Oh no, not more on the future of publishing

• In 2009, 5 million e-readers had been sold worldwide.
• In 2008, Amazon sold 1 m Kindles.
• In the US, 50 million adults pay an average of $16 a month to get a daily newspaper delivered.
• According to the Magazine Publishers Association 174.5m subscribed to magazines in 1970; by       2008 that number had risen to 324.8m.
• US magazine advertising revenues fell 26% in 2009 alone.
• When Kindle buys a newspaper or magazine e-book the publisher gets just 30% of the revenue.
• According to the latest issue of Wired magazine, this year 60 tablet and e-reading devices will be launched.
• “Where is the knowledge we have lost in information” TS Eliot.


At the end of 2009, there were 1.7bn internet connections in the world. An increasing proportion of internet access will come from mobile phones and other handheld devices. In a matter of two or three years, more than 3bn people come on line; within five, perhaps within three years, half the planet will be on line. By the end of the present decade, the majority of the planet will be connected to the internet. The number of people who feel swamped by digital data will increase. More of us are going to feel distracted, restless and unable to cope. Evolution has not equipped us to live in this way.

The human mind is the real bandwidth bottleneck that is choking internet access. As we saw last week, human conscious band width averages around 40 bits a second, which equates to one millionth of the data flowing into our conscious minds. The limitation of human bandwidth has profound consequences, both for our mental health, and also for the development of society.Any reader who wants to examine this further should start with the classic study, The User Illusion , which was published in 1999.

Apple, Google, Facebook and Twitter, are examples of companies that have cracked the human bandwidth problem. In other words, they have pulled off the most difficult engineering trick of all; they have buried complexity behind a facade of simplicity. This is the task now facing Asia’s hardware giants, such as Samsung. It is also the problem facing the global media industry.  People will not pay for content that they do not have the time to find or read.

An Age of Distraction
The signs are that with the help of Apple, media companies might be on the point of mastering the human bandwidth problem as well. Several weeks ago, we gave a link for a concept electronic magazine made by Bonnier, the Swedish media giant. Sports Illustrated, has also developed a exciting concept for an electronic magazine, which can be seen on Youtube. Finally, it seems the penny might have dropped: print media has to find a way to use new devices, like the iTab to compete with video, TV, computer games and social networking.

 This is what Bonnier’s Sara Ohrvall said of the concept magazine in an interview with Wired :  “People become more ‘rootless’ in their media behaviour. They consume media in places where they just happen to end up. This leaves consumers uncertain about whether they have read/listened to/viewed what’s relevant for them, or not.”

Ohrvall went on to explain that the fundamental problem is the absence of ‘closure’ in most experiences that people have with digital media.  On the web you always “link somewhere else; the story never ends. No sense of completion. For us, it was clear that there was something missing. We realised there must be other ways to tell a story in digital media, apart from millions of lookalike sites on the web.”

The touch screen interface of a device like the iPad is fundamental to what Ms Ohrvall is describing. Instead of viewing a crowded web page that is full of distractions in the form of ads and other links, the iPad allows the publisher to present a high quality graphic image, which the subscriber can then manipulate and navigate in an intuitive way. In other words, designers are grasping that they need to give their electronic readers a more complete, more immersive experience. As Ms Ohrvall explains, readers need a sense of closure and completion.

I would refer the reader to a fascinating book that scientifically examines the process of reading. Called Proust and the Squid, by Professor Maryanne Wolf, the book examines how reading leads to a rewiring of the human brain. Wolf’s central contention is that reading is not a natural act, it requires thousands of hours of training, which results in physically changing patterns of brain behaviour, which can be measured by scientific instruments. There is plentiful research that demonstrates that when we give our full attention to reading - remember how small human bandwidth is - we become less stressful because, quite literally, we are giving our brains a work out. In other words, instead of being focused purely on the conscious brain, literature works because it engages with memories and feelings that are not housed in the conscious mind. This is why a good book, a poem, or an interesting essay, really gets more neurones firing. Readers have richer mental lives than people who do most of their reading on a computer screen, hopping from blog, to web site to chat site; reading is brain food.

