Late last night, Sony revealed that it would pull The Interview from its release schedule. This decision was made in response to the step taken by the major theater chains, all agreeing that they would not screen the movie on its release day. The unprecedented decision is causing consternation among entertainment media types who feel that Sony has put the right of free speech in jeopardy. That's a conversation worth having, and I'm glad it's happening. But there is an entirely new question that this situation brings into dramatic relief, one that didn't exist before and one that our premeditations won't help us resolve. The question is this:
Can companies participate in cyber war?
Up until now, companies have prepared to defend themselves against cyber attacks as one-off nuisances. Such attacks are now so common that they no longer make the news. Even massive breaches where millions of customer data points are compromised tend to give us pause for only a few moments, perhaps a few days, and then we move on. But what Sony experienced was not just a security breach. This hack was a declaration of cyber war intended to bring Sony to its digital knees: a low-cost digitally effective cyber war that puts none of the hackers' assets in harm's way. And given yesterday's announcement, it appears to have worked.
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News out today confirms that Sony has indeed sold off its Vaio PC arm, ending 17 years in the personal computer business. And that CEO Kazuo Hirai has also decided to separate the TV division into a standalone unit in order to better heal it. Although he insists for now that Sony has no plans to sell that division, it would be foolish of the company not to consider any good offers. If there are any.
Because really, who would want that business? It has lost nearly $8 billion in the last 10 years and has been rapidly losing share to Samsung and LG and is about to get attacked by Chinese TV makers eager to have more influence in the US and other Western markets. I saw a very impressive offering from Hisense, TCL, and Haier at this year’s CES and expect them to make inroads against the more expensive panels from Sony, Panasonic, and Sharp, all of which have struggled to keep up.
Let’s step back to January 2007. Do you remember what your job was at that time? I was already an industry analyst covering mobility, and at that time, the space was less fascinating to cover. Back in January 2007, Google had acquired YouTube for $1.65 billion only a couple of months before. Android did not exist. The iPhone did not exist. Twitter did not exist. Facebook was only a couple of months old as an open public website. Nokia had a market valuation of around $120 billion, and its share of the global smartphone market was above 45%. BlackBerry – then the leader in enterprise mobility solutions – had initiated a move in the consumer space with the BlackBerry Pearl.
Less than seven years later, Google has activated more than 1 billion Android devices, and Apple will soon pass the 700 million iOS devices mark. YouTube now has more than one billion users globally and generates 40% of its traffic from mobile devices. Facebook has 1.2 billion users and generates 41% of its ad revenues from smartphones and tablets (it could even reach 50% in Q3 2013; Facebook discloses its financial results on October 30). Twitter has more than 230 million users and generates more than 70% of its revenue via mobile.
Wednesday night, Sony hosted what was reported to be a crowd of more than a thousand people at a rare, Applesque new-product demo. There it debuted the next-generation Playstation, officially dubbed the PS4. The event lasted two hours and featured some of the most accomplished game developers in the world, all on stage to promise that the PS4 was going to make gaming even more lifelike, more responsive, and more addicting than it already is.
I could have saved the company the two hours and the cost of hosting the event. Because boil Sony's announcement down to its essence, and you get these simple words: Sony believes the future will be like the past and has built the game console to prove it.
Don't get me wrong; the console is definitely next-generation (or at least, the specs are next-generation, since the console itself did not make an appearance at the event). It has stunning graphics and the kind of processing power necessary to create lifelike movement and even give game characters artificial-intelligence capabilities that should make hardcore gamers hungry with anticipation for the end of the year (the most specific Sony got about the release timeframe).
Tablets aren’t the most powerful computing gadgets. But they are the most convenient.
They’re bigger than the tiny screen of a smartphone, even the big ones sporting nearly 5-inch screens.
They have longer battery life and always-on capabilities better than any PC — and will continue to be better at that than any ultrathin/book/Air laptop. That makes them very handy for carrying around and using frequently, casually, and intermittently even where there isn’t a flat surface or a chair on which to use a laptop.
And tablets are very good for information consumption, an activity that many of us do a lot of. Content creation apps are appearing on tablets. They’ll get a lot better as developers get used to building for touch-first interfaces, taking advantage of voice input, and adding motion gestures.
They’re even better for sharing and working in groups. There’s no barrier of a vertical screen, no distracting keyboard clatter, and it just feels natural to pass over a tablet, like a piece of paper, compared to spinning around a laptop.
