Contactless Payments Connect with Credit Card Companies

The race to capitalize on the 21st Century craze for convenience has heated up in the last couple of months. On November 30, Discover Financial Services rolled out its Discover Zip contactless payment system. Discover followed MasterCard Inc, Visa Inc., and American Express Company that had earlier announced their PayPass, payWave, and ExpressPay Contactless cards, respectively. On November 15th, service providers AT&T, T-Mobile and Verizon Wireless entered the fray. They formed a joint venture to build a national mobile commerce network—old world business models confronting fast moving new world order.

The latest twist in this saga is the move to contactless transactions playing out at gas pumps, coffee shops, fast food chains, and countless other locations, where transaction speed means increased revenue for retailers and less stress to a population that hates to wait. However, it should be noted that the speedy payment can be traced back to 1997 when then Mobil Oil (now Exxon-Mobil) introduced SpeedPass, an RFID dongle on a customer keychain. Verifone designed the RFID dongle and point-of-sale terminal inside the gas pump and at the cashier desk. Passing the dongle close to the pump in a certain place or at the point-of-sale terminal in the station authorized the gas purchase.

In this latest incarnation, major credit card providers, MasterCard PayPass seems to have the largest global footprint. MasterCard introduced PayPass in 2004 and as of Q2 2009; there were nearly 61 million MasterCard PayPass cards and devices in use at over 153,000 merchants worldwide. The financial service provider has tremendous potential to expand this footprint. According to the MasterCard website, the company processes over 22 billion transactions each year and has the capacity to handle 140 million transactions per hour, with an average network response time of 140 milliseconds and with 99.99 percent reliability .

Visa, the largest of the major credit card suppliers, with 1.61 billion cards in circulation versus 914 million for MasterCard started slower in the contactless payment rally. Its payWave offering got started in 2007. Statistics on the number of payWave cards in circulation are hard to come by on the web, but according to the ecommerce-journal website, the number in the UK is expected to reach 12 million this year. Certainly, both companies have a huge number of cardholders to upgrade to contactless technology. American Express comes in third with 53 million cardholders in the U.S. though all of them are equipped with ExpressPay, AMEX’s contactless solution. The problem for American Express is the limited number of merchants with terminal that accept ExpressPay compared to its two larger rivals.

Latecomer Discover with its Zip contactless payment system is confronting a formidable array of competitors. Nevertheless, Discover is hitting the ground running, stating in its November 30th press release that Zip is accepted at 100,000 locations in the U.S. And it has plenty of room to grow as Discover Financial Services’ payment network is currently accepted at more than seven million merchant locations nationwide. That’s why the new mobile-payment venture Isis being rolled out by the joint venture of AT&T, Verizon, and T-Mobile wanted to make use of Discover’s extensive mobile payment infrastructure.

The motives for credit card suppliers entering contactless payments is to increase the number and speed of transactions while lowering the cost of processing the exchange, each a machine-to-machine interaction generating a fee. Contactless payments enable these giants to process other types of transactions that generate revenue: prepaid cards, debit card transactions, funds transfers between individuals, etc.

Likewise, mobile phone service providers want new sources of revenue by having their handsets replace cards as well as the customer’s wallet. The three carriers together have over 220 million subscribers, thus a formidable base to empower with contactless payment capability, first by providing users stick-on RFID tags and built into next generation handset electronics.

The contactless bandwagon continued to gain speed this week. On Tuesday, Wells Fargo Bank announced a San Francisco-based pilot of Visa payWave. Conducted among 200 Wells Fargo employees who use BlackBerry and iPhone devices, BlackBerry users will insert an In2Pay microSD chip, from DeviceFidelity Inc. of Dallas Texas, containing Visa payWave software in their phone; iPhone users will receive an In2Pay case for their iPhone that contains the microSD card. The system will work at fast food restaurants, taxis, sporting event concession stands, and vending machines equipped with Visa payWave readers. DeviceFidelity is relying on the iSuppli report showing 66 percent of devices shipped in 2008 had SD slots growing to 82 percent in 2010. The one obstacle may be carriers building contactless capability into the handset.

One company angling to help carriers add the near-field communications (NFC) capability needed for contactless operation is the System LSI Division of Samsung Electronics. At the CARTES & IDentification 2010 Conference being held in Paris this week, the Seoul-based electronics giant announced a new near NFC chip phone makers can use to add contactless capability to their handset. The NFC chip can also read RFID tags in retail stores or on outdoor billboards for convenient on-the-spot data access.

The question that this competition brings out is how will the consumer ultimately prefer to make mobile payments: with a credit card, with a mobile phone, or some other device: RFID tag on wristwatch, keychain fob, bracelet, or some combination of all.

Which chip vendor to win as China’s 813 million 2.5G phones move to 3G?

China is a huge market for wireless data and telephony. At the end of this past October, the three major telecom operators—China Mobile, China, Unicom, and China Telecom—had a combined total of nearly 813 million mostly 2.5 G mobile phone subscribers, according to Marbridge Consulting. However, the Beijing-based market research firm noted that China Mobile had 16.58 million TD-SCDMA (Time Division Synchronous Code Division Multiple Access—China’s version of CDMA technology) subscribers; China Unicom had 11.66 million WCDMA (Wideband Code Division Multiple Access) subscribers; and China Telecom had 2.53 million CDMA subscribers. And these 3G numbers are growing, pointing to a huge market for chip suppliers providing baseband and application processor chip solutions to handset vendors targeting the China market.

In this emerging competitive landscape, Qualcomm Inc. is the company to catch. In July this year, market research firm iSuppli ranked it first among the top nine digital baseband chip suppliers worldwide. Qualcomm’s newest Snapdragon chipset shows up in the Google Nexus One smartphone; Lenovo IdeaPad U1 Hybrid and Skylight smart book device, Sony-Ericsson's Xperia X10, the HTC HD2 and LG eXpo, among others. Qualcomm faces tough competition in WCDMA, from Infineon, Texas Instruments, Broadcom and Mediatek—it’s biggest threat in China. iSuppli of El Segundo, California says Hsinchu City, Taiwan-based Mediatek holds 71 percent of China’s 2G-handset chip market and it plans to maintain its share in the 3G realm. In July this year, Mediatek acquired a license from Tokyo-based DoCoMo for DoCoMo's LTE-PF, a mobile-terminal platform based on Long Term Evolution. Mediatek aims to integrate the LTE technology into its 2G and 3G solutions.

In the iSuppli ranking of the top nine digital baseband chip suppliers, behind leader Qualcomm and second place Mediatek were in order Texas Instruments, ST Ericsson, Infineon, Broadcom, Renesas, Marvell, and Spreadtrum. Absent from the list, but determined not to be left out of this market opportunity, is Intel Corp. On August 30th this year, the Santa Clara, California-based microprocessor chip giant, purchased Infineon Technologies’ wireless chip business for $1.4 Billion. With the acquisition, Intel gets access to Infineon’s software-defined-radio technology, which supports multiple standards on the same processor with only a software change.

For the China market, these chip vendors have to be targeting the TD SCDMA standard, which the Chinese government is pushing as the major next-generation 3G standard. And to serve this market, chip vendors must have offerings that cost no more than $10. According to a report in Digitimes last October, China Mobile is expecting TD-SCDMA handsets and smartphones to retail for about $75 (500 yuan) and $150 (1,000) yuan, respectively, this quarter. The Digitimes article stated that China Mobile is setting up its fourth-phase TD-SCDMA network of more than 100,000 base stations and expects the number of TD-SCDMA subscribers to increase from 13.42 million currently to 100 million in 2012.

The question that begs to be answered is can any of the U.S. and European chip vendors in iSuppli’s top nine ranking compete in this price sensitive market against Shanghai-based Spreadtrum Communications, Inc. or Taiwan-based Mediatek?

Will MEMS Technology Turn Handheld Devices into Intelligent Digital Assistants?

Little heralded but absolutely essential to the experience users enjoy from their smartphones is MEMS (microelectronic and micro-electromechanical systems) technology. These are small mechanical devices driven by electricity that perform amazing functions like a 3-axis gyroscope and 3-axis accelerometer that enable the Wii Wand as well to control an interactive game or your mobile phone to locate itself in 3D space to provide augmented reality functions.

The MEMS Executive Congress 2010, where the latest technology is discussed and demonstrated, concluded last week showcasing future applications of MEMS. One example cited included shoes with embedded GPS receiver, small MEMS sensor and mobile phone transmitter to track the location of children and Alzheimer’s patients. Another example suggested that MEMS sensors, communications, and computing could be combined to create a smart home that interacted with its residence.

Keynote speaker Dr. Dan Siewiorek, professor of computer science and electrical and computer engineering at Carnegie Mellon University’s Quality of Life Center, described a future with a MEMS-filled smart device that would monitor its owner’s heart rate during exercise, help the visually impaired to grocery-shop, and remember important social clues such as people’s names, phone numbers and directions. This intelligent digital assistant would help its owner navigate his environment and sustain him daily throughout his lifetime.

