InnoWiser

When it comes to innovation, no one does it quite like Apple. After all the buzz in the blogosphere about Apple’s intentions, Apple rewarded the faithful with the latest iPod lineup. In a word, the new iPods are simply amazing. Beautiful and totally drool-worthy, just like the previous models. This time the interface is the same, but new. A bummer for early adopters is that Apple has slashed the price of the iPhone by $200 in anticipation of the coming holiday season. However, more significant than the revamped user interface is a more subtle change - the evolving ecosystem. And no one is at a better advantage than Apple itself.

The most significant changes include the new nano, now with video; a new iPod touch; and a new iTunes WiFi store.

Nano
The new nano is now more round and has a bright video display. As if the earlier models weren’t stunning enough, the new one looks even more so. And it’s available in black, white/silver, red and pastel colors. The models come in 4Gb and 8Gb capacity. As far as the lower end of the MP3 segment is concerned, they’ve got it covered.

The regular iPods are now iPod Classic, with 80 Gb and 160 Gb capacities, priced at $250 and $350. Now these make my 2-year old video iPod look positively old.

iPod Touch = No PC Required?
The biggest introduction is the new iPod Touch, which has the multi-touch interface Apple introduced on the iPhone. Gone is the familiar scroll wheel, in favor of the multi-touch controls. It looks like the iPhone, operates like the iPhone, but is not an iPhone. Infact, it looks like it’s the iPhone minus the phone capabilities. But the biggest features present are the Safari web browser and WiFi capabilities, until now not available on any iPod (barring the iPhone).

This is an extremely smart move on Apple’s part, because it feeds into the third big piece: integration into the iTunes WiFi portal. In effect, users will be able to browse, listen to, buy and download songs from the iTunes website without being tethered to a PC/Mac. In one swoop, Apple has provided seamless mobility like no other device has. Sure, Microsoft’s Zune has WiFi and users can even share their music (with restrictions), but given that Zune is perceived as an also-ran, no self-respecting geek would wait several hours in line for the Zune. I am not certain if a PC/Mac is required at all, but this WiFi feature is certainly in the correct direction.

User input for the browser is through the virtual keyboard (as on the iPhone), meaning users will have to get used to the non-feedback-giving touch screen, which may be a hassle for some. (I’ve tested it a few times on some iPhones, and it takes a little getting used to). On the other hand, Apple is perhaps priming up its user base to go for the iPhone by providing an interface similar to it. The first rule of usability is providing users a consistent and familiar interface, and in this the iPod Touch succeeds in going two steps forward, but perhaps one step back (in removing the scroll wheel).

Partnering Across the Ecosystem
While the iTune WiFi store is a critical piece in the user experience of the iPod Touch, Apple has gone one step further. Apple has a partnership with Starbucks where the new iPod Touch devices will automatically detect the WiFi hotspots at Starbucks locations. Not only that, the songs currently playing at the location will be available for instant download and purchase. At the click of a (virtual) button on the screen, users can sample the tracks and purchase them. All the purchases will be automatically synced up with their iTunes on the PC.

At the same time, the iPod Touch is integrated with YouTube. YouTube’s featured videos are available at the touch of a button, as are other features. See Apple’s guided tour video here.

The Missing Mobile VoIP?
Considering that the iPod Touch is complete with WiFi (an Internet connection), browsing capabilities, and *almost* a phone, how much of a stretch is it to imagine using it as an actual phone? With the addition of microphone accesory and some neatly hacked software, perhaps somebody might just be able to convert it into a device with a mobile communicator, with voice over WiFi (mobile VoIP). I’m pretty sure that hackers somewhere are thinking along similar lines, if not already in the process of doing it.

Which begs the question whether the iPod’s closed system will really made open at any time for applications. A smarter move on Apple’s part would be to attract developers to both the iPod and iPhone. Not only will Apple earn even more devotion from users, it will also attract establish it as a platform of choice for mobile applications.

What Price Early Adoption?

The biggest surprise was a $200 price drop for the 8Gb iPhone, just months after it was introduced. That’s a 33% drop. The 4Gb iPhone will be phased out. Where does it leave the early adopters? Has Apple just alienated its most ardent followers? To be sure, Apple is giving the $200 back to users, but only if they’ve purchased it in the last 14 days. What about those who stood in the lines for days to buy it? Read Om Malik’s post on it here: how to get your $200 back.

