Trouble in (AAPL) paradise?

Henri Rousseau, Le reve (de Yadwiga?)
Last year my beloved blackberry was stolen... at gunpoint! That was the single most lopsided cost and benefit equation (for all involved) I have ever been a part of in my life... but that's not today's story. The story is, I decided to replace it with a second generation iPhone (with 3G and GPS), which had just come out. I'm not about to write a product review, God knows enough has been written about the iPhone. I'll just sya it's a really cool device.

But there's one aspect that doesn't seem to be talked about at all. A few weeks later I went to Ethiopia, and coincidentally again, I got one of the very first 3G SIM cards in the country. Amazing, the coolest phone and the fastest wireless network, woohoo. Except... there was no crack to unlock the 3G iPhone! So I had to carry two phones, one to make calls, and the iPhone for my address book etc. Second, my MacBook pro doesn't have a modem! And of course, who remembers to take an extra modem with them? Thankfully I had an old IBM Thinkpad, which has a built-in modem, so I could get on the Internet. The point is that the two Apple products I had were unusable in the third world. Whereas their competitors products (IBM and Blackberry in this case) are perfectly usable in those same conditions.

When I came back, a few weeks later, I was given an HTC G1 Android. Again many people have written comparing the two, but the thing that immediately struck me as the most important in comparing the two is a very basic point. The Android doesn't assume you have a computer. Everything is over the air, your contacts, applications, OS updates etc. are all updated/synced wirelessly. Whereas the iPhone requires that you have a computer, and a pretty powerful one at that (it has to be able to run iTunes on Windows or Mac OS X). To use an iPhone, you have to not only buy the phone, you must also already have a $1,000-$2,000 computer at home. If you live in the first world, that's a perfectly valid assumption, no problem. But it means that Apple's total market is a few hundred million people in the first world. This is true of Apple products in general, but is even more true of the iPhone which is a hugely important piece of that company's future. For comparison, Android's market is those people, plus the other 3 billion people in the world who can afford a $200 phone but not a $2,000 computer.

Then few months ago I read a great blog post (unfortunately I can't find the url to link) which argued that because Apple's marketing has been based on "coolness" and "exclusivity", once a device reaches a critical mass of users, the marketing starts defeating itself. Same psychology which limits the lifespan new fashion or of "hip" nightclubs: exclusivity is key to success, and eventually when the B & T crowd can get in, it's no longer cool.

Add to that the phenomenal success of iPhone sales so far, and you can only conclude that pretty soon, it might, just might saturate its potential market, much sooner than you would expect. There's some evidence this is already happening with the iPod. And the iPhone has more formidable competitors and more complicated market dynamics than the iPod.

Recall what happened with personal computers, Apple invented the category and dominated it with a unique approach until the mid 80s. But as the overall market grew from millions to billions of users, they peaked and ended up stuck at well under 5% market share, as cheaper and uglier IBM PC clones took the other 95+%. On the other hand, in the last 10 years, Apple has pulled off several bet-the-farm miracles. Not just the invention of the iPhone, and the iPod, but also two earlier huge gambles: switching from PowerPC to Intel CPUs in the Mac, and switching from the old Mac OS to Unix-based OS-X, both were incredible successes of business and engineering that defied the conventional wisdom completely.

So this is a tricky one. It could go either way. But I'm going to go out and a limb and predict that 2008 was the year of Apple's peak. Short AAPL.


Florida 2000

I was reading Super Crunchers a little while ago. I got to this passage which is one of those things that are deceptively low-key but then make you go WTF? A big WTF?!! Such a big one in fact that I am quoting it here. At the end of a section about data mashing the author adds the following cautionary tale (pp. 138-139):
Yet the art of indirect matching can also be prone to error. Database Technologies (DBT), a company that was ultimately purchased by ChoicePoint, got in a lot of trouble for indirectly identifying felons before the 2000 Florida elections. The state of Florida hired DBT to create a list of potential people to remove from the list of registered voters. DBT matched the database of registered voters to lists of convicted felons not just from Florida but from every state in the union. The most direct and conservative means to match would have been to use the voter's name and date of birth as necessary identifiers. But DBT, possibly under direction from Florida's Division of Elections, cast a much broader net [...] Its matching algorithm required only a 90 percent match between the name of the registered voter and the name of the convict. In practice this meant that there were lots of false positives [....] For example the Rev. Willie D. Whiting, Jr., a registered voter was initially told that he could not vote because someone named Willie J. Whiting, born two days later, had a felony conviction. The Division of Elections also required DBT to perform "nickname matches" for first names and to match on first and last names regardless of their order -- so that the name Deborah Ann would also match the name Ann Deborah, for example.

The combination of these low matching requirements together with the broad universe of all state felonies produced a staggeringly large list of 57,746 registered Floridians who were identified as convicted felons. The concern was not just with the likely large number of false positives, but also with the likelihood that a disproportionate number of the so-called purged registrations would be for African-American voters. This is especially true because the algorithm was not relaxed when it came to race. Only registered voters who exactly matched the race of the convict were subject to exclusion from the voting rolls.

[...] What makes the DBT story so troubling is that the convict/voter data seemed so poorly matched relative to the standards of modern-day merging and mashing.
Note that this book is all about number crunching, not politics, and overall very optimistic, gung-ho even. But this brief passage, specifically the things that I have highlighted in bold above, gave me pause... It's been bothering me for a couple of weeks.

Clearly, technically, DBT made a blatant mistake as the author concludes. But how come? Why did the government of Florida give directions that led directly and predictably to the "mistakes"?First of all, why allow any false positives at all? It's perfectly possible to get to almost zero false positives if you tolerate more false negatives, i.e. err on the safe side. In fact, in legal terms, that's the rule: "innocent until proven guilty" -- not 90 percent, but beyond a reasonable doubt. How could they accidentally forget this principle when it came to denying basic rights like voting? Second, in addition to the bias mentioned in the passage, it seems obvious to me that African Americans have a higher frequency of occurence of the same names. So not only did they err on the unsafe side, but the way in which the error expanded happened to be doubly targeted at a particular demographic group -- how come? Oh and who ran the state government of Florida at the time, and who benefited from those errors? Those are rhetorical questions by the way. But it's still surprising. Anyway it's history now...

Speaking of history, the title of this post comes from the name of a disco in Nairobi way back in the day. The first time I ever heard about the concept of a nightclub was when we drove by Florida 2000 one day, and I asked what's that place? I was too young to even think about going in but it was a fascinating thing -- it actually looked like a flying saucer.

And speaking of flying saucers, I wonder what it must be like for kids to not have the "Year 2000" in the future... Which reminds of a song by Fela and Roy Ayers.