The market research and strategy consulting company, Yole Développement, founded in 1998, has been following the MEMS market for some time, paints the technology with a more practical brush. It says MEMS remains a fragmented market with a limited number of applications with a market size above $200M. Development of new MEMS applications takes $45M of investment and, on average, 4 years from start to first commercial product. The Lyon, France-based firm does see some high growth segments of the market about to emerge. These include MEMS-based speakers, camera auto focus, ID trackers, smart phone digital compass and oscillators, among others. These will account for 10 percent of the total $17 billion MEMS market in 2015 and all will experience growth rates over 60 percent.

Some of the functionality the MEMS devices will provide include augmented reality and more immersive gaming experiences, precise sensing of hand jitter to improve image quality and video stability, new motion-based user interfaces, GPS dead reckoning for vehicles and indoor pedestrian navigation among others. Lack of off-the-shelf solutions that can be quickly and easily adopted has slowed widespread adoption, as OEMs have had to assemble all the hardware and develop proprietary algorithms to process the sensor data.

InvenSense, Inc. wants to eliminate this hurdle. Last week, the Sunnyvale, California-base company announced its MPU-6000 product family. The MPU-6000 is which integrates a 3-axis gyroscope and a 3-axis accelerometer on the same silicon die together with an onboard Digital Motion Processor (DMP) that can process complex 9-axis sensor fusion algorithms. The MPU-6000 family of MotionProcessors eliminates the challenges associated with selection and integration of many different motion sensors that could require signal conditioning, sensor fusion and factory calibration. It features integrated 9-axis sensor fusion algorithms that utilize an external magnetometer output through its master I2C bus to provide dead reckoning functionality.

Motion processing is expanding into smart phones, tablets, TV remotes, handheld gaming devices and gaming consoles, digital still and video cameras and many other consumer products. The InvenSense solution could reduce the time and cost of integrating this functionality into consumer products.

Will Intel Big Bets on Emerging Technology Companies Pay Off?

On Tuesday this week at its 11th annual CEO Summit in Huntington Beach, California, Intel Capital, announced 18 new investments totaling $77 million in funding. That brings the total investment for 2010 to $247 million, slightly less than the $327 million the chip giant’s global investment organization made last year, said Arvind Sodhani, president of Intel Capital and Intel executive vice president. The criterion for these investments is to increase demand for the compute continuum that is at the core of Intel Corp. business strategy.

The investments this year spanned the hot technologies of the being bandied about the worldwide technology community: cloud computing, green tech, mobile Internet, digital home, consumer Internet, software services, and chip manufacturing. Of these technologies, the buzzword that is currently making the rounds is Internet TV.

Sodhani suggested the Internet connected TV when asked what the theme for the event next year might be. The wisdom of this suggestion is supported by a Yankee Group study this year of more than 6,000 U.S. consumers. The market research firm’s findings suggest that “one in eight consumers will eliminate or scale back their cable, satellite or other pay-TV service this year.” With 100 million cable/satellite/telco subscribers at the moment, that could mean 12.5 million are going to reduce or cut their service in the next 12 months. The presumption is that these cord cutters will end up watching video over the Internet.

Intel Capital’s investment in Verismo Networks’ of Mountain View, Calif. and Bangalore is one of its Internet TV plays. Verismo is developing an open Internet TV platform. The platform seamlessly converges IPTV linear channels, Internet video, social networking and personal media for playback directly to the TV. Service providers provide a set-top box that provides cable TV content as well as video content from the Internet.

Another example is Althea Systems based in Bangalore, India. Althea’s Shufflr, a social video browser, works with cloud-based Shufflr's video discovery platform sold to service providers. The solution makes it easier to find and share online videos across various devices. The software on the cloud aggregates video from several sources and combines machine aided and social discovery engines to help users locate video. Coming soon on smartphones, tablets and TVs, Shufflr will provide a continuity of video experience from one device to another.

However, Sodhani set his portfolio companies the formidable challenge of solving the end consumers’ problem of being able to access video content any place at any time on any device. Foster City, California-base Sling Media, Inc., an affiliate of EchoStar Corp. addressed the problem of place and time shifting by moving content from the consumers’ TV to his PC and cell phone. The tricky part is getting the Internet content onto the TV. The easy part is getting YouTube on TV. The difficult part is getting broadcast and cable TV content on-demand over the Internet. This problem has little to do with technology and everything to do with monetization.

Can Intel and its portfolio companies solve this conundrum. Verismo Networks suggest a solution that might work for India but might not in the U.S. http://www.youtube.com/watch?v=KOFU7dros_o&feature=player_embedded

Are RFID Tags About to Take Hold?

On Monday November 15th, OATSystems, a Division of Checkpoint Systems Inc. of Waltham, Massachusetts announced its latest edition of RFID Asset Tracking Solution, which complies with the Air Transport Association’s (ATA) Spec 2000 Standard. (a comprehensive set of e-business specifications, products and services that are designed to overcome challenges that have plagued the airline industry’s industry's supply chain for decades.)

The new RFID solution generates a unique record for every part used to build an aircraft. The solution captures the part’s manufacturing details and ongoing maintenance history in an RFID tag with high capacity memory that will remain with the part throughout its useful life. The ATA Spec 2000 enables information exchange among every supplier involved in the manufacture, repair and operation of commercial and military aircraft. The information contained in the tag is readily available at any point in the part’s serviceable life.

The airline industry is the low-hanging fruit for RFID adoption. The information need is critical and cost of the sophisticated RFID tag is easily justified. This represents a significant growth opportunity for a technology that has been dominated by the access control and automobile immobilization market, which will manage a modest 6 percent growth through 2014 according to market research firm ABI Research. The firm predicts the industry to be worth $5.35B in 2010, 15 percent higher than last year. Driving this increase will applications such as the asset management solution from OATSystems and cargo tracking, two sectors expected to grow 19 percent year over year. Another application to see high growth through 2014 is real time location systems: baggage handling, animal ID, item level tagging of fashion apparel and retail.

The most visible proponent of RFID tags is retailing Wal-Mart, which will mandate item-level RFID tagging for four categories of clothing: men's jeans, T-shirts, socks, and underwear. Wal-Mart has already been tagging at the pallet level and case level for some time now. The 7-cent RFID tag have increased inventory accuracy and improved sales not only for Wal-Mart but also at other retailers like Bloomingdale's, J.C. Penney, and The Gap who have also been testing the tags’ effectiveness.

However, there is a dark side to RFID tags in the retail product area. The tags are not removed from the object before it leaves the stores. Thus, it’s possible that the tag can be read later by any scanner able to detect the signal. If you return to the store wearing the apparel you purchased there, the store knows you’ve returned, what you purchased and can market to you more effectively. RFID credit cards may soon allow you to make purchases simply by scanning the card in front of the reader or simply walking through a scanner when getting on public transit. You see where this is going: retailers and government agencies collecting information on an individual’s preferences as well as behavior.

As with most technologies, the initial reticence is quickly overcome by the convenience and efficiency the consumer experiences. The best example is the EZ Pass transponder on cars speeding through tollbooths, providing location information on the driver at each transaction. It’s not a matter of will RFIDs take hold it’s a matter of when. And all indications are that they’re catching on now.

Is Augmented Reality Ready for Prime Time?

In the 21st Century, no question you have will go unanswered if the promise of augmented reality really comes true. Your smartphone equipped with augmented reality will identify and describe in sound, images, and/or moving 3D objects anything, anywhere you point your smartphone camera at. The real world will have become a place that you can “mouse over” and “click” with your phone and your reality will become augmented by all the data that the phone can assemble on that object—visualize the technology depicted in the Tom Curse flick “Minority Report”. (I wonder if it will work when you point your camera phone at a person.)

Among others Qualcomm recently recommitted to the technology. At the end of June, the company announced plans to offer an augmented reality platform and software development kit (SDK) to enable vision-based augmented reality applications. On November 10, Qualcomm teamed up with Unity Technologies, which claims to offer the development platform of choice for both 2D and 3D game development on mobile platforms. Qualcomm is making its Augmented Reality Extension available for Unity. Now, game developers like Trilogy Studio, creator of MTV’s “Pimp my Ride” game can use Qualcomm’s platform to add augmented reality functionality to games they develop or that’s the theory.

The poster child for this SciFi technology is the Dutch company Layar, who’s CEO Raimo van der Klein was featured this year in Time magazine’s September 9th issue in the article “Tech Pioneers: 10 Start-Ups That Will Change Your Life.” Layar’s Reality Browser, uses the smart phone's GPS data, accelerometer, compass and gyroscope to determine where its user is and what direction he’s pointing his camera. The browser then overlays information about whatever the user’s camera is viewing, for example, a historic building, which appears in the phone’s display along perhaps with a decades-old photo of it—as the Time article suggests.

Another company providing both the platform for as well as the augmented reality applications is Artificial Life, which released its third quarter results this week showing a 21 percent growth in revenue along with a 29 percent boost in income over the previous quarter of 2009. The company attributed the growth to its Opus-M, a modular m-commerce platform that can turn a brick-and-mortar storefront to a secure on-line business, with augmented reality to enhance the shopping experience. The company also produces a line of iPhone/iPad games that it’s porting onto smartphones running Android and Windows Phone 7 Operating Systems.

