The online TV market is unsustainably fragmented.

The days of completely free online TV are numbered. You’d better get used to paying up. blog.mindrocketnow.com

Tesco shuttered its Clubcard TV service on Sunday. On their support page the reason given is that they “weren’t getting the level of repeat usage [they] had hoped for”. This contrasts with Netflix’s recent launches into 6 new European territories. The health of online TV would then appear to be confused; some players are doing spectacularly well, others terminally badly.

At first glance, the online TV market appears to be playing out as you would expect in a typical tech hype cycle. We’re beyond the point where the new technology of IPTV is engineered into a commercially viable product. A multitude of players came into the market; many got bought or turned into pure technology platforms.

We’re at the point now where the service providers are finding it hard to turn the years of investment into revenue. And even successful players like Netflix are nowhere near as capable as cable in converting revenue to profit. I wonder if online TV isn’t a little different though, as it is disrupted by the very nature of its revenue model.

Google Now’s TV card service has quietly launched in the UK. It is an aggregator of TV schedules – you tell it what services you subscribe to, and what you like watching, and Google will tell you what to watch.

From a consumer’s perspective, it solves the problem of fragmentation of TV services. You don’t have to boot up and compare offerings on Now TV, Amazon Fire TV, YouTube, Freeview, Apple TV (at least in my household) – Google does it for you. And it uses its number crunching prowess to provide recommendations, so you don’t have to search, you just have to watch.

From the content provider’s perspective, this has serious ad revenue implications. Amazon Fire TV et al is no longer the destination – consumers will come to Fire TV just to transact, i.e. spend the minimum time it takes to start watching their chosen content. They will not be spending the precious time, and therefore associated pageviews and ad share, searching on the Fire TV site. By finding their content via Google Now, Google gets to serve up the lion’s share of the ads, and realise the lion’s share of the ad revenue.

For some companies, like Netflix, that relies on subscriptions, this may not be so much of a problem. But for services that rely on advertising to sustain them, this will be the killer problem. Unless the online TV service can afford to compete for a-grade content, they will to make to with a parochial consumer, and so a purely subscription model will be out of reach. And even for services that can afford the content (due to investor investor largesse), getting to actually making a profit from the revenue generated, will still be a long journey.

The days of completely free online TV are numbered. Even if you tolerate all the pre-roll, in-roll banner ads, it still won’t be enough. You’d better get used to paying up.

Apple Pay is the quiet transformation consumers need.

For all the bling and shininess of the recent announcements, Apple Pay is the only one that’s genuinely important. blog.mindrocketnow.com

It’s been a week since Apple announced its new shininess, long enough for some of the shine to dull somewhat. The watch is unavailable, the phones are bending, and the new iOS 8 rollout was uncharacteristically botched. This is the right time, I think, to reflect on what was really important from the announcements. The answer is none of the above. Apple Pay was the only genuinely transformative announcement made last week.

Good security

Let’s first do some revision on what makes a good payment security scheme. It really boils down to two things: authentication (so that both sides know and trust the other) and non-repudiation (so that the transaction completes exactly as both sides have agreed). For the purposes of this post, we’ll focus on authentication. (We’ll ignore for the moment other, no less important aspects of a good security system such as: secure internet access, secure fulfilment, anti-malware measures, keeping software and hardware up-to-date, and the ability to do all of this cheaply and easily.)

Authentication is based upon tokens: user name + password or credit cards. The theory is that only you and the other side know both bits of information, so if both sides accept the token, you’re authenticated. The key weakness is that it’s inherently one-way: at the time of authentication, you are providing all the information, and the other side is making all of the evaluation. Are you sure that it’s the boutique shoe shop asking you for your credit card details? And how does the shoe shop know that the person entering the credit card information is authorised to spend on it?

A credit card number is also a single piece of information. You can marginally improve the security by requiring more than one piece of data before you are authenticated (CVV2 number as well as CC number, mother’s maiden name etc.). You can also improve by asking a trusted third party to ask the question (as in the Verified by Visa scheme or WorldPay).

But these measures do not address the problem that the customer is not in control of the process. It is the faceless computer on the other side that only has the power to accept or reject. Nor do these measures address the problem that the trusted information is from a limited set (security questions are limited by your memory). Both concerns are addressed by two-factor authentication.

