Okay, here is the piece on cellphone software that I accidentally posted part of the other day. It's long, and still a little rough in places. I might revise it later.

There are articles in both Salon and The Economist on Microsoft's attempts to get into the cellphone software market. However, the slants of the two articles are quite different from each other. The Economist presents it as a battle between Nokia and Microsoft. Salon barely mentions Nokia, but talks about the various non-Microsoft software that is avaliable.

I think that Salon is on the right track here. In my mind The Economist dramatically overstates the position of Nokia. I don't think Nokia is going to be an important player in the cellphone software market, and I will get to that later in this posting. The Microsoft case is more interesting.

A great deal of effort over the years has been devoted to the question of "Who will be the Microsoft of this market", whatever technology market is being discussed. And that is entirely the wrong question. None of these markets ever get themselves a Microsoft. The question is why precisely there is a Microsoft in the PC market. To get the answer to that, you have to go back to the very beginnings of the PC industry, around 1975. This was an industry being created by ex-hippies in the San Francisco Bay Area and in a few other areas of the United States. This was being done by people in garages, and nobody had any idea how important that the industry was going to be. (The best picture of this industy in its early state is Fire in the Valley by Paul Freiberger, The second section of Steven Levy's Hackers also gives the gist of the story in a shorter form with fewer digressions). The exception was Bill Gates, who was talking about "A computer on every desk, and every one running Microsoft software" as far back as 1975. He produced a software item (Microsoft Basic) that it was almost mandatory everybody own incredibly early,and he managed to define the intellectual property basis under which the PC software operated. He managed to leverage his dominance of programming languages on PCs into dominance of operating systems on PCs into dominance of the PC application market. Microsoft has used the strategy of embrace and extend (or embrace and destroy , as some of Microsoft's competitors describe it) ever since. Loosely, people have to buy your operating system. When someone invents a new feature that most computer users are going to want, include it with Windows, and then people will use your version that comes with Windows rather than the version they have to pay extra for. This has expanded the idea of what an operating system is. This did not have to happen, but Gates got define the business in the image he wanted.

What we have ended up with is a situation where to do business, you have to run Microsoft Windows and you have to use Microsoft Office applications. To apply for a job electronically, you need Microsoft Word, because people expect your CV to be in that format. Essentially if you are going to function in an office environment, you must pay a toll to Microsoft. Once you are using Microsoft, you are locked in, the Microsoft software you use uses file formats that are incompatible with everything else.

However, this is not the natural state of affairs. It exists because of Bill Gates' early understanding of how the market would develop and through his ruthlessness and shear power of will. If you are developing new markets and new products from scratch, open file formats have a big advantage over closed ones. If one product is incompatible with everything else, and others are all compatible, the majority of the industry will be using the compatible ones before long. It is only when people are locked in that incompatible, proprietary formats win. For that, the proponents of the incompatible formats must move first. And Bill Gates moved first, all right. In fact, he did so long before anybody else understood what he was doing.

None of this is going to happen again. For one thing, this time everyone knows what Bill Gates is doing. Nobody is going to allow one company to dominate the way he would like to. For another thing, the open file formats have already been invented. (Essentially they are called "XML"). It is going to be very had to get people to use proprietary formats instead.

As an example why, consider the internet itself. In my daily internet experience, I use the underlying TCP/IP protocols. These were invented by the Adanced Research Products Agency of the US Department of Defence. Over this, I use a web browser. Sometimes I use Microsoft Internet Explorer. Sometimes I use the open source Mozilla. In both cases I am using the HTTP protocol to transfer data that is mostly stored in the HTML markup language. Both of these things were invented by Tim Berners Lee at CERN, and further development of them is in the hands of the World Wide Web Consortium. If the web page contains pictures, these are usually in the JPEG format invented by the Joint Photographic Experts Group. If I access music, it is normally in the MP3 format developed by the Moving Pictures Experts Group (MPEG). If I run a game within a web page or show animation, it will run within the Java Runtime environment, invented by Sun Microsystems, or it might use Javascript, or it might use Flash. If I wish to play video I have downloaded, it might be in the Quicktime format invented by Apple, a Windows Media format invented by Microsoft, or the MPEG-4 format invented by MPEG. (MPEG-4 also consists of a number of alternatives, called profiles). The underlying operating system that everything is running on may be Microsoft Windows, or it may be MacOS or it may be Linux, or it may be FreeBSD, or it may be one or two even more obscure things.

