This week was another set of reminders that without proprietary software it’s hard to have a profitable business model.

Ubiquiti managed to come public this week and although they are positioned as a wireless hardware company their strategy, business model, profits and high valuation all come from a focus on software. They combine proprietary software with zero incremental cost with commodity hardware to deliver a solution that is low-priced, high function and generates increasing returns to scale. (Check your email if you are a client or wait until the note gets published on Seeking Alpha.)

It should come as no surprise that the founder and CEO of Ubiquiti cut his teeth at Apple. Apple generates the bulk of the revenue from “hardware” but it’s not obvious to everyone that it is the software (and design to be fair) that generates the advantage, the margin and the valuation for Apple.

Amazon leverages software too but in their own way. An online, service-oriented set of systems that is now going to be the main gateway for most consumers to discover, purchase and access real and virtual goods.

Contrast all this with Dell who continues to struggle to find a new positioning in a world where the things they are known for are now commodities. Dell may still have a price/performance edge in delivering commodity hardware but it’s not a ticket to high operating margins.

This week Dell is stressing their power and prowess as an “enterprise” technology company and asserting that Apple is not. Unfortunately for Dell they are wrong on both counts. First of all Apple has been on the rise in terms of enterprise spending and plans for the past two years and that trend is accelerating thanks to the iPhone and the iPad.

Second of all the ability for Dell to add proprietary value is limited. They have made a number of acquisitions but not enough in software. Customers point out there are many sources for low-cost commodity solutions and companies like Red Hat provide excellent software to make those systems perform well. Add into that improvements in virtualization technology (where VMWare dominates) and you end up with hardware vendors simply competing on price/performance.

In terms of innovation in the server space Dell is being outdone with Cisco with their UCS.

Closer to the consumer we’ve been doing some work on a private company called FitBit. They have a little device that goes in your pocket to track your activity but the power and value of the company is completely in their software that brings together multiple aspects of activity, consumption, and health measurements into a goal-driven context. The hardware bit is irrelevant. In fact the one they make has many flaws. As the company grows maybe third parties will emerge with different/better devices that tie into the software. Again it’s the software in the middle that drives all the value.

FourSquare has just introduced some new software features called “Radar” that promise to make a very big difference in the usage and value derived from their service. We see companies every day that forget the simple software lesson and investors wasting time with companies that don’t have it right.

Architecture is important too but we’ll leave that for another post.

The music industry has been in turmoil for a decade and the longing for the old days of fat profits and content control was palpable at a gathering of industry types at the Digital Music Forum last week in NYC.

We’ve got two clients, Amalgam Digital and JamHub, in the music space that are in the middle of this swirl of creative destruction.  Amalgam Digital is at the frontier of bringing experience and social aspects of music into the equation of online content discovery and commerce. Many visionaries describe the future of music and particularly revenue as being more “experience-based.”  Unfortunately for the industry that means that figuring out how to scale revenue and profits again won’t be easy.

What follows is a summary of the key points that came out of the presentations and discussions at the event.  Some of these points were also touched in in our November Thought Leader Interview with music executive Jeffrey Epstein (PDF).

1. The core business of records continues to wane. The shadow of Napster – now a decade old – hangs over the major labels and the industry in general. One panelist noted astutely that suing your customers is not a viable long term strategy. Some 20 million music buyers have been lost over the past five years. Legal digital downloads at $0.99 or $1.29 is not a panacea, as once thought.  Less the one-fifth (23%) of people with access to the internet purchase digital downloads.  The music industry longs for a revival of the record business but still hasn’t a clue as to how that might come about.  Even as the industry tries to adjust to the digital world it keeps evolving, and now the migration of music into “the cloud” forces another shift on the industry.

2. Music is migrating to the cloud but few know what it will mean. A subscription model is an obvious path, but many industry executives remain skeptical. Streaming music is still a foreign concept to many consumers, although smartphones and the emergence of Pandora (which is giving Muzak a run for its money) are quickly educating the public on streaming music technology.  Currently, only 5% of Internet users subscribe to a music service. This works out to a per capita spend of only $2.

