It's hard to say these days

Open WebOS

clock December 9, 2011 17:09 by author Tom

So HP has decided to Open Source the Palm WebOS

HP today announced it will contribute the webOS software to the open source community.

HP plans to continue to be active in the development and support of webOS. By combining the innovative webOS platform with the development power of the open source community, there is the opportunity to significantly improve applications and web services for the next generation of devices.

I wish I had more to say on this but in truth this announcement doesn’t tell us anything

Here’s the problem.  A lot of people think Open Source is a scenario where you build something, give it to the world, and the world embraces it from there.  But It doesn’t really work that way.

Every successful open source project has one thing in common: a group of people who are dedicated to it.  Who treat it more like a religion than a hobby and who work very, very hard to make it successful.  Sometimes it’s an entire company (Think Android with Google), sometimes it’s a foundation (Mozilla) and sometimes it’s just a small group of people (Linux in the early days).  But whatever the case open source projects need that push.

In many ways an Open Source Project boils down to the willpower of its backers.  It is a physical manifestation of their dedication to accomplish the task it was built for. 

So HP saying they’ll “engage the open source community to help define the charter of the open source project” tells us nothing.   Are they going to keep a full time staff on it?  Are they going to put money into a foundation for it?  Do they have dedicated staff members who are still so in love with the platform they’ll work on it in their spare time? 

Those are the questions that will define what happens next. 

Which brings me to the other important thing behind every open source project: Purpose.  For an open source project to succeed it has to fill a void.  Linux provided a viable open OS, Mozilla provided an alternative to IE and Android provided an alternative to iOS.  For WebOS to succeed it has to find a void to fill and right now they don’t have one.  There’s already a popular open mobile OS and a popular open desktop OS. 

If I were a WebOS supporter I’d focus on the platform itself.  The one thing WebOS did better than anyone was to create a platform for web applications that could function like native apps.  They should ditch the underlying plumbing and treat WebOS as a Linux shell (it basically is a very developed Linux shell).  Use WebOS to create what ChromeOS should have been: a Web based OS without native applications that is fully functional. 

That’s a void that needs to be filled (and because you could adapt existing web applications to it you’d have a good chance of getting support. 

Siri is a Search Engine…

clock November 5, 2011 17:50 by author Tom

Remember all that talk about Apple building a Search Engine?  It’s starting to look like they did just that

Apple's new Siri voice control on the iPhone 4S can answer questions, access information and deliver search results without displaying any advertising, which one analysis says will hurt search providers like Google.

If users were to become more accustomed to search by voice through Siri rather than visiting Google's website and typing a query, it could place Google at risk, a new analysis from Nigam Arora suggests. Arora noted that before buying an iPhone 4S with Siri, he was required to search for an Indian restaurant through Google's website.

Arora believes that Siri could change users' mobile habits, making them search for information via Apple's Siri rather than directly through Google. He thinks Siri is a better solution because it provides a small number of relevant results rather than a long list that users must sort through. Plus, he views advertisements on a small screen like an iPhone as a distraction.

The hallmark of a great business decision is it looks obvious in retrospect.  In the late 70s Microsoft and Apple were probably the only two companies in the world that believed there’d be a computer on every desk.  Now it seems foolish for people to have believed anything else. 

That’s what makes this situation so hilarious to me.  If you look at Siri in this context it should have been obvious. 

Yet most people, including Google, never saw it coming.  In fact Google probably thought this was a benefit because Siri defers to Google if it can’t find another answer.  But as Siri gets better and better you’ll see it going to Google less and less.  At which point Google dies a death of a thousand cuts. 

(I don’t believe Google will fully die but you get the point). 

As for the rest of us we should have seen it coming.  This is exactly the type of Search Engine Apple would build.   The Apple mentality has always been one where the user gives them control in exchange for the benefits of a culled environment.  That’s exactly what Siri is.  A culled environment wrapped in some fancy speech recognition. 

You don’t tell it where to search you simply ask it a question and Siri picks the best sources and delivers them to you.  I, for example, rarely ever used Wolfram Alpha for anything before Siri.  Now I use it 3 or 4 times a day because it was Apple’s choice.  Just like they choose what apps get into the App store or what Mac features developers can use. 

