More News About DRM Hurting the Industry

Check it out. MusicLoad, a big shot digital music store in Europe has reported that three out of four customer service issues are caused by DRM. The frustration is that the distributors are incurring huge costs. Not only do they get stuck with developing and dealing with DRM, but they are also creating virtual sandboxes that make competing much more difficult. In other words, DRM, such as FairPlay, make it very hard for new stores to sell their DRM (since it won’t play on iPods).

It’s the same old story with a new cast. Anyway, it’s March and two music stores have now come out against DRM in 2007. Let’s hope this all leads somewhere.

I Stand Corrected – Google Phone is Real

In a strange twist of events, a Google executive has confirmed the existence of a Google Phone. I have been corrected.

Apparently, this was an ultra-secret pet project of Larry Page. I still believe the time is not right for such a product, and it presents a strong conflict of interest for Eric Schmidt (CEO of Google) to be on the board of directors of Apple.

I will say that the Google phone is not too much of a threat to the iPhone in that the iPhone targets style conscious consumers while the Google phone targets geeks and perhaps business people. We’ll see just how real this phone is when Google announces something officially.

People must keep in mind that Google must have thousands of products that don’t make it into production. While this product is more likely than others to appear on the market due to the backing of the founders, I don’t think it is poised to dominate the market, or even take a significant hold (at least today).

Maybe Google Wanted to be Sued: YouTube and Plan B

No matter how you spun it, a lawsuit was waiting to pounce on YouTube. And when the lawsuit came, it would be from multi-billion dollar media conglomerates. Worst of all, people feared it would trigger a landslide of more lawsuits. Even still, Google bought YouTube. And now the billion dollar war has begun.

I wondered: Maybe Google actually wanted to be sued.

Backroom Discussions

First of all, in a perfect world, no, Google wouldn’t want this. And Google, hoping that the world is close enough to perfect, did buy YouTube. But somewhere during discussions, someone must have asked, “How is this different from Morpheus and Kazaa? Won’t we be sued into oblivion?”

The smart lawyers at Google probably mentioned something about the DMCA, but honestly, would you want to buy a company that would be hated, constantly, by the very people who own the content that keeps you afloat? Or better, how will such a site remain #1 if there is a (Edit: added link) unified effort by content owners to either displace or destroy you? Most of all, media companies, who have significant clout and money, wouldn’t let YouTube host their content for free without a fight. There was more to this purchase than meets the eye.

No matter how you look at it, the purchase came with a lot of legal risk. I believe nobody at Google is surprised that Viacom is suing and wants $1 billion, A.K.A. most of the sum Google paid for YouTube. This is all part of the expected road map in owning YouTube.

So plan A was to hope people would be nice and look the other way. That worked for a year so far, and Google hoped it would continue. Plan B was to get sued.

This isn’t any ordinary “get sued and win” plan. Waiting to get sued so you can win in court is a defensive move for most companies. But for Google, this is preemptive. This is about Google defending YouTube, instead of YouTube defending YouTube.

Why Getting Sued is a Preemptive Strategy

Let’s pretend that YouTube was not bought out because talks got delayed. Then realize that it would have probably been sued a lot sooner by a lot more people. Investors would flee and nobody would want the company now. If YouTube goes broke, that would have likely pushed Myspace Video to #1, giving News Corp a huge edge since it happens to own Fox Entertainment. Myspace Video would become whatever was in the best interest of Big Media. Probably a DRM infested piece of crap that sued its users for uploading copyrighted material.

Myspace is #2(Edit:) If you don’t think Myspace would have hopped into the throne, you may want to see this recent report that shows how Myspace video is #2 in the video market. And as the trend goes, Myspace is actually losing share in the video market (3% between December 2006 and January 2007). Seeing as how 16% of all YouTube traffic comes from Myspace, you can’t say YouTube isn’t causing serious harm to Myspace videos, keeping it from becoming #1.

On the other hand, if YouTube didn’t go broke and fought the lawsuits, imagine if they had lost. Myspace Video gets to keep whatever edge it has, but virtually every other video site on the Internet becomes illegal overnight. Thousands of user records and IP addresses would get subpoenaed, and video sharing dies in one fell swoop.

Why Does Video Sharing Matter to Google?

