Apple Wants iCloud to Be the World's DVR

The Wall Street Journal has been revealing some details about Apple's plans in the television space. Steve Jobs famously said he thought he had "cracked" the problem of television shortly before he passed away last year, and everyone has been trying to figure out what he meant ever since.

The latest report from the WSJ, if true and I'm interpreting it correctly, likely reveals what Jobs thought was the breakthrough:

The Cupertino, Calif.-based company proposes giving viewers the ability to start any show at any time through a digital-video recorder that would store TV shows on the Internet. Viewers even could start a show minutes after it has begun.

The vision here is pure Apple. The company identified an area of complexity, in this case managing TV recordings, and plans to offer a simple solution where it simply does it for you. Here, iCloud becomes the world's DVR. There won't be boxes in every individual home making millions of individual recordings of the same programs; there will be one place that "records" the programs (Apple's datacenter) and all of the boxes will stream that copy.

You won't miss a show because you forgot to set up a recording; Apple is recording it for you. You won't miss a show because the DVR filled up; Apple is recording it for you. You won't miss a recording because you're out of free tuners, or because the cable went out, or because a cloud went between you and the satellite. Don't worry. Apple's recording it for you.

Obvious road blocks have to be overcome before this vision of the future can come to pass. For one, the WSJ reports that Apple doesn't have a single deal worked out yet with any content providers or cable providers to make this happen legally. For another, this setup requires a completely reliable Internet connection. If the Internet goes out, you not only have no TV anymore (not a guaranteed problem today) but you can't watch your recordings in the meantime either.

Plus, ISPs aren't going to be happy about a system like this because it would put an enormous strain on their networks. They are already playing around with bandwidth caps, and that's without most people getting their TV through the Internet. Perhaps the new H.265 standard will solve this particular issue, but it's not going to be available for anything until "as soon as 2013" (which probably means later than that, given the choice of weasel words here).

This sounds like a really cool way forward. I have my doubts that we'll see anything like it any time soon because content owners, cable providers, and ISPs are some of the worst companies in the world. Of course, Apple worked things out with cell operators, who are just as bad if not worse, so there is some hope out there.

Paul Ryan Is Mostly Unremarkable

Paul Ryan is the pick as Mitt Romney's vice president. Lots of pixels and ink have been devoted to what that means and how Ryan changes the game (or not, as the case may be).

Ultimately, Ryan isn't that remarkable among Republicans. Look over his record.

He voted for George W. Bush's unfunded tax cuts and his unfunded Medicare Part D expansion. He voted in favor of the unfunded war of choice in Iraq. He voted for TARP and the bailouts, practically begging his colleagues to support the former. When Barack Obama took office, Ryan got religion about deficits and eventually put together his famous series of budgets that cut taxes and spending.

In other words, he is a garden variety politician. Spending by his party's leader is a judicious use of our resources that strikes the right balance, while spending by the other party's leader is wasteful and a burden to future generations. Deficits created by his party aren't worth worrying about, but those racked up by the other party are dangerous. Nothing is new under the sun.

Ryan does shine as a communicator, as he's able to state his cases in a clear and often convincing manner. He will do a better job at advancing his party's ideas than Romney does. However, there's nothing in his record that makes Ryan all that special. He's a Republican who mainly just votes the party line.

Why Government Austerity Isn't a Good Idea Right Now

The practice of government austerity, defined as the raising of taxes and lowering of spending to improve the government's balance sheet, is not what the United States needs right now. Here's why.

The economy can basically be summed up as the total number of goods and services produced in the country. The measure for that is GDP. At present GDP is growing, but at a very slow rate.

Also at present, private American citizens are deleveraging in aggregate, or paying down their debt loads together. They're doing it at a faster rate than the citizens of many other developed economies with high private debt.

In the economy, one person's spending is another's income and vice versa. The banker who buys a latte at Starbucks helps pay for the barista's salary, while the interest paid on the barista's credit cards helps pay for the banker's salary.

The economy grows from year to year as people produce more (and more valuable) goods and services. Some people spend less than they make and save the rest, while some others spend more than they make. It's not all spendthrifts who do the latter; retirees, for instance, spend more than their incomes as they live off of their retirement savings. An entrepreneur bootstrapping a new business would also be expected to spend more than his or her income.

Under normal circumstances, there will be a good mix of people spending less than they make and spending more than they make. We don't have that now. Far more people are looking to spend less than they make than the opposite as they pay down their debts and/or increase savings. The large number of people who are behind or underwater on mortgages are a significant part of those net savers. Their preference will be to pay down that debt no matter how alluring increased consumption becomes. This state of affairs has become known as a balance sheet recession.

Due to the deleveraging, economic activity in the private sector is lower than it otherwise would be. Due to high unemployment, it's really lower than it otherwise would be. Only two things could compensate for it. One is running a trade surplus, but the country hasn't done than since the 1960s.

The other is if the government steps in and spends more than it takes in by running a deficit. It does that already, of course, and has for many years.

Now let's think about government austerity. The government would roll back its economic activity by spending less, and it would further inhibit private sector activity by raising taxes. Some people claim that an austerity program would help the economy by unleashing a flood of economic activity currently held back by people worried about a potential sovereign debt crisis in America. I don't see it.

If regular people were only just saving money, I might believe that. They're not. They're paying down debts, and they will continue to do so until their overall level of debt is sustainable. Most regular people also pay no attention to current events, have no idea what the state of the government's debt is other than "it's big", and do not think about future tax rates when planning purchases.

Cutting back government economic activity right now will just hurt the economy. That will just put more people out of work, thereby slowing economic growth. Growth is already slow right now; cutting back on government spending might cause the economy to shrink as it has in some European countries. Austerity in a bad economy is self-defeating in that way. If the economy shrinks, the government collects fewer taxes and can't reduce its deficits as quickly as it had intended to (or at all, if it's a severe case).

The government can try to jump start the economy by doing more spending, but it must do it smartly. Passing out tax rebate checks probably won't get the job done, as many of them will just go to paying off debt. That might bring the ultimate end of the deleveraging cycle a tiny bit closer, but $400 or $800 is peanuts compared to a mortgage.

It'd be better to use it to directly employ people and invest. Have state and local governments re-hire teachers, police officers, and firemen who have been laid off. The government could fix the nation's infrastructure and put construction workers back to work, something that will benefit everyone. High unemployment takes a toll, and long term unemployment takes an even larger one.

I am still working to understand economics better and figure out what is the best way forward. I'm not sure of a lot of things, but that austerity would be bad for the US is one thing I'm certain of.

Does High Debt-to-GDP Ratio Inhibit Growth?

A Twitter friend of mine sent me a paper by Reinhart, Reinhart, and Rogoff titled "Debt Overhangs: Past and Present". It presents evidence that periods in advanced economies where the public debt/GDP ratio is above 90% for five or more years are marked by lower growth than periods where the public debt/GDP ratio is lower. The implication, if not the conclusion, is that a large debt overhang can cause GDP growth to be lower than it otherwise should be.

The introduction of the paper reveals the question that its trying to answer: if interest rates for a high debt/GDP economy are low, should the government take it as a sign that it should not worry about the debt and use borrowed money to try to stimulate the economy? The authors seem to argue that the lower growth rate during high debt/GDP periods means that no, that isn't the right approach to take.

The debt-to-GDP ratio has two factors: debt and GDP. For public debt to go above the 90% threshold, either debt had to rise greatly versus GDP, GDP had to fall greatly versus the debt load, or both. It's interesting to see how that plays out with the paper's core data.

The data it presents covers the past 200 years for today's advanced economies. Page 13 of the paper is where the table of it begins. If you look at each period of at least 90% debt-to-GDP ratio, you'll see that nearly all coincide with at least one of four factors: war, financial crisis, the Great Depression, and international recessions. There are two exceptions.  One is when Spain lost the last of its colonies. The other is Greece in the 1800s, and that country, as best as I understand it, wasn't really an advanced economy during that time.

War causes debt to rise as governments mobilize, and it can negatively affect GDP quite a bit if its on your own soil. A financial crisis will not only hit GDP but also cause a government to start running deficits (or much larger deficits) as tax revenues fall and social safety net spending rises. The Great Depression lowered GDP for everyone, and international recessions do the same thing on a smaller scale.

