After 20 years living in the USA, I’m familiar with the scale of spectacle that is the Super Bowl (Mike, am I allowed to use that word here?) The annual championship brings in an estimated 111.5 million US viewers, according to Nielsen. But it seems our borders are somewhat porous, and the game also was viewed by some 8 million Canadians. The Big Game had “don’t touch that dial” benefits, as apparently some 1.6 million Canadians, dazed in a chicken wing and poutine coma, stuck around to watch MasterChef Canada. With that massive US audience, year after year, the price of commercial time for the game broadcast goes up, this year reaching $4.5 million per 30-second spot.

As a result of the high price of the advertising, and the size of the audience, the ads have also become better and better. No sense paying $4.5 million only to bore an audience. And because of the superior quality of advertising during the Super Bowl, the ads themselves have become an important part of the overall TV program, as much as the half-time entertainment, and to some such as myself, more than even the game itself.

As it happens, for the first time in two decades, last year I found myself settling in to watch the game with my Dad in lake country North of Toronto on his fine big screen TV with a Bell ExpressVu satellite TV subscription. And we tuned into the CTV feed of the game. When the first batch of ads started, it was clear to me that they were not the big-budget productions that I was expecting. You see, CTV bought the Canadian rights to the game from the NFL, and of course it has to sell its own ad inventory in order to recoup the investment. So, instead of the blockbuster Budweiser ads that were lighting up my Twitter feed, I was seeing Canadian Tire ads, or some sale on hockey sticks…I don’t remember. Many of the ads were clearly NOT premiere showings, nor even remotely well-produced.

“My error,” I thought, as I switched over to a US Fox affiliate that was broadcasting the game. And as the next batch of ads came on…poutine and hockey stick ads all over again! Why am I seeing Canadian-specific ads, when the channel I’m tuned to is the US Fox network? The TV package my Dad paid for specifically advertised and listed the ability to watch Fox, but I was most certainly being diverted during commercial breaks. What’s the story? Well, it seems it’s yet another case of government policy aimed at supporting some media company’s business model. Two years ago, the Globe and Mail’s Susan Krashinsky described it as follows:

The process is known under CRTC regulation as “simultaneous substitution”…So, whenever a U.S. station is showing the same program as a Canadian channel, the Canadian Radio-television and Telecommunications Commission requires that upon request the cable or satellite provider must switch the American feed over so that the Canadian commercials are visible and the broadcasters’ rights deals are upheld.

Now, in many ways, it’s good for Canadians that CTV has re-broadcast rights, because this allows Canadians to receive free over-the-air transmissions of the game if they live within range of a CTV affiliate. But for the vast majority that subscribe to cable or similar services, “simultaneous substitution” or “simsub” actually removes value to the citizen, by reducing the range of programming options. And simsub can be even worse: If the “simultaneous” part is lacking, Canadians can actually miss part of the game itself while waiting for their ads to end.

The CRTC argued that this keeps advertising dollars in Canada and protects Canadian broadcasters’ rights. Protectionism, sans even bothering with a euphemism. Subscribers’ and citizens’ rights be damned. Doubtless that during the Super Bowl broadcast, CTV requested that Bell ExpressVu remove the ads from Fox, and insert the feed from CTV. Let that sink in. Canadians paid for access to view Fox in order to see Fox’s programming including Super Bowl ads, but their cable providers were required to take over our screens and run CTV ads. Canadians’ eyeballs were sold to CTV without consent. Canadian customers are being treated like a commodity that has been bought and delivered to CTV. Change channels, see the same programming — the same thing that happens in movies when some evil overlord or revolutionary takes over all the airwaves. No need for CTV to compete in any way for the viewership, just regulate for it.

The issue also brings up a common topic of discussion here at Techdirt, and that is: Where is the line between content and advertising? In 2008, Mike wrote “Advertising is content. You can’t think of ads as separate things any more.” But Mike also made the point that this is only true when the audience isn’t captive, and thanks to the CRTC’s compliance, CTV’s audience is so captive that switching to a competing channel gets you the same feed. How many Canadians actually care about seeing the ads from the TV channels they paid for? A large number of Canadians offered the CRTC their feedback mostly anti-simsub, although unsurprisingly the entire media industry stood in support of the existing procedures. Shaw Cable submitted the following:

There is no content objective of the Broadcasting Act that would be achieved by providing Canadians with access to U.S. commercials that are widely available on YouTube.

Yes, a major Canadian cable company just suggested Canadians seek TV content from YouTube. Oh, how confusing the world can get when content and ads start to blend.

According to the Toronto Star, “Canadians are more likely to search YouTube for ‘Super Bowl commercials’ than Americans, according to Google Trends.” And the number of Canadian YouTube ad searches don’t account for the cable and dish subscribers who aren’t aware that they’ve been diverted, or those who care, but won’t be bothered to sit down at their PC for ad binging. In fact, the viewing experience for the commercials, much like the Big Game, is very different on a big screen with a bunch of friends than it is alone on the next day with your 4″ smartphone’s YouTube app. But in fact, watching the ads on YouTube is what the CRTC recommends.

The valid arguments made by the media companies include the fact that simsub is a big profit earner for them, and that it offers Canadian businesses the ability to advertise to their market directly during a major event. The profits, some $250 million CDN they say, are rolled into supporting and subsidizing the production of Canadian shows and content, stimulating the local entertainment industry. While arguably true, the ends don’t justify the means. And there is no rule or guarantee that those $250 million are invested in starving artists. Regardless, the consumers are the ones really paying the bill here. They should have a choice. People that tune in to CTV should see CTV, and those that pay for and tune in to Fox…well, they should see Fox.