So looking back isn’t it now obvious that Siri is a Search Engine?

Oh Netflix, I love ya’ but I’m beginning to think you’re doomed

clock October 24, 2011 22:32 by author Tom

Netflix announced its earnings after the market closed today and the results weren’t good.  Another 800,000 customers fled the service.  As of this writing Netflix is down a whopping 26.86% in after hours trading.  That would mean the stock has fallen 71.5% since its high on July 8th, 2011. 

But Netflix’s CEO claims to have learned a lesson

Q: Why did you try to do Qwikster?

Reed: In hindsight, it is hard to justify. Having separate brands can in theory make sense. However after the price increase, Qwikster became the symbol of Netflix not listening.

That quote makes it seem like he got the message.  But did he?  Take a look at this…

Q: Why not reintroduce a combined streaming-DVD?

Reed: we think future is brightest for streaming. We don’t want to subsidize DVD. We think $7.99 is such a great price that mostly we should focus on filling out content.

The focus for us is in rebuilding our reputation

DVD business will become like AOL dial-up. a slow decline.

The problem here is he admits to not listening but then doubles down on the exact same strategy.  So  you have to wonder what he thinks people were trying to say.  To get that answer look no further than the NY Times Magazine Interview of him

Last month, when announcing Qwikster, you apologized for the way Netflix handled its price hikes, writing, “In hindsight I slid into arrogance based upon past success.” But wasn’t introducing Qwikster the way you did the most arrogant move of all?
No, I think it was just a mistake in underestimating the depth of emotional attachment to Netflix.

I’m curious if you could have done any kind of research — or even a select-market rollout — that could have anticipated this?
I don’t know of any Internet service that opens on a regional basis. Our focus-group work concentrated on trying to understand consumers’ perspectives on names other than Netflix.

Now maybe it’s just me but I don’t think people disliking the name Qwikster is really the problem.   The problem was and still is the company’s attempts to push people into the streaming-only service before it’s ready.  

Note: I’m a streaming only customer. 

But I get away with that because I don’t watch that much media.   I use Netflix for no more than 10 hours a month and I have the financial resources to just buy what I want off iTunes if Netflix doesn’t have it.  But not everyone is that lucky.  So the limited content on Netflix’s streaming service is a significant issue to some people.  Especially when the amount of content they have is shrinking…

When your agreement to stream Starz content ends in March, you’ll lose your ability to show Disney movies like “Toy Story 3.” You’ve played down the effect this will have on the service, but can you name a movie that my kids will enjoy as much?
We can give you hundreds of titles that we’ve been adding over the last couple of months, both animated big movies and Japanese anime and lots of Nickelodeon content as examples. And of course, DreamWorks is coming online in 2013.

But can you name just one that will cushion the blow of losing Buzz Lightyear?
I watch mostly independent films. I’m not in that particular demo. I’ll send you a list.

On top of all this you have the original content issue.  Apparently Netflix doesn’t have the money to keep the Starz contract AND they’re so poor they need to significantly raise the price of their DVD service.  But they can afford to pay for exclusive rights to obscure original content.  

I admit to being on the outside here.  As I said I’m a streaming only customer who doesn’t watch anything that’s part of the Starz contract.  So my costs haven’t gone up and I’m not losing anything.  But I can see how other customers would be fleeing in droves.  To my mind Reed Hastings has built up a lot of good will over the years and I still think people should support him through this obviously tough time.  But with him giving interviews like the ones above and the stock in a freefall he’s making that very hard to do. 

Thoughts on “Steve Jobs”

clock October 24, 2011 06:37 by author Tom

So it’s out.  Walter Isaacson’s biography of Steve Jobs (titled simply “Steve Jobs”) hit my Kindle around 6pm today and I dove right in.  I’ve been kind of shell shocked on a personal level since Steve Jobs died and I hoped this would provide a bookend for the last couple weeks.  A way to honor him (by learning more about his life) while at the same time moving on. 