What’s the next big thing on the net? Video. Google cares what happens in video sharing because it wants a slice of the video ad market. It doesn’t want to just be in the market, it wants to own it like it owns text ads. But that’s not the whole answer.

Google bought YouTube because it wanted to make sure of three things:

  1. Google has first dibs for video ads on the biggest video site on the Internet
  2. YouTube remains legal
  3. Expand and protect current fair use related provisions involving copying intellectual property

The first point is obvious, and the second point feeds into point #1.

But the third point is the most important for Google. If YouTube were to lose a lawsuit for hosting intellectual property, it would severely weaken Google’s position in a variety of current and future endeavors. Any aspirations Google has of some day crawling and indexing video content (nope, they don’t have this technology yet) would now be in a legal limbo. It would also potentially re-introduce new arguments against their Google Image Search. And their book search program might suffer a similar fate once the YouTube precedent settles in. Google, being a company that spiders and indexes (stores) massive amounts of copyrighted information, would now be in serious legal jeopardy.

YouTube is Google’s Future

Thus, Google not only threw money at YouTube: it threw its lawyers at YouTube too. Google’s lawyers are some of the most well-versed copyright lawyers in the world since so many of their lawsuits deal with that issue.

The goal here is simple. Google wants to own the #1 video sharing site (completely legal), own 100% of the ads on that site, and clarify many currently-ambiguous copyright issues in their favor. If all of that goes as planned, the $1.5 billion paid to YouTube was a small price to pay. But if they had never gotten involved, the potential losses were far greater than a billion or two. Since Google has a market capitalization of over $130 billion, even a dip of 1% means losses of over $1 billion. But if entire sections of their business model became legally uncertain, you can bet they’d lose a lot more than 1%, especially with their insanely high P/E ratio (the ratio between what their stock is worth and how much they make).

By fighting a lawsuit, Google gets to prove the legitimacy of Internet video distribution – something that will probably never flourish under the “old media” regime. Unfortunately for them, the DMCA protects site owners from liability of what its users do — or at least that’s the general interpretation. Letting YouTube fight this battle alone with their own lawyers might have resulted in a very public and unnecessary loss that would have crippled Google’s video ambitions and possibly caused collateral damage to a bunch of related industries (especially search). This would have forced everybody to play by the conglomerates’ rules, and taken anyway any guarantee of Google getting any cut of the video ad pie. Video sharing needs this clarification before it can move forward. And if Google legitimizes it, they will have the biggest video site on the web for their video ads to play.

So let’s ask ourselves again: would Google pay $1.5 billion so it can fight the lawsuit on behalf of YouTube? Now that I think about it, it seems like a wise long term move.

Update

7:20PM 3/20/2007: Welcome Reddit and Digg users! ๐Ÿ™‚ Someone posted a comment (on Reddit) noting that they didn’t think Myspace Video would be #1, had YouTube gone away. I have updated this post to reflect this (see picture)

8:31PM 3/20/2007: Holy hell. Digg’s users almost destroyed my server! This box only has 1GB of RAM, so if you’re interested in finding out how this post is still here, come back in a day or two for the full explanation. ๐Ÿ™‚

9:01AM 3/22/2007: I’m on Slashdot. I think I survived the Slashdot Effect!

PS. If you find my idea entertaining or have an acute interest in programming, please subscribe to my blog. ๐Ÿ™‚

First iPhone Ad

I don’t watch TV (probably the same with a lot of my readers). As a result, I didn’t know Apple is already airing iPhone commercials. The most interesting thing to me about the iPhone is how Apple plans on marketing it compared to how other phone companies have marketed their products.

This commercial is clearly a teaser to let consumers know the product exists. It doesn’t strike me as particularly creative when you consider it is made by Apple.

