How Apple Got Everything Right By Doing Everything Wrong

Wired has a look at how the good and bad of Apple, their Yin and Yang, have come together to form a company that actually works. The piece looks at Steve Jobs’ unusual and abrasive management style, otherwise known as ‘Management Techniques From the Dark Side’. It’s essentially a list of counterintuitive, suspicious-seeming and downright evil management techniques that work – for them.”

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Why the AOL-Bebo Deal Matters

Yesterday, AOL paid $850 million in cash to acquire Bebo, a social networking site that is a distant third to MySpace and Facebook in the US.

eyebrows have been raised in response to news of the deal because Bebo’s traffic levels are only a fraction of those seen at MySpace and Facebook. Bebo had 22.4 million unique visitors worldwide in January, according to comScore Media Metrix. Facebook and MySpace both had more than 100 million worldwide visitors that month.

In February, MySpace’s share of US Internet visits was 67 times larger than Bebo’s, according to Hitwise. In fact, 22% of visits to Bebo last week came from people who had first visited MySpace, Hitwise reported.

Nor does Bebo seem set to add significant revenue for AOL, at least not immediately. According to financial data obtained by AllThingsD, Bebo earned just $20 million in 2007 worldwide. eMarketer estimates that advertisers spent $510 million on MySpace and $145 million on Facebook in the US alone last year.

However, Bebo has been quietly innovative in areas of online marketing that are just now starting to get attention. It is a pioneer of widget marketing, having partnered with prominent widget developers in December 2006, five months before Facebook opened up its platform.

Bebo also hosts KateModern, an online video hit. The site is developing other short-form online video content, along with unique ways of integrating marketers into the video storyline. It also has found novel ways to allow viewers to participate in the action both online (by interacting with the video’s characters on their profile pages) and offline (producers invited fans to watch the filming live last month).

Another thing going for Bebo: its users spend more time on the site than those at Facebook or MySpace – an average of 217 minutes apiece in January, according to comScore Media Metrix. That’s 18 minutes more on average than was spent on Facebook, and over an hour more than on MySpace.

Information from AOL is sketchy on the details of how Bebo will be integrated into its other properties, other than statements that it will be paired up with the messaging services AOL IM and ICQ.

There can be no denying the unique ability of social networks to bring people together in ways that were previously impossible. For marketers, it is also clear that social networks provide powerful branding solutions, taking online advertising beyond banners and clickthroughs into endeavors such as community building and customer interaction.

Bebo and its social networking brethren have so far only scratched the surface of what is possible in this space. AOL obviously plans to capitalize on Bebo’s innovations and online advertisers should hope that they succeed.

Get the facts behind the social networking buzz. Read eMarketer’s Social Network Marketing: Ad Spending and Usage report.

Ads in online shows work better than ads on TV

A year’s worth of research from Simmons, a media consultancy, shows that Internet video watchers are 47 percent
more engaged by the advertising they watched than were traditional TV viewers, according to MediaPost. The same
study found that viewers were 25 percent more engaged in the content on the shows as well.
That’s excellent news for networks like NBC, which has been making aggressive moves to put its shows online (though
not through iTunes) in advertising-supported streaming and downloadable formats. The network appears more
interested in mimicking the traditional free, ad-supported model of television than it does in pushing paid downloads,
and the Simmons study may vindicate that decision (even if NBC’s strategy confuses some viewers in the process).
The study results will also provide fodder for both writers and producers in the ongoing Hollywood writers’ strike, which
has largely centered on the residuals formula for Internet-provided content. With online video proving so (potentially)
lucrative, both sides may have extra incentive to dig in their heels so as not to leave too much cash on the table for the
other side to snap up.
And all of this is happening at a time when online ad money continues to flow from the great Madison Avenue Money
Spigot. Back in November, the Internet Advertising Bureau reported that Internet ad revenue topped $5.2 billion in the
third quarter of 2007, up a full 25 percent over a year before. Combine that with consumers who actually pay attention
to ads, and you have an adman’s paradise in the making. How long will it be until the serpent of consumer
overstimulation does to the new medium what it has already done to television ads?

Ipod under NO copy right Act

Apparently, the only legal use for the iPod would be the transfer of originally authored music not under any copyright protection. Law enforcement officials in the country have publicly stated they are not currently enforcing the law regarding transfers of music from CDs.

Copying music from a CD onto Apple’s (Nasdaq: AAPL) iPod or a computer hard drive in Australia is effectively breaking the country’s copyright laws, which do not have the “fair use” clauses as in the United States and Europe, according to numerous media reports.

This would include the transfer of legally purchased music onto the iPod, which has about 100,000 users in Australia.

Still, even with so many Australian iPod users, aussies cannot purchase music from the iTunes Music Store in the United States due to requirements that the credit card used for purchasing be billed to a U.S. address. That credit card requirement bars them from the only source of music that can be put directly onto an iPod.

Music purchased from Australian online music sites, such as Telestra, which supports Windows Media Player 9 digital rights management, meet the Australian legal standard because it is being sold under the authority of the copyright holder. However, the .wma format used for that music would have to be downloaded to a computer first and then changed to an iPod-usable format, and only then could it be transferred to the iPod — a transfer that is illegal under aussie law.

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MP3 Standard

One of the benefits of owning an iPod in a region without access to online music purchases is its support for the MP3 standard. That allows music buyers to rip legally purchased CDs onto a PC or Macintosh and transfer to the mobile player for digital listening.

Apple has not said whether it is pursuing the opening of an Australian iTunes Music Store, which would make music legally available for the iPod.