Having just finished it my opinion basically boils down to this: : It’s a good read but it’s a bad historical account. 

I feel pretentious saying that because obviously I wasn’t there when things unfolded at Apple (in fact I wasn’t alive for the early parts).  But I’ve read many, many accounts of the events detailed in this book.  Those include…

Apple: The inside story of intrigue, egomania, and Business Blunders (My personal favorite)

Infinite Loop: How the world’s most insanely great computer company went insane

Apple Confidential 2.0

Return to the Little Kingdom

The Second Coming of Steve Jobs

iCon: The greatest second act in the history of business

iWoz: Computer Geek to Cult Icon

The Pixar Touch

Odyssey: Pepsi to Apple

On the Firing Line: My 500 Days At Apple

Accidental Empires

Barbarians Led By Bill Gates (the Mac deal from a Microsoft employees perspective)

So I know a little about this.  I mean, everyone spins the story a little differently but when the same facts come from 4 or 5 different sources you start to get an accurate picture. 

In the case of “Steve Jobs” the problems are mostly ones of omission.  For example, it’s easy to portray John Sculley and Gil Amelio as “Bozos” if you omit their earlier successes.  It’s easy to portray Sculley’s tenure as having coasted on Jobs’ laurels and then dropped if you ignore the fact that Sculley actually turned the company around twice (and was ousted before he could try a third time).  It’s easy to accuse Microsoft of copying the Mac if you don’t know the internal story of Microsoft’s development procedures (procedures Apple insisted on and inspected themselves).

There’s also a lot of hero worship that hurts the book.  Clearly these interviews were done at a time when the people being interviewed knew Mr. Jobs could die soon.   So what you find are a lot of employee accounts that contradict what those same employees said at the time these events took place.  This is especially clear in how fast the author glosses over the Mac vs Apple II conflict that eventually led to the lackluster Apple III (produced by a completely demoralized team) and was partially responsible for Woz leaving Apple.  You also don’t get a clear view of just how much the Mac took from Lisa  (remember Jobs was in charge of Lisa before he started on the Mac) or how troubled Jobs’ relationship with Pixar has been over the years. 

Then you have the author’s personal opinion that is sprinkled throughout the book.  Here’s an example (the author’s words are in bold while the rest of the text is a Sculley quote):

At every opportunity Sculley would find similarities with Jobs and point them out:

We could complete each other’s sentences because we were on the same wavelength.  Steve would rouse me from sleep at 2 a.m. with a phone call to chat about an idea that suddenly crossed his mind.  “Hi, it’s me,” he’d harmlessly say to the dazed listener, totally unaware of the time.  I curiously had done the same in my Pepsi days.  Steve would rip apart a presentation he had to give the next morning, throwing out slides and text.  So had I as I struggled to turn public speaking into an important management tool during my early days at Pepsi.  As a  young executive, I was always impatient to get things done and often felt I could do them better myself.  So did Steve.  Sometimes I felt as if I was watching Steve playing me in a movie.  The similarities were uncanny, and they were behind the amazing symbiosis we developed. 

This was self-delusion and it was a recipe for disaster.

John Sculley had his flaws and I can’t imagine anyone arguing he was AS exceptional as Steve Jobs.  But the man was exceptional.  There’s no question of that.  The man was responsible for a business strategy that Pepsi uses TO THIS DAY.  Beyond that Steve Jobs clearly thought highly of him before their falling out.  So it really isn’t fair to bash the man for drawing comparisons.  Negative portrayals such as that take away from the historical value of the piece.  It would be like a book on John Adams downplaying the intelligence of Thomas Jefferson. 

Moving on there are also factual inaccuracies that, because they are presented as Mr. Jobs’ opinion, are put forth unchallenged.  Like…

It had taken Microsoft a few years to replicate Macintosh’s graphical user interface, but by 1990 it had come out with Windows 3.0, which began the company’s march to dominance in the desktop market.  Windows 95, which was released in 1995, became the most successful operating system ever, and Macintosh sales began to collapse.  “Microsoft simply ripped off what other people did,” Jobs later said.  “Apple deserved it. After I left, it didn’t invent anything new.  The Mac hardly improved.”