One of two things is missing from this commercial that exists in virtually every other iPod commercial:

  1. Close-ups
  2. An image that makes it seem cool

It seems Apple at this point just wants consumers who’ve never heard of the iPhone to see that commercial and ask, “Wait, what the hell was that little thing with the Nemo fish? I saw an Apple logo… But that wasn’t an iPod…”

Still, I was expecting something a little more creative for the first iPhone commercial. So far, they’ve failed, as a marketing team, to distinguish themselves from other phone commercials. But then again, distinguishing themselves is probably not a major concern at this point. ๐Ÿ™‚

The Battle Begins: Viacom Sues Google for $1 Billion

That’s right, Viacom wants a 10 digit sum from Google! They allege that YouTube has over 160,000 clips on their site belonging to Viacom. It seems Viacom is forgetting all about last month when they demanded YouTube take down 100,000 clips, which Google did. So what exactly is it that Google is being held liable for? Google is complying and taking down whatever copyrighted material gets posted. According to the law, that’s all they need to do to stay legal.

Just as ISPs aren’t held liable for letting torrent users download copyrighted material, Google has the same exception. This is the entire premise of how Google is able to scan and save the contents found on the Internet without liability.

Either way, the whole lawsuit is bogus. Had Google not complied last month, Viacom would have a case. But for all we know, the users that uploaded material could have been Viacom’s own employees. There’s no way to know, and this is exactly why the DMCA protects Google from liability.

For those of you wondering, Google is about 10 times bigger than Viacom. (Correction: Google is 5 times bigger than Viacom)

iPhones and the 10 Million Prediction

Steve Jobs hopes to sell 10 million iPhones between July 2007 and 2008. Many people have questioned the feasibility of this number. The people over at Arstechnica say that 10 million is actually a lot harder than Apple made it out to be due to the size of the smartphone market. One claim Arstechnica makes is true: Jobs definitely over-reported the size of the market he was entering.

Last year, 80 million smartphones were sold. If apple wants to sell 10 million, they have to grab a lot more than 1% of that market (more like 12%). Up to this point, it looks as if Apple has a pretty tough up hill battle.

But I believe this prediction is short-sighted and ignores a few crucial facts.

The Market

First, the smartphone market is growing at a mind numbing rate. Last year, it went from 46 million to 80 million: a 175% change. It’s always hard to know if you’ve hit the top of a curve, but last year, the world bought one billion cell phones, in line with what Steve said. So with less than 10% of all phones being smartphones, it’s clear that the smartphone market has plenty of room to grow.

Convergence

To be honest, I think most people aren’t thinking about the Internet features of the iPhone. Most people simply haven’t been exposed to mobile Internet to understand why people refer to the Blackberry as the “crackberry.” Thus, what people see when they look at the iPhone is:

  1. Music
  2. Videos
  3. Cell phone

People have been demanding that these devices converge for years, as evident by the recent media phones by companies like Verizon. This alone should be a reason why the phone will sell. Can you name any other product that had people demand it be made half a decade in advance? Any?

The News Media

The last and most important reason why the iPhone is likely to kick butt has to do with the media. Ever wonder why there is such a media circus around the iPhone? Ever wonder how articles full of nothing but iPhone speculation made it into respectable newspapers? Why is it that even though there are many other more capable phones out there, the iPhone continues to get all the press?

Because the iPhone appeals to average Joe and the media recognizes this. Apple carved out a new market for smartphones. The iPhone has a camera and media features that place it in a separate bucket from the “productivity” smartphones. Apple’s phone is for casual use.

Market Growth

So right now, the smartphone market, aimed only at business people, is 8% of the global market. This is after sales grew over 70% two years in a row.

Arstechnica was making its prediction based on the idea that the market doesn’t grow. But what happens to that share when smartphones suddenly open up and are actively marketed to regular consumers? What happens when Apple’s marketing team starts marketing the phone as the next “in” thing to have? What happens when you start seeing celebrities using them and showing them off at movie premiers?

Just like Nintendo stole the PS3 thunder, Apple will turn the market upside down by flooding it with a ton of new, previously uninterested consumers. It’s not a done deal, but the metrics used by Arstechnica hardly speak for themselves.

Sign Up for the National Do Not Call Registry

I keep getting phone spam from this one number and it finally got to me. I went and registered on the (US) National Do Not Call Registry. The process was amazingly simple.

  1. First you type in your phone number.
  2. Then an email address.
  3. Then you click on a link they send you.

Done. For a government web site, I was impressed with its simplicity. Wait 31 days and then if I still get phone spam, I can file to have them fined of up to $11,000. Well, there are cases where companies have paid more.

Another relatively unknown fact is that the bill that introduced the Do Not Call Registry also created a law that allows private citizens to collect money from telemarketers.