The paper doesn't discuss the possibility that both the high debt/GDP ratio and the sustained period of low growth might have been caused by some other element (war, financial crisis, etc.), which would mean that the solution to slow growth might not have anything to do with reducing the public debt load. It devotes only two sentences to this kind of question of causality:

Another line of reasoning for dismissing concerns about public debt and growth is the view the causality mostly runs from growth to debt.  The multi-decade long duration of past public debt overhang episodes suggests that at very least, the association is not due to recessions at business cycle frequencies.

It's probably not due to the regular ups and downs associated with the business cycle. However I don't think that war, severe banking panics, equity market collapses, the popping of enormous asset bubbles, or things of that nature are part of the regular business cycle either.

Two of the authors, Carmen Reinhart and Kenneth Rogoff, wrote a Bloomberg editorial in 2011 well before this paper was published but along the same lines. They've been working on this issue for years. They do at least admit there that, "Anyone familiar with doing empirical research understands that vulnerability to crises and anemic growth seldom depends on a single factor such as public debt."

In both that editorial and especially the paper, they talk about how the overhang of private debt can be a big problem too. That's definitely for sure. If you're a believer in the idea that we're in a balance sheet recession, you're definitely on board with private debt being a problem. Individuals deleveraging will consume and invest less, depressing economic growth rates.

But how would high public debt take a toll on the economy? One way is if the government also deleverages by cutting spending and/or raising tax revenue to pay down the debt. That certainly could be problematic, but it hasn't been so far in the US. The federal government has not done anything substantial to address its deficits and debt loads. State and local governments have had to though, and it has resulted in a large decrease in the public sector workforce. That is keeping unemployment high and is depressing the growth rate for sure.

The other way is if the private sector savings rate rises due to fears of higher taxes to pay down that debt in the future. I really doubt that's a big factor. Only 61.7% of voting age people voted in the 2008 election, and that was the highest turnout since 1968. A 2007 study showed that only 35% of Americans nationwide qualify for a "high" level of knowledge of current affairs. Furthermore, 43% of US households live paycheck-to-paycheck. They can't afford to adjust their spending based on decades-out tax expectations even if they wanted to. The likelihood that a significant number of people consider future taxation in their purchasing decisions is low.

Finally, I used FRED data to run a correlation between the federal debt/GDP ratio and the personal savings rate. The range is since 1966, the maximum I could do. It came out to -0.743, meaning that as the debt/GDP ratio has risen, the savings rate has fallen. Running a regression yields a microscopic p-value, meaning that we can reject the premise that the two things are related. If lots of people consider the national debt load when deciding their savings rate, they certainly aren't acting on it or at least assuming that they need to tighten up in the face of future taxes for debt payments.

What I was really looking for from the paper was some kind of call to action or policy recommendation. It doesn't contain one other than "don't impose austerity, but don't leave the long term debt question unanswered, and do try to get it below 90% of GDP as soon as possible". That's not all that useful, although even getting the first part correct is somehow difficult for world governments right now.

Ultimately I don't think this paper leads to a real policy recommendation because it doesn't look at all about how countries left periods of 90% debt/GDP or higher. Did higher growth occur before or after the end of the period? Did the countries leave the periods more due to growth or focus on paying down the debt? They don't say. And anyway, the most important question is not what caused the nations' debt loads to fall but what ignited growth. Again, they don't say.

The closest they get to answering the exit strategy for a country (other than noting defaults) is mentioning that Belgium's 1920-26 period of high debt was associated with a rebuilding boom after WWI. It's implied that the country grew out of its high debt problem. So does that then mean that countries should embark on similar build-to-grow campaigns (such as massive infrastructure investments, perhaps) to solve the problem? They don't say. The UK was able to grow quite well from 1830-68 with far higher debt than the US has now thanks to being the largest and most powerful country in the world. Might the US's similar status allow it to do the same, or are the situations too different to be comparable? They don't say.

The correlation between high public debt/GDP ratios and slower growth than normal is compelling, but as always, correlation doesn't imply causation. The Great Depression caused 90% debt/GDP or more in some countries, but it didn't in the US and a few other nations. They languished for well over a decade with low growth without high debt/GDP causing it. That as much as anything proves that a nation can have an extended period of low growth without debt/GDP over over 90% as the cause. Without that causal link, the idea that this paper's central thesis offers any universally applicable practical advice disappears.

It's certainly possible that low interest rates on US debt are not a green light to borrow more to try to stimulate the economy, but I didn't really get that out of this paper.

Two Charts That Illustrate Why Unemployment Is So High Still

The answer to why the employment part of the recovery has been so slow is a very simple one. I'll use two charts to show why: private sector employment and public sector employment. The data is seasonally adjusted and comes from FRED, and the public sector figures have temporary census workers removed (because they're just that: temporary) thanks to data published by Veronique de Rugy of George Mason University.

First up, the private sector:

Click the image to make it bigger. The X-axis is months after the official end of the recession.

Compared to the last two recessions, the rate of job growth from the official end of the recession (June 2009) is actually doing OK. The public sector is by no means "fine", as it lost nearly 8.9 million jobs from its peak of employment (January '08) to its trough (February '10) and it's still about 4.5 million jobs below that peak. That deficit in jobs doesn't even account for the number of jobs needed to keep up with population growth either.

However, its growth is similar to that after the 1990-91 recession, and it's doing better than after the 2001 recession. It would be great if it was growing jobs at a higher rate, but its current rate is not out of the ordinary for a post-recession economy.

Now, the public sector:

There's your problem. Overall public employment has done just about nothing but fall since the end of this recession. The terrible recent jobs numbers can mostly be blamed on the decline of the number of government workers. It's less a federal problem than a state and local problem, but that's your explanation for why unemployment isn't lower.

What Mitch Hedberg Teaches Us About Tax Rates

The late Mitch Hedberg was one of the best one-liner comics who has ever lived. In this clip, he explains the concept of marginal utility more concisely than anyone I've ever heard attempt it. The first pancake is great, the second pancake is good, but the fifth pancake brings you almost no benefit whatsoever.

What does this have to do with tax rates? Think of dollars instead of pancakes. For someone who doesn't have much in the way of assets or income, each additional dollar that person acquires is of more value to him or her than someone who has lots of assets and income.

Consider Herman Cain's cartoonish 9-9-9 plan. Under it, everyone would pay 9% income tax. Someone making $20,000 per year would pay $1,800 to the federal government, leaving $18,200 left over for everything else. That could be the difference between having a car or not, or having an important medical procedure done or not.

Now think about someone making $200,000 a year. That person would pay $18,000 per year to the federal government, leaving $182,000 left over for everything else. This person may or may not even miss the income tax given the abundance left over depending on how closely that person manages his or her finances. The tax rate for both people is the same, but the amount paid is more precious to the first person than the second.

That's one reason why we have a progressive tax system where the rich pay more than the poor. It goes beyond non-quantifiable things like "fairness". It's better for the rich to pay more because the amount of marginal value they lose with each additional dollar assessed in taxes is much lower than that of people who have much less.

tl;dr crowd, thanks for coming. You're dismissed.

Google's Android Revenue is Still Difficult to Determine

Google develops the Android operating system and gives it away for free as an open source project. Manufacturers have to meet certain standards in order to get the official Google apps like GMail and the Google Play store (formerly Android Marketplace), but those standards don't involve fees.

Google makes money via taking a cut of paid apps and running an advertising platform that developers can use. According to documents that have come out thanks to Oracle's lawsuit against Google, from 2009-11 Android made $543 million for the company that develops it. The Guardian estimates based on the rough numbers of activations Google has released that it comes out to a little over $10 per device. By comparison, Microsoft makes at least $5 per device on 70% over Androids out there thanks to patent royalties.

So is Android a business failure? It's still difficult to say even when you compare that $543 million over three years to the $38 billion of revenue the company brought in during 2011 alone (and consider that it's probably not the full amount of direct revenue anyway).