Conclusion
Since the foundation of Cyke our main area of focus has been the development of the mobile internet. We were among the first to highlight that the smartphone was the main product event in tech, while most were focusing on the PC upgrade cycle. As the world becomes populated by smart-phones and other handheld devices, such as `Apple’s forthcoming iPad, the very nature of the internet itself will change. It will be carved into empires, such as the Google, or the Apple empire.To sustain these empires content and applications are the key. Hardware innovation is becoming less important  in an age when people want to interact with other groups of people and experience applications and content, both socially and privately. We call this change the Fourth Wave, or the Smart Paradigm. In Asia the Smart Paradigm benefits Baidu, Shanda, NC Soft and Tencent more than it does Samsung, LG Electronics or Lenovo, in Asia.

As we suggested above, the trial facing hardware companies is to hide complexity behind simplicity. This is the most difficult task an engineering based company can face. The mastering of this skill was why Apple could, as an outsider,  invade the mobile phone industry and change it root and branch. RIM did it and now Google is trying. Notice that not one  and intuition that comes from being completely immersed in internet culture. No mobile handset maker or operator has yet managed to replicate this skill.

We cannot be certain, but it is probable that we are emerging from a period of transition. To sell devices and control their empires, Google, Facebook and Apple need content and applications because that is how you lock individuals to your service and product. We have arrived at a point where the technology exists that can make reading on an electronic device an immersive, rewarding experience. We also now have payment mechanisms, such as iTunes, which easily enable consumers to buy on-line. What is not yet known is whether media companies have the skills to capitalise on these developments? What we can be more certain of is that we as humans need to be able to read, there has to be more to life than endless digital distraction.

Interesting Links

The Future of News Media

The Apple iPad will probably change the face of traditional print media. With stocks like News International on single digit PEs, having just increased the earnings forecasts, it is time to examine the future of media. Just as telco operators are beginning to show signs of life, there are some signs that old style media might have a future. Here is a debate between Arianne Huffington and Axel Springer’s ceo. Now watch the Facebook mobile strategy video below.

Sensational demonstration on why you will pay for content

Wired magazine gives a demonstration on how the iPad will lead to great magazines and content that we will pay for.

Russia

Here is a video discussion with Nassim Taleb, Marc Faber and Hugh Hendry about where and in what to invest.  The panel session takes place in Russia; when you click on the link make sure you hit the English button, otherwise you’ll hear it in Russian. Hugh Hendry sounds like Scott Fitzgerald in the Crack Up, or a foot note from one of Nietzsche’s minor works. Someone should tell him to loosen-up; this is investment, not a Satanic struggle. As for investing in Russia itself, which one delegate argues for, it might worth remembering what Chekov said: Russia is an enormous plain across which wander mischievous men. I would also recommend that any potential investor read, The Oligarchs by David Hoffman, and Black Earth by Andrew Meier anything by Anna Politiskaya, and listen closely to people like Bill Browder and George Soros, both of whom know the market intimately.

Big Ideas in Biology

This is a video lecture of Sir Paul Nurse, speaking at the Royal Society earlier this week about the biggest ideas of biology. Nurse, a leading geneticist, has won a Nobel prize, explains that the most recent Big Idea is cells are highly complex systems built of networks that carry out the processing of information. The implications of this are not encouraging for drug discovery and the curing of disease because Nurse suggests we do not yet have the tools to unravel these systems.  I attended this lecture and   bumped in to both Mike Lynch (Autonomy) and David Potter (founder of Psion, the company that originated the Symbian mobile phone operating system). They, like other IT people, grasp the use of powerful computing systems is one of the ways that we will better grasp the inner workings of cells.

Mark Gerstenharber

CNBC interview with Mark Gerstenharber, former right hand man of Julian Robertson and now head of a hedge fund called Argonaut. He has some interesting things to say on Greece and the lack of jobs and consumer demand in the US economy. Growth will be hard to come by, which backs up our notion that the right areas of tech will outperform.

Facebook's mobile strategy

Here is a 16 minute video presentation given by a senior Facebook executive outlining the company’s mobile strategy. This is the big year for mobile content, as this video underscores. One interesting nugget, Facebook believes that mobile users are more engaged with the service than those on a desk top. For ‘engaged’ read more like to pay for stuff.