So Quicktime, the Newton, Claris, Copland, and a host of other innovations were nothing?  The truth is, from every insider account I’ve read the opposite was true.  They created an unprecedented amount of things but the management was so bad they couldn’t capitalize on any of it.  Apple created no less than 3 different operating systems that were more advanced than System 7 but couldn’t get a single one out the door.  Beyond that almost every account I’ve ever read has said Windows 3.0 did not succeed because of its technical superiority.  It succeeded because it was cheap and good enough. 

I know it seems like I’m defending the period between Jobs’ ousting and his return but I’m really not.  That period was just the easiest to find examples from since Mr. Jobs had a clear distain for everything that happened during that period. 

Beyond the above flaws the book is interesting from a “what Steve Jobs believes” perspective.  Plus the account of his childhood is more detailed than anything I’ve ever seen and that alone is worth the price of admission.  Then there are little revelations that make it worthwhile.  The fact that Jobs wanted to make a “Mac in a book” (aka a Tablet) after seeing touchscreen technology in 1985 is a fun fact.  And of course there are post iPod stories, an era that haven’t been written about much  (since most of the insiders from this time are still working for the company making historical accounts hard to research). 

Just to be clear I think Steve Jobs deserves hero worship.  I’m glad he’s getting it.  Because of him a whole generation of technologists have grown up knowing usability is as important as features and that’s put technology on a better path.  But at the same time the whole point of history is to pass on lessons from the past.  If the genesis of those lessons becomes white washed then the lessons themselves get lost. 

The Internet is Breaking

clock October 5, 2011 23:53 by author Tom

As I sit here and refresh Techmeme and Hacker News over and over again looking for more people to commiserate with I’m finding a lot of the links are going dead.  I have to admit it brought a smile to my face. 

Is there anyone who deserves such a send off more than Steve Jobs?

To The Ages…

clock October 5, 2011 23:16 by author Tom

I really hoped this wasn’t true


I have two thoughts on this. 

First, You can’t see this as anything but a tragedy and I want to say up front that I wish he’d lived to a ripe old age.

At the same time my first thought when I heard this news was to think of an old quote.  After the doctor declared Abraham Lincoln dead a silence fell over the room.  Then Lincoln’s War Secretary, Edwin Stanton, reportedly said “Now he belongs to the Ages”.  As tragic as the death of Steve Jobs is you have to also see the beauty of him always being remembered as the relatively young man with a twinkle in his eye and a magical device in his hand. 

Now that he’s passed it seems impossible to imagine him as a doddering old 80 year old sitting in retirement.  He truly did belong to the ages. 

The other thing that keeps going through my mind is a story that made the rounds a while back.  After it was clear MobileMe had become a disaster Jobs reportedly took the team aside and berated them.  He’s reported to have yelled “You should hate each other for having let each other down”

To be honest I don’t think you can learn much from Steve Jobs because he had such an extraordinary talent.  His instincts were better than the combined rational thought of an entire industry.  So in most things you can’t hope to emulate Steve Jobs.

But you can live passionately.  You can work so hard at doing something well that you hate yourself for failing.  That’s something we can all do and even if we’re not lucky enough the change the world like Steve Jobs we’ll certainly succeed in making the world a better place. 

That’s my take away tonight.

Addendum: I certainly didn't realize this but for the record Abraham Lincoln died at the very same age, 56.

False Hope for webOS

clock September 30, 2011 05:26 by author Tom

MobileBeat reports Amazon might be close to acquiring the remnants of Palm

Who will save what’s left of Palm from HP’s bumbling? It could be Amazon, as the online retailing giant is in serious negotiations to snap up Palm from HP, VentureBeat has learned.

A well-placed source tells us that HP is currently looking to rid itself of Palm as soon as possible, and that Amazon is the closest to finalizing the deal, among a handful of contenders.  Indeed, after yesterday’s announcement of Amazon’s Kindle Fire tablet, no other company seems as fitting a home for Palm and its webOS software.