What do you think? Would you go and buy the iPod Touch? Or or would you buy the iPhone? Or wait for the true 3G version of the iPhone?

When elephants fight, it’s the grass that suffers. Just when you thought that marketers had learnt their lessons from previous format wars, in comes the news that Paramount and DreamWorks would exclusively back the HD DVD format.

For those who are keeping track, both HD DVD and Blu-Ray standards allow storing immense amounts of data (the actual number is not exactly relevant to the story) on optical disks. These are the next-generation of optical storage devices. Blu-Ray, from Sony’s camp, claims storing from up to 200 GB (theoretical), while HD DVD, from Toshiba’s camp, claims up to 60 GB. As far as I am concerned, that counts as  ‘what-will-I-do-with-all-this space’, but I digress. For the curious surfer, Engadget has an excellent overview of the history of these standards, along with a list of organizations in each camp.

What has me worried sick is whether I should spend my hard-earned – and now depreciating — dollars buying a Blu-Ray player or an HD DVD player? I will happily shell out for either of these players, as long I am reasonably confident that there will be plenty of movies available in the said format at a reasonable price; I can borrow or trade-in the disks from friends; backup my data on these disks or exchange the disks without fear of having an obsolete format. And therein lies the crux of the dilemma for marketers of any innovation.

How should innovations that exhibit strong network externalities be marketed? Where should the battle of the formats be played? At the technology standards level? At the political level? In the marketplace?

Many technical products exhibit network externalities or network effects. A user’s utility of the technology (or a product, such as a Blu-Ray player) depends not just on that technology, but also on external factors such as the number of people using the technology, complementary products, etc. (e.g. libraries of movies, backup disks, etc.). More importantly, the utility increases as other people use those products. [Think the early adopter of a fax machine, and his utility versus the late adopter and his utility.]

Traditionally, most technologies that exhibit strong network externalities also exhibit a chicken-and-egg Catch-22 situation. Should firms lay out a network first at huge costs, or should they wait until a large number of users buy a device? Should you, the user, be the first one to buy a new fangled device, or wait until others are already on the bandwagon? Most users fall across the broad spectrum of segments from early adopters to laggards (but I won’t cover that specifically in this post).

The traditional way marketers have resolved this dilemma is to try to create a critical mass of users or customers. Creating a critical mass often requires being (among the) first to bring a product to market. Or at least introducing the product before the major competitors do. Blu-Ray camp introduced its players last year at a price of around $1,000. I understand HD DVD camp also introduce its players and drives soon after. Toshiba now has a new player that retails for less than $500.

For those who cannot create an actual, critical mass, there’s always the illusion of a critical mass. Hence the chest-thumping announcements from each camp in the format wars about their products selling like hot cakes, and bloggers are claiming that the wars are over. The belief being that those who create the most noise must obviously be winning. (I’m not entirely convinced, but I’ll leave that aside for now.)

But there is one critical factor that drives adoption like nothing else: price. Early adopters and innovators often adopt products without (much) regard to the price; for them the utility is often in being the first to purchase, and the bragging rights that go with it. But for the majority of pragmatic users who value practical utility of the product and weigh in on the cost, a certain psychological mark is often required to take the plunge. This psychological mark is sometimes $0 (meaning free), but often it is the value of replacing whatever it is that they are replacing.

When prices start falling below the range of $200-300, and offer movie titles for less than 50% premium over current DVD retail prices, I believe the adoption will increase dramatically. I could, of course, be incorrect, and I’ll be happy to see more adoption - that will only increase my utility when I finally decide to take a plunge.

Obviously, as the battle of the formats moves towards the marketplace where the customers will actually pay for product, the more expensive it gets to sustain the battle. On solution to prevent this expensive battle was to try and stop the battle while it was still being fought in the technical stages. This would have meant creating compatible Blu-Ray / HD DVD players, or merging the standards, or some such technical solution. But apparently, both the camps thought they had power to win and subdue the other. And now we are in this mess again, much like Sony with its BetaMax and JVC with its VHS were, years ago.

For me, the most fascinating aspect of such a business war is how neither of the sides learnt its lesson. For now, I’m just sticking with the plain old DVD and watching the battle from my position atop the fence.