Google is not like most companies. It doesn't make most of its money by producing products and services and then selling them for more than they cost to make. It is perfectly content to pour money into products that it doesn't charge for so long as it can collect information about users and their habits and sometimes serve ads on them. It then uses that information to tune its advertising algorithms, the real core of the company. Serving up the most relevant ads possible to its users increases the likelihood of people clicking on them, which then maximizes revenue on the ads.

Android is a both an offensive and defensive play for the company. It's offensive in that Google can get information about users to use in its ad algorithms on top of the app and ad income. It's also a defensive play because Google wants to make sure there's a major mobile OS out there that won't shut out its services.

Google bought Android in 2005, well before the iPhone in a time when Windows Mobile was rapidly growing in the smartphone space. Google probably could envision a future where Windows Mobile dominated smartphones like regular Windows did on PCs, and the default search setting on there would be Microsoft's competing search engine. With mobile the future of computing, such a future would hurt Google's growth prospects drastically.

Windows Mobile obviously tanked and Windows Phone 7 is out there to replace it, but Apple is the big rival on mobile now. Apple does use Google Maps in iOS, but that may not last for too much longer. It also uses Google as the default search engine in Mobile Safari, but there's no guarantee that will last. It was even rumored heavily a couple years ago that Bing would replace Google as the search default.

I really wonder how long a play Android is for Google. I really think the company has already shown us what it wants the future of computing to be with Chrome OS: everything is on the web where Google can track users and serve up ads. If everything does become a web page or app, it doesn't matter which hardware or OS you use because Google could still track and serve ads to everyone. That vision can't come to fruition yet because web technologies can't match the functionality or speed of native code yet, so the company must develop Android in the meantime.

In any event, Android may have indirectly provided the company more revenue than was reported in the court documents thanks to information from tracked Android users helping to hone the ad algorithms. It might also have kept the company from losing revenue. RIM's Blackberry would probably be No. 2 behind iOS absent Android and, for instance, the Blackberry Bold I have for work has Bing as the default search provider.

Google is probably content not to include such considerations when it comes to how much it might have to pay to Oracle in royalties for Java patents, but it does go into the consideration for the value proposition of Android to the company. Because Android provides some sense of security for the company's core business in the fast-changing and uncertain mobile computing market, its value to Google cannot be distilled down to a single number.

A Sign of the Times

I was reading an article on PCMag.com this morning about a comparison of iPad and Android tablets. I noticed something interesting at the bottom of the page:

Let's see, we've got a MacBook Air, the Office for Mac icons, iPhone app recommendations, and the Editor's Choice iPad. I notice a pattern here.

Perhaps these were simply the recommendations because it was an article partially about the iPad, so I went to some others. No matter which articles I went to, from Windows Phone to Google Play to MegaUpload, these were the same article recommendations.

You'll also notice that, at the very top of the page, among standard, black-colored links like "REVIEWS" and "DOWNLOADS" is an attention-grabbing red link that says "APPLE IPAD". Time have really changed for PC Magazine, huh?

Two Reasons a 4.6-Inch iPhone is Unlikely

Reuters has picked up a story about how there supposedly will be a 4.6-inch iPhone coming out this year. It attributes the rumor to a South Korean publication called the Maeli Business Newspaper, which itself heard this from an "unnamed industry source". Nothing like third-hand information to get everyone going on a Thursday.

The kernel of truth to this that makes it worth considering is that the South Korea-based Samsung is the supplier for the third-gen iPad Retina displays. It's a major supplier of components to Apple, so there are, in fact, some people in South Korea who are familiar with Apple's future roadmap.

There are two big reasons why I am very skeptical of this rumor. One is complicated, while the other is simple.

Let's start with the complicated one. The iPhone screen has always used a 3:2 aspect ratio, first at 480x320 and then at 960x640. The reason why Apple used the same ratio when going to a Retina display is that it wouldn't require developers to re-code their apps. Everything would just scale up 2X, and that would do nicely until developers double the size of all of their raster image resources.

Using a different aspect ratio for the screen would have added a lot of headaches for developers as the layout would have to be tweaked. That is part of the fragmentation problem with Android; it's not just about a wide range of OS versions in the wild but also different screen sizes. The screen dimensions matter greatly when all apps are full-screen apps. Apple took the same tack with the third-gen iPad's Retina display, as it is double the resolution of the first two iPads' displays.

When Apple introduced the "Retina display" term for the iPhone 4, it claimed that for the distance that phones are typically held from the eye, the screen must have 300ppi to qualify for the "Retina" title. A 4.6-inch screen at 960x640 computes to about 251ppi. In order for this mythical, monstrous iPhone to keep the Retina designation and maintain the same aspect ratio as previous models, the resolution would have to be doubled again to 1920x1280. That comes out to a ridiculous 502ppi, clearing the "retina" bar with ease.

While the A5X is certainly capable of driving that many pixels, as the third-gen iPad has more than that, I don't know if it could do it in a phone form factor without draining the battery too quickly. Let's imagine that it could though, granting that the larger frame of the phone would give more room for a sufficiently large battery.

App developers would have to put three different sizes of their images in their packages, one for the iPhone 3GS's 480x320 screen, one for the iPhone 4/4S's 960x640 resolution, and yet another for the new 1920x1280 screen. Not only would that be a pain for developers, but each app would take up a lot more room (especially photo-heavy apps). The 3GS and 4 models still on sale only have 8 GB of flash memory on them, and the 4S starts at 16 GB. Storage space is a significant constraint, and forcing apps to have three different sizes of images would be untenable.

So that's the complicated reason. The simple one is that a 4.6-inch phone is simply too big for most people.

The iPhone's 3.5-inch screen wasn't chosen at random. It's roughly the biggest screen you can have where everything can be operated by a single, normal-sized adult hand. It's unlikely that anything will be out of your thumb's reach while holding an iPhone. On 4-inch and larger phones, it becomes difficult to impossible to operate one-handed, in particular being able to access both toolbars at the bottom of apps and the notification drawer at the top of the screen. That is the kind of detail that Apple considers when building these things.

I'll never say never about a larger iPhone in the future, but jumping to a 4.6-inch display this year isn't likely. At the very least, such a jump would probably require that most of the non-Retina display and 8GB iPhone models be cycled out of use, and that won't happen for at least two years following 2012's new iPhone announcement.

For what it's worth, the largest a 960x640 screen can go while still being above 300dpi is 3.8 inches. That might still be small enough to operate in one hand, but it would feel like change for change's sake. Change for change's sake is not the sort of business Apple is in.

Apple's Dividend and Its Future Opportunities

It's becoming clearer and clearer over time that for an outlet to have proper coverage of Apple as a company, it must assign someone to focus almost if not entirely exclusively on the firm. Apple has become an edge case where normal analytical rules either don't apply or require detailed knowledge to be applied properly.

For instance, consider this article about Apple's newly-announced dividend and stock buy-back program that was the biggest headline on Yahoo! Finance today. The main analysis comes from a "senior stock analyst" from Morningstar named Michael Holt. He's merely quoted as noting that Apple's cash (and cash equivalents) hoard had gotten to the "definitely excessive" figure of $100 billion and that the company needed to do something about that. A question I would ask is this: if $100 billion is excessive, what is $122 billion?

Apple added $38 billion in cash during calendar year 2011, including $16 billion in 2011's holiday quarter alone. The dividend and stock buy-back program will cost the company roughly $13.21 billion per year. If Apple's cash growth continues at 2011's pace, and it'll likely speed up as the company's sales continue to grow, Apple will finish 2012 with about $122 billion in cash. It had about $97.6 billion at the end of 2011, and adding another $38 billion minus the dividend and buy-back costs gets you to around $122 billion. Holt acts as though this new program solves the "problem" of having too much cash. Instead, it only slows the rate of cash growth. Apple's so-called war chest will just keep growing.

Or, consider this howler also from Yahoo! Finance. It's by a staff writer named Matt Nesto, and he promises five suggestings for how Apple could have better used its cash (though he only actually gives four). Never mind the merits of those ideas, which are opinions and are fine for him to have. He expresses anger at Apple for agreeing to part with 20% of its cash pile in an entirely conventional manner. He makes the same problem of ignoring the rate of cash growth. Apple isn't going to be giving up 20% of its cash; it's going to be parting with roughly one third of its annual cash growth based on 2011's figure. That percentage will fall with each subsequent year of course as sales continue to rise.