I have no inside information but I doubt this has anything to do with the webOS software.

Amazon has put a significant amount of time and effort into building a business around an Android app store.  So it makes no sense for them to turn 180 degrees and adopt a new operating system.  More likely is they want Palm’s other assets. As this story from GDGT says…

As you might have heard from my man MG over at TechCrunch, Amazon's definitely got a Kindle tablet in the works, and supposedly looks a lot like RIM's failing (failed?) Playbook.  Well, there's a resemblance alright, and it's not just aesthetic. Here's how it went down

My sources tell me that RIM originally outsourced much of the hardware design and production of the PlayBook to mega-ODM Quanta -- a company that builds, and sometimes helps design, hardware for name brands. The time eventually came that Amazon's executives decided to do an Android tablet -- far likelier to respond to the dark-horse success of the Nook Color (AKA "NOOKcolor") than to the adjacent success of the iPad -- Amazon's own Kindle group (called Lab 126) apparently opted not to take on the project, in favor of continuing to work solely on next-gen E-Ink-based devices.

From there, Amazon's team determined they could build a tablet without the help and experience of Lab 126, so they turned to Quanta, which helped them "shortcut" the development process by using the PlayBook as their hardware template. Of course, it's never quite that simple, and as I'm told Amazon ran into trouble, and eventually sacrifices were made (like using a slower processor).

So basically Amazon is outsourcing the Kindle Fire line because their Kindle Group has no interest in building a tablet.  Meaning it would make sense for Amazon to acquire a team with experience in building tablet hardware.  Like….oh I don’t know…Palm.  Not to mention the Kindle Fire completely supplants the Android UI.   So an experienced UI team would certainly come in handy. 

But none of this means webOS is going to be resurrected.  In fact, I’d say it makes it less likely given how well Palm’s various teams sync up with Amazon’s current product.

Implementing Startup IT (or the Dichotomy of a Semi-Disgruntled Box Customer)

clock September 28, 2011 18:12 by author Tom

About a year ago I read a guest editorial written by the CEO of  At the time it connected with me.  It really echoed the way I felt about Enterprise IT.   So I decided to implement it in my organization. 

Understand that I love startups but I have a responsibility to my agency.  I don’t deploy startup technology.   I’ll mess around with it in my spare time but I don’t put untested companies into production.  So doing this with Box was a big exception for me. 

And I lived to regret it. 

It hasn’t been all bad.  I still like and believe in the technology.  But implementing Box Sync has largely been a disaster.  To the point where I had to backtrack and start pulling people off Box and putting them back on Sharepoint.  So I view this announcement with trepid excitement… had previously offered a Sync desktop client, which allowed users to sync folders with their PC desktops. But Box has totally rebuilt the sync engine and is debuting a new version of Box Sync for Windows and the first-ever Box Sync for Mac. This allows users to access Box files from their desktop, work offline in native applications, sync edits back to Box, and access synced content from any mobile device. Customers including Turner Construction, TaylorMade, Pandora and LinkedIn are early users of Box Sync.

Box Sync for Windows and Box Sync for Mac will available as free downloadable desktop clients for Business and Enterprise customers in October. Additionally, Box and HP has announced that they’re working together to distribute Box Sync on future PCs to HP’s business customers later in 2011.

Again let me stress this: I’m not a disgruntled customer.  20% of my users are on Box Sync and I’m fighting to make it work.  I believe in the technology.  So much so that I’ve written scripts and even a full fledged .Net Tray Application to compensate for its weaknesses. 

But having said that there’s no doubt implementing Box .Net is one of the worst decision I’ve made in my career.  I mean, I’ve had conflicts in my professional life that have threatened my job.  But putting people on Box is the only decision that’s ever made me feel like I deserved to be fired.

Yet I push on with it.