Last year there was a major push to bring augmented reality applications and browsers to mobile devices equipped with GPS, cameras, compasses, and accelerometers. In July this year the Augmented Planet website cited 54 new augmented reality iPhone applications published in July was 54 bringing the total to 605 such applications available for the iPhone. Juniper Research proclaimed the mobile augmented reality market will reach $732 million by 2014, fueled by paid application downloads, subscription services and advertising.

In a world where the smartphone has become the electronic appliance for everyman, there is a major push by hardware and software vendors to pack more sensors, communications, and multimedia technology into this mobile device. Thus, it’s becoming an amalgam of artificial intelligent concierge, man Friday, and entertainment center for the multitasking, attention-deficit/hyperactivity disordered worker bees we've all become. Augmented Reality is yet another means of the machine adapting to the personality of its owners.

Can Technology Help Vegas Boost Their Odds over Gamblers?

No place on earth says “gambling” like Las Vegas, not Atlantic City. not Macau, not Monte Carlo, nor Singapore. If you want to lose your money, the place to go is Vegas. Next week, Glitter Gulch hosts Global Gaming Expo (G2E), which runs from Monday through Thursday with exhibits in the Central and North Halls of the Las Vegas Convention Center. In the conference center that straddles Desert Inn Road South of the large Central Hall, there will be four days of presentations and panels informing casino owners on everything from the newest legislation, especially for on-line gaming, to the latest technology to maximize a casino’s return.

In one track entitled “Social Media 101: The Basics For Gaming,” the description is as follows: “a year or two ago social media was seen an emerging trend—today it is a way of life. If you're not connecting to your customers through social media, you are missing a valuable, and cost-efficient, marketing opportunity. Many casinos understand they must venture out into the social media landscape, and at this session, attendees will learn how to implement social media to create a relationship-building opportunity for direct communication with your customers.” Trump Casinos is on Facebook with over 12,441 people who like them. So too does Golden Nugget Vegas Casino with 3,738 people who "like" it, but more importantly, 13,935 monthly active users who play the Golden Nugget Vegas Casino Facebook game, a simulation style game launched in August this year that will soon enable micro-transactions—the penny slot machines of social networking?

Another session, “Ask the Experts: Database Analytics Showdown” will explain how to mine the rich veins of information captured on casino guests. “Evolving database technologies continue to offer casino marketing executives new opportunities to capture a variety of information, including special interest coding, tiers of gaming value, demographic analysis and other powerful database components,” the track description says. “But, how can casino marketers sort through this data to capture the vital information they truly need? Is there a shortcut to making it all make sense? Is it possible to capture and understand a guest's experience beyond the gaming floor, and how can you utilize this wealth of information to make sensible and cost-efficient decisions? Find out the answers to all of these questions and more at this highly interactive session.”

And yet another track, “Mobile vs. Direct Marketing: Two of a Kind?” declares, “the mobile generation is here. The smart phone did in several years what it took the computer generation 10 years to accomplish. But what does this mean for the gaming industry? This session will examine how mobile marketing can augment traditional marketing activities or even replace existing processes to make them more cost-effective and efficient. Whether it is mobile couponing, event based promotions, loyalty clubs, the mobile concierge, direct marketing communication or customer satisfaction surveys—mobile marketing offers a wide variety of business sound, practical applications.” All of those coupon books you got when you checked in have now been automated with the information gleamed from the casino’s database analysis—if you’re a returning guest—to provide you with exactly the right temptation to get you to stay and play.

When I attended one of the last Comdex conferences held in Vegas, I remember entering a private event being held at a casino restaurant. A couple leaving the restaurant, obviously annoyed at being turned away, asked one another who the hell was Hewlett-Packard. Then as now casinos know high tech companies and use their information technology to further increase their odds over individual gamblers.

Can Technology Stem Rising Medical Costs?

At the dawn of the 21st Century, the handheld smart device is becoming an indispensible appliance that accompanies and assists its owner in an increasingly more pervasive manner: providing directions, finding itself when its owner has lost it, finding just about anything its owner desires. Now, apps developers are extending the smart device’s capability to monitoring and reporting on the well-being of its owner. Rockville, Maryland-based market research firm, Kalorama Information in its new report Remote & Wireless Patient Monitoring Markets expects the U.S. market for high-tech patient monitoring systems, valued at $5.7 billion in 2009, to experience impressive annual growth of around 26 percent through 2014.

An example of the types of devices driving this growth is the Artificial Life, Inc. GluCoMo (Glucose Monitor) app for the iPhone launched September 9th. An electronic diary, the application allows diabetic patients to enter blood sugar level, insulin intake, weight, pulse, physical activity, dietary intake, blood pressure, and medication intake. A program analyzes the parameters and alerts doctor and patient of any abnormality.

However, for patients requiring more intense scrutiny, there is a bevy of new sensor technology that attaches to, is injected in, or is ingested into the body and relays data wirelessly to secure cloud-based medical analysis programs. These programs evaluate and transmit their results to medical professionals. Proteus Biomedical a private Redwood City, California company has developed a chip-in-pill technology that once swallowed is activated by stomach acid and transmits information to a transmitter patch worn on the Patient's skin. The transmitter communicates to a cell phone, which relays the information to a doctor.

The technology is so compelling that Swiss giant Novartis International AG spent $24 million for access to Proteus Biomedical’s chip-in-pill technology. Novartis announced that in the next 18 months, it would seek regulatory approval for the pill, which tracks medication adherence by time-stamping the patients ingestion of medications. According to an article in the New England Journal of Medicine this past April, nearly half of patients fail to comply with drug-taking instructions, thus resulting in avoidable hospitalization costs.

Earlier this year the FDA provided 510(k) clearance for the Proteus’ Raisin system, the adhesive patch that communicates with the smart pills after the patient’s stomach breaks them down. The 501(k) clearance requires medical device manufacturers to submit a premarket notification of any device the company intends to distribute for the first time.

The AVIVO Mobile Patient Management System from San Jose, California based Corventis is an example of another form of wireless sensor. It provides insight into the cardiac health of patients, suffering from heart failure and cardiac arrhythmias. It consists of a wearable sensor called PiiX that attaches to the chest and collects heart rate, heart rate variability, respiratory rate, fluid status, activity and posture. It wirelessly transmits this data to the belt worn zLink Mobile Transmitter, which passes the data on to Corventis for relay to healthcare professionals.

CardioMEMS Inc. of Atlanta, Georgia supplies sensors that are implanted into the body of patients with heart failure and/or hypertension. The EndoSure Wireless AAA Pressure Measurement System consists of the EndoSure sensor, which transmits real-time data to an external electronics module, which then communicates this information to the patient’s physician.

In September this year, St. Jude Medical acquired a 19 percent stake in CardioMEMS for $60 million while locking in the rights to buy the company. St Jude cited a report published in May this year that the CardioMEMS device reduced hospital readmissions for heart failure patients.

In an era where government and industry is seeking to rein in rising medical costs, wireless patient monitoring sounds like just what the doctor ordered.

In the rush to commercialize cloud computing, is security getting overlooked?

The promising technology of Cloud computing recently suffered its first serious bout of growing pains when Microsoft/Danger, which provides cloud computing services crashed and lost all of T-Mobile Sidekick customers’ mobile phone information on their servers and back-up. That has to have cast a pall of concern over corporate customers evaluating the wisdom of outsourcing their relationship with their customers to a third party. Microsoft was at fault, but T-Mobile gets the blame. The other reasoning that has to be running through customers’ mind is that with an emerging technology, what can go wrong will. Anyone who has experienced Microsoft’s blue screen of death can attest to this.

The other vulnerability cloud computing customers face is security. Imagine if the T-Mobile Sidekick disaster had been a raid by hackers instead of a server farm and back-up meltdown. In a world of computer hackers that have become expert at finding the flaws in each new release of software, cloud computing has to offer an appealing target. And it’s not only financial records. Cracking into a server farm is the equivalent of breaking into the vault of a Swiss bank: personal records in the millions and not just one credit card company but charge accounts for them all. All of these problems will get solved in time as vulnerabilities get identified and fixes are implemented. The question for anyone contemplating being an early adopter is “do I want to be the guinea pig that finds the bug?” like T-Mobile.

Perhaps the greatest vulnerability is the lack of a single point of contact ensuring the security of the cloud computing solution. If a client buys the computing resource and storage capacity from Amazon, Microsoft, Google, or another cloud supplier; he purchases middleware from one or more third parties; and he gets applications software from someone else, the only one that has a vested interest in security across these different vendors is the client buying the service. If a break-in occurs finger pointing ensues. More importantly, hackers understand this vulnerability and seek out the weakest link in the collection of elements comprising a solution for any given client. For example, they might find the back door in a middleware program that can be used to gain entry into the main database.