Christina Collo, Director of Music Relationships & Strategy for Microsoft, noted that there was some modest success with their music subscription service.  Microsoft offers subscribers the ability to download 10 MP3s per month as part of a $14 monthly subscription. In a private conversation during one of the breaks, Christina told me that most subscribers do not download the allotted 10 per month.   The Microsoft model is intriguing and they may be on to something, which is saying a lot because Microsoft is not very associated with innovation, especially in the music space.

Not surprisingly, there was a lot of buzz about Spotify.  The company has been signing up major labels to launch a service in the U.S. – recently, Sony and Citibank-controlled EMI – and there are rumors of a pending deal with Universal.  However, many industry observers don’t think a U.S. launch of Spotify is imminent. Spotify is reportedly raising $100 million at a $1 billion valuation.  Some industry veterans were wondering if Spotify is worth $1 billion (the valuation works out to roughly 7-8 times last year’s estimated sales, which seems lofty for a music company, but not for a social networking enterprise).

There was a consensus that Apple will launch a music service later this year. Apple acquired Spotify-like Lala.com last year. Many were concerned about how Apple’s recent subscription announcement would impact iTunes and its music ecosystem.

In sum, we are in the early stages of seeing music migrate to the cloud. This movement is likely to accelerate in the months ahead as Apple, Spotify and Google roll out cloud-based music subscription services in the U.S. this year.  Another company to keep on the radar screen in the cloud space is Rdio, which was founded by the guys that launched Skype.   Rdio is marketing their cloud-based service as “unlimited music, anywhere” and currently is offering two subscription packages priced at $4.99 and $9.99 per month.

In terms of hardware devices enabling music anywhere, Sonos was at DFME marketing their product.  The Sonos player is a Bose-like system that enables music playing in any room through wireless streaming.  Users can control the Sonos unit through a smartphone, laptop, iPad or tablet device. The Sonos system seemed attractive, but a little pricey at $400 per unit.

3. Most are toying with social media and waiting to see how it will impact music. There are one billion people using social media.  Facebook has over 500 million users and is sporting a $50 billion-plus valuation; Twitter has over 200 million users, and LinkedIn is doing an IPO.  Dermot McCormack, EVP of Digital Media at MTV, noted that his company is leveraging all the social networking technology in a big way to promote artists and engage fans.  There was little talk at DFME about MySpace, which has fallen off the map and is reportedly up for sale.  It remains to be seen whether Apple’s Ping will emerge as a meaningful music social network in the future.  Everyone is eagerly waiting to see what Google does in the social music media space. YouTube is a major force in music today, with some 60% of fans listening to music via YouTube.  Wiredset CEO Mark Ghuneim noted that if people clicked on the ‘buy’ links on YouTube videos and Facebook posts, we’d all be rich men.  His comment resonated well with another panelist who observed that “people play what they don’t buy and buy what they don’t play.”

4. There’s some renewed interest in financing music startups. John Boyle, CEO of the BAM Group, noted that VC money is coming off the sidelines. He said that valuations and return expectations are lower, and investments are more diversified than previously. Venrock VC David Pakman said he is focused on social music investment opportunities. He also mentioned he thought there was a multi-billion dollar opportunity in a streaming-based advertising service. Several panelists mentioned Pandora’s forthcoming IPO and thought that the company had a lot of upside in the months ahead.  A successful Pandora IPO will spur more private investing in the music space.

John Boyle stated that he thought 2011 would be the year when companies in many of the music verticals that have emerged over the past several years would begin to gain traction in the market.  John didn’t volunteer any names regarding who might be the key companies to watch in each vertical. Readers are encouraged to check out the appendix of our interview with Jeff for more information.   We will be closely watching the evolution of the various music verticals in the months ahead for signs of emerging winners.