So while there will be no cable TV respite for Canadians hoping to see “the real” Super Bowl ads this weekend, as of this week, there is light at the end of the tunnel. The CRTC is suspending the simsub rule for cable operators starting with the Super Bowl of January 2017. Ostensibly this long lag will allow Canadian broadcasters to factor this new ruling into their negotiations for Super Bowl rights. Bell Media has the rights to the Super Bowl in January 2016, and has the option to ask for simsub, or not. Faced with a choice of “make more money or make less,” I’d guess Bell opts for simsub. Meanwhile the local affiliates who broadcast RF signals will still be allowed to simsub. And the CRTC is only talking about the Super Bowl here. Other popular broadcasts like prime-time US TV shows or the Oscar Awards will still allow simsub. Too complicated for me, I’ll just stay here in California for my Super Bowl fix this weekend… or maybe just sit out in the sun and watch some old NHL hockey reruns with a bag of salt ‘n’ vinegar chips.

By now, you may have already read last week’s news, broken by The Information (paywall — but covered widely by lots of other sources), that Google plans to launch a mobile cellular service in the US late this year — as an MVNO (Mobile Virtual Network Operator — basically offering a cellular service, but using someone else’s physical network).

This is huge news, and it is correctly observed that this is likely to shake up the industry. The Google virtual network, rumored to be called Nova, will run on top of not one, but two infrastructure-based network operators: T-Mobile and Sprint. By combining the two, Nova can have wider geographic reach, higher average data speeds, and higher average signal strength. It may also be possible to bond the two carriers together to get much faster speeds. Nova could also benefit from lowest-cost routing, running on whichever network’s costs are lowest in real time.

Analysts have suggested that the threat of Nova will strike fear into the hearts of Verizon Wireless and AT&T, and perhaps it does. Sprint and T-Mobile, whether combined by a merger, or virtually by Nova, are still a far more formidable competitor than each alone. And Google is known for offering services for free (or very cheap compared to industry norms). I wouldn’t expect to see any kind of free cellular service here. At best, Google will offer the service above cost, which I’d estimate could start as low as $15 per month. And that’s the crux of most of the news coverage: “Google to attack market with low price.”

But most of the analysis thus far has left a lot of forward-looking ideas on the table. I’m betting that Google has much more in mind than a relatively low-price cellular service that can ride on the best signal of two networks. Here are some ideas Google should look to push out, and if they do, it will reveal how this MVNO is a huge strategic play for Google:

• Nova will not be a virtual network that aggregates two disparate networks. It will aggregate three. The increasing spread of WiFi hotspots and their IP-based connections are a no-brainer. And if Google seeks to keep prices low, it can offload as much data as possible onto users’ home and work WiFi networks. Expect the Nova virtualization layer to incorporate IP connections from Sprint, T-Mobile, and WiFi.
• That said, it makes sense for Google to jump into telecoms now, when an IP-only network is finally feasible. LTE provides the low-latency data connections required for VoIP. I expect Nova to be either all-VoIP, or at least mostly so. This lowers the operational expenses versus a conventional cellular service, which has to manage classic circuit-switched voice networks and an IP data network in parallel.
• To further drive down the costs of the network, and increase the amount of WiFi offload, I wouldn’t be surprised if Google either partnered with, or copied a company like Devicescape*. Devicescape is a firm that has aggregated millions of public hotspots into a “Curated Virtual Network” (CVN). This firm, or similar competitors, has already developed and demonstrated the technology to virtualize millions of diverse WiFi into one virtual layer. Google will probably follow on the heels of Republic Wireless, which uses the CVN and keeps costs down by being a “WiFi-first” cellular MVNO on Sprint’s infrastructure.
• It’s rumored that over at Sprint, which is now owned by Japan’s Softbank, the driving force for this deal was Masayoshi Son. Son isn’t known for modest market disruption. He goes big. He spent $21.6 billion to acquire a controlling interest in Sprint, and one of the key assets of the deal isn’t Sprint’s current standing in the US cellular market — it is Sprint’s tremendous (yet fallow) spectrum holdings at 2.5GHz. Now, with all that money spent, a question looms: What deep pocketed partner could be entreated to help invest the capital required to develop LTE-A networks on that spectrum? Google certainly comes to mind. At the very least, a popular Google MVNO would bring demand for data that would help Son develop and utilize his US spectrum assets.

That covers the network upheaval, so now onto phones and devices.

• Google’s Nexus phones have always been a success at pushing along the other phone makers and carriers, but less of a success in terms of sales volume. But the Nova network could change the outlook for Nexus sales. As it stands, the Nexus 6 is among the few phones that already has the right radios for both Sprint and T-Mobile’s different networks and frequencies. The mere existence of Nexus line proves that Google can get phones made to meet its precise needs (a huge feat, for anyone who knows this industry). But, up to now, Nexus phone functionality has been both driven by Google and also limited by mobile carriers. No sense building in features that carriers or their networks won’t support, right? And that’s Nexus, the most un-encumbered phone model available. Every other handset OEM out there gets pushed around even more by the powerful carriers, since carriers are the bulk buyers of the devices. So far, Apple is the biggest exception. Apple has fought and won more vertical market power than any handset vendor ever. Apple can drive many features to market, but even so is still limited by carriers: Remember tethering, or FaceTime being blocked? But what if Google were the carrier for its own Nexus phone? There would be nothing between the services it conceives and the customer. So, Google will sell more Nexus phones, and the phones will enhance the Nova network’s functionality. And all with low capital invested or risked, since Google owns neither phone factories nor network towers.

• And in fact, the Nova network is just the “Nexus One of cellular networks.” Let’s not forget the Nexus One phone success strategy: Either Nexus succeeds and sells high volume, or it fails, but still pushes other stakeholders along towards Google’s market objectives. You can substitute the word “Nexus” in that sentence with either of: “Google Fiber,” “700MHz FCC Auctions,” “Android,” or “Nova” for that matter. It’s a great strategic play for Google: Heads we win…tails we win. But there is thin ice here with respect to Fair Trade — it’s not fair for Google to deliberately fail in the cellular market, or lose money just to bring down its competitors (the economics term is “dumping”). But, in this case, Google can easily try to make Nova a money-earner, and/or a strategic win. And the WSJ has reported that Google is not strictly pursuing a low-price service.

