Atomic Energy

The Internet is great. It simplifies a lot of things, makes others cheaper, and often brings win-win situations.

Take airlines (if you have the money to actually take them). Before the Internet, you made a reservation with your agent, who had an expensive computer connection to the airline. When you got to the airport, the check-in agents, gate agents and flight crew would go insane trying to balance families, groups that traveled together, safety and weight considerations, frequent flyer priorities, etc. In the last decade, tickets can be purchased (often at the cheapest fare) online, and whether booked online or directly, you can retrieve your reservation at the airline’s Web site and change your seating and meal preferences. Sure, this is good marketing for the airline and convenient for the traveler, but saves a lot of headache and time (=money) at the airport, and lets those who do not get their desired seat get their frustrations out at home, long before dealing with the ground and flight crew. Everyone wins.

Then came BA. I used to fly BA regularly. I went the NY-London route several times per year (often in business class), and flew their partners to Asia (Cathay Pacific) and American domestic. Nonetheless, BA was always British, proper, and prided itself on excellent service. They were not always the cheapest, but the service was good, often excellent.

Back in 2009, BA decided that it needed more revenue, and so it charged… for seat selection. In theory, this is a good moneymaker. Everyone who flies needs a seat, most want to pick in advance, they are already booked in, let’s just charge them for the service. Of course, the charge isn’t cheap, 20GBP (~$30USD) per seat per leg. For a couple traveling round trip JFK-TLV, that is $240. Get the business class travelers (seriously, they pay also), and we can rake in money!

And it is perfect CFO thinking. Sure, we have 20MM (or whatever) passenger seats per year, multiply that by $30, that is half a billion dollars in revenue.

And it is perfect ignorance. Willie Walsh should have checked with his Chief Marketing Officer (or perhaps fired him). Charging passengers for a basic service that actually helps the airline is a double whammy. On the one hand, he will do irreparable damage to a storied brand. People do not like being squeezed (puns on seat width notwithstanding), and especially if it is a service that actually benefits the airline (like EZPass charging a service fee, but let’s leave that one alone for now). One the other, BA benefits from having the customers self-service seat selection, by reducing airline staff overhead and frustration at the airport.

Walsh was the CEO of BA (before taking over the BA-Iberia parent company post-merger). A CEO needs to think like a strategist, not a bean-counter. Bad move, Walsh.

When Apple first released the iPhone, the only way to get apps on the phone was via the Web browser. It ran on the Web, (or from Apple) or it didn’t run on the phone. In July 2008, Apple opened the App Store, allowing certified apps to run on the iPhone. Along the way, it took 30% of the sales price of the app, not a bad deal for everyone: the developer (many of them small) got better coverage, while Apple received a pretty hefty chunk of the sales price as commission.

In its FY2010 report, Apple said that it sold $4.1BN through the iTunes Store. While this includes music, movies and apps, the $912MM growth from the previous year is primarily due to the sale of apps for iPhone, iPod Touch and iPad. Clearly, selling apps is a major business – and a growth business – for Apple.

For a very long time, the way you had software was that you bought it from a store in a shrink-wrapped package, and installed it on your PC or Mac. Eventually, you would buy it online, download it, and install it. But soon, good enough, and eventually more than good enough, online versions appeared. While the desktop application business is hardly dead, in many areas, especially those involving collaboration with others or where data needs to be accessed from multiple locations/devices (i.e. collaboration with yourself), it is under threat from some form of online software or SaaS.

Which brings us to mobile apps. The big problem with mobile Web was always that devices flitted in and out of coverage. Not just the data became unavailable, but often the app itself. Older versions of the iPhone were notorious for forcing page refreshes, which made basic caching unusable.

Now, along comes HTML5. Along with Apple’s beloved embedded video (which it is using to bludgeon Adobe’s Flash to death – no complaints, Flash really is a hog), HTML5 includes a standard for offline data. Google Apps, which used proprietary Gears for a short period to provide offline functionality, has pulled Gears and is due to come out in the next few months with an HTML5-based offline version.

Here is where it gets interesting. Apple touts HTML5. Heavily. While full support is not that easy in Mobile Safari, it is at least partially there and will improve. At some point, app developers are going to realize this, and, like Google, write Web apps – which are a lot easier to write than iPhone native apps – that can stay functional, including data, when offline. This is going to start putting a kink in Apple’s app store revenue, and, as we know, Apple is fiercely protective of anything it controls, especially if it leads to revenue, let alone real money.

In sum: Apple has a very strong financial incentive to torpedo full HTML5 offline support in the iPhone. If they will fight it, sabotage it, or accept it, anyone’s guess.

Years ago, I had the pleasure of having lunch with the late Sanford C Bernstein, the founder of the eponymous company and the creator of the money management industry. He made the argument that capitalism was the perfect system, because it was the only system that viewed people as people were, rather than as they wished they would be. In essence, Sanford argued, capitalism is the only system that said, “people will be self-interested, rather than changing that, let’s leverage it.”

This uniqueness is the primary reason that capitalism and market economies have been so wildly successful, bringing more material benefit to humans in the last 200 years than in the thousands of preceding years of recorded human history.

Today, I had the pleasure of discussing development methodologies with Josh Mahowald, chief architect of Angel.com. He made the argument that agile development is different from all other methods in that it assumes people *will* make mistakes, and rather than fighting them with intense process, tries to mitigate them with very short development and customer interaction cycles.

Agile like capitalism, recognizes people as they are, not as we wish them to be, and uses human nature.

We coined the phrase, “agile is the capitalism of development.”