Apple already spends a lot of money each year. Its quarterly report divulges that its fiscal 2012 1Q (ended December 31, 2011) included a 32% year-over-year increase in R&D spending to $758 million for that quarter alone, and its spending on Selling, General & Administrative Expense rose $709 million year-over-year to $2.6 billion in the quarter largely due to opening new retail stores. It spent another $1.4 billion on property, plant and equipment. Among that spending is the solar farm for its recently completed North Carolina data center, which will soon be joined by another data center in Oregon and its upcoming new "spaceship" campus. It's also well known that the company pays big money up front for supplies of integral components like flash memory and high-quality displays.

Apple is already using its cash effectively, and it will keep accumulating more as long as its products keep selling at heavy profit margins. So what could possibly be next?

That question is one that Wired's Jon Phillips asks in his third generation iPad review. He wants to know what precisely Apple can do to improve on the iPad concept now that it has put a Retina display in it. I think this is a very poor approach. The iPad will not change much cosmetically because there's only so many ways you can do "just a big ol' touchscreen", but that doesn't matter too much. The iMac exterior hasn't changed except in materials since the iMac G5 introduction in 2004. The MacBook Pro has barely changed since the switch to unibody construction in 2008, and the MacBook Air is roughly the same as it was externally when introduced the very same year. The lack of external changes with both the iPhone 3GS and 4S versus the 3G and 4 did nothing to slow that product's growth.

We'll see if the long-rumored Apple television set comes out, but an area of differentiation with massive potential is one that the average stock analyst knows nothing about. It's one that Apple has been working on since the release of Snow Leopard: parallel computing.

Grand Central Dispatch is Apple's foray into helping developers make their applications better for multi-core environments. It doesn't solve the hard problems for you, but once you have solved the hard problems, it makes it easy to implement the solutions. If Apple can get all of its third party developers using GCD, and continue developing it to make it more and more friendly to those developers, then it will be a huge advantage for the OS X and iOS platforms. It's no big deal that the third-gen iPad doesn't have a quad-core CPU because most applications aren't multithreaded. However, it's been obvious for years that the future is more about a proliferation of cores than gigahertz increases. Having a truly developer-friendly and widely-used multithreading solution for best using that ever expanding number of cores would be a tremendous competitive advantage.

Beyond that, it's not hard to see where other growth areas are. Apple is only scratching the surface of what it can do with iCloud, which is understandable given that it only went live six months ago. Apple is modernizing under-the-hood aspects of Objective-C, but it's nowhere near finished there. At some point HFS+ will need to be replaced, and its successor could enable better and more efficient methods for backup and file versioning (to say nothing about data security). All of that has to do with software, and it's far more important than the cosmetic aspects of what has to be affixed behind a touchscreen to make a functioning device.

For as much room to grow in market share as Apple has, and Tim Cook likes to point out that it's quite a lot every time he gets a chance, it has plenty of room to grow technologically as well. We're nowhere near an end-of-history moment when it comes to personal computing, and everyone, not just Apple, has tremendous opportunities for improvement. The only way to come to the conclusion that Apple is out of ideas or is somehow done with big innovations is to know almost nothing about where the company is at.

This dividend and stock buy-back program is not a sign that the company is transitioning out of a high growth phase. It means that the company is executing at such a high level that it can part with an extra $13 billion a year and still stockpile over $20 billion a year in cash. As long as Apple's senior management doesn't rest on the laurels of its current product line, and it doesn't appear to be in the post-Jobs era, then there's no reason to think that returning some of its cash to shareholders has any deeper meaning than its mere face value.

The new iPad vs. Android Tablets

There was a time not too long ago when I could give decent reasons as to why someone might want to get an Android tablet over an iPad 2. Many Android tablets have high definition screens, HD cameras, voice recognition software, and 4G cellular networking. I suppose all of that is still valid in a comparison with the iPad 2.

But the new iPad? It has all of those things and more. I can only think of two reasons why someone might buy an Android tablet over the third gen iPad: if having a widescreen display is absolutely, positively, unequivocally your top priority and nothing else is close, and if you have some kind of problem with Apple stylistically, philosophically, or what have you.

The gap in the software ecosystems is gigantic. I've heard good things about Ice Cream Sandwich, but it is nigh impossible to find in the wild. With as scattershot as Android updates are, there's no way of knowing when devices will get the upgrade to it as well. Honeycomb just isn't that good, and the third party software support for Android tablets is worse. Go into the Android Market (Google Play Store?) and hit the category of staff picks for tablets. It's impossible to determine which apps are actually tablet apps and which are just phone apps that happen to scale nicely. Dont worry about it though; any given app is more than likely to be a phone app.

The new iPhoto only increases the gap between the platforms. It's a tough case to be made that a single app is a big point of differentiation, but bear with me on this one. You can get a browser, email, and Angry Birds on anything these days. The iWork apps are nice to have, but I don't think an office suite is a make or break thing on tablets just yet. iMovie and Garage Band are impressive, but I don't know how many people do heavy video editing, and even fewer do much with audio recordings.

But photos? Everyone does photos. The new iPhoto is incredible, and people's iPhone pictures will be coming into it automatically via Photo Steam. If, as rumored, Microsoft Office ends up on iOS, then you might as well turn out the lights in the Android tablet development department.

Look, I think it's very generous for Verizon to have loaned me this Droid Xyboard 8.2 as a part of its ambassadors program. That it came with unlimited 4G and tethering only makes it more so. I like the hardware (except the button placement) and the network is incredibly fast. I want to like this thing. I even wrote this post using Google's Blogger app on it with only a little cleanup done later on my laptop.

The problem is that Android and its ecosystem let the hardware and network down. The process of writing this illustrated the problem perfectly. Blogger is one of Google's A+ properties, but the app for it is a phone app that only has extremely basic post composition and editing features. You can't use it to look at stats, manage comments, or adjust the blog layout. If the developer for Android itself is going to have a shabby app for one of its top services, then what does that say about the platform as a whole?

I cannot in good conscience recommend this device to anyone now. I was on the fence about it before this iPad announcement, but when this tablet is only $30 less than the new iPad off contract, forget it. I can recommend Verizon's 4G network for the new iPad if you go with a model with cellular connectivity, though.  That is one part of the Droid Xyboard experience that has been anything but a disappointment.

The iPad is Already in Its Final Form

In the run up to any Apple product announcement, rumors and linkbait abound like in few other situations. A number of articles and videos heading into Wesnesday's iPad 3 announcement are about what the thing will look like.

The answer is quite simple: a lot like what the iPad 2 looked like. The iPad 2 itself largely looked like the original iPad, with only the only drastic change being the introduction of a white face plate option. Unless more colors come down the pipeline, all future iPads will look roughly alike.

Think about it: the external iPad hardware is just a touchscreen with a home button and a couple of cameras. The models with cellular connectivity have an extra black stripe at the top of the back for the antennas. That's it, and that's all it's really ever going to be.

The iPhone has changed form several times, but it has far more constraints than the iPad does because of its smaller size. It will probably keep evolving over time as the company comes up with new ways to deal with those constraints. The iPad doesn't have those same constraints. Everything crucial can fit inside with plenty of room to spare for an enormous battery.

Other Apple products have hit the design wall, so to speak, in this same way. The iPod Classic hasn't changed since 2007. The fourth and fifth generation iPod Nanos were basically the same thing, and the seventh generation introduced in 2010 wasn't updated for 2011. The Mac Pro's external design basically hasn't changed since it was introduced as the Power Mac G5 in 2003.

The iMac was once the company's big showpiece for design. The original iMac G3 had a bulbous and translucent case. The iMac G4 was the famous sunflower design, a radical change from the G3. The iMac G5 was yet another big change, packing the whole computer behind the screen. The basic form hasn't changed since the G5's introduction 2004, except that it now is made of aluminum and glass instead of plastic and comes in different screen sizes.

While the iPods and Macs took time to hit their end-of-design phase, the iPad basically launched that way. When the product design is "just a big ol' screen", where do you go from there? Until and unless the aluminum backing gets replaced by another material (carbon fiber? liquidmetal?), it basically is what it is.