Two factors are better than one

The two factors are: something only you have (so that we’re sure you’re you) + something only you know (so that you’re authenticating intentionally – non-repudiation). In this scheme both sides prove themselves to each other, so both sides retain control.

The first person to prove themselves is usually the bank, by texting you a code to your pre-registered mobile. This code is then your password (or an additional password). This code doesn’t have to be agreed in advance, so can be anything, not limited to something you can remember. And because this password is single-use, nobody else can read your text and misuse it afterwards.

Two-factor authentication is transformative for online commerce because it removes a barrier to purchase that has nothing to do with the goods you want to buy – it removes the fear of being defrauded. However, physical commerce, has yet to catch up.

Interlude – whose problem is credit card fraud?

Just because the credit card company, or retailer, will assume liability for fraud, doesn’t mean that there’s no impact for the consumer – distress of having a crime perpetrated against them, inconvenience of proving that the fraud took place, and impact to credit score.

However, the way the system is supposed to work, financial losses are not borne by the consumer. The cost of fraud is the cost of doing business for the credit card company, and the hefty transaction fees charged to the merchant means that business is good. So perhaps the person that really loses out is the small merchant in the middle, who can’t afford to be defrauded by their customers. This is a point missed by many (like in this recent NYT article).

How Apple Pay works

You need one important fact to put this next part into context, if you’re a non-North American reader: US credit cards still relies on swiping a magnetic strip and checking a signature. Europe has been significantly ahead in this concern, as chip and PIN is now de facto in many countries. As you can imagine, fraud is rightly a significant concern in the US. Simply asking for photo ID significantly improves security, because it effectively replaces the trusted token of something you have (the credit card) to something you are (your face) – biometric authentication.

We’ve seen how single-factor authentication is inherently weak: it’s one-way and relies on a limited set of trusted information. Apple Pay eliminates these limitations by providing secure transactions with the merchant whilst maintaining a trusted relationship with you. Let’s examine how it works.

When you want to make a payment, you select the goods or service within the retailer’s (or card issuer’s) app and choose Apple Pay as the payment mechanism. Alternatively, by tapping the NFC Point of Sales payment terminal, the terminal and your phone negotiate the exact content of the transaction, and presents the Payment Sheet to you via an app. Either way, you then authorise it using your fingerprint and Touch ID.

Once authorised, the app receives a payment token from the iPhone PassKit secure software module. Alternatively in the case of an NFC tap, PassKit presents a payment token to the POS terminal. The actual credit card details are not shared. Furthermore, this payment token is specific to the transaction. The merchant asks its payment processor to authorise the payment token on his behalf (with the card issuer). Once the payment is authorised, the merchant can confirm the order. The only people to see the credit card information are the payment processors. Everybody else sees a payment token, which expires once the transaction has been completed.

Apple Pay solves the two problems we say earlier: providing two-factor authorisation (the iPhone is “something you have” and your fingerprint is the “something you know”), and not sharing your credit card details (by using payment tokens instead).

Better yet, if you wear an Apple Watch, you don’t even have to take out your obviously expensive iPhone to complete the purchase. The Apple Watch can communicate with the POS terminal to create the Payment Sheet. When you first put it on, you can authenticate it using the Touch ID on your phone, and so long as you keep the watch on and next to your skin, it remains authenticated. So the Apple Watch proves your biometric identity.

Why Apple Pay is genuinely important

Apple Pay brings secure commerce to the physical world, but why should we care? I think the answer lies not so much in the way it’s better, but the way that it’s Apple.

Apple’s mojo is sky high. People love using their iPhones. And imitators such as Android benefit from the halo effect. Now that Apple has combined security with convenience, there’s no friction to making a transaction both secure and convenient. People will want to use Apple Pay, and because of this, the ability to provide Apple Pay point of sales will be a competitive advantage. Conversely, not providing Apple Pay will be enough of a disadvantage to warrant any additional investment merchants.

What’s the down side? For consumers, it’s a further barrier to leaving Apple’s technohug. For merchants, they lose access to the user-identifiable purchase data that they got with their credit card purchase info. But this can be replaced with loyalty programmes, and even iBeacon proximity offers. Replacing Point-of-Sales equipment with NFC will be expensive (replacing POS hardware is a key reason why chip and PIN is still uncommon in the US). (It’s perhaps interesting to note that merchants solely taking payments through an app won’t even need new POS, so long as they’re happy ceding payment control to Apple.) There may even be some up-side as Apple has negotiated lower “no card present” fees than merchants currently suffer.