Google’s cloud computing solution is called the Google App Engine. When asked after his introductory remarks at the Google Internet Summit May 5 and 6, 2009, in Mountain View, California to comment of security not being built into the architecture for cloud computing, Google CEO Eric Schmidt made the following statement. “The answer to your question depends upon where you think security should lie. Do you think it should be at the application layer? Or do you think it should be at some middleware layer... I think it’s too early to really know. It’s very strategic for us that people build—think of them as Ajax applications, Ajax++ (see note) with all the extensions—because that displaces the traditional PC dedicated client architecture… I don’t know how security will play out. I’m not aware within Google of a lot of activity at the applications level in security because the kinds of questions that are asked are still relatively early. Maybe we should fix that.”

Cloud computing is relearning all the security lessons that previous computing generation—the early mainframes, the minicomputers, and the PCs—already experienced. For those not familiar with them, the book “Cyberpunk” by Katie Hafner and John Markoff is an entertaining and informative place to start. You’ll follow the exploits of, among others, Kevin Mitnick who exploited the lax security that protected most minicomputer systems 30 years ago. In 1979, Mitnick gained unauthorized access to Ark, the computer system Digital Equipment Corp. (now part of Hewlett Packard) and stole DEC’s next generation RSTS/E operating system software—then in development, a crime for which he was charged and convicted in 1988.

Maybe security should be given more consideration in the development of cloud computing architectures.

Note: according to Wikipedia, Ajax (asynchronous JavaScript + XML) is a group of interrelated web development techniques used on the client-side to create interactive web applications. With Ajax, web applications can retrieve data from the server asynchronously in the background without interfering with the display and behavior of the existing page. The use of Ajax techniques has led to an increase in interactive or dynamic interfaces on web page and better quality of Web services due to the asynchronous mode. Data is usually retrieved using the XMLHttpRequest object.

Computing in the Cloud: Re-Emergence of the Mainframe

Waking at 5:30 in the morning on Thursday August 13th hoping to beat the rush of commuters, I got dress and on the road to San Francisco from San Jose to attend the 2009 OpenSource World, Next Generation Data Center and CloudWorld conference at Moscone Center. It is a shadow of the O’Reilly OSCON event in San Jose from July 20th to 24th, I overheard a fellow Open Source attendee say as we waited for the first keynote of the morning from Lew Tucker, VP and CTO at Sun’s Cloud Computing operation. (Without his aviator frame glasses, Tucker bears a resemblance to the actor Steve Buscemi—the talkative kidnapper in the movie “Fargo.”)

After a welcome and introduction from Jeff Kaplan, THINKstrategies and CloudWorld Conference Chair, Tucker took the stage to began his keynote “If Cloud Computing is the Answer, What is the Question?” Tucker comes with the right credentials for discussing the topic. He started out as director of advanced development at Thinking Machines Corp.—the massively parallel processor (MPP) company founded in Waltham, Massachusetts in 1982; their bankrupt assets acquired by Sun in 1994. MPP was one of parallel processing various schools, containing the symmetric multiprocessor branch—today found in its simplest form in the dual core processor in PCs and Macs—and the massively parallel branch—found now in the blade servers of the large-scale compute farms populating the Internet.

The blade server MPP architecture is the workhorse of Internet commerce. Every time a user logs onto Amazon.com and places an order, he’s talking to one of the e-tailer’s several geographically dispersed compute farms. The large-scale deployment of these computing resources is reducing the cost of computing to on the order of 10 cents per CPU hour, according to Tucker. This economic reality is making cloud computing attractive to Fortune 1000 companies looking to reduce their IT costs, by adopting a “pay as you go model” rather than the large upfront equipment investment amortized over time. Ironically, in the early days of computing, the high cost of computers made it manditory to centralize the computing resource and make it available by remote terminals. Today, the opposite is true, the low-cost of computing is making it more practical to distribute low-cost cloud computing via remote terminals. (See afterword below.)

Tucker stated that the ubiquitous availability of broadband is the other factor contributing to the desirability of cloud computing. The widespread adoption of self-service e-commerce and the large accumulation of data on the web have also combined to validate the cloud-computing model. Tucker sees this only increasing with the expansion of machine-to-machine communications—On-Star calling in upon detecting air bag deploying, vending machines reporting low inventory, a building computer system monitoring and reporting on equipment operation, energy use and maintenance requirements, and the list goes on. This availability Tucker said is tempting large corporations to consider renting cloud computing resources rather than building the capacity in house. He points to Amazon’s success with SmugMug as evidence for cloud computing.

Started three years ago, SmugMug is a photo-sharing site that hosts the photos of professional photographers (they looked professional to me). The company of 50 employees uses Amazon S3 (Simple Storage Service) cloud solution to store its 686,256,409 photos (adding at a rate of 10 terabytes of new images each month). According to Amazon, the company has saved roughly $500,000 in storage expenditures and cut its disk storage array costs in half—all with no increase in staff or datacenter space. A most high profile example is salesforce.com, which offers a cloud platform that customer develops applications on. Adtran Inc., for example, created an app for mobile devices that allowed its sales force to access customer information. The crown jewels of a corporation—its sales information—residing in the cloud.

To listen to Tucker, you begin to see information technology as a set of Lego blocks that anyone with software expertise to provide the connection can put together to achieve a desired solution. The server farms provide the physical plant. A data center OS deals with this physical plant and an applications OS deals with the software plant. For example, Google’s cloud computing platform, Google App Engine, is essentially, “HTML 5, web browser applications, with a back-end server that uses TCP/IP and RPC (Remote Procedure Call (RPC),” according to Google CEO Schmidt. Developers create applications on Google’s infrastructure free up to a point.

Information technology development is a continuous work in progress and cloud computing is the latest incarnation. Its greatest adherents are companies—salesforce.com—emerging to serve new needs (increasing the productivity of sales teams) that didn’t exist before. When and if mainstream enterprises decide to follow suit en masse is anyone’s guess, but I suspect it’s not a matter of if but only when if history is any indication.

Afterword:

Mainframe time-sharing found its first commercial success at Dartmouth College in 1964 in the form of DTSS (Dartmouth Time Sharing System). Students submitting programs to be run on the college mainframe, a GE-235, could enter the program using a Teletype (TTY) machine (an electro-mechanical printer and keyboard that had a communications facility to talk to other TTYs. The DTSS system used another mainframe, a GE DN-30 (Datanet-30) to handle communications to and from the TTYs. It was a one to many architecture with the TTYs at the ends and the mainframes, emulating a TTY machine in the center. DTSS was the creation of Tom Kurtz and John Kemeny. The web site http://www.dtss.org/ has been set up to recreate the first DTSS for those interested in seeing what the precursor to cloud computing was like in the early 1970s. The site offers web-based emulators for both Mac and Windows.

Plus ça change, plus c'est la même chose.

Brainstorming at the Elephant Bar in Campbell

I had lunch recently at the Elephant Bar in Campbell, CA with Tom Miller who is the executive director at the Society For Information Display. In the few minutes I spent waiting for Tom, the lunch crowd I noticed was a mixed demographic: middle-aged businessmen strategizing, retirees getting together to catch up on family and friends, soccer moms treating themselves to a Friday lunch. Tom and I fit into the first group. He was on the editorial advisory board when I worked at ISD Magazine in the late 90s. Tom is a great source of information on a wide range of technology areas from displays to web ventures he’s come across in his consulting work. After we were shown to a booth with seats so close to the table they resembled coach class on an airplane—Tom’s analogy, the young waitress asked us for drink orders—diet coke for Tom, sparkling water for me.

The last time we got together, he and I spoke about Emagin, a display company that makes an OLED (optical light emitting diode) array built into military near-eye helmet-mounted display applications. I mentioned that the company had turned a profit and we got into a discussion on commercial application of the technology—watching video, video gamers (especially combat games), etc. He brought up the drawback for consumers. Being so near the eye the display can cause motion sickness and dizziness. The problems have been solved for military applications, Emagin’s target market—a $1B-oportunity last year and tripling by 2012 says the McLaughlin Consulting Group. Producing a cost effective consumer offering is yet to happen, though there was buzz last year that Apple and Sony were developing navigation/video sunglasses, apparently overzealous speculation.

The waitress took our order: soup and salad for me and a chicken salad for Tom. From displays we got onto the topic of print publications and their plight as advertising abandons print for on-line; the reality made plain by the Conde Nast’s closure earlier this month of “Gourmet,” “Cookie,” and “Modern Bride” on the advice of McKensey & Company. The “New York Times” reported that the publishing company had lost 8000 ad pages. Assuming a modest ad page rate of $3k to $5k that’s $24M to $30M in lost revenue.

The alternatives to save print magazines we discussed ranged from taking the loss in the print publication and generating revenue elsewhere—in-person conferences—and selling conference proceedings afterwards, selling e-mail lists, fee-based on-line activity such as webinars, marketing surveys, social networking communities. The print edition would serve as outbound communications vehicle that hits subscribers’ desks every month to build readership loyalty.

Tom mentioned an effort at Stanford University being led by government and major publishing companies to improve the efficiency of the business model for print media. On the expense side of the ledger, besides the variable expenditure for paper, there’s the large fixed cost in administrative and editorial labor, postage for distribution, and the printing plant. There has to be enough advertising revenue to cover these outlays. Government incentives can help—postage for example. Revenue has to cover the rest and here too government incentives could help—e.g. tax breaks for running print ads.