The iPad will continue to grow and evolve over time, but it won't be the external look and feel doing that changing.

Windows 8 Consumer Preview: The Non-Tablet Review

Almost every Windows 8 preview focuses entirely on the Metro interface and touch-centric tablet features. That makes good sense, considering that's the big new change.

However, reviews that start and end there are vastly incomplete. Why? Most computers that will run Windows 8 will not be tablets. Windows 8 will put Windows 7 into retirement, and soon every non-Mac PC will ship with it. Touch may be the future, but the mouse and keyboard aren't going away anytime soon. How this new OS works with a mouse and keyboard is as important as any other aspect of it.

In short, it's not a great experience. I can say that, missing Start menu aside, the desktop is almost identical to the one in Windows 7. It doesn't progress, but it doesn't regress either. There's not much to say about it.

With the Metro environment, on the other hand, it's painfully obvious that it wasn't designed for the mouse. Microsoft put up a sunny video showing that you can "rediscover your mouse and keyboard", but that's not what you're doing. You're discovering how to make this new thing work with input controls it wasn't really intended to have.

Take the Metro version of IE10:

This is what it looks like when you bring up the address bar/tab bar. How do you do that? By right clicking somewhere on the web page. Don't click on a page element, because you'll get a context menu for that element. You have to find an empty spot and then click. This is annoying.

Once the control bars appear, you see that they're far bigger than they need to be for a mouse. They have to be large, though, in order to function as touch targets. Being large enough to be a touch target is one of the biggest design considerations for Metro and rightfully so. But, it's unnecessary with a mouse.

The address bar at the bottom is particularly annoying. It comes and goes quite often and takes up a large amount of space when it shows up. People need to see the address bar any time they navigate to a new page to make sure they're not going to a scam site, so it's frequent appearances are justified. I'd much rather it work like any mobile device browser, though, where it appears at the top and scrolls away when you scroll down and reappears when you scroll up. The current behavior is too much movement.

The file browser, full control panel, and desktop IE10 are about all you can do on the desktop with a fresh install. Yes, even venerable Solitaire has been Metro-ized, and it hooks into Xbox Live too!

Every single time you launch it, you have to sit through a Solitaire splash screen and an ESRB notice (presumably a requirement for all Xbox Live-enabled games) before getting to play it. Once you get past that stuff, you find a game that doesn't perform well and cannot keep up with quick mouse motions. It's probably an issue with my five-year-old laptop having old graphics hardware, but this machine does meet the recommended requirements. It's also probably an issue with this being pre-release software, but either they need to do a lot more performance optimization or raise the bar the hardware requirements.

Solitaire being a dog performance-wise isn't the only rough edge I have found on this thing. For one thing, Firefox feels faster and snappier than either version of IE10. I'm even using the Aurora channel to make it pre-release apples versus pre-release apples, but Firefox leaves the IE10s in the dust.

I also decided to try out some apps from the Store. Cut the Rope is a popular game on a number of platforms and it's featured right there at the front of the store. I click install and... error. It can't be installed. I try again, and once again, no luck. I have to close and reopen the Store app to get it to install.

OK, fine. I go to the Top Free category and notice a podcast app called SlapDash. I listen to a lot of podcasts, so I download that one. Pull out the sad trombone, because it can't find any feeds the first couple of times I run it. A while later I try it again, and this time it works. I have no idea why or what the difference was. In addition, the built in Metro apps appear in the store and give you the option to install them. Even though they're already installed. Yeah.

The built in Metro apps are OK, but they're very under-featured. I realize that simplicity is a goal, but for instance, the Mail app can't even search a mailbox. The only one that stands out to me is Weather. It too had an issue with downloading things, in its case the conditions for the default location of Seattle. I was able to add my location no problem, but it still had issues getting the Seattle data. It's also not clear how to get rid of Seattle, which would be nice as I don't care about the weather there.

Still though, the layout is gorgeous and it has all the information you could want. The main screen shows the weekly forecast, followed by the hourly forecast, followed by a dozen different maps, finally followed by the historical information for your area. I can say this is the Metro app that works best with the mouse among those I've tried, principally because no clicking is involved. You just scroll from one view to the next.

Other annoyances:

• I keep expecting the Start menu/Metro home screen to appear on my Alt+Tab list. It feels like any other window in the system, so why not? Alas, it does not appear there and probably never will.
• In the Metro environment, you can't see a clock unless you mouse over to the top or bottom right corner of the screen and then move the mouse towards the middle to activate the charms. It should not be that difficult to check the freaking time. Why there isn't a clock on the Start menu, I have no idea. There's plenty of unused screen real estate to fit one in.
• Weather aside, there's nothing about many of Metro apps that's better than using their browser-based counterparts. Maps is not as good as Google or Bing Maps online. Mail is not better than any web-based email. The SkyDrive app isn't better than the SkyDrive web interface, and so on. Well, in some ways they're probably better if you've got a Windows 8 tablet as they're touch-optimized, but that's not what kind of review this is.

Windows 8, by virtue of being Windows, will reach near-ubiquity at some point. However, it makes a very loud and very clear statement: the mouse and keyboard are second-class input methods in the Metro world. That's fine in a vacuum, as touch is likewise inferior in the Desktop world.

The problem is that there is no way to live in just the Desktop world on a traditional PC unless you cover the desktop and taskbar in application shortcuts. At the very least, you'll have to go into the Metro Start menu to launch anything that's not pinned to the taskbar or doesn't have a desktop shortcut.

Windows 8 was designed to combat the iPad, clearly, but it might be the best thing to happen to the Mac since the Windows Vista train wreck. OS X, even in the upcoming Mountain Lion update, is completely mouse-optimized. Only Launchpad feels like something touch-optimized, but it's completely optional. All of the touch enhancements to OS X have been in the way of trackpad gestures. It's getting to the point where it favors the trackpad over the mouse, but you can still get around just fine with a mouse for sure.

The Metro stuff is going to frustrate people who just want to use a mouse and keyboard, and there are plenty of those people. The 100% mouse-centric Mac will beckon from afar, and I'll bet a lot of people make the jump for just that reason.

Droid Xyboard 8.2 Unboxing and First Impressions

Verizon has sent me a second device as a part of its ambassadors program: a Droid Xyboard 8.2. I was particularly excited to get it, more than the Droid RAZR, because I've not had any real experience with tablet devices. I've had Blackberry phones for work and have extensively used an iPod Touch, but I've not owned an iPad or any other tablet.

The unboxing process was simple and straightforward as there wasn't much in the box. The tablet was on top with a wall charger, USB cable, and some booklets underneath. That's about all that anything comes with these days.

As the "8.2" part of the device's name would suggest, it's an 8-inch tablet. The smaller dimension is just a hair wider than a CD, if that gives you an indication of size.

I have almost nothing but good things to say about the hardware so far. The screen is bright and clear. It's just the right weight: not as heavy as you might guess for its size, but not so light that it feels cheap. The backing is aluminum with a rubber ring around it, and the rubber feels good for gripping in your hand. The only bad part is that the sleep/wake button and volume controls are on the back. You can kind of feel for them once you know where they're at, but you can't know on the first try which button you're about to push. If you don't want to turn the thing over to look, you have to slide your fingers up and down to be sure you're doing the right thing.

The software is where things go off the rails a bit.

In many ways, Android Honeycomb is most comfortable in landscape orientation. The initial setup screens are in landscape, one of the built-in keyboards offers a split configuration for landscape, and sometimes apps that can do both portrait and landscape launch in landscape despite me holding it in portrait orientation. That's another problem with where the hardware buttons are at: they're in the perfect spot for accessing with the fingers on your right hand when holding it portrait. When holding it in landscape, you have to move your hand to access them.

Honeycomb itself is not so great coming from Gingerbread on the RAZR because many of the interface elements are in completely different positions. The home and back buttons are on the left side instead of the middle, and the search button and app drawer launcher are now at the top instead of the bottom. The status bar was moved from the top to the bottom right, and everything in it is unreadable at a glance thanks to dark colors on top of a black background. I've run into issues here and there where it's not obvious how to dismiss some kind of info box and have done unintended things trying to get rid of them. The menu button for Honeycomb-ready apps is in the top right, while the menu button for non-Honeycomb ready apps is in the bottom left. Who in the world thought that was a good idea?