Which is the point of this post.  I’m very much split down the middle on Box and startup technology in general.  I wish I hadn’t implemented it but if given the same choice tomorrow I’d probably do it again.  Because I love what the technology can do.  I love the potential.  I love the thought of what I could do for the users on Box.  But thus far implementing the technology has clearly been a negative.  This very morning I lost 2 more hours of employee time dealing with something that would have never happened under Sharepoint (in fact it wouldn’t have happened in Windows peer-to-peer networking)

But that’s how it is with startup technology.  Believing in the future means making sacrifices.  It means pushing forward with technology because you know it will be worth it someday.   It’s a future play.   But it’s hard.  If you care about your users at all it’s very, very hard to have inconvenienced them today for features they may someday love.  But I do believe they’ll someday love it. 

So while I regret implementing Box right now I don’t think that will be the case in 3 years (or at least that’s my hope)

Addendum: Oh and they’ve raised another $50 million dollars.  That can’t be bad.

Netflix Down 7.73% … And This Time It’s Justified

clock September 19, 2011 23:13 by author Tom

If you haven’t heard Netflix has decided to split in two.  One half will be focused on Streaming (and keep the Netflix name) while the other will focus on Physical DVD rentals (under the name Qwikster).  This is a decision the market absolutely punished them for and I’d like to explain why I think that is. 

(For comparison the Dow was down 0.94% and the S&P 500 was down .98%)

First lets establish some ground rules.  In theory Netflix’s stock should have gone up.  Because this move is essentially a stock split for current investors and stock splits almost always deliver short term gains due to the psychological effect.  So it makes sense to jump on board and that’s what you saw at the beginning of the day…


But as the day went on and people discussed the move we saw a significant downturn.  I’ll admit I was one of the people who initially was in favor of the deal but turned against it.  I said this on Hacker News right after the story broke…

I think this is a good move simply because the two divisions have contradictory goals at this point.

For example, the Qwikster division should be looking at finding ways to deliver DVDs quicker (Kiosks for example). But that's not something that would ever occur to Netflix because they're focused on streaming as the future.

Which is where the contradiction comes in. It is hard to run a business unit when the goal of the company overall is to kill off your unit.

So what turned me?  There are a bunch of little issues but I think they all arise from one big issue which is the company has developed the tech media’s tunnel vision.   They are obsessed with streaming and it is having a negative impact.    Let me give you a historical example of why this is a problem. 

Remember Windows Everywhere?  In the late 1990s Microsoft had won raves for the Windows ‘95 interface and set out to put it everywhere.  TVs, Servers, and even PDAs…


Now look…I had a Cassiopeia E100, I loved that thing like a child but even I have to admit it was a ridiculous move on Microsoft’s part.  Cascading Menus on a 240 x 320 screen?  Come on!  But they were focused on branding everything Windows and giving those devices a similar appearance across the board.

Needless to say this strategy was a disaster.  So much so that Microsoft never gained a hold on the PDA market even after they corrected most of the flaws in their mobile strategy (see: The PocketPC).  It took the entire product category dying off in favor of Smartphones to give Microsoft some traction. 

But the above device, which looks ridiculous today, was a precursor to the future in many ways.  It had a color screen, high resolution graphics, a web browser, not to mention the ability to play audio and video.  All the things you see in a modern iPhone.  Compare  that to Palm who in the same time period had just introduced the gray scale, underpowered Palm V…

Yet we all know how this battle went.  The Palm V sold like hotcakes and Microsoft floundered. 

Now lets go back to Netflix.  As I said before Streaming media is almost certainly the future.  Just as color graphics, web browsing and multimedia were the future of mobile in 1999.  But Netflix is making the same mistake Microsoft did all those years ago.  Jumping too early with an immature solution.  Here are a few issues facing Netflix…

1.  Despite heroic efforts by Netflix their selection of streaming media is still sparse in comparison to their DVD business.  And it’s shrinking.

2.  Most people still don’t hook their TV up to their Internet Connection

3.  Broadband penetration is still not where it needs to be (even in the U.S. it was only at 60% as of last year)

In terms of the eventual future these issues are nothing.  In terms of growing in the next decade they’re very relevant.  Again Netflix has or will have major competition in the streaming arena.  Companies like Amazon and Walmart.   Yet they’ve decided to jettison a major strategic hedge and place an all or nothing bet on streaming.  That’s tunnel vision. 

