goes alongside content to iOS/Android phones and tablets (Verge link). A lot of parallels to Microsoft’s XBox Smart Glass announcement last year and the numerous guys trying to put together a second screen experience for TVs and set-top boxes

Regardless of if the PS4 succeeds, these are interesting changes from Sony’s usual extremely locked-down, heavily customized MO and while there are still plenty of details to be described, I think it shows just how much the rise of horizontal platforms, the boom in mobile, the maturation of the cloud as a content delivery platform, and the importance of social engagement have pervaded every element of the tech industry.

(Update: as per Pat Miller’s comments, I’ve corrected some of the previous statements I made about the PlayStation 4’s use of Gaikai technology)

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Platform perils

image One of the most impressive developments in the web and the mobile phone space has been the emergence of new platforms for software developers to target. The developer’s repertoire is no longer just Windows, Mac OS, and Linux, but Android, iPhone OS, Windows Phone 7, Facebook, Twitter, and many more.

While these new platforms are big opportunities for developers, I always find it quite amusing to see the reaction of developers as they see the platform owners aggressively expand beyond their original domains, for example:

imageI’m always shocked at how up-in-arms developers can get about these moves. Why? Because this is nothing new in the software industry. Remember when Microsoft bundled Internet Explorer with their operating system and killed off Netscape? Or when Apple bundled iTunes into Mac OS and killed third-party MP3 player developers? Or IBM, widely considered a pioneer in open source, who bundles a full and very closed software stack with its UNIX servers and mainframes?

So, how does any developer succeed (seeing how most developers don’t control the platforms they develop for)? They key is to understand the economics from the platform owner’s vantage point:

  • Platform value and proliferation – When all is said and done, the business of the platform owner is to sell and proliferate its platform. So, foremost in the owner’s mind in rolling out a new feature which was once left to third party developers is whether or not that feature adds significant value to the platform. For Twitter, implementing a list feature (where formerly it was managed with custom apps like Tweetdeck) made a lot of sense as it not only helped users with organizing their Twitter usage but also helped to increase the social value of the service by helping users find other users to follow. Likewise, to me, the big surprise was not that Twitter acquired Ate Bits, but that it took them this long to buy/release official Twitter clients for iPhone, Android, and Blackberry.
  • New monetization – The full value of a platform extends far beyond the price tag on the platform and the applications being sold. It also includes advertising, virtual goods sales, content, and online transactions which take place. Is it any wonder, then, that Apple has expanded into mobile advertising with its iAd platform or content with its iTunes store? As before, the big surprise to me is that it took them this long to roll out iAd.
  • Impact of integration – There are many features where integration into the platform drives significant additional value. Whereas a cute game or widget doesn’t benefit much from being integrated into an operating system/web service, there is significant additional value to an operating system like Windows or Mac OS or Android to have an internet browser integrated, and there is a great deal of value in tying features related to security or virtual currency into a web platform like Facebook.
  • Impact on developer community – Despite what developers may believe, platform owners do care a great deal about the effect of their actions on their developer community. It doesn’t benefit a platform to have the owner unnecessarily alienate their developer base or to make the developer’s lives significantly harder. After all, a rich developer community makes platforms significantly more valuable – even giants like Microsoft, Apple, and Google can’t possibly create all the games, music, videos, and features which users may want, nor can they necessarily create better apps/content than specialized third party developers. This means that, by default, platform vendors are generally loath to aggressively push their own applications –- and it in fact requires a significant value-creator from one or more of the reasons above  to get an intelligent platform owner to “step on the toes” of their developer community.

Put them together, and you drive a number of conclusions about where platform owners will make aggressive inroads into the domains of their developers:

