July 2, 2012

Does the launch by Microsoft of a tablet computer mark "how deeply Apple's success, first with the iPhone and now with the iPad, is transforming the tech world" or is this quote from Richard Waters (*) an example of the breezy style with mars so much technical reporting?

Richard Waters' argument leaves no doubt the stakes are as high as claimed. While Steve Jobs passed away nine months ago, it is Bill Gates' business model which looks like a relic from History. According to what I dubbed the diabolo effect, Microsoft used Windows to control a central computing layer below which components become mere commodities and above which free market competition brings a cornucopia of applications.

This model was never pure. Microsoft has consistently derived significant revenues from its application business and, from time to time, ventured into hardware design, from mice to game consoles. But this is the model, rebuilt on Internet search, with which Google stole dominance from Microsoft.

In contrast, Steve Jobs' personal preference went for closed, well integrated, total designs. With the MacIntosh line of microcomputers, this approach almost ran Apple into the ground, when applied to the iPod and later consumer portable devices, it has made the fortune of the company.

The vertical integration of its products does not mean Apple makes every single component nor writes every single application, far from it. But it controls all its industrial partners, whether by ordering their parts or authorizing their apps.

An open world has obvious appeal for developers and users alike. This is why I bet Google would see off Apple's challenge. But I have already lost my bet that corporate IT would protect the Blackberry franchise of RIM. And Microsoft is not the only diabolo leader to have second thoughts.

"Google has lately been emphasizing that it sees itself as a publisher", entitled to "favor its own material or even block another's", enlisting no less than Eugene Volokh, "an influential [...} professor at the University of California" (**). To Noam Cohen's report add Richard Waters' note that Google "has just moved more deeply into the hardware business", with its own Nexus brand of tablets and media streaming devices (***).

While the diabolo effect is disappearing with the world of microcomputers, comes the palantír model, after Tolkien's communication platform (1). Carve a cool device in stone, hard and smooth, spying on their users while exposing them to alluring messages. They will desire it without thinking.

Within the logic of vertical integration, can Google admit to depend on Oracle when it comes to using Java in Android? Can Amazon and Facebook neglect to design their own smartphones? Doesn't it make sense for Apple to announce that "in the fall, its phones would no longer carry Google maps, but instead would have Apple's own map service built in", per Quentin Hardy (****)?

As far as consumer goods are concerned, perhaps we should recognize Bill Gates was the rebel, Steve Jobs the straight-laced guy. Cars for instance are designed and manufactured as complete units. Do consumers order a BMW engine to load into a Ford body installed over a set of Fiat wheels? And until recently all media had been controlled by publishers intent to define objectivity in a circular way as what they saw fit to print.

If market forces today seem to favor closed designs, it may well be that the open approach is no longer the best. When it comes down to total consumer experience, one Steve Jobs easily beats the informal committee responsible for what amounts to clunky erector sets. And while interoperability drives down costs, standards are not absent from closed design industries. I rent a car I do not know and drive away within minutes.

Perhaps too the diabolo effect dies of its very success. Nick Wingfield suggests as much (*****). Having surrendered their margins to Microsoft and Intel, hardware manufacturers have few resources left and little incentive to deliver innovative platforms to help perpetuate existing diabolos or create new one. Who would want to share the fate of the IBM PC division?

If indeed there is nothing wrong in principle with a closed, vertically integrated information offer, one should remain careful about the current trend.

Consumers may fall for their smartphones as hard as for their cars but the similarity between these two types of goods ends there. Buying a car neither restricts the driver's choice of roads (2) nor, so far, enables its manufacturer to track the driver's every move. Consumers may use a single data source today as they used to follow a single media yesterday but these two types of information providers live in different worlds. Multiple rules limit the power of any old media company to dominate any given market, while the legal framework for new data services is nothing but a fig leaf.

The clear and present danger lies in the unique combination of four factors. A recommendation engine which satisfies the consumer by meeting all his information needs at all times, a tethered device, which ties him down to the service provider, a de facto authority, which subjects all suppliers to the approval of the same service provider, a scale, which, past a threshold, gives the latter an inescapable dominance.

The fact that half a dozen companies are engaged today in a genuine competition is irrelevant. Forget the appearance of choice and the possibility of being in more than one walled garden at once, the very nature of the deal put to consumers subverts their freedom. Few can gaze into a pallantír without enslaving themselves to the power which controls it and the marvels of digital technology have put this pallantír in every pocket, permanently.

To avert such a danger, it may be hopeless to focus on a right to eprivacy. According to Natasha Singer (******), Acxiom "peers deeper into American life than the F.B.I. or the I.R.S. or those prying digital eyes at Facebook and Google". Can the latter fail to claim they are but average competitors? Perhaps consumers will one day be goaded by the ease with which hackers penetrate centralized data bases? They "have posted 8m encrypted passwords online, the bulk of which came from LinkedIn", April Dembosky wrote recently (*******).

If only China would use some of its dollar reserves to buy Apple or Google. If not eprivacy and security, censorship and surveillance at last would disturb our complacency. Why wait? Even when Americans find technology non-state powers more domestic, they are far from being domesticated.

With its hard power of fatal attraction, can the palantír model fail to enebriate the most level-headed corporate head into becoming a new Sauron?

Philippe Coueignoux

• (*) ............. Surface tensions, by Richard Waters (Financial Times) - June 23, 2012
• (**) ........... Professor Makes the Case that Google Is a Publisher, by Noam Cohen (New York Times) - May 21, 2012
• (***) ......... Google takes on Apple and Amazon with hardware push, by Richard Waters (Financial Times) - June 30, 2012
• (****) ....... Head to Head Over Mobile Maps, by Quentin Hardy (New York Times) - June 18, 2012
• (*****) ..... Microsoft Sharpens Its Aim, by Nick Wingfield (New York Times) - June 25, 2012
• (******) ... You For Sale, by Natasha Singer (New York Times) - June 17, 2012
• (*******) . Hackers target their fire on social networks, by April Dembosky (Financial Times) - June 8, 2012
• (1) for more details, see the Palantír in the wikipedia
• (2) please, let us not bring all terrain vehicles into this discussion.