So, the phone hardware issue is also disruptive. What about services, features, and functionality? Now comes the icing on the cake:

• An unconstrained Google phone on its own network, running all-IP would unleash many of the company’s disparate services that have somewhat languished as orphans for years. Google Voice could be the entire voice component of the Nova network, featuring cheap worldwide VoIP, visual voicemail, and voice messaging a.k.a push-to-talk. Hangouts would be the default chat and SMS app.

• Where else does Google have ambition, and could the phone fit in there? The Android Auto efforts, perhaps? Connected home via its assets Dropcam and Nest? Why not. A Nova Nexus could easily be a hub inside a connected car, leveraging the car’s display with Android Auto. Throw out voice commands using your car’s microphone telling your garage door to open and to turn off your home alarm. The Internet of Things? Sure, Google can be more creative, and offer very interesting pricing models in IoT, if it operates its own MVNO.

• Now, to push some boundaries, what about total communications convergence? Think “smartphone in the cloud“. Google could take Chrome on the desktop, Google Apps on iOS devices, and Android tablets and reproduce the full range of communications services from the phone. Sitting at your desk, but forgot your phone at home? MMS, SMS, and other chat services would just pop up on your PC. You could make voice calls using the same number from anywhere – one cellular account, but on any device. Need to make changes on your mobile phone? Do it remotely from your PC. And it’s not just computers that could access the phone’s features: your TV, your car, or your Microsoft Hololens could each be virtual iterations of your phone. Suddenly, your “communications self” is liberated from this 5″ brick to which we’ve become so attached. Your “self” follows you, not your phone. Google has been working on many of these ideas for years. You can use Google Voice, and Google Hangouts on a smartphone and a PC, but it adds complexity for users because the phone still has another voice service, another SMS app, and phone number as its identity. That phone identity historically has been locked within a carrier’s garden walls. But with Nova + Android + Nexus, Google can remove the entire construct of walls.

Can Google promote, market, and sell a device? Well, the company has learned a lot since the first Nexus One. The Play store is now much more polished, and it successfully sells devices every day. Google can easily promote its network and phones in its search results, or in millions of other ad inventory spaces that it manages. Support was a noted weakness of the first Nexus One, but even that has come a long way. Google now has a few years of experience in customer support through projects like Google Fiber. So, while support is unlikely to be a specific strength for Google, the bar isn’t really set that high, is it?

Now, none of this is a slam dunk. Analyst Phil Goldstein wrote over at FierceWireless that there are 5 reasons why Google’s MVNO will fail. And while I disagree with five of his five points, it is true that there are numerous hurdles to overcome. Goldsteins five points, in aggregate, represent true barriers. And we’ve seen lots of big profile MVNOs fail. In fact, on the US docket, the more ambitious the MVNO, the lower the track record of success. The failures have stemmed from high handset cost (ESPN), an app posing as a carrier (Amp’d), no clear target market (Disney), high marketing and Subscriber Acquisition Costs (Helio). To counter, I would argue that Google has the ability to produce hardware at the right price points, has a very wide audience of Android and Google users, and has good access to their markets using existing web properties. And it’s not all doom and gloom, lesser MVNOs have frequently found measured success: Simple Mobile, Republic Wireless, TracFone, Virgin Mobile, etc. And none of those had the structural advantages, or deep pockets that Google has.

In short, there is a lot more below the surface of a Google MVNO. You can bet that the ambitious people steering this thing are not simply thinking of “a new network using T-Mobile and Sprint, but slightly cheaper.”

*Disclosure: In the past, I have been a consultant for Devicescape. I haven’t had a professional or financial connection to the firm in over a year.

A Smart TV is a TV that includes at least a rudimentary OS, access to web and Internet functions, and streaming content. They have been a hot product category at the last two CES shows, and the rumor that Apple is about to launch one is adding fuel to the fire. The Apple rumor is somewhat reliable, since it is partly based on a quote from the Steve Jobs biography where Jobs says of the Smart TV: “I finally cracked it.”

But having looked closely at the offerings at CES, and comparing them to the mobile phone industry, I don’t believe that the entire concept of putting extensive intelligence into the TV is a wise one. The reason is mostly because of the temporal mismatch between the lifetime of a TV, and the lifetime of a mobile device, mobile OS, or mobile processor. You see, people want large screen TVs, and these are expensive investments. The main screen in most American homes runs around $1,100. And those screens are designed to have a half-life of around 60,000 hours of viewing. Now, it’s not clear how long the average consumer will keep a 1080p TV bought in 2012, but I’d suppose that 10 years is not a ridiculous guess, so humor me and work with 10 years.

So if there is one component of the Smart TV that costs $1,100 and lasts most people about 10 years, does it make sense to mate it to the “smart” part? The cost of the “smartness” is fairly easy to estimate: A Roku box, Google TV box, or Apple TV box run around $70-$100, a Boxee box goes for around $200. So, the “smart” factor runs between $70 and $200 street price. But what is the life-cycle of the average “smart” device? For that, I look to the phone market, where people cycle their smartphones every two years. Apple fans line up at the store to replace their one or two year old 3GS for a 4G because of added features and function. On Android and iOS alike, the latest OS versions, features and apps only work on the latest hardware. Does anyone here have an old phone or smartphone sitting in a drawer? Yes? Do you want to do the same with your $1,100 TV investment? It’s a given that a TV is not a smartphone, but for now we’re asking them to do similar tasks: apps, streaming media, social updates, etc. The Internet performance of the TVs will become out of date like smartphones do. Tying relatively cheap, 2-3 year life-cycle smarts to an expensive 10 year product just doesn’t make sense.