  • The “cost of admission” – If there is a feature or application which is used by enough users that it needs to be integrated/bundled in order to get users “up and running” quickly, you can be pretty sure that the platform owner will build, acquire, or partner with a vendor of applications there. Examples: web browsers and multimedia players in operating systems, social features in social networks, mobile phone apps to access a popular web application/social network, common device drivers in operating systems
  • “Platform in a platform” – In war, the side which maintains control of the most important roads and resources will win. Similarly, in business, not only does disproportionate profit tends to flow to the businesses which control the key “gateways” to developers and the change of funds, control of those gateways also enables the business to better shape the consumer’s experience. In the past, this has primarily resulted in platform owners seeking greater control over the development of applications, but Apple has proven that advertising, transaction fees on application sales, and digital content delivery are also key gateways to have influence over. Examples: virtual goods/currency on social network, advertising, development tools, digital content, application store, runtime layers
  • image “Plumbing” – To a platform owner, the platform’s inner workings are sacred. After all, a platform’s performance and ability to work with content/applications is heavily tied to its “plumbing”. In the same way that you aren’t likely to trust a random stranger to do open heart surgery on you, platform owners are unlikely to trust third party hacks/modifications on their platform’s inner workings and are unhappy when third party developers clog their “pipes” with too many requests/garbage. It should be no surprise that platform owners often restrict access to and limit/prevent modifications to a platform’s inner workings. Similarly, because of the value of integrating enhancements to lower level processes into the platform itself, it is also likely that platform owners will make their own modifications when needed and heavily restrict access (if its granted at all) to those lower level processes. Examples: APIs which tap into hardware-level capabilities on operating systems, quantity limits on social network/web service API usage, device driver creation in operating systems

So, what to do if you’re a developer who doesn’t own your own platform? The following is a quick (and by no means comprehensive) list

  1. Develop a plan for dealing with a platform owner’s ire: If you go into a business venture expecting everything everything your way, you are likely delusional. This is especially true if you’ve hit a modicum of success as there is nothing which paints a bullseye on your back better than success. The recent Zynga/Facebook spat (although its recently reached a semi-amiable detente) is an example of this. Better to assume, at a relatively early point, that you will sooner or later earn the platform owner’s wrath and come up with ways to prevent/deal with it than to be caught with your pants down when it happens.
  2. Build the best app: There’s almost never a situation where building the best product isn’t a good strategy, but in this case its a very good one. Building the best product gives you a reputation among users who may put pressure on the platform owner in your favor. It also gives you a shield, especially if your app goes above and beyond “the cost of admission”, by making it harder for a platform owner to take market share from you (i.e. the strength of Oracle’s products have allowed it to maintain its lead position in databases despite attempts from IBM and Microsoft). It also gives you more options as it gives the platform owner a reason to acquire/partner with you rather than with a competitor.
  3. Make your app flexible: Flexibility creates more options for a developer. It allows the developer to potentially work with additional platforms, thus creating a larger user base and an “exit strategy” if one platform becomes too hostile. It also allows a developer to more rapidly release new features or cope with platform changes. In the case where a platform owner is also considering acquisitions/partnerships as a route, the more flexible developer has a strong leg up in that he/she can more quickly integrate with the platform, as well as provide a more competitive opponent to take on.
  4. image Ally yourself with other developers: I pointed out earlier that the reason a platform owner exists is to sell and improve the value of the platform. Because of this and because the value of a platform is dependent on having a vibrant developer community, platform developers are loath to make aggressive moves which may alienate that community. To that end, aligning oneself with other developers can help amplify one developer’s protest when a platform owner makes an aggressive move encroaching on your turf.
  5. Create stickiness: There are many ways for developer “Davids” to tilt the battlefield in their favor against platform owner “Goliaths”. Building in social functionality (i.e. social games) so as to force users to give up connections with their friends if they switch to another vendor is becoming increasingly common as a tactic to develop stickiness. Linking your applications to other commonly used applications or services is another way (i.e. pulling in data from Google and Twitter). It may be an uphill battle, but its not a hopeless one.

It was great that there was a time when one could be a success just by building cute Twitter mobile applications that don’t do anything more than access Twitter’s basic API, but such a strategy was never going to be sustainable.  And the same thing is (or will be) true for a lot of the other new platforms.

(Image credit – Apps) (Image credit – Fish) (Image credit – Pipes) (Image credit – Fish)

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Why smartphones are a big deal (Part 1)

image A cab driver the other day went off on me with a rant about how new smartphone users were all smug, arrogant gadget snobs for using phones that did more than just make phone calls. “Why you gotta need more than just the phone?”, he asked.