Conclusion

While many people in the music business like to blame their woes on technology and technological change, the industry has itself to blame for many of its problems. This comes through loud and clear in the movie Before the Music Dies.  This a great film and a “must see” if you are involved in this space.

There are quite a few companies beyond the music companies themselves with major stakes in how the reshaped industry looks in a few years.  In addition to private companies like Pandora, Spotify, and SoundCloud we know that Apple, Google, Amazon and Microsoft will all be vying for a piece of this market.  Mostly lost in the shuffle is Real Networks (RNWK) which has languished for years.  Is there any chance they can reemerge in this space?

Related articles

• Rdio + Sonos = The Perfect Marriage (techcrunch.com)
• Does Spotify Need $100M To Crack America? (gigaom.com)
• Spotify Ties Up With Logitech (techcrunch.com)

I attended a one-day “Think Tank” hosted by Coburn Ventures in November where a hundred or so smart people riffed about a broad range of topics in technology, social networking, the Internet, and investing. The event defies easy encapsulation because ultimately what you take away is based on your own personal thought process and the interaction you have with other ideas and attendees. So with that intro/caveat here are some highlights I came away with:

One-Way Doors

The concept of “one-way doors” for consumers in the technology space is very powerful. It’s a perfect turn of a phrase to describe what we’ve been doing for hundreds of years.  But today the doors seem to be coming faster and realizing just how “one way” they are is instructive.  Recent examples are the iPhone and the Kindle.  Consumers expect simplicity, power, touch screens and the ability to get immediate access to digital content.

Many of us have already had the experience of touching and pinching a device with a non-touch display and wondering what’s wrong.  Now it seems odd to interact with a hand-held device that *doesn’t* have a touch screen.  The advent of mainstream touch screens is only four years old.  iTunes is another good example because it took a very convoluted process and turned it into a plug and a click.  Another instant one-way door.  I think the Kindle (and Kindle software) will do this for a large segment of the book market.  I’ve been crazy for books my whole life (no doubt in part because my dad and my step-mom were both librarians) and I thought the Kindle was a terrible idea when it came out because I love my physical books so much.  But, after using it for a year, I can see that it will be very big for everyone, myself included.  Art books, out of print books, large format books, etc. will continue to need a physical aspect for a while but not forever. A quick look at the interactive Sistine Chapel makes it clear that conventional books will get outmoded quickly.  It will take some time to see a digital edition of “Classic Japanese Joinery Illustrated,” but when it does come out it is likely to offer an enhanced viewing and learning experience that I can’t even get today from the beautiful printed book.  It’s true that for services like Kindle to work we need a way to borrow and lend content more easily.  Remixing need to be easier too. In the meantime, however, a digital version will offer better value than the physical book for many purchases.

Many of these recent innovations have hit the consumer first but are increasingly putting pressure on enterprises.  Most enterprise technologies are very difficult in almost every way possible: hard to buy, hard to install, hard to learn, hard to run.  Many enterprise technology bigots suggest that this is all necessary because these products are secure, they scale, they meet the myriad requirements for compliance, etc.

But enterprise users are still people. Which means they are also consumers who are going through these “one way doors” all the time.  They are coming to expect power and simplicity.  They are beginning to vote with their feet – or finger now that most things are just a click or two away – and enterprise technology providers need to take notice.  One study found that a vast majority (>70%) of people in Fortune 100 companies were using services like Dropbox even though they are prohibited.  It’s hard to prevent the use of simple, free (or cheap) products that work great.

From an investment standpoint I think this means that markets will shift faster and the ability to adapt and scale will continue to be extremely important. It also tends to add to visibility once the door is opened.  For example, the attractiveness of an investment in Apple has not really ebbed much since 2007.  So many people have yet to flow through their one way door (with high margin toll booths) that years of profitable growth are locked in.