It seems the obvious solution is already here: keep the TV dumb, and provide a set-top box (STB) that has the smarts. The STB can thus be replaced cheaply, once out of date. Consumers can easily have more than one STB, not committing to any one company’s ecosystem. Do people really want to buy their TV’s by ecosystem? “Hey, I love this Sony’s picture, price, and size…but I want an iCloud, so I’ll buy this smaller TV instead.”

Really, the Smart TV is just a sales vehicle dreamt up and promoted by the TV OEMs. They had a bang-up decade updating everyone to flat panels, then pushing the upgrade to 1080P. They’ve had less success with 3D, and are looking for the hook to make another upgrade worthwhile. For now, Smart is it. But I doubt customers are eager to jump on, given they can just buy a STB. Even those actively looking for a TV may resist if there is a price premium, given most Blu-ray players and many cable or telco STBs already provide smart features. The TV OEMs are going to have to bundle in the smarts for free, and hope that they can make money back on the content ecosystem. But will they enjoy ecosystem lock-in for 10 years, or less?

So far, the Smart TVs sold to market are too new to have suffered from the life-cycle mismatch. The earliest Smart TVs can still compete on level ground with the latest, since it’s only been a year or so since they’ve been in shops. But it won’t be long until we start hearing complaints from those customers that “I can’t stream that resolution.” or “Why can’t I watch programs with that new MP4 codec?” or “That app doesn’t work for me. Why can’t I get the latest OS on my TV?” Some of those people will end up with a newer STB, and just obviate the smarts that had been built into their TV, much the same way most of us don’t use the TV tuner that is bundled with our sets.

Ultimately, whatever the problem that Steve Jobs “cracked”, or whatever smarts are provided by Sony, Google, LG, Samsung, etc. I think those smarts will be better placed in a STB (or tablet, or other smart device) than in a TV.

LightSquared is a new wireless carrier that has been trying to launch a wholesale 4G network across the USA. Funded by private equity firm Harbinger Capital, it sought to re-purpose satellite communication frequencies to build a nationwide cellular-satellite hybrid network, and then re-sell the network capacity to other brands. In January 2011, the FCC, eager to foster new competitors in the mobile space, gave LightSquared the green light to launch using their spectrum with one provision – that their network equipment NOT interfere with GPS signals and devices. Well, over a year has come and gone, and despite incredible effort and wrangling, the independent testing keeps indicating that LightSquared’s terrestrial towers are not compatible with GPS device use. As such, the FCC has basically rescinded LightSquared’s request to launch service on their 1.5GHz L-Band spectrum.

Note that, while LightSquared DID knock out GPS devices, it was not LightSquared that transmitted on the GPS frequencies, but rather the GPS devices that sloppily “listen” to the adjacent LightSquared frequencies. The GPS chipsets were generally cheaply made with inadequate filtering. That said, who is at fault is irrelevant: it remains LightSquared’s problem to solve if they want to launch their network. A long history of spectrum policy states that new entrants must not mess up the existing radio devices.

What we’ve lost here is the chance to have a truly innovative wireless carrier which would have stimulated competition, energized the vendor community, and provided a white-label network for MVNOs. LightSquared had, in fact, signed up dozens of partners who would offer LTE wireless services as cellular companies, CE makers, and store brands like Best Buy, for example, who could sell connectivity in a bundle with laptops. Maisie Ramsay over at Wireless Week explains how a vast community of over 30 technology vendors have also lost a valuable path to market.

What strikes me, as someone who works with wireless carriers (LightSquared included), is that we may lose one of the scrappiest players out there. And markets thrive when a scrappy player stirs up the pot. Hutchison Whampoa stirred up the UK markets when it launched 3G in 2003, Free is currently doing the same in France. In the USA, we have regional players like Metro PCS, but nothing at the national level. My role at the Telecom Council of Silicon Valley is right where innovators meet with the telcos, and it was gratifying to see the tornado of new ideas, vendors, and possibilities that came about with a new network. Without legacy systems nor legacy thinking, lots of great ideas are free to emerge.

For now, with LightSquared’s options dwindling, we may have to have to look elsewhere for new competition and open creativity. The WiFi space is fairly promising, as the spread of hotspots continues to soar, and new versions (802.11ac) promise greater range and throughput. Chipsets are cheap, and billions of WiFi devices have been produced. Republic Wireless exemplifies the possibilities of leveraging WiFi in mobile phones to the limit. Lots of people are hoping that the “white spaces” frequencies in between TV channels will be offered up to a WiFi variant, which will mean low-frequency spectrum that penetrates walls and buildings much better than today’s WiFi. I like what the US carriers have done with the (globally) early launch of LTE, but there’s no doubt that with increased competition we’d have a more dynamic market.

The Apple rumor mill is spinning at full speed again, with word of a new iPad release in March. This would be on schedule for Apple, so the real speculation is around exactly what improvements this iPad will feature. The Wall Street Journal, normally not the town gossip, wrote that the upcoming iPad would feature a smaller 8-inch screen, and would be LTE-enabled. LTE is the latest, fastest network technology available from Verizon, AT&T, and other network operators. But the intention here is not to pile on to the speculation of what Apple might deliver. The intention is to speculate instead as to what the carriers might have up their sleeves with respect to an LTE tablet pricing plan.

When the LTE iPad hits the market, expect to see it sold with a “shared data plan”, or a plan that is connected to a smartphone plan, and share a common pool of MB of traffic per month. Verizon, in particular, has hinted that just such plans will be emerging soon. Lowell McAdam said in December that such plans would emerge “sometime in 2012” to accommodate the increasing number of people with multiple mobile Internet devices. Such devices include smartphones, laptops, tablets, and others. More and more, subscribers are adding devices, and are getting frustrated at having to open a separate account, with a ~$50/month price, just because they choose to browse on their tablet instead of their smartphone. Most customers, rightly, assume that it should make little difference to the operator whether they access the net on their tablet, laptop, or phone. This is just a substitution of the access device. Because of the current punitive billing, owners of multiple connected devices are defecting from the cellular game, and instead opting to use Wi-Fi only on laptops and tablets…and liking it!

