But why? When you’re looking for answers, as they say, follow the money. The NYTimes (now mercifully free for you to read) reports on their blog that Apple, with their recent price cut, is effectively taking a loss on each iPhone and making it up on the fees paid to them via the Wireless Carriers. Well, duh. This should be no surprise to folks who know the wireless industry well. The only nuance here is that Apple has altered the way the money flows over traditional mobile phone handset makers, who are content to eke out slim margins selling phones directly to carriers, who then take a hit on the sale of the phone which is subsidized by your ongoing usage fees. As I’ve been trying to point out, the business model they’ve copied is that of Research in Motion.

There is some smarts there, but not much. Apple has clearly miscalculated the confrontation that it is about to face with its users. Apple has a vested interest in “locking in” your iPhone to a contract with their partner carriers: this is the Cathedral. They have also borne witness to the powerful effects of releasing their products out into the wild and benefiting from the vibrant hacking community which has grown up around some of their products, such as the Apple TV Hackers, and of course the flourishing OS X third-party development community (which could be likened to Eric S. Raymond’s notion of a Bazaar).

With all of those lessons in mind, Apple’s decision-making around the iPhone appears to be somewhat quixotic. But it is, for now, a depressing practical reality of the wireless world that even Apple cannot break the cabal and catalyze the wireless industry to flourish amid an internet-style openness. Apple is attempting to preserve the “lock” on its customers because carriers have a lock on the market. And we cannot expect Apple to lose money for the benefit of the greater community in the interests of strong-arming the carriers.

Or can we? If they don’t, then Google might. The GoogPhone has become the new source of promise for we proletariat who formerly clicked our heels together and begged for Apple to bust the wireless industry cabal. Google has the altruism, the mandate, and the heft to push the carriers around much moreso than RIM or Apple. It is also going after spectrum, as we all know. Even if it gets it, this doesn’t mean it will use it, because it’ll become a substantial bargaining chip when it approaches carriers to provide distribution and access for its devices.

So Apple might be getting a short-term spike out of its iPhone product line only to be subverted by Google, which will represent an interesting conflict-of-interest for Google CEO and Apple Board Member Eric Schmidt. If that’s the case, then Apple has forfeited a long-term future in the mobile world in an effort to work within, rather than challenge, the fundamental realities of the wireless industry.

In the meantime, el-Steve-o is talking pretty tough to the iPhone unlocking crowd (which, let’s face it, is now probably approaching the majority of iPhone users). Of course, Jobs could be borrowing a page from Yasser Arafat: talking tough when his constituency (the carriers) are listening but sliding back-handed messages of peace (and unfettered use of iPhones) under the table. If there’s a volume horizon when the cost of producing iPhones becomes less than they’re forced to sell them for sometime in Apple’s future, then this is quite possible.

The fundamental problem here is that being an open platform in an interconnected world is about more than just having an open device, like a PC. In fact, PCs have gotten a free ride of sorts because the Internet via broadband has always been more-or-less unencumbered. Wireless is just the opposite, and even devices like the OpenMoko will still be tethered within the Wireless Egosystem, until carriers stop caring about how much data you use and where you use it.

The problem is: will they ever?

Blackberry picked to be the American I-mode By Om Malik Redherring.com, December 05, 2000

Michael Dell has one, Marc Andreessen does not leave home without it, and it is a must-have accessory for every Wall Street investment banker. It’s not the American Express Platinum Card; it’s a lowly two-way pager, which also sends and receives email.

The esoterically named Blackberry — a cross between a personal digital assistant, wireless email device, and pager manufactured by Research in Motion (Nasdaq: RIMM) — is one of the hottest devices in North America, with more than 200,000 sold, mostly to on-the-go corporate types. And those sales have happened primarily through word of mouth, a marketing coup that might be considered the hardware equivalent of Napster’s success.