Before long, it won’t just be Apple Pay. Google Wallet already exists, but isn’t widely accepted yet. The more that these secure payment mechanisms are implemented in physical commerce, the more merchants will offer it, the more consumers will use it, and the more consumers and merchants will be protected against the potentially catastrophic effects of fraud. That’s why this is the most impactful of Apple’s announcements; Apple Pay will benefit physical commerce globally by making security a problem that everyone wants to solve.

(To explore this topic further, have a read of this great post by Richard Gendal Brown on why the current credit card transaction model is inherently weak.)

The Apple Watch: Just another watch, if it’s not an iWatch?

The Apple Watch depends on a successful ecosystem. If it does, it won’t be a market creator, but a market disruptor. blog.mindrocketnow.com

The loss of the prefix “i” is quite significant: the Apple Watch is not meant to be an evolution of the existing Apple i-environment, it’s not Apple doing the same thing that it has for the past 7 years. It’s not class-creating, but class-leading. It’s not one-design-fits-all, but hugely customisable. It’s not a feature-packed smart watch, but an update to the classic Patek Philippe that you’ve always lusted after. It’s as much jewellery, as technology. The dropping of the “i” shows that it’s not trying to be uniquely Apple, but individually yours.

If it’s not all of those things, what is it? Here’s where it becomes a bit tricky, because the Apple Watch’s strength is that there isn’t a closed list of use cases that it fulfils. What it does will depend upon how its sensors are used, how it displays data, in other words which apps become important. It’s unclear to me what those apps will be, but we can draw parallels from the evolution of the iPhone.

Its flexibility is its key strength. That means providing sensors and data processing/ display capabilities not hobbled by stock apps. It’s a full computer running a variant of iOS. It has WiFi, Bluetooth, GPS, NFC, accelerometer, and heart-rate sensors. It has a retina touch sapphire (scratch-proof) screen, speakers, microphone and a taptic (programmable vibration) feedback. It has mag-safe inductive charging, so even powering it up will look cool.

Apple has announced some cool apps (cut-down Apple maps routing + taptic feedback for pedestrian directions without needing to look at your device), some creepy (sharing your heartbeat…), and some genuinely important (making secure payments by not sharing credit card details or even taking out your wallet). It’s the taptic feedback that’s the most interesting to me, the way that the watch can create a unique sound + display + sensation in response to its sensors. However, it’s what developers other than Apple choose to do with all this that creates the magic.

There’s an established precedent of apps emerging over time to improve the range of use cases. Thanks to apps, using my iPhone as a phone is low down on the list of things I want to do with it. As I posted last time, it’s not even the top consideration when buying its replacement. I’m excited to see how creative apps will improve my tech life in ways that I haven’t yet imagined. I’m pretty sure it won’t be just telling the time.

Not knowing what it does best is one of many things not to like about this first generation device. It’s chunky, because of the screen and therefore the battery needed to power it. However, its battery life is projected to only last a day, which means that health monitoring your sleep habits is out. It doesn’t have 3/4G so it many interesting apps that require a data feed won’t work independently of an iPhone (and the Apple Watch will never work with any other phone OS).

Current battery technology means that it’ll wear out in 5-10 years, and it won’t be replaceable so you’ll have to buy another watch, so its amortised cost could be $100 p.a., which makes it even more expensive. (To compare, that $1,000 Omega will outlast you, and a new battery will be $30 every couple of years.) It won’t actually be available until Q1 2015, by which time Pebble and Samsung will have launched new improved versions of their current, market-tested smart watches, in time for Christmas. Oh, and the Apple Watch 2 will be launched in September 2015.

I’m deliberately overlooking the jewellery aspect of the Apple Watch, as it’s the least compelling aspect, at least to me. I’ve read some interesting speculation regarding the pricing. We can all guess that the “starting at” $349 price will be for the least desirable variant: the lowest memory, smallest screen, rubber strap “sport” edition. The price point that the most bling gold (not just plated, but for real life 18k gold) “Edition” edition will be playing at the gold Rolex $5,000 end.

There is a precedent: think Vertu, then sigh in relief that you’re not into wearing a Swarofsky-styled mirror-ball on your wrist. Even though that price is eye-wateringly high (remember, the Apple Watch probably only has a 5-10 year life span), it’s still low in comparison to luxury watches. That gold Rolex is nearer $35,000. Apple will be a disruptor once again, but to a completely different industry. Perhaps that’s what Jony Ive meant when he said that the Swiss watch industry was in “trouble”.