Not that you'll run into that last problem too often, as there are almost no tablet-optimized apps. I've heard for a while that there aren't many Honeycomb-ready apps, but it's worse than I thought. Even in the app market section titled "Staff Picks for Tablet", most of the apps I've tried from it are just phone apps that scale nicely.

On top of the rarity problem, many of the Honeycomb-ready apps I've tried just aren't great. Twitter client TweetCaster has potential, but it doesn't support conversations. Pulse seems to be a nice newsy app that takes RSS feeds and makes a grid layout of the stories, but it crashed when I tried to view a YouTube video. The Engadget app is a design nightmare, as its use of the extra screen real estate is puzzling at best. It's a bad, bad situation.

I've found that the device is very nice for browsing the Internet and playing some games, but I'm not sure yet what else I'm going to do with it. As I said, the hardware (buttons aside) is really nice. The software completely lets it down though, and the third party app situation is dire. If you've got any recommendations for good tablet apps, I'm all ears.

Apple Being Singled Out Over Foxconn Isn't Fair, but That's Fine

The Nightline special on Foxconn and Apple was an interesting look inside the world of electronics manufacturing in China. It's interesting to me to see how the issue has exploded of late, as it seems to come and go as various issues crop up. I'm not sure what the catalyst was this time, but here we all are looking at it.

It's a weird thing for most Americans, I expect. Despite the very real issues with things like too much overtime and underage workers, most reports say that Foxconn's factories really are among the best in China. I've likened factories with dormitories to the phenomenon of company towns in America. It's not a perfect analogy, but having company towns is a phase that this country went through during its industrial development. They weren't great for workers, but they're better than subsistence farming. The same goes for Foxconn in China.

It's not that dissimilar from the sweatshop scandals that plagued Nike in the '90s. The Nightline piece had someone bring that up, though the reference was about a different point. A number of economists have argued that sweatshops are a good thing in comparison to subsistence farming, which does make them a net positive. That's certainly not to say that industrial development should get to the sweatshop stage and stop. The existence of sweatshops and cramped factories could overall be a good thing for a country, provided things continue to progress from there.

The point about Nike from the show was that the industry leader will take the most heat for industry-wide problems. I'm sure that's a factor in Apple getting most of the negative publicity for Foxconn's abuses when plenty of electronics firms use its factories for assembling devices. Apple is also fantastically profitable, far more than the rest of the companies that have contracts with Foxconn. It has the best capacity to do something good for the workers there.

At one point, a Foxconn executive says he'd gladly double the pay of the workers on the lines assembling Apple products if the company asked for it. Using Horace Dediu's numbers, the iPhone has a 55% profit margin on an average selling price of $650. He estimates that the labor cost for each phone is somewhere between $12.50 to $30. If labor costs doubled (corresponding to a doubling of worker pay), the profit margin on each device would fall to somewhere in the 50% to 53% range. That's still an incredible margin, even for a company with typically high margins on all its products as Apple tends to have.

So while it's not completely fair for Apple to catch a lot of the heat for the issue of labor in Asia, I'm OK with it. Apple responded to getting singled out by Greenpeace by taking real actions to make its products better (or less bad, really) for the environment. Now, few companies talk about their green initiatives as much as Apple does. It's been a good thing.

Apple now seems to be doing something about the labor issue. It has publicly released factory audit results in the past couple of years and now has released a report detailing all of its suppliers. Last month, it became the first tech company to join the Fair Labor Association, and it has funded the biggest audit ever of Foxconn (currently underway).

If Apple is able to get real change for the better in Foxconn, it's even better than its green initiatives in one way. The latter only affect Apple products, but if Foxconn gets better, that affects people who make many other firms' products too. I'd like to see those other firms step up in the way Apple has, but we'll see if they do in the coming months. Pressure from multinationals that make things in China is the only way things are going to keep progressing there, as no real organized labor movement is allowed by law there.

It's not ideal if the only forward progress is due to American companies pushing the Chinese companies while themselves being pushed by media scrutiny and popular outcry, but it's at least some forward progress.

OS X Mountain Lion Might Have More Surprises

Apple announced a big shift in its Mac OS X strategy today. It's dropping the "Mac" from the name, releasing new versions of it on an annual basis, and it's making it closer to iOS than ever. It also announced Mountain Lion, OS X version 10.8 to ship this summer. John Gruber already cataloged the other big changes going on, so read about them on Daring Fireball.

It's obvious to everyone that Apple is now trying to get OS X and iOS in relative sync feature-wise with iCloud being the glue between them. What doesn't seem to be obvious is that what we see from Mountain Lion today is incomplete, quite possibly very incomplete.

A lot of the "operating system" changes announced today, Notification Center aside, are just application changes. There's a new notes app. iChat is now Messages. A lot of things now hook into iCloud APIs that belong to, well, iCloud and not OS X proper. There are a lot of major changes that deeply change parts of the experience, but none of them go that deep technologically that I can see.

I suspect that there will be more to this thing, possibly quite a bit more. The reason is because iOS 6 hasn't been announced yet. New versions of iOS have typically been shown off in the early spring*, and it's still February yet. Apple is not going to tip its hand months early as to what's in iOS 6 with this Mountain Lion reveal that didn't get its own big press event.

If I was a betting man, I'd put money on the idea that last year was a template for things going forward. The new iPad comes in March and the new iPhone comes six months later in September. The new iOS reveal will be at WWDC, with it and a new OS X version releasing soon thereafter.

That means there easily could be more goodies in Mountain Lion with iOS 6 analogues that we won't know about until the summer. Apple is trying to show that it does care deeply about the Mac, but the iOS ecosystem is clearly the company's top priority. Getting a look at Mountain Lion now is cool, but the real big reveal, which could include more features for OS X, isn't coming for months.

*The Apple Keynotes podcast provides and handy record of product announcements. iPhoneOS 2 was first shown off March 6, 2008. iPhoneOS 3 was first revealed 3/17/09. iOS 4 was first demoed April 8, 2010. In 2011 there was an early spring iOS announcement, but it was the iPhone-and-iPad-unifying version 4.3 along with the iPad 2 on March 2. Our first peek at iOS 5 came at WWDC on June 6, but the later date probably came from a combination of Lion getting ready to ship and the fact that the iPhone 4S launch was going to be later in the year than normal. And also to set up the new cycle, natch.

The Droid RAZR Has Undeniably Bad Battery Life

I've had some time now with the Droid RAZR that Verizon sent me for review. One thing stands out more than anything else: the battery life is terrible.

Early on, I decided to see if everything I had heard about the awful battery life on the 4G LTE network was true. So, I turned off WiFi for a Saturday morning to simulate being out and about (I'm a hermit) and used it for some consistent Twitter activity and podcast downloads.

I woke up that morning at 8:40 am. I checked in again on the battery at 12:40 pm. In that time, it probably had about three hours of consistent use and one hour of idling. It was down to 50% already. I turned WiFi back on, and the battery drained a bit slower. Yes, you read that right: this is a phone that can actually save battery life by turning WiFi on.

I tweeted about that experience, and someone recommended an app called Juice Defender. It turns the radios on and off automatically based on whether the phone is in use, and it allows connections every 15 minutes (by default; that's configurable) for things like email checking. I installed it and kept the defaults, and it did help when not in heavy use. It wouldn't do a thing in the usage case above though because the 4G data usage is what was draining the battery so much.

The second thing I tested in relation to battery life is turn-by-turn navigation. I used it this past weekend on a short trip my wife and I took to north Georgia.

The particular drive I used it on was for about an hour, and it wasn't in perfect conditions. It was in an area with only 3G data, so the 4G was not a factor. It also was an area with signal coming and going (but never lost entirely). The GPS was on the whole time, obviously.

The app Battery Indicator said it had 97% battery when we left, and it was at 64% when we arrived. One hour sucked down a full third of the battery's capacity. I don't have a car charger because Verizon didn't supply one, but I have a feeling that having it plugged in would only slow the battery drain rather than halt it or even recharge it while navigating.