At a recent Churchill Club gathering in Santa Clara, California, Kleiner Perkins Caufield & Byers partner John Doerr — arguably the second-most powerful man in technology, behind Bill Gates — described the Blackberry as “the I-mode of North America.” (I-mode is the popular wireless service from Japan’s NTT DoCoMo; with handsets that resemble the smallest American cell phones, I-mode devices are the most common method of accessing the Internet in Japan.)

Mr. Doerr was pretty much on the mark. Soon, with America Online (NYSE: AOL) and Yahoo (Nasdaq: YHOO) pushing the consumer version of the device into the market, the Blackberry is likely to become a household name. Last week, AOL said it will use Research in Motion’s hardware and customize it as the AOL Mobile Communicator series of handhelds. AOL subscribers can purchase the device for $329.95 and pay a monthly $19.95 subscription fee to access the wireless service. Given AOL’s reach, that could add a few hundred thousand Blackberry devices into the market. PC makers Compaq Computer (NYSE: CPQ) and Dell Computer (Nasdaq: DELL) have signed up to push the device to their customers for a piece of the action.

For Jim Balsillie, chairman and co-CEO of Research in Motion (RIM), these are the salad days. For nearly 12 years, the Waterloo, Ontario-based company has struggled in anonymity, hoping that one day it would become the darling of the Silicon Valley crowd.

His wish has been granted. RIM stock has been on fire for much the year — rising 44.6 percent, giving the company a market capitalization of about $5.3 billion.

COMPETITION HEATS UP The Blackberry created a market that everyone else is chasing. Motorola (NYSE: MOT) is hoping for similar success for its new Timeport pagers. But even its neon colors, lower price, and Hollywood push (MTV veejay Carson Daly is a pitchman for the product) may not be enough for Motorola to combat its Canadian rival. Palm (Nasdaq: PALM) and Handspring (Nasdaq: HAND) are also adding such features to their products, but RIM has a nice head start.

Looking to expand quickly, the company has just expanded into Europe. BT Cellnet, a subsidiary of British Telecommunications, is going to sell the device in England and Europe. All this expansion is, of course, going to take a big bite out of the company’s profits.

While sales are expected to rise to $189.3 million in fiscal 2001 (ending February 28, 2001) from $85 million in fiscal 2000, RIM will report a loss of $9.7 million for fiscal 2001 versus $10.1 million in net income in fiscal 2000, according to Merrill Lynch estimates. Merrill analyst William Crawford predicts that by fiscal 2002 RIM will be in the black again, posting a net income of $9.5 million on sales of $344.4 million.

Red Herring recently caught up with Mr. Balsillie and talked about the future of RIM and the viral marketing of the Blackberry pager.

Q. Can you explain what makes Blackberry so hot?

A. There are two reasons why Blackberry has become so popular. First of all it, is always on and always connected, so you can get your email anytime, all the time. Secondly, it is an extension of your desktop. Everyone else wants you to have another email address, while Blackberry does not require [it].

Q. Why are you simply focusing on the hardware device and not offering services on top of your platform?

A. Part of our value-add is that we do not contend or compete with the existing player. If it is an Internet service provider (like AOL) or a portal (like Yahoo) we simply extend their platform. We do one thing — the hardware — and we do it very well. I think the embedded antenna, long battery life, and ease of use are because of our focus.

JAVA IS KEY Q. So what are the new applications currently under development that will give more oomph to the Blackberry?

A. Since we use a Java virtual machine at the core, half a million Java developers can develop applications for Blackberry quite easily. More than 10,000 of our software development kits have been downloaded so far. So you will see people like Aether Systems (Nasdaq: AETH) and ETrade (Nasdaq: EGRP) develop stock-trading applications. Others are developing a personal wallet for the device. Of course, Yahoo and America Online are offering their own services (such as instant messaging).

Q. Java seems to be the key here.

A. The developers do not know what environment to write for, and they are confused. I think that is why a lot of wireless devices are embracing Java, so that developers can write applications which can run anywhere. We were the first, and now other wireless devices are doing the same.