The internet is old. It has existed in some form since the late 1960s, and it was extremely common running on Unix systems (and VMS, and even eccentric things like ITS) in universities, and defence and other research establishments in the 1970s and 1980s. (I used it myself in these environments from 1987). It had developed its own (large) code base, and its own standards for data transmission and the like before it came into the mainstream. The last piece of development that was done principally in the Unix world was the development of the World Wide Web by Berners Lee at CERN and of the first graphical browser by Marc Andreesen at The University of Illinois. At that point, the internet hit the mainstream and the internet's code base and standards collided with the code base and standards of the PC world, which belonged to Microsoft. At this point, huge numbers of people started developing new applications to go with the internet, which ultimately led to many of the things that I described above. Microsoft has repeatedly attempted to embrace and extend its position of dominance in the PC world to take over these new technologies, and ideally the internet technologies themselves, but it has never really succeeded. Oh yes, there are pieces of Microsoft software in the above. Some of these are quite commonly used. However, nowhere in the above does Microsoft have anything resembling a monopoly. In virtually all the portions of the internet software market I describe abover, there are alternatives, and my system understands all of them. If one alternative becomes too expensive, or too closed, another becomes dominant. (An example of this is the GIF picture format. This belongs to AOL, and a few years ago, AOL started making financial demands that were perceived as unreasonable on the people who used it. People responded to this by ceasing to use it, and instead using the rival JPEG format, that has much less onerous terms of use. (An advantage of having computers connected to the internet is that software to support new formats can be downloaded almost instantaneously if you with to buy software. The interfaces and in many cases the source code of all this software is open. It is extremely easy to interface with it and adapt it for your use. (This is much harder to do in the Microsoft based PC world).

If Microsoft did not exist, I believe the PC market would be in a similar position to the way I have described the internet software market. Your desktop PC would contain a wide assortment of software from a wide assortment of vendors. This would interoperate using standard file formats that either belonged to no particular vendor or to a variety of different vendors who licenced the formats on very easy terms (probably terms in which users did not pay to use them). Software would be written in such a way that functionally identical software would run on a variety of different operating systems. (This isn't that hard: at the moment Microsoft provides Office for two different operating system families of its own (Windows 95/98/ME and Windows NT/2000/XP) and one belonging to someone else (MacOS)). In any event, the idea of what is an Operating System would be smaller than it is now, as Microsoft would not have embraced and extended . There would probably be more graphical user interfaces than one standard one.

This, much more than Microsoft hegemony, is the natural state of things. This was where the PC world was before the advent of the IBM PC and MS-DOS in 1981, and this is where it would have stayed without Gates' influence. There would have been a convergence to compatible hardware, but there would not have been convergence to a single hegemonic software structure.

Bill Gates' argument would be that the additional standardisation that has occurred due to Windows dominance led to greater economies of scale, and therefore more rapid development. I cannot argue that this definitively was not so, but I do not believe this. I think that with more open software and standards, development would have been faster. My belief is that due to Microsoft having established a toll on your desktop, development in the PC world has been retarded rather than advanced.

In any event, the desktop PC appears to have reached the end of its growth phase about five years ago. Essentially, at about the point when Windows 98 was released, there have been no new compelling PC applications invented, and no significant additions to the features of the ones we have. (Microsoft's subsequent operating systems have been more stable, but have had little in the way of new compelling features). There here been no new, innovative applications for which the PC is the key. There have been a whole variety of internet based applications, but the bottleneck restricting how they work is the speed of the networks, not the speed of the PC. So we find ourselves in a situation where people have less desire to upgrade their PC as often, and where the price of PCs is slowly dropping. (For quite a few years, PCs stayed around the $2000 price point, and people paid the same for a PC with more features. However, the price point has clearly dropped). As Microsoft's business model is based on high prices and high margins, in the long run, this is not good news for them. The greater the percentage of the cost of the PC that is being paid to Microsoft, the greater the incentive for people to go and look for their software elsewhere.

There is innovation in hardware - be it scanners, digital cameras, camcorders, and whatever, but Microsoft doesn't control the market for driver software for these. And there is in the game market. New games continue to be invented, and these games continue to drive the PC hardware market. However, the PC Games business plays by an entirely different set of intellectual property rules than the rest of the software industry anyway, anyway. Games are much more open, and invite modification from users, and so deliberately have open code. (In the long run, games are becoming networked too, and again we are heading for a situation where network speed is the bottleneck). The fact that the innovation is in these areas is making PC software more cluttered and less Microsoft dominated too. I am not saying Microsoft is going to lose its dominance of the desktop any time soon: I will leave that to Eric Raymond . However, it isn't going to be able to rake in enormous margins on PC software forever, and Bill knows this.

So Microsoft has to expand elsewhere. Ideally they would like to embrace and extend some more. It's obvious to everyone that PDAs and cellphones are going to merge with each other, and this is going to be a platform that is at least as important as the PC, so that is one thing Microsoft is working on. Again they are trying to embrace and extend their present Windows business into the cellphone world. The Salon article is full of comments by Microsoft about how people should want to use Windows on their cellphones because they already use Windows and it is good to use a common interface. This seems to be the only way in which MIcrosoft is capable of embracing and extending. Follow us, and you will get to use a common interface with your PC. This is a much weaker force of coersion than saying that because you want to buy some PC software from us, we will compel you to buy other things as well.