A new era for advertising

This link takes you through to a short video presentation by a senior executive from Facebook. He explains all about Facebook Connect, which could become a very important development for media companies and their hopes of getting paid. Very interesitng.

Paul Krugman

A video of a presentation just given to MIT by Paul Krugman.  One point he highlights is that it is still too early to end the fiscal stimulus. Sober and provocative.

Stem Cells and Aging

An interesting report from the frontiers of medical research. In some cases stemcells might be able to reverse premature aging.

Republican renaissance

This comes from the American Thinker and focuses on the resurgence of Republican fortunes. This is likely to be a bad year for Democrats.

Cyber attacks

Fascinating news story abour a cyber attack that has affected 75,000 computers.

That supreme court ruling

Ronald Dworkin, a noted US legal expert, examines the bizarre and dangerous decision of by the US Supreme Court to allow companies and pressure groups to make political donations. Against the opposition of their four colleagues, five right-wing Supreme Court justices have now guaranteed that big corporations can spend unlimited funds on political advertising in any political election.

Apple and Facebook Equal Content's New Golden Age

Without bandwidth everything sucks. But the big bandwidth problem is not the speed of your ADSL or your 3G connection. The bandwidth of human consciousness is the real bottleneck that slows internet access. Anyone who cracks this has a chance to be rich and  powerful like Steve Jobs, Mark Zuckerberg, Page & Brin or Rupert Murdoch 

The human bandwidth problem has googlesque implications for the sale of content and applications on the internet. One of the best surveys of the problem can be found in The User Illusion. 

We are only consciously aware of about one millionth of the data flooding into our subconscious minds from our senses. Apple, Google and Facebook grasped the issue of human bandwidth better than any other companies. Their success might lead to a golden age for media companies like New Corp. That's the good news. The bad news is it might lead to the balkinization of the internet.  The human bandwidth problem is easy to describe but close to impossible to solve. Apple cracked it, which is why the iPhone is so successful. Google cracked it too, which is why it is the dominant internet company.  

When you're sat at a desktop you have the time to doodle around the internet. You don’t have that time when you use a smart phone or an iPad. This year, according to Ericsson, most access to the internet will come from  mobile devices. Over the coming two to three years the number of users on the internet is likely to increase from 1.7bn users to close to 3 billion - nearly half the population of the world. The masses will not be able to use smartphones and other handheld devices unless designers crack the human bandwidth problem. Make access easy and quick. This will change the nature of the internet. 

The Future

The future of the Web is all around us. It is Facebook, and Facebook Connect; it is Twitter; it is the Apps Store and maybe it's Google Buzz. It probably isn’t Google Wave because this service requires too much time to master, it is aimed at Geeks.  The successful applications make life easier and more convenient in a way that Google search did for the desktop. Facebook Connect allows us to use our friends and contact group to filter our content. That is the neatest way of working with our bandwidth limitations. This method also allows Facebook to learn more about us so that it can better target content, services and ads. Better targeting is good for our limited conscious bandwidth.  

This could mean that content companies will find it easier to get paid. First off, there is likely to be a bidding war for good content as the world fills up with mobile devices.  When the iPad launched Macmillan books were pulled off Amazon's web site because the two companies couldn't agree a price for e-books. Instead, Macmillan did a deal with Apple. A day or so later Amazon relented and paid Macmillan more. This, I think, will become the sign of the times. There will be more bidders for content as the Android fiefdom, the Facebook fiefdom and  the Apple fiefdom - just to name a few- need content to keep their customers satisfied.

And what of those customers? You can still get free music and TV problems on the internet so why bother with iTunes? The reason we do is that these services make it easy to download and pay for content. We trust the service and know that we aren't breaking the law. 

Apple has a payment platform that works. The iPad will see the company expand this to other forms of content, such as newspapers, magazine subscriptions and books. This means that News Corp and content providers have a platform on which they can reach an enormous audience. In a world of specialist devices, like e-readers, iPads and smart-phones, it will be easier to get paid than in a world dominated by PCs. There is evidence that consumers find it easier to use a phone to pay for something than they do a computer.

From an investment point of view it's time to look at content again. As the internet becomes more dominated by fiefdoms, controlled by Apple, Google, Amazon, Facebook or someone else content is likely to become more valuable. Apple’s attempt to win Macmillan from Amazon is therefore a sign of the times. Some of the world's biggest media companies are selling on single digit PEs, have just increased earnings and are unloved. They also have good yields and global franchises. 