Research from The NPD Group has shown how the attach rates (portion that sign on to cellular service) for cellular-ready tablets have been less than stellar, and decreasing over time. In April 2011, NPD says that 60% of tablets only connected via Wi-Fi, but by December 2011, that number had jumped to 65%, showing how Wi-Fi has been winning out over the more expensive and contract-laden cellular offerings. Tablets like the Kindle Fire are sold as Wi-Fi only, contrasting with the earliest Kindles which all had cellular radios embedded. The carriers are at extreme jeopardy of losing the connected device market (and embedded market and M2M) simply because they have lagged in offering the kinds of flexible plans that make sense.

Once a trend away from cellular connection takes hold, it becomes harder to stop. Wi-Fi networks will respond with increased capacity and increased hotspots, OEMs will respond with more Wi-Fi-only devices, and consumer behavior will respond by considering tablets as “portable” Wi-Fi devices, not fully mobile like smartphones. The strategic cost to the carriers is significant. While the trend won’t be stopped, it is certain that carriers could retain significance by offering pooled data plans at sensible bundled prices. This means selling data to a consumer, not to a consumers specific device. And what better way to launch such a new pricing plan than with a device that the market has proven to love – a new iPad?

So whatever the shape of the new iPad, and the fantastic new features that fanbois laud while naysayers explain how they were just repurposed from other devices, we should fully expect an LTE iPad with a new kind of cellular pricing model, which drives up the attach rate, increases device utility at a reasonable price, and creates greater carrier loyalty and long-term gains. If Verizon and AT&T do this right, we could all win.

A couple of weeks ago, HP made the significant decision to get out of the consumer hardware business, simultaneously shutting down their PC business and their mobile device business built around the WebOS purchase that came with Palm, Inc. When they abruptly did so, HP also announced they would be clearing out the supply chain by offering their very capable, $500+ TouchPad tablet for $100 (16GB models).

What followed was a mad rush of purchasing, with people clamoring for a cheap, but powerful tablet. This is by no means a bad device: remember that the WebOS was critically acclaimed, and this tablet had a 9.7″ screen, webcam for video chat, lightweight, 1.2GHz dual-core processor and more. These are flagship-grade tablet specs, and although we’ve learned that UX is more important than specs, good hardware is a definite plus. The biggest problem with the device was the lack of developer support for the ecosystem, so there are “thousands” of apps available according to HP, but not the ‘hundreds of thousands’ that work with the iPad.

This fire sale has provided a fairly interesting experiment in the market clearing price for non-iPad tablets. The base iPad sells readily for $500, and is often sold out. This is the high-water mark for tablets, which no other has matched. Other vendors have built competitive hardware and tried to sell it in the same price range (Motorola Xoom, Samsung, Playbook) but were rewarded with lackluster sales. Some of those devices, on paper, are arguably better than the iPad, so the most likely reason Apple can extract a premium is the power of their App developer community. An iPad can do much more than a Xoom partly because of what Apple offers, but mostly because of the ‘whole product’ which includes 400,000+ apps.

Device industry executives must stay up at night wondering how to price their tablet. The HP experiment will prove useful. Now we know that at $500, buyers walk away from the deal. But at $100, they literally rush the store like Walmart on Black Friday. This tells us that the correct price for a good tablet with weak developer support is between $100 and $500. That’s a fairly wide range. I wish HP had set the price higher, to provide a better test. Unfortunately, whenever an OEM company sets the price, what we get is their desired price, but not the market value. For that…we have eBay. Many of the buyers at HP’s firesale were just arbitrageurs looking to flip the tablet to make a quick buck, and those tablets quickly showed up on the auction site. A look at eBay today reveals a high number of TouchPads on offer, and sold for a market price of ~$250.

If the hardware alone is valued at about $250, how does iPad sell for $500? Well, we’ll have to attribute some of the premium to the “cool, sexy” mystique of Apple products. But I wouldn’t go too far with that. The Samsung Tab or HP TouchPad are both very slick looking products. A chunk of the premium has to be allocated to Apple’s excellent and easy UX. The mass market doesn’t want to geek out, they want easy products. But Honeycomb and WebOS aren’t so far behind…

No, the dominant reason that iPad can sell out at $500 (even as sales have tipped well beyond the fanboi segment) is the value brought by apps. Apple is making cake because it has the biggest developer community coding around the OS, and the value of that community is currently worth something on the order of $200-250 per tablet. It’s going to be tough for any other tablet to breach this market, where Apple already has the supply chain dialed in, the developer community, the innovation lead, and the brand. Android may progress bit by bit, but for now Tablets are Apple’s private playground. Competition will heat up if Android tablet versions of the Nook and Kindle go to market around the $325 range (making their profit on books instead). Note that the TouchPad has an estimated $318 Bill of Materials (BoM). In a few years, Moore’s Law and steady Android progress will reduce the cost and app advantage iPad now enjoys.

HP will be emptying the supply chain in a couple of weeks with the final production run of TouchPads. I wish they would bump up the price to see if the market would bear $318 direct from the manufacturer (ostensibly, a more desirable seller than eBay members), but it seems that they will keep the current fire sale price.

Having already covered the basics of the Google deal to buy Motorola Mobility, we asked Derek Kerton to weigh in with his thoughts on what the deal really means.

Some suggest that Google bought Motorola Mobility Inc (MMI) so that it can vertically integrate and produce flagship phone models that have the polish and seamlessness of the iPhone. But the real reason is a common theme here at Techdirt: Google needs to build its defenses against patent lawsuits in the smartphone industry.