One last point.  In his letter to customers Netflix CEO Reed Hastings said this…

Companies rarely die from moving too fast, and they frequently die from moving too slowly.

I’d like to see some statistics on that.  I’ll admit my opinion on the matter is as much conjecture as his is.  But in my experience plenty of companies die by moving too fast.  In fact what usually happens to those companies is they blaze a trail and then make it easier for their competitors to follow because they absorbed all the mistakes that would be spread across the industry. 

Futuristic Tunnel Vision

clock September 17, 2011 16:55 by author Tom

As a .Net developer I have a lot to say about Windows 8 and collating  those thoughts is taking a while.  So I thought I’d tackle an easier topic today.  Last week Netflix shares got hammered because they revised their estimates for physical DVD rentals down.  Dan Frommer thinks the share holders who sold are missing the point…

Here’s the thing, though. The future of Netflix is in its streaming business — not its business of mailing DVDs to people via the U.S. Postal Service. And Netflix only trimmed its forecast for streaming customers by 0.2 million, or 1%. The biggest cut, meanwhile, is 0.8 million DVD-only subscribers, or 27% of that customer base. But that’s Netflix’s old business, not its new one.

If anything, Netflix can take these numbers to Hollywood and say: Look, people don’t want DVDs anymore, either stream your best stuff on our site or good luck selling those DVDs at Borders. (And Netflix even says that its financial guidance for the quarter is unchanged.)


The problem is this.  Netflix is expected to have 21.8 Million streaming customers.  Only 9.8 Million of those are “streaming only” customers.  That’s out of a possible customer base of 345 million people (U.S. + Canada).  And I’d assume almost all of those people rent movies somewhere.  I don’t know about you but where I live there’s one of those Redbox DVD machines on practically every street corner.

THAT is the problem.

Yes, streaming is almost certainly the future.  But getting people to that point requires a journey.  First Netflix has to convert new customers from whatever local service they’re using.  That means duplicating the product their current service provides (namely DVDs).  Then Netflix needs those people to try streaming and hopefully move to streaming only.  But that process will take years.  People don’t change their habits that easily.

Beyond their current market Netflix is counting on its expansion into Latin America to provide future profits.  Just this month they expanded streaming service into Brazil, Argentina, Uruguay, Paraguay, Bolivia, Chile, Colombia, Peru, Venezuela and Mexico.  But broadband access is lacking in those countries.  Brazil recently announced 14 million fixed broadband access points out of a population of 193 million.   And they lead all other Latin American countries.

Do you know what percentage of the population has broadband in Mexico?

Try 6%.  In fact lets look at the listed countries by percentage of the population who are even on the Internet.  Not the percentage who have broadband but the percentage that have Internet at all.

Brazil: 37.4%

Argentina: 66%

Uruguay: 56%

Paraguay: 17%

Bolivia: 12%

Chile: 55%

Colombia: 50%

Peru: 31%

Venezuela: 38%

Mexico: 32%

Worse yet comScore estimates suggest not all of those people even watch video on internet (we’re not talking Netflix, we’re talking Youtube and other clip sites).  They found only 87% of Mexicans on the Internet watched video clips at all

One more point here.  What do you think is the fasted growing criminal enterprise in Mexico?  Try DVDs…

In this context, Mexico has one of the most competitive pirate DVD markets documented in our study, with widespread, small-scale cottage industry production and retail DVD prices routinely under a dollar. Criminals, as we’ve noted more than once, now have to compete with free.

The stock market over reacts.  I’d never deny that.  But stock price SHOULD depend on estimates of future revenue.  If Netflix vastly over estimated the amount they can charge for physical DVDs that SHOULD impact the stock.  And if the price hike is causing Americans to drop the service you can only imagine what will happen in Latin America.

Netflix’s goal right now is to lock in as many customers as possible.  Because once streaming takes hold everyone will be doing it.  The best strategy for doing that is using their established physical DVD infrastructure to pull customers in and convert them to streaming later.  That’s why weakness in that business is such a big deal to investors.

About Me

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