Q. You must be coming under a lot of competition, especially since Palm and Handspring have started offering their own wireless services and are working with the wireless ISP Omnisky (Nasdaq: OMNY). And they seem to be cheaper.

A. I think the comparison is unfair, because we are a personal information manager, wireless email device, and pager all rolled into one device for $399. Now if you took the others and added the cost of a modem, their solution is more expensive than us.

Q. What about Motorola, which has new two-way pager-wireless devices on the market that are being touted by Hollywood celebrities?

A. Motorola is selling a pager, a very simple device, which runs on a legacy network and has limited functionality.

Q. What’s next for RIM?

A. I think with the America Online and Yahoo thing, the consumer push is a huge area. Secondly, we are about to start integrating with Lotus Notes. These are two major developments for us, and of course there is the expansion into Europe.

The deal with AOL will be RIM’s best defense against the coming onslaught from Motorola, but the target customer base will be extremely price sensitive. With AOL’s customer base largely paying $25 per month to get their PC’s onto the internet at 56K, how easy will it be to sell them a device for $150 that connects for $40./mo and only does email?

Here it is: http://www.aol.com/anywhere/pager.adp

They haven’t even modified the form factor! Very un-hip. Slap that product manager.

I don’t think my Mom, the official FOIB benchmark of normal consumer behaviour, would buy it. Mom?

However, this might allow AOL to to nail the coveted teen market with a sticky product, if they implement Instant Messaging successfully on it. Too bad they missed Christmas. If you think talking to VCs who are constantly banging out emails across the table from you as you pitch your business plan is annoying, wait until it’s your kid.

Teens have typically made the ascendancy from pagers to mobile phones rather quickly. I however resisted the urge to trash my (inexplicably) free Cantel pager for a mobile phone until I was 25.

-Ian. (Luddite)

—- From: http://www.pdastreet.com/articles/2000/11/2000-11-3-AOL-Mobile-Communicator.html

AOL Mobile Communicator

AOL has released some details about its mobile communicator. This new device based on the RIM Blackberry 950 is slated to be released before the end of the year. With the large user base that AOL has it is easy to imagine this new device being very successful.

What Is It?

The AOL Mobile Communicator is a two-way messaging device that gives AOL members another way to access the popular AOL instant messaging and e-mail features. Users carrying these devices will be able to take their AOL e-mail and Buddy List® with instant messages with you anytime, anywhere.

Because this device is wireless, people will be able to access their AOL email or chat as if they were online without tying up the family computer or phone line. For all of you parents out there the Mobile Communicator will feature the many same security and fitering systems as a regular AOL account

Stay Tuned

More details are sure to be found as we draw closer to the release date. We’ll keep you informed of any breaking news that we come across. Check back for updates. —-

Wireless is HOT, for sure. Two Canadian companies, Research in Motion (RIM.TO) and Burnaby’s Sierra Wireless (SW.TO).. each of which have seen at least 200% market cap growth in the last year.

That’s a big reason why, after hearing very little from you all, I’ve decided to hold on my PALM shares for a while. 🙂

-Ian.