The waitress interrupted us with our orders and refreshed our drinks as Tom and I got onto the topic of the free business model of the web. He asked if I had heard of changethis.com. I hadn’t. It’s a site that publishes manifestos. Later in the day, I downloaded "Your Butt’s in the Wrong Seat, A Manifesto for Public Transportation," a 12-page piece by Ryan Barton making a case for using public transit. The model looks very labor intensive Tom said. You submit your manifesto to an editorial evaluation and only those that pass muster gets published (perhaps a staff of volunteers that administer and edit?). The site is owned by 800ceoread.com, which publishes business books, presumably with some success to afford changethiscom, (which could potentially find book authors for its parent).

Tom brought up another site with a free model, AnchorFree.com founded in 2005 by Silicon Valley entrepreneurs, David Gorodyansky and Eugene Malobrodsky. Their goal was to impact user privacy on the Internet by putting users in control of their data while online. Tom described the software you download for free as enabling browsing through a VPN, thus keeping your activity on the web private. With some venture funding the founders are now looking to monetize the site’s 300 million downloads (!) by offering ad space within the VPN. You would think this a no brainer. I suggested monetizing AnchorFree by soliciting donations from users. With that many download, asking for a dollar donation each and getting a 10 percent return would pay the bills for a while.

We finished our meals and the waitress returned to bus the table. All in all the meal had been most enjoyable and informative. Tom picked up the tab—thanks Tom—and we headed out into a bright, warm and humid Santa Clara Autumn afternoon.

Trapped in a enclosed space at Stanford Radiology MRI Lab for 90 minutes

It’s Monday morning, October 5, 2009 and I’m being shot up with gadolinium in my left arm as I lay strapped onto a sliding table the width of my shoulders and over seven feet long. I’m in the home stretch of a procedure that will eventually run for around 90 minutes. Having arrived here at 7:00 o’clock this morning and voluntarily submitted to this procedure, I’m in a room that reminds me of the sterile inside of a UFO as abductees describe it. Set to accommodate the huge white General Electric MRI machine, the temperature makes me feel chilly, dressed as I am in flannel one-size fits all open-front hospital gown and baggy pants. The long table I’m on is at the mouth of a tunnel that is three-feet in diameter. (Freud would have a field day.)

I began the day at 5:30 this morning, outside still dark with the temperature in the low 50s Fahrenheit. It’s the ideal coolness for my morning run that I’m delaying to drive to Stanford Medical Center in Palo Alto for an MRI of my heart my doctor has ordered. I have a heart muscle that has shown signs of wall thickening as a result of 30 years of daily running. Though this occurs in everyone who regularly exercises vigorously, doctors are looking at heart wall thickening as a possible cause of athletes, who appear perfectly normal, keeling over from heart failure. This can occur for a whole host of reasons: leaking heart valve, undetected heart damage from disease or injury or a genetic heart defect, among others. Considering the over-60,000 miles I’ve put on my heart over the years, I’m expecting this MRI angiography to eliminate all of these culprits.

The drive north from San Jose to Palo Alto retraces my commute in past years, having worked in offices at Waverly and Lytton and Emerson near Hamilton: North on Monterey Highway to just past East Alma Avenue, there a right turn and then left onto Third, north to East Reed Street and right for a block and right again on South Fourth Street and the on-ramp to Interstate 280. On 280 west for less than a quarter mile, a San Jose Police Cruiser merging into the lane just ahead of me as we both begin the 50-MPH right curve atop the elevated on-ramp from 280 to Highway 87, the Discovery Museum barely visible off to our right and on our left two separate lines of headlights streaming to confluence with us at the San Carlos Street off ramp from 87. Cars from the two left lanes wanting over to the right; most of the cars in our lane wanting over to the left to avoid having to exit the freeway. Finally, the police cruiser—on its way to the police garage‎ on North San Pedro Street at the end of its shift—and I merge into the slow lane of 87 and begin the northward run to Highway 101. All of us spend our lives going somewhere, the stream of traffic on the main arteries a metaphor for the flow of blood racing through our veins.

The MRI procedure began with me getting out of my civilian clothes and donning hospital attire. I’m told to use the facilities before we begin because it will be a long time before I get another chance. I take the point. Pattering into the sterile room in white running socks, I’m struck by the size of the MRI machine, how white it is, and the size of the tunnel I will be rolled into. The attractive lady lab technician asks if I’m claustrophobic. I gulp, smile, and answer that I didn’t think so. As I lay on the table, my legs extending into the machine’s open mouth, she explains the drill I’ll be required to perform during the time I’m in the tunnel.

On her command, I’m to take in a breath, let it out and refrain from taking a breath until she says inhale—15 to 20 seconds tops, she says. She asks if I want a blanket and I quickly accept—I’m chilled by the air conditioning set to cool the equipment. After placing four electrodes on my chest in the general area of my heart, she straps me onto the table, wraps another sensor around by diaphragm—to monitor my breathing. Because the machine is imaging a moving object, instead of a relatively static one such as the brain or a knee joint, it needs to compensate for breathing and heart movement to create the 3-D image. The final apparatus is a curved plastic breastplate—I’m told it helps align the image—which she straps across my chest before we begin.

The drive north on Highway 101 from the Highway 87 on-ramp in San Jose to the Embarcadero Road exit in Palo Alto moved at the limit this morning, just before the full stream of northbound commuters floods the artery. Like my own arteries, the asphalt and concrete thoroughfare bearing the load of 101 traffic has deteriorated over the past 30 years, the analogy not lost on me as I travel toward the MRI that will reveal how well mine have fared over the same number of years.

One last thing, she says, stuffing my ears with plugs. You’ll need these as it gets noisy inside the machine. I’m not to be alarmed as it’s the sound the machine makes as it pulses a magnetic field through me to first align then flip the magnetic orientation of hydrogen atom protons in the water, comprising 75 percent of lean muscle in the heart. The protons’ rotation produces a miniscule magnetic flux that the MRI detects, thus creating a three-dimensional picture of the heart. Incidentally, these machines exert a magnetic force around 60,000 times the earth's own magnetic field effects—though nothing to be concerned about as magnetic flux produces no ill affects in tissue and cells.

A few seconds after she leaves the room, I hear her disembodied voice from speakers inside the dimly lit tunnel, that I now find myself in, and quickly close my eyes realizing I am going to freak if I keep them open. Just as I get my momentary panic under control and my breathing less labored, she asks if I’m comfortable and I say I am—liar, but I can’t admit to being a wimp. She says if I’m ready we would begin. I prepare for the sound and as soon as it starts that labored breathing returns. The sound is the shrill alarm of a truck backing up, but at a faster rate, two or three pulses a second it seems, and a different pitch. The sound reminds me of the staccato screeches accompanying the shower scene in “Psycho”—that rhythmic intensity but at a different pitch. I resist the flight response the sound invokes in me and will myself to relax. She’s no doubt aware of how I’m reacting to the machine. My breathing slowly becomes normal as I become accustomed to the sound.

When we begin the breathing drill, the tempo of the machine’s sound changes: same staccato beat, but slower. I count 15 to 16 repetitions as I hold my breath and wait for her to allow me to inhale again. Then she periodically changes the routine, telling me that the next time I must hold my breath longer and I count 20 repetitions before I breath again.

When I’m pulled out of the tunnel halfway through the procedure, I open my eyes and take in the bright light and expanded space of the larger room. She asks for my left arm for the gadolinium injection. According to Wikipedia, solutions of organic gadolinium—symbol Gd and atomic number 64 in the periodic table of the elements—are the most popular intravenous MRI contrast agents to enhance images. However, for anyone with impaired kidneys gadolinium side affects include hard, shiny, darkened skin that tightens and becomes extremely painful, joint inflexibility, loss of movement, yellow-colored eyes, painful joints, and lung, heart and organ damage. My kidneys are pretty healthy so I’m not concerned though I should have been informed rather than finding out from a google search.

Sliding back into the tunnel the second time was a piece of cake. I had become accustomed to the confined space. We finished the series of breathing drills and concluded with the same sequence of loud staccato pulses that began the procedure. And then like every event in life it’s over and I look forward to the prospect of caffeine, something I’d been denied for 24 hours before the procedure. As she removes my constraints and unhooks the electrodes, I ask her how long before the results are in and she says my doctor will have them within the week. I thank her for getting me through the process and return to claim my civilian clothes and start my day. It’s 9:00 o’clock on a beautiful October morn. What could be better than that?

Boom in SMS digital mobile phones depositing and dispensing electronic currency

The international financial services industry is beginning to leverage the enormous subscriber base mobile network operators (MNOs) command, 4 billion in 2008 according to Wireless Intelligence, the GSMA (the GSM mobile phone operators trade association) research arm in London. Banks are initially targeting consumers in the third world by converting their mobile phones into a mobile wallet where cash can be deposited to and spent from. The mobile wallet has generated great excitement and has demonstrated a huge potential in the third world. Electronic currency enables the mobile handset to dispense cash and accept deposits through a bank-affiliated merchant or MNO airtime reseller, thus enabling customer savings and even microloans. The capability leverages the short message service (SMS) on nearly every mobile phone.