Today, amid the kind of rumor and speculation that is more typical of a Silicon Valley announcement, Barnes & Noble unveiled its NOOKcolor, a second NOOK to complement the barely one-year-old original. The NOOKcolor brings a 7" color LCD touch tablet device to the reading market, filling a gap between today's grayscale eReaders that use eInk technology and tablet PCs like the iPad.
This move puts B&N ahead of both Amazon and Sony -- the longtime holders of the number 1 and number 2 slots in the eReader business. Not ahead in terms of device sales, because this new NOOK, priced at $249, will be likely to drive a few hundred thousand units before year-end. But ahead in terms of vision. Because one day, all eReaders will be tablets, just as all tablets are already eReaders.
There are three good reasons why tablet readers are the right thing for the industry to move toward:
Multitouch interfaces have become the new standard. Once consumers experience multitouch, they don't really ever go back to thinking a mouse or button interface makes much sense. Doesn't mean they never touch another button, it just means they prefer to interact in a more natural and intuitive way. That's why Sony recently upgraded its reader line to include touch on even its cheapest model, the Pocket Edition.
This is a phenomenal week to be covering the publishing industry. Tuesday, Apple released its quarterly earnings. Big surprise, another record-breaking quarter for the folks in Cupertino. A few billion here, a few billion there, blah, blah. How amazing is it that we're not really surprised by such overperformance in an otherwise still-troubling economic environment? Of great interest to me, the eReader guy, was the final iPad tally for the quarter ending June 26th: 3.27 million units worldwide. Still no good guidance on what the US split is, but no matter how you slice it, iPads are hot. (And, no, I still have not bought one, still holding out for iPad 2.0).
And if you follow the implications of that success, as many in the media have, Amazon should just concede the eReader business, pack up its cream-colored Kindle and go home, right?
Wrong. And to prove it, Amazon made a point of announcing some news of its own, the day before Apple's results were public. Amazon flaunted its own success in selling both Kindle devices and eBooks. That's right, despite that iPad upstart, the Kindle is still flying off the shelves, selling more units each month than the month before it all through Q2, when the iPad challenger was supposedly pummeling it. And it's dominating the eBook business as well, selling as much as eight in ten of the eBooks of major bestsellers, seeing its eBook sales rate triple over last year. Oh, and Amazon indicated it sells 1.8 eBooks for every hardback book it sells. That's right, even though it discounts hardbacks to paperback prices for many bestsellers.
It has only been a few weeks since Google announced it would create a brave, new world with its Google TV platform. In all the reactions and the commentary, I have been amazed at how little people understand what's really going on here. Let me summarize: Google TV is a bigger deal than you think. In fact, it is so big that I scrapped the blog post I drafted about it because only a full-length report (with supporting survey data) could adequately explain what Google TV has done and will do to the TV market. That report went live this week. Allow me to explain why the report was necessary.
Some have expressed surprise that Google would even care about TV in the first place. After all, Google takes nearly $7 billion dollars into its coffers each quarter from that little old search engine it sports, a run-rate of $27 billion a year. In fact, this has long been a problem Google faces -- its core business is so terribly profitable that it's hard to justify investing in its acquisitions and side projects which have zero hope of ever contributing meaningfully to the business (not unlike the problem at Microsoft where Windows 7 is Microsoft). So why would Google bother with the old TV in our living rooms?
Because TV matters in a way that nothing else does. Each year, the TV drives roughly $70 billion in advertising and an equal amount in cable and satellite fees, and another $25 billion in consumer electronics sales. Plus, viewers spend 4.5 hours a day with it -- which is, mind you, the equivalent of a full-time job in some socialist-leaning countries (I'll refrain from naming names).
Google's goal is to get into that marketplace, eventually appropriating a healthy chunk of the billions in advertising that flow to and through the TV today with such painful inefficiency.
Throughout, as various members of the press have mused about the death of Amazon's Kindle, I feel compelled to point out that, contrary to popular belief, Amazon is in a better position now than it was before the iPad. That's right, if Amazon comes out swinging, Round 2 will go to Amazon. Here’s why:
It's high time somebody said it. Sit through one too many CES keynotes, press conferences, or pitches, and you just might leave Las Vegas with the mistaken idea that 3DTV is going to be in all of our living rooms next year. ESPN and Discovery are committing to 3D cable and satellite channels, Sony is upgrading its PS3s to do 3D, and Taylor Swift's live performance opening night at CES was shown live in 3D (Right behind her, mind you. You had to put the glasses on in order to see Taylor Swift in 3D when she was, actually, in 3D already, right in front of the audience.)