>Date: Thu, 9 Mar 2000 02:13:09 -0800 (PST)
>From: Adam Rifkin -4K
>To: fork [at] xent [dot] com
>Subject: CMGi Goes Wireless…
>
>Here’s my “Cliff’s Notes” version of the last five years of Internet
>investment trends. [Yes, I know everyone here is going to disagree with
>me, no need to post your disagreements.]
>
>In 1996, push was hot. Then, instant messaging was hot.
>In 1997, ISPs were hot. Then, portals were hot.
>In 1998, e-commerce was hot. Then, broadband was hot.
>In 1999, infrastructure was hot. Then, b2b was hot.
>In 2000, wireless is hot.
>
>So how does CMGi survive as a publicly traded Internet stock from year
>to year? What it means to be CMGi is this: whatever new hot trend
>emerges in the market, make sure everyone knows that you’re there. It
>was just a matter of time before CMGi announced they have a “wireless
>strategy”, and this one came a good 48 hours before the Ignition article
>in the New York Times that Rohit just forwarded…
>
>Even so, the following is a pretty ballsy claim, being as CMGi knows
>nothing about wireless:
> > “We see more than 50 percent (of new investments) in wireless and
> > broadband,’ Hans Hawrysz, CMGI executive vice president of corporate
> > strategy, said in an interview following a presentation at a PaineWebber
> > Internet conference held here.
>
>CMGi’s usual protocol is to hire experts in the new domains into which
>they are entering, so I’ll be watching for those critical hires.
>In the meantime, the “Big Daddy” of the “Wireless Web” is Infospace —
>or so it has been able to convince the market.
>
>It was just two months ago, after all, that CMGi was hiring b2b experts
>to help them manage their $1 billion b2b fund. (That fund’s latest
>investment, I kid you not, is a $12 million investment in GoFish.com,
>the “Internet’s first seafood market maker” which has closed more than
>$41 million in venture funding during its first six months of
>operations. GoFish is headquartered in that hotbed of Internet
>development: Portland, Maine. 🙂
>
>It’s just business as usual in the “Nasdaq 5000 World”. A world in
>which this week alone Benchmark announced a $500 million European fund,
>and Softbank countered two days later with a $1 billion European fund.
>There is simply way too much liquidity out there to make the bubble
>end anytime soon. [And yes, Rimpinths, you can quote me on that.
>Thanks for forwarding my FoRK comments to The Motley Fool as I’ve been
>too busy lately to post there. :]
>
> > CMGI plans expansion to new markets and regions
> > By Nicole Volpe
> >
> > NEW YORK, March 7 (Reuters) – Internet venture pioneer CMGI Inc. on
> > Tuesday outlined plans for financing the next stages of the Internet
> > revolution, including wireless Web access and Web-enabling businesses,
> > moving beyond its earlier focus on consumer Internet investments.
> >
> > In addition, a CMGI executive, which is known for its early backing of
> > Web companies such as Lycos Inc., said the company would make between
> > one and three acquisitions per month during 2000 in hopes of capturing
> > new hyper-growth markets.
> >
> > “We see more than 50 percent (of new investments) in wireless and
> > broadband,’ Hans Hawrysz, CMGI executive vice president of corporate
> > strategy, said in an interview following a presentation at a PaineWebber
> > Internet conference held here.
> >
> > He was referring to the hot areas of providing high-speed Internet
> > access over cable and phone lines and links to devices such as
> > cellphones. Hawrysz said he was surprised at how recent fascination with
> > wireless Internet access has eclipsed interest in high-speed Internet
> > access as the hottest Internet topic.
> >
> > “One surprising trend is… how broadband has receded and mobile has
> > come up to the front,’ he said. “Wireless has clearly taken over.’
> >
> > Hawrysz said the company would also devote attention and investments
> > toward online services that connect businesses to their suppliers and
> > customers, an area expected to become much larger than current
> > consumer-focused Internet businesses.
> >
> > “We see CMGI…as a competing force in this market as well,’ he said.
> >
> > Andover, Mass.-based CMGI has recently set out plans international
> > expansion through strategic partnerships, to markets such as Asia,
> > Europe and Latin America.
> >
> > CMGI will use partnerships with international heavyweights such as
> > Compaq Computer Corp., the world’s largest computer maker which owns
> > about 17 percent of CMGI, in its bid to branch out, Hawrysz said.
> >
> > CMGI currently maintains a stable of some 65 companies, which
> > collaborate efforts for growth in their respective markets
>
>—-
>Adam [at] 4K-Associates [dot] com
>
>The past may not repeat itself, but it sure does rhyme.
> — Mark Twain