Lean Back versus Lean Forward

A little over ten years ago, John Seely Brown gave a presentation at a Warburg IT conference in NYC using a brilliant set of illustrated charts that showed many modes of computing, including leaning forward and leaning back.  Today the idea is very apt given the battle that is going on in the entertainment industry.  Entertainment evokes a “leaned back” view of content.  You are, after all, supposed to be entertained. Which means someone else is doing the work.

Video games blurred the distinction long ago and today we are faced with a very fuzzy set of lines in digital entertainment. The real challenge is that consumers vacillate wildly about leaning forward and leaning back *even in specific genres*. For example, games are lean forward activities but now many gamers are eager to watch others play games on a gaming TV channel to learn more and pick up tips while eating pizza and relaxing with friend in the living room. Some even watch for the entertainment value alone. Millions learned about poker by being captivated watching the Poker Channel on their TV (often while unable to sleep at 2am in their hotel room.) That turned into a desire to play online and “lean forward” into the game. The same is true for Internet radio (last.fm) and eventually Internet video (YouTube/GoogleTV, AppleTV.)

The other sort of crazy new trend is to go from lean back to lean forward based on direct interaction with the artist and the content. Increasingly, consumers are being invited into the creative process and many true fans take advantage and turn passive music consumption back into active engagement and a new level of entertainment.

This is also happening with sports with “helmet cams” seeping into NFL football that allow viewers to select and view their own perspectives of a play. NASCAR implemented “in-car cameras” some time ago.   These are interesting technologies but it’s too soon to know how much consumers will be willing to pay for and engage with these new models.

Multiple consumption modes don’t just apply to the *types* of content but also to the use cases which seem to be mutating and being demanded *simultaneously*. This is a big problem for non-IP architected content solutions like cable companies. It would seem that what is going on here is utterly incomprehensible to cable companies and media networks. Consumers will need to pay for big data pipes, but in return will demand new content models that shift endlessly between “lean forward” and “lean back,” which will make it impossible to succeed without radical retooling.

Is Facebook the Devil?

It hasn’t taken long for Facebook to become a lightning rod for many storms (privacy, valuation, data ownership, games) and it seems, for many, also morals and society.  Clay Shirky has said that Facebook is a new metaphor which defies analogies and prior examples.  As such, everyone is still figuring out how to deal with it and opinions range from “the greatest thing ever” to “it’s the Devil” to “it’s good but like AOL for social networking and a big short.”

Now that technology is so entwined with society, debates about a new “technology” like Facebook are unlikely to go anywhere from an investment standpoint. Mankind has consistently given up things like privacy in exchange for convenience. One way to really understand this is to read a book called “How to be Invisible” which lays it all out for you. The extent to which you would have to change your life not to be fairly easily discovered and known is staggering.

For me the real question is “are we using Facebook or is it using us?” Many of the people in the room no doubt felt they were controlling it, but worried about the less technically savvy and teens/tweens in the world.  Based on a small sample I think young people are learning fairly rapidly how to use these systems and are pretty smart about what information to put where (at least based on their own sensibilities) and which things to avoid.

It’s become pretty clear that most people have multiple and distinct networks (social and professional) so that the idea of having just one, be it Facebook or another, doesn’t really make sense. This means that despite the dominance of Facebook we can probably expect to see many successful networks built and become great investments. We’d point to examples like StockTwits (stock investing), LinkedIn (professionals), and Mendeley (scientists) as three easy examples.

Digitizing our lives opens my myriad opportunities for use and abuse. Which path Facebook will take isn’t yet totally clear.

[Credits: Door image from Fluxxlab.]  [Disclosures: None for this post.]

Related articles

• Twitter and LinkedIn Signal: Lean-Forward and Lean-Back Designs In Action (contentnation.com)
• Amazon Announces Magazines and Newspapers for Kindle Apps (geardiary.com)
• Sorting Books and Digitizing Thought (bigthink.com)

The platform war regarding Adobe Flash seems to have ended without a struggle. Adobe can thank Steve Jobs and Apple for making the end short and sweet. The past few months have been filled with intense debate and technical analysis of Flash versus HTML 5, but at a high level it boils down to the fact that Flash is old and HTML 5 is new.