On the very face of it, Google doesn’t need a handset subsidiary to make a custom Google phone. They can easily commission a handset exactly how they want it from OEM brands like HTC and Samsung, and have already done just that with the Nexus models. They could easily design their own brand of phones and have it built by contract manufacturers like Foxconn (as Apple does). I’ve read elsewhere that Google now gets the benefit of better understanding of the challenges of integrating Android into handsets. That’s also incorrect. Google has a history of sending teams of engineers to most of their handset and tablet partners to work side by side overcoming those challenges.

Perhaps Google just saw a good deal on Motorola. Its stock price has been dropping through the decade, and also the past year. The market value prior to today was just $7.3 Billion, compared to $20B for Nokia or $13B for RIM. Perhaps, like Nortel before it, the value of Motorola’s Intellectual Property (IP) is being hidden by a poor operational record. A buyer like Gordon Gekko (of the 1987 film Wall Street) could have bought up MMI, divested the operational arm from the IP portfolio, and realized a gain by separating the parts (as Gekko famously did to an airline). Of course, that’s a ‘private equity’ view on the purchase, but Google has indicated it will retain MMI for now. Still the sum of the parts might be worth more than the whole. Although not a startup, this seems similar to Masnick’s post yesterday that the value of a startup’s patents might exceed the value of the operation.

There is also the less-mentioned factor that Google now also owns MMI’s set-top-box division, which might give a shot in the arm to the fledgling Google TV business. Bundling Google TV into every STB would be great for Google, but I would expect that, since these boxes are all bought by cable operators, the cable companies would ultimately decide if Google TV actually remained in the box once it was installed on the customer premises. Since Google TV competes with their on demand services, it may end up as popular as the built-in laptop tethering feature is on Verizon’s Android smartphones – i.e. Verizon takes it out.

My understanding is that Google intends to run Motorola as independently as possible. That is, no doubt, to head off what is known as ‘channel conflict’. Channel conflict occurs when one member of a supply chain, say the Android OS supplier to many handset vendors, expands into another part of the chain, in this case the handset industry. Now they are both a supplier AND a competitor to companies like HTC, Samsung, LG, etc. Historically, the other vendors start to mistrust their OS supplier, and become more reluctant to use the OS as they search for other options.

We’ve seen this before with Nokia’s handling of Symbian. Since 2001, Symbian was, ostensibly, an openly available smartphone OS that any handset manufacturer could use. Nokia got behind this idea full force, not wanting to cede the market to OS companies like Microsoft. They pushed the idea of other handset vendors joining them, in competition against Redmond. Some did adopt Symbian, including Ericsson, Motorola, Siemens, NTT DoCoMo. But Nokia struggled with the notion that Symbian was “too controlled by Nokia” since around 2003, so they spun it off into an open consortium in 2009. Too little too late. The other OEMs didn’t ever really believe that Symbian was truly independent. The end result is that very few other handset vendors ever got fully behind Symbian, even during the time when it was the best smartphone OS in the world. So Nokia just ended up buying it back again in 2010, and finally killing it off recently.

With Android linked too closely to Motorola, companies like Samsung might be driven more to their own OS, called BADA, while others like LG could seek new alternatives (Windows, QNX…) Thus, Google now must re-interpret the same dance that Nokia did years ago: “No, don’t worry, Android is still open. You will have as equal access as Motorola.” This may succeed, but is a precarious position. The dance partners may have changed, but the music is still the same. Let’s see if they come up with some new moves.

OEM confidence that Google will keep equal access to Android to all handset vendors is made even more precarious since the recent moves by Google to prefer some vendors of its formerly “open” Android OS. Google only released the latest tablet version of the OS (Honeycomb 3.0) to select partners, shutting out the open source community and other hardware vendors from the OS for now. The first to get exclusive access? Motorola, for the Xoom tablet. This is not the best way to ease OEM concerns around equal access, given that some may be ‘more equal than others’.

It becomes clear that what Google truly needs from the acquisition is the patent portfolio of Motorola Mobility. The smartphone patent wars have been raging lately. It seems every handset vendor is getting sued by big competitors and by patent trolls alike on a daily basis. Android vendors, for example, pay nothing to Google for use of the OS… but they must pay about $5 per phone to Microsoft because MSFT had the smartphone patent leverage against Google. In another dire example of the risk of patent assault on Android device makers, the Samsung Galaxy 10.1 Tablet has been shut out of European and Asian markets by injunctions based on patent claims from Apple.

To fend off patent assaults, companies seek to build their own patent arsenals. That, for example, is why so many vultures hovered around the carcass of Nortel, and bid up its patent portfolio to 4x what the market expected. Google bid, but did not win at the Nortel auction. But with Motorola’s 14,000+ patent portfolio in the mobile phone industry, Google can not only defend Android much better from the patent assault (by threatening counter-assault), but Google can thus reduce risk and uncertainty for its handset partners, thereby making Android more attractive.

Think about it. One of the biggest features of the Android OS for device makers was the license fee: free. Free, as Techdirt readers know, offers some very powerful mathematical and business implications. Suddenly, building an in-house OS for your car stereo or TV remote control may look less attractive than a more powerful, free, Android OS. Same goes for tablets, fridges, netbooks, or phones. But if MSFT and Apple (and countless others) can layer up license fees, the attractiveness of Android starts to diminish. The power of ‘free’ disappears, and instead, uncertainty and risk of lawsuit reign supreme.

So, the deal results in two opposing forces for the future of Google: IP cost and risk mitigation, and potential channel conflict. If Google can succeed at making the IP risk mitigation more important than the channel conflict for the OEM vendors of the world, thereby winning more handset and device partners, the Motorola purchase can be a success. If channel conflict is the more important part of the equation, Google loses big. I wonder if Google might someday sell off the handset maker, but keep the IP. Big news, either way. It’ll be interesting to see how it plays out.