For each violation of the act, consumers can sue for a $500 penalty. Violations include calling after a consumer has told a company to stop, or failing to provide the consumer with a copy of the firmรขโ‚ฌโ„ขs Do Not Call policy.

Neat, huh? Stupid telemarketers.

Google Local Attacks City Search – Google’s Huge Competitive Edge

Today the Google blog announced a new Google Local feature that shows pictures, reviews, and other information inside a frame when you click on an entry (see pictures). The whole thing is very slick and intuitive. Reviews and pictures are scraped and standardized from a wide range of sources, allowing for quick and informative assessments about a business. They use hotels as an example: to know exactly where a hotel is located, what its rooms looks like, and what others are saying about – all in one place – is extremely useful!

Over all, this alone makes for a great set of enhancements, but it doesn’t stop there.

click on the listing to expand to this

What’s really cool is the second feature they announced: editable business listings!

you can edit or add more listings

As you can see, you can create or edit entries:

see what you can edit

You can specify details such as a description, what credit cards you accept, exact operating hours (even supports multiple time ranges in a day), an official search-engine recognized link to your website, categories (e.g., movies, pizza, etc), ambience, average price, general menu items, dress code, and a variety of other customizations. You can also upload images that are officially associated with your listing. Best of all, all changes are then confirmed over the phone or a postcard. Nifty.

Another neat thing it lets you do it move the address marker (the little red thing). This is cool in that it can help you fine-tune exactly where your business is inside, for example, a mall. The interface for that is pretty neat: you get to drag the little target around and the “x” represents where the target will appear when you “drop” it (has a cool animation too).

you can drag that thing around

All these features add up to a huge competitive advantage. Businesses that don’t have web sites (very common, still) can now be indexed, but they won’t appear on competing search engines! That’s a pretty nice tactical advantage against sites like MSN and Yahoo, assuming merchants sign up with only you. Of course, in the long term, such an edge will dwindle as business owners go modern and increasingly have web sites.

But the business that is most directly threatened is City Search. With Local search results directly linked off of their main search engine, they can easily skim traffic that would have otherwise gone to sites like City Search or Yelp. Having already spidered external listings, and having its own exclusive listings, I can see people choosing to use Google Local before other directories. Mind you, some percentage of the traffic will still end up going to the sites that the content is scraped from, but remember that if Google builds its own database, it is able to take a significant cut of the pie for itself without having to share the traffic. In the long term, this is a major threat to any business directory web site.

Just Take the $1.5 Billion and Run, Idiot (History Repeats Itself)

I’d like to pseudo name this post: Ideas with Dumb CEOs.

Mark Zuckerberg is testing history every time he turns down an offer hoping for more.

In high school, Zuckerberg … created Synapse, a plug-in for Winamp media player that automatically creates user playlists based on previous song preferences … many large corporations offered to buy it for as much as $2 million. Zuckerberg … declined those offers at first. By the time they changed their minds after entering college, the offer was no longer available.

Why didn’t he sell out for $2 million? Because he thought he could get more. History repeats itself.

Some of you may recall that Yahoo was prepared to pay up to $1.62 billion for Facebook a few months ago. But Facebook turned this offer down, waiting for the $2 billion offer.

Well, now we have news that Facebook ads perform worse than Myspace ads by a factor of two, which isn’t surprising considering that Myspace has a more diverse (and older) crowd than Facebook.

Myspace, is a better medium for marketers: for a similar set of advertising campaigns, its click rate, a measure of the audience’s engagement, was 0.10%, more than twice Facebook’s … “Facebook was consistently the worst performing site on just about every campaign we ever ran with them.”

For a company asking for $2 billion with a supposed revenue (not profit) of $150 million, this isn’t exactly great news. Revenues are generated when you have people buying your ads, but if your ads are known for being ineffective, then your buyers – and thus your revenues – will fall.

End the greed and sell. Microsoft, who is friendly with Facebook, hasn’t taken the bait, and they’re notorious for taking losses for market share. If Yahoo can’t afford it and Microsoft passed, how many other companies have the synergy and cash to make such a large investment?

Google? Well, the CEO of Google recently said he has no plans for purchases of that nature. So who else? Hm?