I wrote back in May “The iPhone 1 was also crucially under-featured, only running on GPRS networks rather than 3G. It was a disappointment, when compared to its competitors in most respects, apart from one: the software and industrial design was so strong, its fundamentals are still market-leading today.” It seems that history has repeated itself at the launch of the Apple Watch.

There’s plenty to be confused about regarding the Apple Watch. The first gen may not change our lives as is, but will be the shape of things to come, literally. And it will change both the tech and the luxury watch markets, because Apple’s mojo is still sky high.

iPhone 6 or 6+ buying angst.

New Apple hardware means it’s time to upgrade. But should I choose the big boned plus size phablet? blog.mindrocketnow.com

The Apple announcements caught me at my most vulnerable. My iPad is deceased, my iPhone is creaking under strain of the new iOS, and my MacBook needs a spinning beach ball time out every other mouse click. So I’m ready to spend. And it seems that I’m not the only one, as there have been 4 million pre-orders in the first 24 hours.

However, to replace like for modern like, would cost more than I can conceal from my DW. But there’s one more thing: Apple has listened to my predicament, and has created a phablet, which surely can take place of both phone and tablet, and save me the cost of buying both! At least that’s what I was hoping. Let’s examine the proposition, and how it works for me.

Starting with cost: well, there’s no comparison. iPhone 6 + iPad Air = £1178. iPhone 6+ = £699. Ah but hang on, it’s not just the 6+, is it?

Fundamentally, it’s still a bit Dom Joly stupid to hold an object the size of a phablet to your ear to make calls. So I need a Bluetooth headset as well. And you can’t whip it out of your pocket every time your fingers feel gadget withdrawal, so I’ll need to get an Apple Watch too (so glad it’s not an iWatch) at $349 (=£349). Then there are the additional costs of getting a new case because of the new form factor, and of going from universal connector to thunderbolt in chargers, connectors, blah. That £479 difference may not last too long.

What about features? The 6+ only does a few things better than the 6: it has optical image stabilisation so has the promise of better photos, and the battery is bigger, so the expectation is 2-3 hours additional use time. Oh, and it’s bigger.

I’m still not sure that bigger is actually better. I’ll need a bigger pocket, a man-bag, or I’ll have to stand stiffly to attention at all times to avoid unintentionally folding the phone. But then bigger is what I’ll need if I’m to forgo my iPad.

What about design? This is the part that disappoints me the most. The curved edges seem like a completely retrograde step, going right back to iPhone 1. I like the straight sides of my iPhone 4, it gives my fingers an edge to feel, and so tactile definition to the phone. The edges might have been mandated because of the need to eek out every cubic millimetre of volume, but it also looks modern, futuristic even. Blackness to the chamfered edge of a perfect monolith is very 2001. A curved edge, especially one so thin, doesn’t feel as comfortable. It also looks old. Let’s hope that my impressions change hands-on.

So cost advantage is marginal, features are handy, size is ambivalent, design is old. But how will it fit with how I want to actually use the device? The three main things I do with my iThings are: emailing, playing games, and reading comics (calling is a little way down the list). All three of these use cases would be improved with the size, speed and resolution improvements over my current iPhone 4 (and lack of iPad). And using the same logic, I think all of these use cases would be improved with the 6+ over the 6.

So there you have it, I think it’s the 6+ for me. However, I’m a tactile buyer, and I’ll need to fondle it before I’m convinced. What about you?

A closing thought: With the launch of the latest iteration of iPhones, Apple has shown that is no longer a pointer to new markets, but for the mass market. This hardware form factor change was due in 2012, but the iPhone 5 turned out to be an inbetweener that in retrospect, only achieved making the lives of developers more difficult. They now need to test multiple of versions of software that that support multiple display resolution and iOS version combinations. This is the type of software fragmentation that Android suffers from, that Apple has been able to resist – until now.

But you know, not being first to market is alright. After all, I didn’t buy the original iPhone, but waited until the 3GS. I also thought the phablet form factor was stupid back in 2012, but now think it’s reasonable. It seems that Apple has grown a bit middle aged, and like me, needs a couple of years to warm up to an idea.

Read my thoughts on the Apple Watch here.