"Stealth Mode" is the name of a start-up strategy where the founding team develops their product and business in secret. The tactic is based on the fear that, if their idea were to get out, other companies would copy it, and the originators would face competitors. The use of Stealth Mode has swung in and out of fashion in Silicon Valley over the past decade, but was hottest during the tech bubble at the end of the last century. Back then, .com startups were so hot that investors would salivate over the latest stealthy startup, eager to throw some easy money at it. But whatever the fashion, with few exceptions, I think that running a startup in Stealth mode is short-sighted, arrogant, and counter-productive. Here’s why:

• Founders who want to operate in stealth are usually of the opinion that their idea is soooo very unique, that to share it would be to divulge the crown jewels. There are two reasons that is naive:
  1. Your idea is almost certainly not unique. Someone else has had the same idea, and if it’s any good, someone else is working on developing it.
  2. You are going to have to share your idea at some point in order to sell it, so your secrecy is short-lived at best.
• A consistent Techdirt posit is that execution is far more important than idea. Whether you reveal your idea or not, how you execute versus direct competitors and near substitutes will determine whether you succeed or not (see bullet 4).
• If execution is important, a critical part of execution is networking, getting your idea out there, meeting the right partners, employees, VCs, Angels, channels, and early adopters. In fact, this professional networking is the core of Silicon Valley culture, and "Stealth" is the antithesis of that culture. Ask yourself: Which culture worked better over the years: Silicon Valley’s open idea sharing, or Route 128’s tight secrecy and control?
• Stealth mode prevents the creation of any kind of buzz around your company. Early in a company’s life, buzz among the tech community (VCs, executives, industry insiders) is very valuable. You want to be the first name that rolls off of someone’s tongue when your startup sector is mentioned, like Admob was for mobile ads, Slingbox was for place-shifting, or Loopt was for social LBS. This gives you tremendous advantage in word-of-mouth mentions, as a "must check" comparable before a VC invests in a competitor, as a target for any large partner seeking to adopt similar technology, or a corporate M&A effort seeks to buy a sector leader.
• Stealth mode prevents feedback from savvy friends, the tech community, beta adopters. It limits the fresh thinking, free advice, and diversity of ideas that go into product cycles.

Suffice to say that I have found that more times than not, stealth companies miss the boat. Their idea isn’t that special, and some other company has grabbed all the advantages of being the First Mover long before the stealthy come out of hiding. There are, of course, exceptions, ex: ideas that take years of R&D, rock-star exec teams, ideas that truly are unique, & a few others.Partly as the result of this kind of thinking, Stealth Mode is out of fashion these days. Most VCs refuse to even sign NDAs with startups, not wanting to don legal handcuffs, while being less interested in a company that is counting on secrecy as one of the tenets of their success.

Part 2 – Case In Point: Checkpoint 

I was reminded of the issue of stealth companies today when I read about CheckPoint at Wireless Week. CheckPoint is a startup that is in "Stealth Mode" and is building a mobile app for checking into retail stores, and then having the app suggest products to have a look at in that store. Wait… How is it that I can tell you what CheckPoint does if they are in Stealth? Well, I guess it’s because stealth is such a lousy idea that the CEO himself revealed the company strategy to Wireless Week one month before coming out of stealth mode! Basically, with yesterday’s Facebook’s announcement that it is entering the location check-in sector, CheckPoint has realized that the party might be over before they even show up. They have missed out on the buzz grabbed by startups FourSquare and Gowalla as they dominated the sector before the giant Facebook stepped in to mop up.

CheckPoint’s CEO tries to make the best of the situation by saying,

…[CheckPoint] has very little in common with them [FourSquare, Gowalla, Facebook] because they’re primarily for social connections. CheckPoints is focused on tangible products and helping consumers connect with products that are interesting to them…There’s no one really focusing on product in this space right now…

If he honestly thinks that, he really has been in hiding for too long! All of those Check-In services are clearly focused on driving product sales in the locations users visit. It’s just that they are using your friends as the bait that makes the app sticky. First, get the bait, then move the product. CheckPoint’s secret strategy is [shh] “First, push the in-store products, then offer discounts.” It’s like a scavenger hunt with discounts as the reward. I’m not saying it’s a terrible idea, but I think the Facebook/FourSquare/Gowalla approach seems better.

Either way, CheckPoint’s reaction to Facebook’s sector entry is a cold reminder of the real threat for any startup: it’s not that someone else will steal your idea – someone else probably already has it – nope, the real threat is that you will toil in obscurity as better-known and/or larger players execute on grabbing market share.

Does this look familiar?

@YourBuddy
 I’m at the Apple Store Palo Alto in Palo Alto http://gowalla.com/spots/9591
 about 7 hours ago via Gowalla

It looks all too familiar to me. And these messages are increasing in frequency in inboxes and social sites. What’s going on here is that a fairly new kind of app, the "location check-in" service, is starting to get more traction among early adopters, and the usage is resulting in rapidly increasing "10-20" updates. Last week, the SXSW conference was ground-zero for this battle, as two of the hottest players, Foursquare and Gowalla, battled it out a year after both launching at the same event. Gowalla, behind for most of the year, gained steam at SXSW, winning a SXSW Web Award. Gowalla launched an updated app in Austin…and that’s where my trouble began.

It seems that many of my social contacts have decided to try Gowalla this past week, and as a result, my Status Updates from my Contacts in LinkedIn, and "What’s Hapenning" in Twitter are getting stuffed with spammy updates of every time one of them shows up at some coffee shop. This is the worst of social…the anecdotal "I’m brushing my teeth now" update that we all made fun of before we discovered the real value of Twitter.

What has happened is that these Check-In apps are degrading the average value of the messages my friends send. As a "follower", I tend to only follow people who put tight filters on their tweets, usually offering some deliberate thought about politics, telecom, or technology. But once these people connected Check-In apps to Twitter, their deliberate, pensive, witty tweets are being overrun by location spam. I’m not your mom, and I don’t care where you are!