The flip side of all this is that the Web is going to become more corporate. Each of us is going to have to make a Satanic bargain - ease of use and richness of user experience in return for a lack of privacy and freedom. Are you prepared to make that bargain?

When it comes to Google and China it pays to be paranoid

There is a real risk that the clash between Google and the Chinese authorities mutates into a trade war. Secretary of State Hilary Clinton's statement yesterday has cranked up the temperature. It is difficult to police the internet successfully, but it is an easy task compared to  threats that come from microchips and communications systems that may have been tampered with.

In 1982, a three-kiloton explosion blew apart a natural gas pipeline in Siberia. The explosion was visible from outer space. Two decades later a leading US journalist, quoting senior secret service sources, revealed that what had taken place was a cunning plan that had been perpetrated by American security forces. The Man From Uncle had sprinkled  faulty chips and software throughout the Soviet supply chain. At a designated time they blew apart and destroyed a large part of the Soviet Union’s gas supply.  Nice work.

In September 2007,  Israel launched a successful bombing raid against  a suspected nuclear facility in Syria. Israeli planes were able to cross Syria’s borders and attack because agents had already planted a ‘kill switch’ that remotely turned off surveillance software. News of this attack was first reported in IEEE Spectrum, the respected trade magazine for electronics engineers. Over the last few days, India reported that just before Christmas it detected the first cyber attack on government computers originating from China. Last July 4th, US and South Korean government computers were put out of action following cyber attacks that again originated in China. 

As both the Israeli and Russian examples show that lethal attacks not only come from the internet, or faulty software. The real danger might come from imported chips and electronic systems. If we are looking for the cause of the next trade trade war, high tech is likely to be at the heart of it. 

Trojan Horses

Today’s integrated circuits can have 1 billion transistors, a number that will double every 18 months. To put this in context, at the rate of one transistor a second it would take 75 years for a person to check a pair of chips.  A typical cell phone has several hundred million transistors, making them difficult to check for faults. Last year about 200m smart-phones, such as the iPhone and Blackberry, were shipped. This year the number will approach 300m.  

These devices are powerful computers, but with the added twist that they are linked to the mobile phone network. Even at today’s level of sophistication it is difficult to check these devices for Trojan Horse circuits. Within  a couple of years it will be common for smartphones to have a billion or more transistors. Any foreign power hacking into the phone network has the opportunity to gain information about the time and place of individuals. It would also be possible to gain information about who that individual met and communicated with. As such, smart phones take the opportunity for information gathering and for causing havoc to a new level.

According to an essay penned by General Wesley K. Clark and Peter L. Levin, in the respected Foreign Affairs Magazine, in January 2008  the FBI reported  that 3,600 counterfeit Cisco network components were discovered inside US defence and power systems. The authors claim that as many as five per cent of chips are counterfeit.  Now ask yourself, where are most of these devices made? Those that are not made in China are often made in Taiwan. Now, imagine the potential problems we would have if Taiwan became part of the PRC. 

America says it wants to build a Smart Grid. Such a grid would be built using internet standards and use advanced IT systems. Sounds great in theory, but I hope they are able to check all parts and software because if not, the country is leaving itself wide open to attack. It's time to apply Andy Grove's dictum to politics and international affairs: only the paranoid survive.

Sipping a can of Dead Bull

Google's Andy Rubin has been talking to the Wall Street Journal's Walter Mossberg about the new Nexus smartphone. Apparently, Google is planning to open some retail stores to sell the Nexus direct. 

Get the picture? First,  Google launches the Android platform and encourages the world's mobile companies to support it. Good thinking, that way you raise brand awareness and suck in legions of developers. Without developers the Android has as much fizz as a can of Dead Bull - which by all accounts is the favourite tipple of portfolio managers these days.

Then, as momentum builds you do what you were always planning to do anyway. Knee cap your customers by launching your own handset. None of this should come as a surprise. There has been a lot of hot air expended on the subject of smart phones. But one thing should, by now be clear. The Apple way - which is to be vertically integrated so you can control the product like a crazed control freak is the best way.