Now, if people used Microsoft's interface because it was a great interface, then Microsoft might get somewhere with this strategy. However, they don't. They use it because it is adequate and because it is a monopoly. It is a utilitarian, desktop interface. It's largely something you use at work. However, phones are not utilitarian desktop devices. They are things we carry around in pockets and purses, and they have evolved into fashion accessories as well. And, interestingly enough, those bits of them that are customisable have been customised in a big way. People are constantly downloading unique ringtones, and changing the colour of their casings and the like. Nokia have been masters of taking advantage of this.

Back in the PC world, one interesting trend is that for software applications that are not boring desktop office applications, the ability to customise seems to be much more common than for office applications. Consider media players and all their "skins" and cutesy controls. These applications are more to do with leisure and have a certain cool factor, and non-conformism seems to be the rule. Or perhaps it is just that Microsoft does not control the market, and does not get to rule that things will happen its way.

In any event, smart phones are more like Media players than Microsoft Word. Software is turning out to be more diverse and more customisable. The first attempt to create software for smarter phones was WAP 1.0. This was designed to give operators complete control over what went on on people's phones, and it was dead in the water. In Japan, we had i-mode, which used much more open software standards, and was a huge success, and had things like Java support added on later. We have the various 3G standards, some of which require support for certain software formats . And we have operating systems like Symbian and user interfaces like Nokia's Series 60, which is basically just a laundry list of media formats and software tools (many of which belong to other companies) that Nokia believes smart phones should support.

The basic picture is that we have a groups of families of interoperable software tools with lots of overlap. The interfaces between these are open, and we are likely to be in a position where there will be a free for all to develop new software and new tools. If the conditions provided by the owners of any one part of the software ecosystem are too onerous, then likely somebody else will produce an alternative that will take its place. In any event, in most cases the software ecosystem will support several products in each niche simultaneously, which will keep the market competitive. To me, this seems a great position to be in. Microsoft might contribute some software to all this, but the chances of it gaining a Windows like stranglehold over the market are negligible. For one thing it is far too late in the development of the mobile phone market for that to happen. For another nobody wants it to happen and given Microsoft's history, everybody will be suspicious of Microsoft's motives.

The one further issue that needs addressing is in the Economist article. The author seems to think there is a possibility that Nokia may use its strength in the handset market and economies of scale to turn its Series 60 user interface into a Windows like standard for the cellphone world. This strikes me as hugely unlikely. For one thing, Nokia doesn't own all of the standard. As I said above, Series 60 is a mix of lots of standards and formats, many of which do not belong to Nokia. And, more importantly, to be truthful Nokia doesn't have very much market power.

Nokia may have good logistics and one of the best brands in the world, but Nokia is and always has been a mediocre engineering concern: it makes beautiful phones with a nice user interface, and is able to achieve astounding margins because of this, but in terms of features, the phones are behind both Motorola and Ericsson. (Look at how long it has taken to build a triband GSM phone). While Nokia has sold a lot of handsets, most of Europe's 2G networks were built by Ericsson.
Nokia's strength, above everything, is the strength of its brand. And however much the marketroids claim otherwise, brands are fragile.

Coca-Cola's strength is not its brand: it is its global distribution system. I have never been anywhere in the world where I could not buy Coca-Cola in every store. I have been places where there was no electricity, but there was still Coca-Cola. Nobody else is remotely close in terms of a distribution system, so nobody can challenge Coca-Cola.

However, Nokia doesn't have anything, except its brand. The distribution system belongs to the mobile networks and big retail chains. Whereas you cannot function in the world today without paying for Microsoft products, Nokia has nothing compelling. Anyone can use another brand without any big loss to them. It is therefore difficult for Nokia to gain much leverage to get other operators to use identical software. Even if it does, Nokia's control over this software is not going to be Microsoft-like. Nokia's position is also weakened I think by the inadequacies of UMTS compared to CDMA2000. Although all the software mentioned in this article will likely work on either platform (plus existing 2.5G platforms like GPRS), Nokia's hardware may well be slower and buggier in the short term than that from some other manufacturers (eg Samsung). This could hurt the brand too.

I am not in fact that pessimistic about Nokia. Nokia will continue to hold a large share of the handset market for quite some time. However, the basic point is this. Neither Nokia or Microsoft will be the Microsoft of the smart phone software market. And this is a good thing.

Do You Want to Employ Me? As I have mentioned before, I am a presently out of work technology and telco analyst, who previously worked for a large financial institution. If you would be interested in offering me a job or if you know anyone who might be, my CV is here.