The phone comes with a Smart Actions app (which automates settings changes), and the first one it suggested to me was a battery saver action. It comes with a Guided Tours app from Verizon, and under "Basic Setup and Usage Videos" is "Battery Conservation Tips and Tricks". The rest in that section are basic orientation videos that are nowhere near as technical. On top of that, Motorola and Verizon released the Droid RAZR Maxx a mere three months after the RAZR, and it actually does have acceptable battery life. Someone knew this thing had poor battery life prospects.

The bottom line: unless you always have a charger nearby or are almost always in WiFi range, you will have to constantly worry about battery life with a Droid RAZR.

Romney Does Indeed Have a Rick Santorum Problem

Having largely vanquished Newt Gingrich, Mitt Romney is probably going to be the Republican nominee for president. It looks like Rick Santorum is going to make things as interesting as possible until the end though.

This Reuters op-ed says that Romney has a Santorum problem, and Googlebomb jokes aside, I agree. Gingrich was an easy target. He made a lot of enemies within the party back in the '90s, and he's abrasive and pompous to boot.

Santorum is and has been the most earnest strong conservative of the field. Aside from his endorsement of Arlen Specter in 2004, there's not a whole lot Romney can pin on the guy from a negative campaigning standpoint. That was the weapon that Romney used to slay Gingrich, but it'll be much harder to use it against Santorum.

Here's the thing: Santorum has no chance at winning the general election. None. He even lost his Senate seat by the largest margin ever for a Republican incumbent. Many of his views lie far outside the American mainstream, such as the idea that all contraceptives are bad. He's simply too conservative to win a national election.

Romney's problem is that Santorum isn't completely out of line with his party's mainstream in the way that Ron Paul is. Paul might be the most conservative guy in the race depending on how you define "conservative", but his appeal is largely limited to the libertarian fringe of the G.O.P. Romney can't call Santorum unelectable (which he is) without telling large swaths of his party that agreeing with some of their most important issues makes a person unelectable. Besides, Americans don't tend to like to see favorites hammer on likable underdogs.

Of course Romney still has a huge money advantage, and none of the recent victories for Santorum actually won him any delegates. Romney didn't really even try to win those votes. When he has put forth full effort in states, Romney has been able to do quite well. Of course, not trying in those states could have been a big blunder rather than a smart use of money (remember, no delegates were awarded), as now the not-Romney focus has shifted to the guy he can't beat on like a punching bag.

Romney did win the CPAC straw poll, and he's still the odds-on favorite. His primary rival is no longer an easy primary-time target though, which means he's going to have to win ugly.

Consumer Credit Jumped in December

Consumer credit was up—way up—in December:

Consumer credit expanded by $19 billion in December. That's far more than the $7 billion that was expected by economists.

Revolving consumer credit (credit cards) grew by $4.1 billion sequentially, and is basically flat from last year again (up barely).

This is very good news as we work towards ending the balance sheet recession. Nonrevolving credit was the big driver, as revolving credit (mostly credit cards) was flat as mentioned above.

If this larger-than-expected expansion was driven by revolving credit, it'd be easy to hand-wave it away as holiday gift spending. It wasn't. People generally don't play Santa by first taking out a personal loan from the bank.

Instead, longer-term credit fueled the rise. That reality, combined with the fact that it continues a trend, means that people more and more think they are able to take on bigger, more serious loans. Add on top of it the good jobs number from December (and even better jobs number from January), and it's looking like we just might be in the beginning of a real recovery.

It's certainly a fragile recovery, as bad policy from Washington or large shocks from Europe could torpedo it, but it's probably a recovery nonetheless. This is very good news.

The Ambiguity of Hope

Last week's January job report was largely good news on nearly every level. It wasn't unequivocally good news, but we're not going to get any just yet in this economy.

It surprises me that Republicans were so dour in response to it. Granted an improving economy hurts their ability to defeat President Obama in November, so you've got that backdrop to all the grousing.

However, Americans tend to be an optimistic bunch even in the bad times. Listening to morose politicians sound unhappy after a great jobs report is not what they like to hear, generally. I'm sure the part of the G.O.P. base that is dead-set against the president nodded right along, but they're not going to vote to reelect the incumbent anyway.

It's especially surprising to me given that the current conditions allow for a really easy positive spin for the Republicans. The reason is because they have successfully blocked a lot of the president's agenda for the past year or so.

The Obama administration will no doubt claim that the president should be reelected because, despite the opposition, he's led the country towards more job growth. The converse could be easily argued, though. They could argue that the economic improvements stem directly from that opposition by Republicans. In other words, we'd be worse off if they let the president have his way. I don't think any actual numbers would bear that out, but politics has never been known for a strict adherence to the facts.

The Democrats tried to damage the G.O.P. by branding it "the party of no", but that's something Republicans have embraced to a degree by continuing to denounce the president and stall his agenda. It worked for them leading up to the 2010 election for sure.

What they're in danger of becoming, however, is the party of Debbie Downer, the buzzkills who greet even good news with furrowed brows. Regular people probably aren't looking closely at these numbers just yet, nor have they made their final choices on the November election. The Republicans can keep doing this now.

However if the economy keeps improving and they don't change their tunes to capture some of the growing optimism, they'll really find reason to be unhappy on Election Day.

Facebook IPO Stock Is Basically a Gambling Bet

There are only three reasons to buy a company's stock. One is to get an income in the form of dividends. The next is if you plan to have a say in the company's governance as a part owner. The third is if you believe the stock will go up in value, allowing you to make a profit on the sale of the stock.

Facebook's IPO is coming up, meaning people will have to weigh those options when deciding if they want to buy it or not. However, one of those three reasons is entirely negated by the way the stock ownership has been structured:

The shares of Facebook will be divided into two classes. The Class A shares you will get if you buy shares in the market have one vote per share. The Class B Shares, which are almost all of the shares that have previously been issued and all of the shares owned by [founder and CEO Mark] Zuckerberg, get 10 votes per share.


Zuckerberg only owns about 28% of those super-voting Class B shares, so where does his control come from? He has voting agreements with many of his fellow shareholders that give him a proxy to vote enough additional shares to give him voting rights to a total of around 57% of the super-voting stock, the S1 shows. More than enough to give him control over the company.

Mark Zuckerberg has complete control of the company. Read the article to find out all the ways that he can stay in power if people try to change that fact. He personally can do whatever he wants because he holds over half of the stock voting power. He can even hire and fire the board of directors, who are supposed to be his bosses. You literally will have no power to change anything as a part-owner of the business unless Zuckerberg also goes along with it.

Of course, the first reason is likely to be moot as well. Growth companies don't tend to pay dividends, and that's what Facebook is. Apple is another tech growth company that famously doesn't pay a dividend, but it at least isn't controlled by a single person having the majority of the voting power.

For the foreseeable future, Facebook stock will be good for only one thing: trying to buy low and sell high. You're gambling on Zuckerberg's ability to guide the company and the hope that the collective hive mind of all stock investors will drive the stock price higher.

You're placing a bet, basically. Good luck with that.

Why Don't Carriers Push Unsubsidized Phones?

Once upon a time it was possible to find a cheaper data plan if you brought your own phone to a carrier in the United States, but those days are over. Whether you buy your phone subsidized or not, you pay the same rate for data.

That fact got me thinking: why don't carriers push unsubsidized phones more?

Costs of an Unsubsidized Phone

Of course, it is a considerable expense for the customer to purchase an unsubsidized phone, especially for smartphones in particular. Verizon is the one carrier that makes it easy to see what it costs to purchase a no-contract phone on its website, so for all of the examples here, I'm going to use Big Red.

According to VZW's website right now, the unsubsidized price for the Galaxy Nexus is $649.99. That's also what a 16GB iPhone 4S costs, and the price goes up in $100 increments as you add storage to 32GB and 64GB. An unsubsidized Droid RAZR goes for that same $649.99, a Droid Bionic sets you back $589.99, and the new Blackberry Torch 9850 goes for $459.99.