While he was probably right on the money with the “smug”, “arrogant”, and “snob” part of the description of smartphone users (at least it accurately describes yours truly), I do think he’s ignoring a lot of the important changes which the smartphone revolution has made in the technology industry and, consequently, why so many of the industry’s venture capitalists and technology companies are investing so heavily in this direction. This post will be the first of two posts looking at what I think are the four big impacts of smartphones like the Blackberry and the iPhone on the broader technology landscape:

  1. It’s the software, stupid
  2. Look ma, no <insert other device here>
  3. Putting the carriers in their place
  4. Contextuality

I. It’s the software, stupid!

You can find possibly the greatest impact of the smartphone revolution in the very definition of smartphone: phones which can run rich operating systems and actual applications. As my belligerent cab-driver pointed out, the cellular phone revolution was originally about being able to talk to other people on the go. People bought phones based on network coverage, call quality, the weight of a phone, and other concerns primarily motivated by call usability.

Smartphones, however, change that. Instead of just making phone calls, they also do plenty of other things. While a lot of consumers focus their attention on how their phones now have touchscreens, built-in cameras, GPS, and motion-sensors, the magic change that I see is the ability to actually run programs.

Why do I say this software thing more significant than the other features which have made their ways on to the phone? There are a number of reasons for this, but the big idea is that the ability to run software makes smartphones look like mobile computers. We have seen this pan out in a number of ways:

  • The potential uses for a mobile phone have exploded overnight. Whereas previously, they were pretty much limited to making phone calls, sending text messages/emails, playing music, and taking pictures, now they can be used to do things like play games, look up information, and even be used by doctors to help treat and diagnose patients. In the same way that a computer’s usefulness extends beyond what a manufacturer like Dell or HP or Apple have built into the hardware because of software, software opens up new possibilities for mobile phones in ways which we are only beginning to see.
  • Phones can now be “updated”. Before, phones were simply replaced when they became outdated. Now, some users expect that a phone that they buy will be maintained even after new models are released. Case in point: Users threw a fit when Samsung decided not to allow users to update their Samsung Galaxy’s operating system to a new version of the Android operating system. Can you imagine 10 years ago users getting up in arms if Samsung didn’t ship a new 2 MP mini-camera to anyone who owned an earlier version of the phone which only had a 1 MP camera?
  • An entire new software industry has emerged with its own standards and idiosyncrasies. About four decades ago, the rise of the computer created a brand new industry almost out of thin air. After all, think of all the wealth and enabled productivity that companies like Oracle, Microsoft, and Adobe have created over the past thirty years. There are early signs that a similar revolution is happening because of the rise of the smartphone. Entire fortunes have been created “out of thin air” as enterprising individuals and companies move to capture the potential software profits from creating software for the legions of iPhones and Android phones out there. What remains to be seen is whether or not the mobile software industry will end up looking more like the PC software industry, or whether or not the new operating systems and screen sizes and technologies will create something that looks more like a distant cousin of the first software revolution.

II. Look ma, no <insert other device here>

imageOne of the most amazing consequences of Moore’s Law is that devices can quickly take on a heckuva lot more functionality then they used to. The smartphone is a perfect example of this Swiss-army knife mentality. The typical high-end smartphone today can:

  • take pictures
  • use GPS
  • play movies
  • play songs
  • read articles/books
  • find what direction its being pointed in
  • sense motion
  • record sounds
  • run software

… not to mention receive and make phone calls and texts like a phone.

But, unlike cameras, GPS devices, portable media players, eReaders, compasses, Wii-motes, tape recorders, and computers, the phone is something you are likely to keep with you all day long. And, if you have a smartphone which can double as a camera, GPS, portable media player, eReaders, compass, Wii-mote, tape recorder, and computer all at once – tell me why you’re going to hold on to those other devices?

That is, of course, a dramatic oversimplification. After all, I have yet to see a phone which can match a dedicated camera’s image quality or a computer’s speed, screen size, and range of software, so there are definitely reasons you’d pick one of these devices over a smartphone. The point, however, isn’t that smartphones will make these other devices irrelevant, it is that they will disrupt these markets in exactly the way that Clayton Christensen described in his book The Innovator’s Dilemma, making business a whole lot harder for companies who are heavily invested in these other device categories. And make no mistake: we’re already seeing this happen as GPS companies are seeing lower prices and demand as smartphones take on more and more sophisticated functionality (heck, GPS makers like Garmin are even trying to get into the mobile phone business!). I wouldn’t be surprised if we soon see similar declines in the market growth rates and profitability for all sorts of other devices.

(to be continued in Part 2)

(Image credit) (Image credit)

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