Microsoft might like to sing the old tune about horizontal value chains and how that worked best in the PC space. It is whistling in the wind. The smartphone is an embedded device, the PC by contrast is a generic device. A generic device is open, you can do with it what you will with it. You can run any software you want on a generic device. That's not the case with smartphones. You and I cannot take the lid off and write our own code. Instead, we have to get it from a registered supplier. Therefore, Apples plays the role of gate keeper in a way that Microsoft never could in the PC world.

The Apps Store has become the game changer. Just the other day LG Electronics' CEO said that the company was in a state of panic.   Finally, the penny has dropped even in Asia. We are living in the Smart Paradigm: content and applications is the key to hardware sales. Giants like LG and Samsung will thrive or die over the coming years on their ability to replicate the Apps Store. Don't hold your breath though, this is a fiendishly difficult trick to pull off. 

This is what makes Google's play so interesting. An Apps Store is really the marriage of software and content development with social networking. Therefore, the bigger your apps store becomes the less likely it is that a competitor will be able to build a successful one. Apps Stores, like any other networkable entity follow a power law - a tiny number will generate most of the revenue and control the market. Maybe just one or two - besides Google and Apple who are the other challengers? Nokia - possible but unlikely. A mobile operator - no way. 

As a character in the Wire might say - mobile handset industry has been played.

What Freud Would Talk About Today

Turning point, fork in the road, this year will have more than most. Anyone who has studied the history of the mobile phone, the fax and internet penetration knows the importance of the 20% rule. Once  a networked service reaches 20% penetration growth accelerates.

Last year internet penetration went through 20% of the global population. The latest estimates put the number of people connected to the internet at 1.7bn according to Wikipedia.  My company, Cykeparters, estimates that more than 20% of the mobile handsets sold in the US are now smartphones. Globally the number of mobile subscribers on a 3G network recently passed 20%.

This year Qualcomm estimates 3G handset will outsell ordinary mobile handsets for the first time ever. Meanwhile Ericsson forecasts that this is the year that mobile internet connections outnumber fixed line internet connections.

Now this is just awful news for mobile operators because it means one thing - bad publicity.  The reason is that their networks are unable to keep up with all the traffic. Following the launch of Apple's latest iPhone last year, Youtube stated that video uploads from mobile phones rose by over 400%. Weeping and wailing was heard from San Francisco to New York as AT&T's network kept dropping the ball. This Christmas AT&T had a new cell mate in the doghouse. In London the O2 network repeatedly crashed because of iPhone generated traffic.

Things look set to get worse with data hungary devices, such as Google's new Nexus and a posse of Android devices  that are data hungary and come with video cameras. Those people at Apple are of course at it again too . If the rumours are correct, on the 26th January the company will launch the iTablet, or maybe it will be called the iSlate. Either way, the new device looks as though it will be optimised to carry video.

As a result there have been  rumours that Apple is holding talks with a number of video and TV content providers to offer a subscription service similar to iTunes. This makes sense. With 3G penetration and connection speeds rising, and a likely surge in WiFi hotspots  those old distinctions between TV, phones and computers will evaporate. We are moving to a world where every nook and cranny of the economy and environment will be saturated by wireless broadband and video content. We will live in a present saturated by data. One manifestation of this will be the growth in augmented reality. If Apple ever opens its video APIs on the iPhone interest in this technology will surge.

Cisco has estimated that mobile video will dominate network traffic by 2013. Mobile, plus video, plus social networking is a game changer. As Samuel Beckett (following Bishop Berkley) said, to be seen is to be. This plugs in to a very real human need. When Freud was alive repressed sexuality was the  force that shaped the human psyche. Not many people today are sexually repressed; at least not in my neighbourhood. If Freud were alive today my guess is that most of his patients would not be complaining about Oedipus they would be talking instead about Big Brother, Hello Magazine and why they haven't yet made it on to Oprah. Today's citizens have hang-ups about identity not sex.

My hunch therefore is that companies, like Apple and Google and a host of others, such as Arm in the UK, that are linked to mobile video and smartphone theme will continue to surprise us on the upside. The 1970s were a terrible time for the economy but a golden period for tech. The same pattern is likely to be repeated over the next few years.