Subsidized smartphones all require data plans, so it follows that the carriers probably make up for the subsidies with those data plans. When you subtract the subsidized price from the unsubsidized price, you find out how much each phone is subsidized. Divide that subsidy by 24, and you find out how much each month the carrier charges you per month to make up for the lower up-front price. Here are the subsidies for those phones:

• iPhone (all varieties): $450 subsidy; $18.75 per month
• Droid Bionic: $390 subsidy; $16.25 per month
• Galaxy Nexus, Droid RAZR: $350 subsidy; 14.58 per month
• Blackberry Torch: $280 subsidy; $11.67 per month

In all of these cases, the amount of revenue Verizon effectively brings in for the data plan falls by more than $10 per month thanks to the subsidies. The two lowest (and therefore likely the most popular) data plans Verizon offers are $20 per month for 300MB and $30 per month for either 2GB or 4GB of data (depending on its promotions). That means Verizon is collecting at most $8.33/month purely for data at the lower level and $18.33/month for data at the higher level on the subsidized Torch. It is collecting at the lowest $1.25/month for the lower level and $11.25 for the higher level with the iPhones.

Verizon's Profitable Zones

Verizon's early termination fee (ETF) for smartphones is $350 minus $10 per month of paid service. So, if you cancel after one complete month, your fee is $340. If you cancel after one complete year, your fee is $230.

ETFs basically exist to recoup the subsidies on phones. This must be the case because they are comically small compared to the lifetime value of the contract.

The least expensive smartphone plan on Verizon for an individual is $40 for voice and $20 for data for a total of $60 per month. That works out to $1,440 over the lifetime of the contract. The only point at which Verizon's ETF entirely covers the lost money of the plan is in the final three months, but that doesn't include any subsidy that is still being paid off. Include that factor, and it's likely to only completely cover the losses in the final one or two months.

Therefore, it's safe to say that lost value from the monthly payments on service is not a factor in the ETF. The question then becomes: when are subsidized phones more profitable than unsubsidized phones for Verizon?

The ETF plays heavily in here because someone without a two-year contract can walk without paying that fee. For the unsubsidized phone to be more profitable, the extra amount the company would have made on data versus a subsidized phone at the time must be greater than the ETF at the time minus the amount of the subsidy the customer wouldn't have paid back at the time they terminate. In formula form:

Extra data money to date > ETF - (subsidy - subsidy payments to date)

Here is a chart showing the amount by which Verizon benefits from having an unsubsidized phone at the various subsidy levels I described above. The values charted are for if a customer leaves after the number of months on the x-axis.

As it turns out, it's a very simple relationship. The amount of extra money Verizon makes per month in data with an unsubsidized phone is exactly the same as the amount of the subsidy that gets paid down every month. Therefore for any given month, it's just a matter of taking the value of the initial subsidy and subtracting the ETF for that month.

The only time Verizon doesn't come out ahead when a customer with an unsubsidized phone leaves is for the first few months with a model that normally has a subsidy less than the initial $350 ETF like with the Blackberry Torch. On all the rest of the phones, Verizon would have made more money with an unsubsidized phone no matter when the customer decides to leave.

And of course if the customer with an unsubsidized phone stays through the entire two-year contract, the amount Verizon ends up ahead on the deal is the value of the subsidy it would have offered on that model.

The Customer's Perspective

Before talking more about the carrier, let's talk about the customer.

Buying an unsubsidized phone is much more expensive than buying a subsidized one. The primary value proposition for the customer in foregoing the initial discount is the ability to take that phone to another carrier without having to pay a penalty. Well, sort of.

Thanks to the dueling GSM and CDMA standards, you can only take a standard 3G phone to one other major carrier in the US. Even world phones with both GSM and CDMA capabilities might not be transferable from one to the other thanks to carrier and device restrictions. For instance, the unlocked and unsubsidized iPhone 4S cannot be used on Verizon or Sprint.

In any event, if you buy an unsubsidized phone, you're going to want to know how big a discount you'll need to get at each month over the next 24 months to come out ahead versus a subsidized phone. You need to know when the ETF plus the amount you would have paid back towards the subsidy is greater than the extra money you put up by not getting a subsidy plus any savings per month. In formula form:

ETF + amt. of subsidy paid back > subsidy + savings from new plan

Here are a few charts of the change in the total amount you pay over the course of 24 months by choosing an unsubsidized phone over a subsidized phone and by switching to a lower cost plan in a particular month. If a number for a month is negative, that means you save money by buying having bought an unsubsidized phone and switching that month. If a number for a month is positive, that means you save money by having bought a subsidized phone and switching that month.

This is the chart for switching to a plan that costs $10 less per month:

If you and your unsubsidized phone switch to a plan that costs $10 less per month, you must do it no later than 14 months after buying that phone to make it worth it if the subsidy would have been $280. As the subsidy goes up, you have more time to wait and still come out ahead. Of course if your new carrier charges an activation fee (or more accurately, doesn't waive it), you will have to switch a month or two sooner depending on the phone.

This is the chart for switching to a plan that costs $20 less per month:

You have much longer to wait if you can swing a $20 discount, which makes sense.

The trick is that you won't be able to pull this kind of money saving switch too many times. The other way you can come out ahead with an unsubsidized phone is if you use it on a carrier that doesn't require a data plan for all smartphones regardless like Verizon does. It will take you anywhere from going 14 months without data (for an otherwise $280 subsidized phone like the Torch) up to 23 months without data (for an otherwise $450 subsidized phone like the iPhone).

Why Don't Carriers Push Unsubsidized Phones?

Subsidies are tremendously useful for the carriers. Many people who are unable or unwilling to pay the higher up front price of an unsubsidized smartphone will go for the reduced initial cost of a subsidized one. That then puts them in data plans that more than make up for that initial subsidy. Plus, advertising fancy phones for low prices, or even "free", gets people's attention.

There's no reason why carriers should get rid of subsidies. However, they can have material effect on a carrier's margins if a big selling new phone has a large subsidy. Unsubsidized phones are more profitable for them, so why doesn't every carrier do as Verizon does and make it easy to browse them as options?

Primarily, it's probably because the main advantage for the customer of getting an unsubsidized phone is being able to walk away from the carrier without paying a fee. "If you buy this, you can leave whenever you want with no penalty!" is an awkward pitch for an industry that has been built around the two-year contract. Early termination fees probably also create a mental block in people's minds that prevents them from thinking about leaving even if they can come out ahead after paying it. Plus, a customer leaving early is most often costlier than the subsidy is.

The example of a plan that costs $60 per month is possible but probably not common. Let's imagine a smartphone user who opts for a plan of $90 per month with Verizon. Let's also imagine this person bought an unsubsidized Android phone (that normally has a $350 subsidy) that can be taken to Sprint to take advantage of one of its $80 per month plans.

Let's say this person is considering switching after 12 months. Based on the math from the previous section, this will allow the person to save either $30 total or $65 if Sprint waives the activation fee. It would be worth it financially to switch.

Verizon will have collected $1,080 total from this customer at the time of this decision. If the person stays for another 12 months, Verizon will have collected $2,160 in total. If the person had bought a subsidized phone and stayed the entirety of the two-year contract, Verizon would have collected $1,810 in total (net of the subsidy). In this particular scenario, by giving the option of the unsubsidized phone the carrier is looking at an upside of $350 and a downside of $730. It had better hope its network is much better in the customer's region than Sprint's is.

As the numbers and considerations change, the upsides and downsides do too. However for almost all of the subsidies I looked at here, the carrier takes in more revenue from a full term contract than it does from an unsubsidized, no-contract customer at the points where it makes financial sense for that customer to switch carriers. Only with the iPhone's $450 subsidy versus an unsubsidized customer who switches after 19 months does the carrier no longer care (it brings in $1,710 either way).

Verizon must worry less about bleeding customers than the others because it makes it the easiest of all to shop for unsubsidized phones. I find that interesting because Verizon itself is not the low cost carrier. Big Red should be more vulnerable to being undercut on price and therefore to seeing unsubsidized customers walk away early, but it must feel confident that its network quality, amenities, and packaging deals will insulate it from mere price sensitivity.

Sprint and T-Mobile, as the low cost carriers, would seem to benefit from a proliferation of unsubsidized phones. However, they are having issues with customer loss. Pushing options that let customers leave without having to think about a termination fee might be a bad idea.

As for AT&T, your guess is as good as mine.