Apparently, the only legal use for the iPod would be the transfer of originally authored music not under any copyright protection. Law enforcement officials in the country have publicly stated they are not currently enforcing the law regarding transfers of music from CDs.

Two Mountains to Climb

Apple now faces two challenges in its bid to maintain leadership in digital music, and they both point back to interoperability and licensing. To date, Apple has not allowed other stores access to its digital rights management (DRM) technology, FairPlay, nor have they elected to support other DRM standards on the iPod.

In a much publicized move last week, RealNetworks (Nasdaq: RNWK) released Harmony Technology, which provides a gateway to playing music purchased from non-Apple online music stores on the iPod.

Apple countered with a veiled threat of legal action under the Digital Millennium Copyright Act (DMCA) and the possibility of a software update to disable Harmony Technology from working on its iPods.

Independent Compatibility Development

RealNetworks has taken the stance that it has not violated the DMCA and issued a statement last Thursday promoting its cause.

“In fact, the DMCA is not designed to prevent the creation of new methods of locking content and explicitly allows the creation of interoperable software,” the company said.

It added: “Harmony follows in a well-established tradition of fully legal, independently developed paths to achieve compatibility. There is ample and clear precedent for this activity, for instance, the first IBM (NYSE: IBM) compatible PCs from Compaq.”

Consumers Demanding Options

Recent Gartner (NYSE: IT) research shows that regardless of the outcome of corporate battles over proprietary standards, consumers want options.

In the report, Global Music Services Face Local Laws and Expectations, G2 senior analyst and report author Michael McGuire wrote, “If a significant number of consumers expect that digital content purchased over the Internet can be shared among family members and friends without infringing copyright laws and contractual agreements, this might directly affect the success of the online business model.”

McGuire also points out in the report that while a First Sale Doctrine does exist in the United States, one does not exist for digital media. The First Sale Doctrine addresses such uses as when consumers grow tired of music and sell it to used-record stores, or public libraries allowing the public to borrow copyrighted works.

Inside Digital Media analyst Phil Leigh has appraised the worldwide market for recorded music in the neighborhood of $35 billion. Leigh said this is too big a market to ignore, as a portion of it transitions to the digital realm.

Comcast Sued Over BitTorrent Blocking – UPDATED

A California man filed suit in state court Tuesday against internet service provider Comcast, arguing that the company’s secret use of technology to limit peer-to-peer applications such as BitTorrent violates federal computer fraud laws, their user contracts and anti-fraudulent advertising statutes.Plaintiff Jon Hart, represented by the Lexington Law Group, argues that Comcast’s promises of providing internet connections that let users “Download at Crazy Fast Speeds” are false and misleading since Comcast limits downloads by transmitting “unauthorized hidden messages to the computers of customers” who use peer-to-peer file sharing software. Hart wants the court to force Comcast to stop interfering with the traffic.

He also wants the court to certify the suit as a class action and force Comcast to pay damages to himself and all other Comcast internet subscribers in California

The suit (.pdf), which also claims the BitTorrent blocking is an unfair business practice, was filed in California Superior Court in Alameda County.

Defendants have disseminated and continues to disseminate advertising, that they know or should reasonably know is false and misleading. This conduct includes, but is not limited to, promoting and advertising the fast speeds that apply to the Service without limitation, when, in fact, Defendants severely limit the speed of the Service for certain applications.

It further includes Defendant’s misrepresentations that their customers will enjoy “unfettered access” to all internet applications, when, in fact, Defendants not only fetter certain applications, but completely block them. Defendants know or reasonably should know that this advertising is false and misleading.

In the suit, Hart says he upgraded to Comcast’s Performance Plus service in September specifically to use the “blocked applications,” and that nothing in the 22-page terms of agreement with Comcast indicated that the company throttles traffic.

Though Comcast has yet to see the suit, Comcast spokesman Charlie Douglas pointed THREAT LEVEL to the company’s FAQs about its traffic shaping and issued the following statement

Comcast does not, has not, and will not block any websites or online applications, including peer-to-peer services. Our customers use the Internet for downloading and uploading files, watching movies and videos, streaming music, sharing digital photos, accessing numerous peer-to-peer sites, VOIP applications like Vonage, and thousands of other applications online.

We have a responsibility to provide all of our customers with a good Internet experience and we use the latest technologies to manage our network so that they can continue to enjoy these applications.

Comcast refuses to plainly explain what it does to control BitTorrent traffic, but independent analyses have shown that Comcast is severely throttling internet traffic that is using the popular file sharing protocol BitTorrent by sending fake “I’m finished” messages to users’ BitTorrent programs. Those fake packets are also alleged to affect users of the mainstream business application Lotus Notes. The lawsuit charges those fake packets violate the federal Computer Fraud and Abuse Act.

The BitTorrent protocol is used for sharing large files — from pirated films to open-source OSs — by having downloaders also serve as uploaders, even when they have only downloaded a portion of the file. Though almost nothing is publicly known about aggregate internet traffic, BitTorrent protocol traffic is often estimated to constitute 35% to 40% of internet traffic.

ISP discrimination against certain kinds of traffic also violates established Federal Communications Commission policies on Net Neutrality, the suit argues.

Comcast has yet to be served with the suit, according to Lexington Law Group attorney Mark Todzo. The firm is waiting to get an official copy of the suit back from the court and expects to serve Comcast later this week.

Comcast will then have 30 days to answer the complaint or seek dismissal of the suit.

The case is Hart v. Comcast.

UPDATE: Comcast was working on an answer to THREAT LEVEL’s questions when the story was posted, and their response was added as soon as the company got back to us.