From a personal standpoint I’ve always found Flash to be mildly annoying as applied to most websites (do I really need to watch animation to find out if the place is open on Mondays?) and fairly complicated to implement. However, for some applications Flash creates very impressive and easy to use presentation and navigation services. But the learning curve is steep and of course one has to pay Adobe for the privilege.

Flash would have probably stopped growing and more gradually faded as a deployment technology over time. Apple and the letter from Steve Jobs made the process happen faster and more crisply. Not everything that is outlined in the letter is strictly true but the veracity is enough to be conclusive for most readers.

So what does it mean for Adobe?

It will be important for Adobe to accept and embrace HTML 5, as many infrastructure and content providers are doing. They will gain nothing by being opposed to it. I think of HTML 5 as just another visual rendering method. Flash has more in it but that doesn’t mean content and applications can’t use HTML 5 instead. So Adobe should end up being part of the solution rather than a problem if they are smart about it.

Flash is also only a small part of what Adobe offers today, so the sooner the focus shifts off Flash and to the larger set of products in the Adobe Creative Suite (Photoshop, Illustrator, Designer, Acrobat, DreamWeaver, etc.) the better. Adobe also has an under-appreciated franchise in the enterprise with LiveCycle and some collaboration products.

As for Flash and Adobe Air, they will continue to be of interest to developers who want to build applications that run across platforms. Although Steve Jobs rests his argument in large part on the inefficiency of not writing directly to a specific platform, the fact is the cost of supporting multiple platforms is very high and for many applications the differences between platform-specific implementations might be slight anyway.

From a stock standpoint, Adobe (ADBE) is trading at a discount as investors digest all this controversy and try to measure how much impact it will have on the Adobe business and/or the multiple afforded it. I’d say the current price represents some extra value for investors since it makes the upside to our Intrinsic Value estimate of $42 pretty attractive.

As long as Adobe management seizes the opportunity they have to take a leadership role in helping the creative world move forward with more powerful tools like CS5 and with support for new standards like HTML 5, stockholders are likely to be rewarded from current levels.

[Disclosure: The R2 Model Portfolio has long positions of both Apple and Adobe as does the author at the time of this writing.]

I finally took a little time to try and put an Apple iPad through its paces.

There are a few things you notice in the first few hours of use:

1. Strangely, the gesture-based interfaces are inconsistent within Apple software applications on the iPad. One simple example is scrolling right or left with the familiar drag of the finger across the screen. It works as expected in Photos but not at all in Calendar. (You have to actually click on the day, week or month desired.) In iTunes one has to click on the left or right arrow to scroll. At this point in time it’s just plain bizarre that the navigation, especially the calendar, would be so non-intuitive and not take advantage of the common touch and gesture interfaces.I’d say that these are relatively minor issues but they creepily remind me of the inconsistencies that became a standard feature of Microsoft products. Having three different interfaces for moving right or left in three common applications from the same software company on their own device, is not good.
2. The lack of multi-tasking is much more noticeable on an iPad. Even though there is no technical reason for thinking this way, a larger device just feels like it should be able to do more. Some critics have pointed out that the iPad is just a “big iTouch,” which is not really accurate, but the lack of multi-tasking makes it feel clunky when doing multiple things at once – which is the norm these days. This should be addressed later in the year when the new OS comes to the iPad in Q3.
3. Finally, the App Store leaves much to be desired in terms of useful information about the applications – which is nothing new. This makes finding the right and/or best applications for the device much harder than it should be. For example, by typing in a keyword to search one is presented with just a list of applications; no overall user ratings or metrics to help figure out which one to try. There are some startups focused on rating and ranking applications in the Apple App Store, but this seems to be a core area Apple itself should be paying more attention to.

