Monday, May 30, 2005

Telirati Newsletter #52

In this Telirati newsletter the question of when to follow and when to lead is addressed.

Telirati Newsletter #52: Imitation, Flattery, Competition

The Telirati do not do product reviews. In this case, examining some of Microsoft’s new products indicates company direction. Mostly, it is the right direction.

Microsoft is revamping MSN. You may not like the result, which is a customized browser with plenty of Internet dumbing-down, like big colorful buttons you can hit two drinks after your friends hide the car keys. But this is what was needed long ago as AOL was carpeting the U.S. with disks. The new MSN is exactly what one expects from Microsoft: aggressive pursuit of a market leader with a high-quality implementation of a flatteringly similar idea.

The main lesson here is that marketing strategy is mainly a question of when to follow and when to lead. If you follow, your results will be predictable. In a growing market, achieving results similar to those of a market leader is a good thing. So, while pabulum content and icons-for-morons might annoy you, you don’t have to read it and you can still use your unmodified browser at MSN sites. Embracing AOL-level customer intelligence and extending the idea to a very well-done Windows/IE-oriented implementation will, no doubt, be to Microsoft’s benefit.

Microsoft has another large initiative in the works: enabling digital publishing of music and books. This encompasses a range of products from the new Pocket PCs to the new Media Player software to a digital document reader called, obscurely enough, “Reader.” Here the mix of imitation an innovation is more problematic. Like many electronic book technology providers, Microsoft has included “digital rights management” (DRM) technology in its software. That’s fine. Publishers can choose to use it, or not. Microsoft’s Media Player incorporates similar capability for music.

The problems with DRM are twofold: For Microsoft, the problem is that the goal of popularizing Reader, their new Media Player, and Pocket PC is in conflict with the goal of getting content publishers comfortable with electronic publishing. Here, imitation flatters only past failures. Past electronic publishing initiatives foundered on over-protective content protection, and so, it seems will current efforts. Without an aggressive move to break out of the copy-paranoid mode of previous electronic media publishing attempts, aggressive following will only lead down the path of similarly tepid results.

Digital Rights Management and other content schemes are inconvenient, brittle, and contrary to the notion of being secure in one’s own computer. DRM enables bits, including executable bits, to be hidden from a computer’s owner. This should be alarming to anyone who takes the security of electronic documents seriously. On the one hand, Windows 2000 offers excellent security features like an encrypted file system that can probably put documents out of the reach of anyone except the most elite code-cracking resources, and the fact that the extent of national security code-cracking must be kept secret effectively prevents the abuse this capability in garden variety corruption. This is good. But then Digital Rights Management creates an infrastructure for snooping. This is very very bad. A trusted system cannot serve two masters. Your computer can be trusted by you, or it can be trusted by content publishers.

Content publishers are deathly afraid of rampant illegal copying. This has driven them not only to demand dumb and dangerous content protection technology but also to supporting dubious laws like the Digital Millennium Copyright Act (DMCA). Invoking the DMCA, which was supported by Microsoft, has put Microsoft in such worthy company as the Church of Scientology, and it has pitched Microsoft against worthy outfits like Slashdot in a public relations fiasco over what was supposed to be an act of magnanimity on Microsoft’s part in releasing a specification for Kerberos extensions. One could, one has, and one no doubt will go on at length about the evils of the DMCA, but the down-side for Microsoft is that sticking to the same old recipe will yield the same old results, and, on top of it, cause much embarrassment and loathing.

In telephony, (once again, that pesky topic sneaks in) the question is in how to crack the stagnant CPE market. Small and medium business CPE is a large but torpid trade where market-share shifts with the speed of molasses in January. Here, using the same recipe, which is to say traditional channels and promotional tools, not only limits your market to current established boundaries, it limits your ability to make headway in that market to what appears to be a speed limit of about 0.5% per year. At that rate, most startups will starve before they reach a viable sustainable market share. Aggressively following established leaders into the conventional telephony channel has proved to be a quagmire for telephony servers, convergence products, and other novel CPE.

The answers have to be comprehensive and bold. In order to get Pocket PCs and digital media distribution off the ground, two approaches can break the logjam: One is to make large amounts of public domain and freely distributed content available, and the other is to lead the publishers by distributing paid content with less-intrusive security measures like watermarks that would still enable detection of industrial-scale piracy without inconveniencing, or reducing the privacy of, the consumer. This may not seem particularly bold, but it does mean scaring rather than seducing content publishers. Unless publishers fear commercial irrelevance more than they fear digital distribution, digital distribution will remain stifled by heavy-handed content protection. But this is the only way forward. Unless Pocket PCs break away from the past, they will follow a predictable path into obscurity.

In telephony, breaking out means developing products that are consumer friendly, have features that truly deliver value – screening nuisance calls, for example, because telephone companies will never respond with an equivalent subscription service (Caller-ID helps, but it is not a cure), and, especially, it means finding and exploiting channels that are different from established telephony channels. Where are the established player not? They are not selling direct. They are not advertising on the Internet. They are not selling superior customer relationship management capabilities to e-commerce startups. They are not linking their products to B2B portals. They are not creating features that antagonize the telephone companies by serving the individual rather than the telemarketer. These are the places telephony ventures must go in order to crack open a valuable but heavily encrusted prize. In telephony, especially in CPE for small and medium business, aggressive following, much less tepid and timid following, will not get you far.

Copyright 2000 Zigurd Mednieks.