Today, most electronic currency successes have been within national borders, but enabling the 190 million migrant workers—3 percent of the world population—to send electronic currency home via mobile phones is the next application financial institutions and MNOs are targeting. And for good reason, according to the World Bank, in 2008, migrant workers sent $433 billion to their home countries, most in the third world.

What’s surprising is how rapidly electronic currency is taking hold in the third world. At the Mobile Money Summit 2009 from June 22 to 25 in Barcelona, Caroline Pulver, FSD (Financial Sector Deepening) Kenya, an independent trust developing inclusive financial markets reported on the impact M-PESA (mobile, PESA money in Swahili) has had on the country. Pulver’s research found that by May this year, 40 percent of Kenya’s adults had used the service. The table below shows what Pulver found Kenyans spent their electronic currency on.

Usage Percentage
Store/save money for everyday use 14 percent
Store/save money for emergencies 7 percent
Pay bills 2 percent
Send money 25 percent
Receive money 28 percent
Buy airtime for someone else, 8 percent
Buy airtime for myself 14 percent

According to the central bank of Kenya, at the start of 2009, there were over 7000 M-PESA agents. This represented substantially more points of service than the combined number of bank branches (887) and ATM (1,435) in the country—serving 6 million customers or 15.3 percent of Kenya’s 39 million population. Since the program’s launch in March 2007 until February 2009, the cumulative value of M-PESA money transfers had reached $1.5 billion. As of February 2009, the monthly value of person-to-person transfers was $190.3 million.

Sponsored by the UK-based Department for International Development, M-PESA began by using Safaricom’s (a subsidiary of UK-based Vodaphone) airtime resellers to issue microloans that borrowers would repay at an interest rate reduced by eliminating the overhead conventional microloans carried. However, the tech-savvy, skilled worker in Kenya began using the facility to transfer cash from working husbands in the city to their families in the country: Safaricom had unintentionally become a bank with its handset providing a teller function and it airtime resellars dispensing cash. Today, according to Stephen Rasmussen, technology program manager at CGAP, an independent policy and research center housed at the World Bank, 70 percent of M-PESA subscribers are banking customers, not the unbanked customers originally targeted.

The service’s popularity drew the attention the Western Union Company, which has a 17 percent share of the international remittance market. (The World Bank estimated that Sub-Saharan Africa received around $20 billion in remittances in 2008, with Kenya accounting for $1.3 billion.) In December, last year, Western Union partnered with Vodafone, parent of Safaricom, to pilot a cross-border Mobile Money Transfer (MMT) service between the U.K. and Kenya. The service would enable customers to send remittances directly to Safaricom mobile subscribers in Kenya in minutes from the UK. The World Bank estimates the fees for transferring $200 cash from the UK to Kenya at $26.64: $15.25 for the money transfer and $5.69 for the currency conversion. It will be interesting to see if the cost comes down or is increased by $0.11 charge for the SMS message charge for an electronic currency transfer.

In June this year, Western Union expanded its reach in international remittance signing a deal with Zain, owned by Kuwait-based Mobile Telecommunications Company KSC, to enable Western Union currency transfers to Zain handset with the Zap platform. Zain’s service is available in Tanzania, where it’s larger than Safaricom, and Kenya where it’s smaller. Zain other distinction from Safaricom is enabling consumer-to-merchant purchase eliminating the need for a cash transaction. For the unbanked the additional fee will makes the transaction uneconomical. However, for business-to-business transactions, the service will have great appeal.

Celpay, owned by South African FirstRand bank, is the another service that has gotten a substantial following in Zambia and the Democratic Republic of the Congo where the DRC government uses Celpay to distribute government payments to former soldiers who have turned in their guns. Registered customers can use their electronic currency for merchant transactions, monthly bill payments, and fund transfer between participating phones. The company’s model is unique first because it provides solutions to businesses rather than end customers. Second, its nascent P2P model reaches unbanked customers without mobile phones, by sending the payment to agents with phones who perform money transfers or dispense cash. In June this year Celpay was processing $25 million per month in gross transactions.

One common element that permeates these successes is that all flourished because they were plowing a green field. Nothing existed before they emerged to provide the service. Another is that each found regulatory agencies willing and able to permit the services to take hold and flourish. In the case of M-PESA, once its popularity got notice, the conventional financial services sector attempted to derail the project only to be rejected by the Kenyan government. In the case of the DRC, electronic currency was an effective means to pacify a military force surrendering its arms.

According to the GSMA, the successes in Africa are being attempted elsewhere in the world. A greenfield deployment in Indonesia, the AXIS mDUIT project, is due to launch in December, 2009. In the Philippines, the SMART Communications’ Island Activations Program hopes to bring electronic banking to isolated customers on remote islands. Mobile network operator Roshan hopes to build an M-PESA-like service in war torn Afghanistan. Electronic currency is taking hold in the third world and in won’t be long before it will get a foothold in the developed world as well.

ARM-Google Alliance Confronts Intel-Microsoft Dominion: Out of Chaos Comes Order

We’re in the throes of one of those major discontinuities that occur in technology evolution periodically. Actually there are two occurring concurrent and affecting one another. Entrenched suppliers hate such events because they are forced to develop new business models for producing revenue. One discontinuity happened with the announcement of the iPhone, which heralded the age of the mobile Internet. The second, precipitated by a genuine desire to bridge the digital divide between the first and third worlds, markedly drove down the cost of computing and heralded two new classes of computing device: the netbook and the smartbook.

The two computing devices are entirely different creatures. The netbook is the product of the traditional PC business, caught unawares when a social experiment got terribly out of hand: an experiment to create a low-cost product for the third world and somehow prevent it from being purchased by the first world. The smartbook is the result of the social networking explosion on the web spurred on by the iPhone creating a web application epidemic.

The netbook came out of the “One Laptop Per Child” initiative that Nicholas Negroponte, started while head of the MIT Media Lab. The program was a noble, well-meaning effort to provide a computer to every child in the third world: roughly a half a billion for an unachievable price of $100 each. That meant open source software and the lowest cost silicon—Linux instead of Microsoft, AMD instead of Intel. The nonprofit organization Negroponte formed, One Laptop per Child, to distribute the PC, shipped its first product the XO-1 at twice the target price: $199. Quanta Computer Inc. based in Tao Yuan Shien, Taiwan manufactured the unit with production stumbling along in fits and starts beginning in November 2007.

Quanta also announced plan to build a version of the laptop for the commercial market, something Asus International also had in mind with its Eee PC, which Asus showcased in two versions at Computex in June 2007. (Negroponte’s hardware and software reference design was well known and easily duplicated using an Intel CPU instead of the AMD unit.) The Asus offering initially contained a Celeron M mobile processor. Asus has since shifted to the Atom CPU, which is the main engine in nearly every netbook currently on the market as is Windows Vista—Microsoft couldn’t be shut out of a major class of portable computing platform. (Search “netbook” on net retailer’s tigerdirect.com and every unit displayed will feature Intel Atom and Windows Vista.)

The price tag on the Eee PC when it shipped in September 2007 ran $349—nearly twice the price of an XO-1 but still pretty inexpensive for a web browsing PC. Needless to say, Asus had plenty of orders to fill when production began. A rush of competitors hurriedly jumped on the bandwagon and the rest is history. The low-cost PC intended for the third world had jumped into the first.

Meanwhile, Intel shut out of the OLPC project in a disagreement with the organization set about building a comparable unit called the Classmate PC. In August this year, CTL Corp. of Portland, OR introduced its 2Go version of the Intel design priced at $399. The design is sold under other brands worldwide. Intel wanted the hearts and minds of the next generation of computer users. Building brand awareness and familiarity in school ensures loyal customers later in life.

As to which has come out the winner, the OLPC organization estimates around 750,000 XO laptops installed worldwide through March this year. Intel says it has shipped 700,000 Classmate PC's in 2008 alone and predicts it will sell over two million Classmate PCs in 2009. Capitalism triumphs over socialism but at a cost. Negroponte’s social experiment had the consequence of lowering computing cost for both the first and third. The average selling price for netbooks today is around $350, according to Taipei-based tech publication, Digitimes. The ASP for a notebook at the start of this year had been pushed down to around $795 according to Port Washington, NY-based market research firm NPD. And the lower priced netbooks are eating into notebook sales.

Figures from market research firm DisplaySearch shows netbooks represent 22 percent of the portable computer shipments the second quarter this year, up from 6 percent in the second quarter of last year. One reason for the popularity of netbooks could be the economy; consumers are opting for the lower priced computer while corporate buyers prefer to hold off replacing laptops until a better economic climate arrives. By then Intel and Microsoft and PC hardware OEMs can return to business as usual. Right? Not if Cambridge UK-based, ARM Ltd and Sunnyvale, CA-based Google and their allies have their way.

The advent of the low-cost netbook almost coincided with the arrival of the iPhone in June 2007 and the birth of the web browsing smart phone. The proliferation of web applications that followed the iPhone introduction cried out for a platform with a larger multi-touch, touch-screen display and keyboard. Enter the smartbook, which is an ARM-based smart phone in a PC enclosure. It runs Linux, Android, or eventually Chrome not a Microsoft OS—all but Win CE having not been ported to the ARM processor. However, the version now being showed doesn’t pose much of a threat. The platform that will challenge the Intel-Microsoft dominion is the +1 GHz-ARM-9 Cortex running the Google Chrome operating system expected out mid-2010.