To be fair, the Check-In apps, by themselves, are not bad, and can be quite cool. I like being able to sign into locations, leave virtual notes there, leave pictures on a virtual board, rate the place, get discounts. Many of the uses are fun, informative, and even whimsical. I like the goofy competition for "being the mayor" of the bubble tea shop. If you have no idea what I’m talking about, Shane Snow over at Mashable describes the leading apps well, including a head-to-head feature chart. So while the apps can be engaging, it’s just the optional connection of these apps to automatic outbound messages that is problematic and can generate too much chaff.

Not only can automated messages add up in quantity, but they can occasionally send the wrong signals, or be cause for embarassement. On one funny occasion, my wife visited someone at the hospital, and she turned on Foursquare. Because of the lingo of these apps, her Facebook page and friends were pushed the message "Liz just checked-in @ Kaiser Permanente Medical Center – Walnut Creek". Now, much as we liked the free flowers, we’re not sure she was sending the right signals.

Like email and spam in the 90s, the good-quality, human written missives are being substituted by pointless, automated messages. It’s far easier for a server to crank me out a message than for a person to type out 140 characters, so I predict this unfortunate trend to continue. An increasing number of status updates will be coming – not from your friends – but from machines they’ve allowed to send on their behalf. Too bad. I wanted to stay in touch with my friends, not their software.

There’s something anti-competitive afoot in the ‘VoIP over 3G’ space this year. Let me run you through a timeline, and see if you can’t spot the dirty pool:

0. Skype has had a highly functional VoIP client for Windows Mobile devices for a few years. It allowed smartphone customers to use most features of Skype over WiFi OR a carrier’s cellular data network. It was distributed around the carriers direct to customers of Skype, and was designed for those customers’ benefit.
1. March 2009: Skype on iPhone is launched, but is unable to do VoIP over the 3G data channel because AT&T and Apple blocked that functionality. Skype, Google, the FCC, and consumers cried "foul" at AT&T and Apple.
2. Oct. 2009: After considerable FCC and consumer pressure, AT&T relents, and allows VoIP over 3G (and was even publicly applauded by Skype’s CEO Josh Silverman). Skype users, naturally, expect an updated Skype version that will leverage 3G data.
3. Jan 16, 2010: Skype releases a new iPhone version which DOESN’T take advantage of the new leeway AT&T (and ostensibly Apple) allow for VoIP over 3G. Skype points fingers, mostly back at Apple.
4. Jan 27, 2010: Apple removes any 3G VoIP restrictions. Now there is nothing holding Skype from doing VoIP over 3G on iPhone.
5. Mid Feb, 2010: At MWC in Barcelona, Verizon and Skype announce a special version of the Skype app that will run on Verizon. While most press outlets rejoice at the "openness" Verizon wireless is finally showing,  it turns out to be a limited, crippled version, which is designed to fit Verizon’s agenda, NOT customer wishes. This version can use the 3G data network, but just for chat and ‘control’, not for voice. It requires a >$10/mo data plan, is not available for phones with Wi-Fi, and ‘Skype out’ cannot be used to make domestic phone calls. In this deal, it appears that VZW paid Skype for some exclusivity in the USA.
6. Mid-Feb, 2010: Also at MWC, Skype CEO Silverman tells Om Malik that we can expect 3G VoIP on iPhone "Very soon", with no firm commitment.
7. Feb. 26, 2010: Skype completely pulls it’s very functional Windows Mobile apps with little explanation, and no suggestion of when they might return. The app, which works fine, just goes away. Why pull the most functional Skype mobile app and leave only crippled versions?

Looking at the timeline above, it’s pretty easy to guess what’s going on here. Skype has been negotiating with Verizon Wireless for some exclusive deal in the USA. But unlike the relatively good, open Skype deal enjoyed by Hutch "3" subscribers in the UK, the Verizon version is crippled with confusing limitations, complications, conditions. It’s clear the Verizon goal is to use Skype to upsell data plans to users who don’t yet have one, and to drive or retain Minutes of Use of cellular voice traffic. Skype just sold its US mobile users down the river! Skype still promotes "Skype Mobile" on its US web pages, but if you click on any OS like Android or Blackberry, you’ll see the bold headline "Coming Soon: Skype on America’s most reliable wireless network." And are basically told to wait for the exclusive product.

The only reason Skype offered for retracting the WinMo app is "because we want to offer our new customers an improved mobile experience – much like the version that has proved so popular on the iPhone…" Wait…Is that the same version that annoyed users because it couldn’t do VoIP on 3G? And how does killing a product with no replacement offer an "improved mobile experience"? Seems like more of an absent mobile experience.

Going forward, this also could position Skype well for offering a premium paid version of a fully functional app at a future date, when exclusive deals expire. A freemium model would be less unsavory than the exclusive/crippled structure that we apparently have for now. At least with freemium, the free market can choose to pay or not from any given carrier. With the exclusive/crippled structure, customers have little choice – except the choice to use another VoIP provider who is focused on giving end users what they want.

The result of this exclusive deal is, essentially, to deprive an entire country of the value of a good VoIP service (Skype) on mobile phones, and instead to offer us a crippled version that is designed not to delight any user, but to delight a carrier. How ironic, then, that Skype’s Silverman has been at the forefront of the push for more "open" networks:

"Nonetheless, the positive actions of one company are no substitute for a government policy that protects openness and benefits consumers. We’re all looking forward to further developments that will let people use Skype on any device, on any network."

or when he said this from a September lobby trip to DC:

 "We have witnessed certain broadband providers unilaterally block access to phone calls delivered over data networks and implement technical measures that degrade the performance of peer-to-peer software distributing lawful content. And as many members of the Internet community and key congressional leaders have noted, there are compelling reasons to be concerned about the future of openness."

Compelling reasons, indeed. It seems that in this case, AT&T actually followed through with their promises to be more "open" while Skype and Verizon have just painted a big "open" sign on the gates of the walled garden. Enter at your own risk.