This testing is from the perspective of a casual user rather than a “toy geek’s” – we didn’t research each point to see if there might be tricks or workarounds because a consumer product experience should be based on casual rather than ninja user expertise.

These may be minor issues for now. I do find the software inconsistencies a little troubling though. For now let’s just say these will evolve in the right direction, especially with the OS release this year. We’ll see.

Meanwhile, the iPad appears to be crushing competition in tablet space as demand for the WiFi and 3G models remains strong and Windows-based systems look lame. The iPad adds to an already dominating franchise in the Mobile Internet space for Apple. It’s too early to say that models based on ChromeOS or Android won’t be serious competition. Haven’t seen them yet though…

[Disclosure: Apple is in the R2 Model Portfolio and the author also owns shares personally at the time of this writing.]

The technology geek side of me doesn’t meet the woodworking side very often, but yesterday I put in my order for a new MacBook Pro to replace my current model which is a little over two years old and still works quite well.

Apple products are certainly more expensive then their WinTel analogs. Because I have to use some Windows-only financial modeling tools, I carry a Windows laptop with me as well and use the systems side by side all the time.

There’s an ongoing debate about how one “justifies” the higher prices that Apple charges for products that seem similar to others. You can take that argument in several different directions, but this morning I was thinking about a popular woodworking guru, Norm Abrahm, who hosts a wookworking show called The New Yankee Workshop.

The 15″ MBP is a perfect laptop, as far as I can tell, and the new version with all the trimmings (well, not all – if you include a big SSD drive, max memory and support it could easily get up to $3,500) goes for around $2,500. And frankly this seems like a lot of money for a computer.

But if you’ve done real work in a shop you know something that Norm speaks on with authority: don’t skimp on your tools. If you use a laptop the way I do it translates into about 3,000 hours per year on the computer, and with a two-year life that’s about 6,000 hours of use. Doing the math makes that 50c an hour or $4/day. I just spent $5 on a bagel and coffee for breakfast, so since this is my primary tool in the technology and business department, the cost for what I think is the best tool by far is pretty small despite the fact that it is about 50% higher than a similarly configured (but still inferior) Windows machine.

Few can afford to have the finest version of every tool in their workshop. I do lots of sawing and planing but much less turning and routing. So you spend big on a table saw and a planer, but go basic on a lathe and a router setup.

If you’re a casual computer user you can get a basic computer for $700 which can do everything and make you very happy. But if you are a professional, then when it comes to content of any type then Apple makes a strong value proposition.

It’s another reason to worry if you are an Apple competito,r because if more and more of the creative and content-producing people of the world opt for a platform that gives them greater pleasure and productivity at a higher raw cost, it will leave the Windows and the Microsoft ecosystem looking more and more tired.

The jury is still out on Google and how their Android-based and above-the-OS layer software products and services will evolve. And their increasing rivalry with Apple will make it harder to rely on the ability to be successful in conjunction with Apple products and services longer-term.

Don’t skimp on your tools. Despite the high purchase price, the Apple MBP is the New Yankee Laptop in our technology analysis workshop.

[Disclosure: The R2 Model portfolio has long positions in both Apple and Google at the time of this writing.]

Back in 1994 I started sporting around with the tablet computer pictured below. At the time I was on the Institutional Sales desk of S.G. Warburg on 52nd Street in NYC. So of course everyone thought I was quite the nerd. However it was made by a company we were talking to about research coverage and someone needed to try it out.

The company had these units designed by the same design firm that Apple was using and according to the CEO even some of the same people were involved in this project. The device was then manufactured by IBM. So the fit, finish and quality was quite good. The surface remains very pleasant and can be described as a kind of sueded metal overall.

The guts of the machine were pretty standard. Either a 386 or a 486 powers it and it runs Windows with all the standard elements. It also has a keyboard and a small bar that folds out in the back to allow the unit to stand as you can see in the other picture. Also shown below is the pen which was needed to work with the touch screen.