Smart phone users wanting the web-friendly experience they have come to expect will now find it on a smartbook: instant on, day-long battery life, multi-touch touch-screen display, immediate access to social networking sites like YouTube, MySpace, Facebook, Linkedin, SMS, and a full up Qwerty keyboard all with a price tag much lower than a netbook. To be fair, network service providers will subsidize that lower price. And the subsidy will apply to netbooks and smartbooks, but the user experience will favor the latter over the former. The remaining questions are will the netbook close the user experience gap by the time the killer ARM-Google platform rolls out and will the ARM-Google solution deliver a compelling enough reason to switch.

Regardless of the outcome of the struggle between the Intel-Microsoft and ARM-Google camps, the bottom line is that hardware prices will be reduced. Scottsdale, AZ-based market research firm, In-Stat has suggested that pressure from some of the ARM chip vendors may push Intel to further lower prices on some of their computing devices in the future. That reduction will come from fiercely competitive market share battles in the growth regions of China, India, and South America—where price is a major concern. It will also come from competition for buyers in the U.S. and Asia Pacific. The high-tech world is changing quarter to quarter and the netbook-smartbook evolution is accelerating the process.

Fixing problems plaguing media-intensive, web-browsing mobile handsets

There are about 4 billion mobile devices in the world today, said Len Lauer, of which about 830 million are 3G today, but the vast majority of the remainder will be migrating to 3G in the next five to seven years. The COO of Qualcomm was speaking with Stacey Higgenbotham a staff writer with GigaOM during the Mobilize 09 conference held in San Francisco on Thursday September 10th defending the position that there’s plenty of life left in 3G now that 4G has begun to appear in the market. I was a fly on the wall listening to their conversation over the Internet thanks to LiveStream.com.

As with previous wireless technology transitions, 4G handsets will be a multimode devices switching from 4G to 3G when outside a 4G service area, which for the near future will be limited to dense metropolitan areas such as LA, New York, London, Paris, Mumbai… Lauer referred to the CTO of Verizon Wireless, Tony Malone, speculating that 3G networks would be carrying voice for the next decade. The major difference between wireless generations is in the bandwidth provided users: from 56 kbit/s up to 114 kbit/s for the previous generation 2G networks, up to 348 kbit/s to 7 Mbit/s for 3G depending on whether the handset was mobile or stationary, respectively. Next generation 4G will see bandwidths of 100 Mbit/s for mobile operation and 1 Gbit/s for stationary. These 4G data rates will certainly be required if social networking users begin capturing and sharing HD video and still images on their favorite on-line community.

However, bandwidth expansion is not a well-ordered process, more a series of fits and starts as the troubles plaguing AT&T in the wake of the new iPhone 3GS launch attests: dropped calls, extremely slow connections and a generally unpleasant experience. This contradicts the incredible, amazing, awesome… experience touted at the Apple rollout. Today the problem exists in the backhaul, the link between the cell tower and the wireless carrier’s network core, which routes the call to its final destination. AT&T needs to invest in boosting its backhaul capacity and it’s investing elsewhere—increasing the number of cell sites, etc.—to the chagrin of Apple.

And you can kind of understand AT&T’s behavior. The Smart Phone represents only 15 percent of the total market and contrary to the popular notion, a good many iPhones are being brought by the well-heeled consumer that can afford the acquisition cost as well as the $100/month subscription. According to the Wireless Association CTIA, there were 270 million wireless subscribers in the U.S. at the end of last year and 85 percent of this total, 229 million subscribers, are also demanding service providers’ attention.

What’s the problem with wireless carrier backhaul? As bandwidth speeds on cellular networks increase and packet-based mobile services attract more users, traffic growth is making traditional backhaul network designs unmanageable. To accommodate 3G build-outs, service providers are reengineering the mobile backhaul infrastructure using Carrier Ethernet technologies. The problem with Ethernet has been that packet delivery was non-deterministic. If the network got overloaded packets could be dropped, something voice packet cannot tolerate.

The problem is now being addressed with Ethernet IEEE 1588 Precision Time Protocol (PTP) and Synchronous Ethernet ITU G.8261, two standards that make Ethernet packet delivery more deterministic. Used together, the two achieve a high level of frequency synchronization a common defined time. Realistic studies in large-scale deployment scenarios indicate an accuracy of 50 ns—more than sufficient to ensure voice packets are delivered as effectively as the existing circuit switch delivery used today.

Still the technology may be available, but the will to implement lies with the service provider. Their concern as Lauer points out is getting a sufficient return to justify the investment. Lauer observes that for the service providers to reach a larger subscriber base, they have to reduce monthly access costs, while making larger infrastructure investments. It’ll be interesting to see how they solve the problem.

A short history of consumer driven technology development

We’re in the midst of yet another evolution in communications. This one is the social networking transformation in which mobile devices are not merely used for voice and E–mail but now Internet terminals for the many social networks we all belong to. It’s yet another example of an activity that began on our desktop and notebook PCs that have migrated over to our handsets, just as text messaging and e-mail did before. And as with every disruptive social phenomenon, those trying to serve this fast moving trend have been caught unawares and are trying desperately to catch up.

In the early part of this decade, users in the 100s of millions outside the U.S.—Asia, the Pacific Rim, and Europe—began to use instant text messaging as a lower cost alternative to voice. The carriers supplied this data service in the spectrum unused for voice calls, which cost them next to nothing and for which they reaped large profits. Instant and short text messaging became its own social phenomenon, with a use model unique from voice and e-mail. The messages were likened to whispering in someone ear—especially during meetings or when you didn’t want anyone but the recipient to know what was being said. In The Philippines text-messaging, citizens-organized daily protests resulted in the ouster of Philippine President Joseph Ejercito Estrada in 2001.

While instant text messaging continued building a following in the U.S., Internet-base social networking on a PC started taking off in early 2004 with the debut of MySpace. Membership went from zero to a million users from January to February of that year and the numbers kept rising from there. Social networkers were now hanging out on MySpace with their PC, talking on their cell phone and/or texting on their cell phone. Cellular service providers in the U.S. were oblivious of the trend. They continued making it more expensive to text than talk, while in the rest of the world service providers did the opposite. Is there any wonder European cellphone users were texting more than twice as much as U.S. users (according to Forrester Research reporting in 2005)?

By mid century, U.S. service providers finally realized that data service was a viable business model. In 2005, CTIA-The Wireless Association, cited an installed base of 190 million cell phones and 90 percent could send text messages and 60 percent of those texting were aged 18 to 27. (A great many of the texters were voting for their favorites on “American Idol.”) By this time, too, the Blackberry demonstrated to telephone service providers that there was a business providing e-mail access via a mobile handset for enterprise users. But, who would want to surf the web with a mobile handset?

In January 2007, with the advent of the iPhone, the notion of providing total Internet browsing on a handset took hold. The idea wasn’t entirely foreign to service providers as they had dabbled with the notion by supplying radios you could plug into your laptop and access the Internet over the cellular infrastructure. And the Blackberry could be pressed into surfing duties, but the experience was painful and cumbersome. However, service providers had no idea of what it was going to take to keep up with millions of iPhone users accessing and moving large media files around the 3G network, something they are now reluctantly coming to terms with.

It took a year but the rest of the smart phone vendors with the service providers excluded from carrying iPhones finally caught on to how to provide web browsing and similar handset functionality—a compelling user experience. This is where service providers find themselves today, facing growing numbers of smart phone users disenchanted with the slow response from the web. And it’s only going to get worse as Apple is no doubt on the verge of introducing an iPhone with full 1080p HD video capture and playback, 20-megapixel still image capture, and no doubt higher fidelity audio capture and playback.

For wireless service providers the once the wireless spectrum is completely utilized, there is nowhere to go except to offload traffic onto the wired infrastructure. The handsets and wireless infrastructure will have to contain increased intelligence to route wireless connections so as to preserve bandwidth while still providing a responsive experience to the user. It’s conceivable that, like toll lanes on congested highways, wireless service providers will begin charging a toll for a faster browsing experience. Those unwilling to pay will be subject to operating speeds that will begin to resemble dial-up 64 kbits/s or less as large numbers of users flood the system during prime usage time.

The more things change the more they stay the same.

Augmented Reality, Do I Want to Join in?

I’ve been interested in the next big enablers of the mobile Internet and I keep reading that they are likely to be LTE—the 4G wireless replacement for 3G and location technologies—augmented reality (much more intriguing). LTE is simply next generation technology replacing the previous and we can take that as a given. Everything will run faster; you’ll be able to move large files around quicker, etc.

Augmented reality, on the other hand, suggests something unique. According to Wikipedia, AR is a “real direct or indirect view of a physical real-world environment whose elements are merged with, or augmented by, virtual computer-generated imagery.” Your phone knows where you are using its on-board GPS and by accessing Google maps, it can determine what’s around you and can—with a touch-enabled screen—tell you about what’s around you.