Basically when at a desk this computer functions much like a small desktop. The difference is that when you carry it around the touch screen and pen mean that many operations can be performed on the go and more easily than would be possible with a laptop.

Of course the TelePad didn’t take off and the company is gone now along with their thinly traded stock and warrants. One obvious problem at the time was the lack of wireless networking and development of the Internet. Most of the time the main application running would be Word or Excel.

The display and pen interface were also not a joy to use. The screen was not very bright. The pen wasn’t very sensitive and there was no effective handwriting recognition or even gesture support back then. So it was a novelty. If I remember correctly they were not cheap either. I bought one but was given a special price, I think I paid around $1,500 for the whole kit.

Now that this little bit of nostalgia is out of the way what does it mean for the Apple Tablet of 2010?

I’ve seen what appears to be a real set of images on what the Apple tablet will be but I’ll reserve judgement until I really know the details. One thing that I noted in the unverified images is the MacOS screen. If that’s the basis for the user interface I think it means that we still have more work to do.

Different form factors demand different, more purpose-built, interfaces. When the BlackBerry came out it had a four line display and had all the controls needed to process email effectively. Nobody wants Windows on a small device.

Apple did a separate OS for the iPhone and that has served them quite well. Of course the tablet is in the middle and combines features of a smart phone with those of a small laptop computer. Special applications like an eReader would come for free in the bargain. But the OS should be special. Combining features of the iPhone with an eReader and maybe a few other services that will be a good fit for tablet usage. Nobody is going to want to use the Adobe Creative Suite on this or even the Microsoft Office Suite. They may wish to post to a blog, make and show presentations, watch movies and videos, play games, etc. The tablet should be different, not a shrunken laptop or a big iPhone with a touchscreen.

I’m sure the device is going to be “nice” but so was the Macbook Air for which there really didn’t turn out to be a market for. My other worry is that competition will mean we may not be able to get everything we want. I’d love to see Apple and Amazon work together on this.

Like many I’m eager to see the facts which will be out soon enough. I did want to share these pictures though. The TelePad is still a very nice little computer, kind of like the Motorola Razor of 10 years ago.

I say this mostly because of the Apple “iSlate” which is supposed to be announced later this month and ship in March. (Even if this isn’t true it might still have the same market freezing effect.)

At this point most of the other platforms have disclosed what they have to offer in the near term. The Google Nexus One is out. A bunch of new eReaders are all out. The Windows version of the tablet computer is out. There is a laundry list of new technology gadgets rolling out CES as we write that will include many new netbook and laptop option from basically every vendor.

But now it feels like we will enter the eye of the hurricane of mobile Internet for the next month or two as all eyes turn to Apple and the “iSlate” or whatever it will be called.

There is an obvious gap in the market that Apple may be able to exploit. The iPhone and similar devices are too small to be good choices for doing lots of reading on. As nice as an eReader might be it’s hard to justify a separate device for it. It certainly feels like a feature that should be built into a device that does more than just support reading.

Obviously many of us simply use our laptops for reading most online content but the form factor is not ideal for casual consumption in the living room, kitchen or the hammock. As reading online expands to represent a few hours a day it’s easier to justify a separate device for it. A tablet style device is perfect for many of these use cases but not if one has to navigate a typical OS environment to use it.

It would seem silly to buy an eReader in Q1. The same might be said regarding a new smart phone although buying a Droid, Nexus One or iPhone isn’t going to cause any acute pain or suffering.

Personally I think Apple might have a hit on their hands if they do the iSlate right. The most critical aspect will be how supported it is by players like Amazon. If Apple and Amazon can work together here it will be huge for both.

However if Apple comes out with a fantastic device but isolated from Amazon and most content then it’s not going to be very compelling.

I’m freezing my technology budget until April/May and then will make some new purchases for myself and the company.

The first quarter is always seasonally weak so it will be hard to tell what magnitude this may have in terms of near-term business trends. But if Apple successfully stalls the market in Q1 it could create some disappointments in Q1 and some opportunistic portfolio adjustments. We can only watch and be ready.

What are you going to do?

[Disclosure: Apple Computer is in the Research 2.0 model portfolio.]

Apple is grabbing some more headlines having recently hired a few more senior semiconductor executives.  It builds on what they have been doing since they acquired PA Semi a while back and it appears they will go all the way to having their own in-house design and development team.

Apple is owning up to the fact that silicon has evolved into another form of software.  Going back to our notes from the 2004 STMicro analyst meeting they were seeing that basic systems on a chip (SoC) were going into millions of lines of code (MLOC) just for a TV set.  We’re no semiconductor analyst but we noted that the SoC segment of semiconductors was becoming a software business.

While a huge segment of the semiconductor business is in functional and commodity products a major growth (and higher margin) segment has been SoC.  These are purpose-specific and basically just advanced software that happens to be compiled all the way down to silicon.

What Apple is doing is realitic and of course a bit smarter than what the average company is doing out there.  Apple is far too large not to rely on major partners in the semiconductor industry to develop technology for them but they will be able to be smarter users and do some very special, focused things with their own team to make it harder to replicate their success and keep their secret sauce actually secret.  They can push the envelope more with partners and also retain some proprietary control over some of the software-like elements.

This starts to bring up a broader discussion of chip-level, os-level and application-level platforms we evolve into a more consumer-focused, cloud-based world but that’s worthy of a separate post, maybe even a research note.

[Disclosure: Research 2.0 owns shares of Apple at the time of this writing.  See our website for further disclosures.]

Along with the usual economic fears and estimate reductions the news that Apple was stepping back from MacWorld and that Steve Jobs is not presenting this year has analysts and “investors” dropping AAPL hard again today.  We try not to write about Apple since the name is clearly over-covered but like many, we can’t resist.

Apple has already been visibly absent from most technology conferences as both a sponsor and a participant.  You will find Sun, Microsoft, IBM and HP all the time but just about never Apple.  Google and Facebook are appearing more and more and sending speakers along with sponsorship fees as well.   This has been true of Apple for some time.  Despite their success they just don’t play that game and I for one am glad they don’t.  (That’s a whole other post however…)

Under the “be careful what you wish for” angle this is a step away from the very thing most people complain about which is the huge value afforded to Steve Jobs and how risky it is to have it tied to one man.   The facts are that most Apple customers are buying the products because of the design and features offered rather than some cult-like following of Steve Jobs.  Of course most of the people that are into technology and blog are very into the whole cult-of-Apple thing so it gets over-covered.  Getting Steve Jobs off the stage is a good idea in terms of beginning to share the limelight and build a broad, capable team of managers.

For example we saw Marissa Mayer is “just a VP” at Google and she impressed a tough crowd at Le Web last week with her obvious intelligence, drive, talent and ability.   That’s probably more important for investors to know than how Larry, Sergey and Eric are dressing and saying the same general things again.

Should Apple clarify how they run the company and demonstrate that they have a deep bench and the ability to be successful if they lose some key members of their team?  Yes.  But the fact is that pulling back from MacWorld is consistent with everything they are doing and makes total sense to us.  It also ties right into what critics of the “Jobs risk” have been wanting.  So what’s all the fuss?

Amazingly Oppenheimer downgraded Apple shares today and is quoted as saying that “[until Apple elaborates on the Jobs health thing] they can no longer continue to recommend Apple as a long-term investment.”

As always we continue to be very happy about the consistently idiotic and noisy world of what now passes for “the Street.”  It reminds us of the good decision to leave it to focus on more practical, real, profitable research work.

[Update: Also the whole world moves in real-time, less on conference schedules which is another reason fewer people are going.  There's a good writeup of this over at Macworld. Here is the link.]

[Disclosure: We do have a small long position in Apple at the time of this writing. ]