I connected the term, which I heard today, with the Apple iPhone 3GS ad "Travel" in which the voice over asked if you want your own personal tour of Paris and declares “there’s an app for that” at which time the iPhone articulates “you’re standing at the center of Paris…” with a picture on the iPhone of the front of Notre Dame and the legend below “Point Zero & Notre Dame.” The iPhone app has a series of sites installed which pops up when the phone comes within range of the landmark (using its onboard GPS location finder) and voila!

I get the impression that the ultimate realization of AR will be a phone that is tied into a cloud-resident data base of all landmarks—not a preselected few a free app on the iPhone can store away. With the right app on your portable device, you will be able to ask the phone about anything you’re in the vicinity of—natural or man made—and it will give you all the relevant facts.

The reason AR will be successful is because of the enormous commercial potential the technology affords. The system that knows the exact location of Notre Dame in Paris will also know the location of nearby coffee shops, restaurants, and every other commercial establishment. Furthermore, the software that can tell you about the world around you is also cleverly evaluating you to determine whether to present you an offer for 10 percent off on a Latte from a nearby merchant or a special deal on a French author the software has determined you might like.

The great problem of becoming an integral part of an AR is that you’re being marketed to by the behavior you exhibit in the augmented reality. And the phone is the device that’s enabling it to happen. The device has not become big brother yet. All it currently has is GPS—the network knows where you are at all times (ironically, the average honest citizen is better monitored than nearly every parolee from a correctional institution), a compass—so the network knows which way you’re going, and an accelerometer which could detect if you’re moving or stationary. In the future, the plan is to attach biometric monitors—great for detecting medical emergencies, but wonderful for marketing to you if your blood sugar is low and you need a sugar fix—the patisserie is offering croissants at 10 percent discount with coffee purchase.

I begin to feel as if I’m part of a closed loop feedback system in which I respond to stimuli that are then readjusted to achieve some kind of behavior in me. The Stimuli are marketing incentives and the response from me is the purchase of a good. Great, I’ve become an element in a machine works that’s designed to endlessly cycle virtual coinage.

Presenting our lives for the social graph to view in full 1080p HD

I’ve had a chance to read through a number of articles this Labor Day Weekend on the next generation of smart phones. I’ve been struck by the innovation that chip suppliers and mobile handset makers are cramming into these small portable devices. All this innovation aims to serve users increasingly employing handset as a terminal into the “social graph.” I love the term social graph as it connotes a collective consciousness: what all the connections on all the on-line social networks have become.

And what are we putting into our on-line social networks: pictures, video, audio, and lots of text. These multimedia and text files provide tangible evidence of the significant as well as trivial moments of our lives: reminding ourselves as well as our connections of that trip to London, Paris, Taipei…; the birth of our first, second,… child; the Duran Duran, Grateful Dead,… concert…; the minutes and seconds of our lives.

Up until the first decade of the 21st Century, most of these memories resided in our mind, on paper, or stored away in boxes of photographs, 8-mm film, or VHS cassettes and DAT tape. Now, all of that emotional memorabilia has found a home in the social graph, stored away for as long as we keep our accounts active and available for others to view.

What’s making all this possible is the continuing availability of low cost silicon. This eighth most common element in the universe by mass, a tetravalent metalloid with the symbol Si, atomic number 14, and atomic mass 28.0855, has become to the information age what coal was to the industrial revolution. For the social networker silicon is providing the continuous improvement in the fidelity of these captured moments.

Texas Instruments’ new OMAP chip is promising to allow HD quality image and video capture and playback. The specs call for 20-megapixel photographs and 1080p HD video capture in handheld smart phone. How incredible is that! You will be able to capture an unheard of amount of visual detail to share with your connections. Though the images and moving pictures will only be as good as the eye that captures them, the detail will be there in every frame.

What’s propelling the continuing drive to electronically capture and share these transient moments? Are we all modern day Robinson Crusoe’s stranded on planet earth and needing the affirmation of our man Friday that our lives are meaningful, that what we do is contributing to some collective good for the world around us, and—most important of all—that we’re not alone in our small part of the infinitesimal huge universe?

Or maybe we just need to hangout and brag about what we've done.

Viral Marketing through Social Media

A couple weeks ago, I received a call from NZ, a serial entrepreneur I met a while back when I was an editor and he was a marketing exec at a high tech company. He was now teaching a class for the women 2.0 organization, which moves from venue to venue. This event was held in an office building on University near Alma in Palo Alto. NZ asked me to present 12 to 14 slides on leveraging social networking for marketing.

I had some free time and was already digging into the new phenomenon. I had been on LinkedIn for several years, pestering all the people I had met during my years in technical journalism to link in with me. Not only did it get me back in touch with long lost contacts, it also showed the power of all these connections, one being NZ. I also had a blog begun back in Autumn 2004, but I had not leveraged Twitter to help drive readership. I was also active on YouTube having posted some 30 odd videos. However, I was simply experimenting with a phenomenon.

I was now being asked to explain to a group of aspiring entrepreneurs how to leverage this social networking to make money. Where do I begin? In the world of on-line marketing, everything begins with a web site, the storefront where you meet your customers. Building a web site is pretty standard faire and I couldn’t add much to what was common knowledge.

Then it struck me. What modern marketing is all about is telling a story, the same story over and over adding unique twist with each telling. The most obvious example is the BMW-produced short videos starring Clive Owen in some clever plot twist aimed at convincing the viewer that BMW is “the Ultimate Driving Machine.”

The entire marketing effort at BMW from their commercials showing the construction of vehicles, to BMWs’ roles in movies like the James Bond series and more recently “Shoot ‘em Up,” keeps telling the story. As evidence of their success, the “BMW, The Ultimate Driving Machine” Facebook page has 30,873 fans, presumably owners or those aspiring to be.

How does an upstart entrepreneur tell their story with no money? For the short presentation to the Women 2.0 audience, I suggested finding an idea related to their business that goes viral. It’s a concept described in “The Tipping Point: How Little Things Can Make a Big Difference,” a book by Malcolm Gladwell. It’s what BMW and every major brand has spent $billions over time producing.

For my example, I suggested a wedding planner business started by a couple, Jill and Kevin. I suggested that J&K might create a website called J&K Weddings. To promote their business they might plan their own wedding, film it and put it on YouTube with their company name and website on the ending credits. To make the video compelling they might do a different walk down the aisle to the alter.

The result might look like the YouTube video JK Wedding Entrance Dance (http://www.youtube.com/watch?v=4-94JhLEiN0), which has garnered, nearly 23 million views in the month it’s been posted and still growing. Whatever business Jill and Kevin were in, it could have leveraged their viral YouTube video and the resulting mainstream publicity (appearance on “Good Morning America” and the Today Show (http://www.youtube.com/watch?v=Xd79E6I5CV4).

I wonder if the idea took hold in any of those in the audience. I keep checking the hot new videos on YouTube just in case.

What’s fueling the explosion of receiver/transmitters in cell phones?

The average smartphone today has a number of radios to serve all the communications functions being crammed onboard this compact portable device. To start, there’s the 3G or CDMA transceiver. Next, comes Bluetooth, the second most pervasive transceiver in today’s handset, according to Scottsdale, Arizona market research firm In-Stat. After Bluetooth, WiFi is the next most prevalent receiver. Finally, the GPS receiver is the last of the radios found on these devices, though more are planned. They include NFC (near field communication) and RFID. The former is typically used on application like automatic toll taking and the latter for tagging merchandise or automotive keyless entry. NFC is the technology associated with electronic money—paying for fast food or favorite café latte. With such a large number of radios, the average smartphone is beginning to look like a miniature microwave antenna farm.

Bluetooth was intended initially as a personal area network for moving voice and data very short distances. However, with the advent of large multimedia files, Bluetooth is being pushed—Bluetooth 3.0—into higher data rates to accommodate video and picture sharing phone to phone or phone to consumer device or PC. While Bluetooth has been pushing up in speed, WiFi—initially added to handsets to allow Internet browsing at local hotspots is being offered as the natural means of transferring multimedia files. WiFi is being pushed with the latest version—802.11N—to achieve data rate from 54 Mbit/s to a maximum of 600 Mbit/s. “Wi-Fi's penetration into handsets has more momentum than the bad economy,” says industry analyst Michael Morgan with Oyster Bay, NY-based ABI Research. "This year WiFi is on track to see 144 million handsets shipped, with forecasts for 2011 at just over 300 million."

Look for GPS to be the next radio to begin receiving from the average smartphone, thanks to national legislation that requires phones transmit their position for emergency response teams. Boston, Mass. Market research firm Strategy Analytics reckons “global GPS penetration of total handset shipments reached 15% worldwide in 2008 and is expected to reach 21% by the end of 2009. “ Fuelled by the Oct-07 acquisition of NavTeq, Nokia GPS enabled smartphones dominate the global market. But with increasing interest in navigation and mapping apps, Research in Motion and, particularly Apple, are closing in on Nokia's lead.

Which of the other radios possible on a cellphone will experience similar explosive growth is anyone’s guess, but one is sure to emerge.