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Convergence Kills
August 02, 2004

There are some really interesting things going on in iPod land, starting with the fact that RealNetworks announced that after being diss’ed & dismissed by Apple when they approached them to talk about opening up the iPod to Real’s competing service, they went ahead and reverse-engineered how the iPod deals with DRM’d media files via their new ‘Harmony’ software.

My view is going to be a little different than the direction other people are going on this one, as I believe the last few steps are pointing to greater maneuvering as a whole… they’ve found their Next Big Thing™. I don’t really think RealNetworks themselves are significant, they’re just the most desperate.
Real confusion

Harmony would allow users of RealNetworks’ own music store, which uses a different Digital Rights Management scheme, to sync and use the iPod. Remember, the iPod is able to play a few other unencumbered-by-DRM formats like MP3s, AACs, etc. But the iPod is the only player tthishat can play Apples’ FairPlay-DRM’d AACs from the iTunes Music Store, and, until now, none of the other online music services were able to access it for their DRM-encumbered files while keeping their DRM schemes intact.

Apple’s response to Harmony was just as interesting as the Harmony announcement itself:

“We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod,” Apple said in a release.

Now, besides the fact that Apples’ response was decidedly uncool for a company whose products must stay cool at all costs, it’s also perplexing because if things Apple has said in the past are true, it shouldn’t be that big of a deal.

Remember, Apple has gone to great lengths to talk about how the iTunes store is a loss leader to sell iPods. This makes sense; from each $.99 song sold Apple gets a percentage, but it’s not a large percentage and when you factor in all the costs involved what they make is a pittance compared to the margin skimmed off the sale of an iPod. Apple gets them hooked on how easy it is to buy music, they decide they have to have it with them while they’re out and about and they pick up an iPod.

At first blush it doesn’t seem to make a whole lot of sense for Apple to get too uptight about Real sliding their songs onto the iPod, as theoretically someone who happened to be a user of RealNetworks service now has the option of buying an iPod, whereas before they were limited to other devices. By keeping it closed there might be some RealNetworks users who, for whatever reason, decide they have to have an iPod and dump the service altogether and pick up iTunes for Windows.

But there have to be plenty who have way too much invested in Real’s Rhapsody service and pick up an iPod competitor that supports their already-purchased music, and it’s not as though Apple is offering a cross-over program whereby if you turn in your Rhapsody music files you get FairPlay’d AACs instead (Feel free to use that one). Either way, they’re selling iPods, and that’s really where the money is right? Not a few cents actually selling the songs. Keeping it locked in would be more about Apple keeping control over the process and the ‘quality of the user experience’, but really that’s just cream… right?

In fact there are several more stores out there, none of which are doing as well as the iTunes store, but which are making headway. I’ll give a nod to Napster, simply because they’ve been brilliant in getting universities to include subscriptions to their service in their student tuition. They can still use other players for their mobile-Napster needs, but they aren’t able to use to use the iPod because, as was mentioned before, the iPod doesn’t support their DRM.

Of course Napster isn’t alone; Sony, Walmart, even Microsoft have stores in the works, and while none of them have the share of the iTunes Store they have been gaining users. And when Microsofts’ store ships, built into the OS and all that, you better believe that even if it sucks it’ll get users. It took their various MSN-services years to gain on AOL, and it’s still behind, but it’s now a valid competitor in its many forms… I know I’m getting real sick of people asking if I have MSN. And these people won’t be buying iPods, and eventually that’ll add up…

It would make sense to sell to these people, as by Apple themselves have stated they’ve reached “supply equilibrium” with the traditional iPod, while they still aren’t quite able to meet demand with the mini. What this means is that given their current production capacity, they’re able to meet all their orders from stores and individuals around the world.

This is good, because it means they’re pulling in all the earnings they can in a given quarter for the product. This is not so good because it means if they increased their production capacity there’d be excess inventory in the channel, and the prices of iPods would start to fall.

This isn’t completely static, and there are two things of note here:

* The HP deal hasn’t really hit yet
Remember, Apple penned a partnership deal with Hewlett-Packard on the iPod, whereby HP will be shipping iPods they manufacture themselves, but co-branded with the Apple & HP logos. While Apple is at supply equilibrium, it simply doesn’t have the distribution capability of an HP and a Dell who have their fingers everywhere, both in institutions and worldwide. Remember, there’s no China Apple Store… Apple has massive brandwidth at the moment, but the pipes for channeling it are humble compared to the big guys. This deal, and possibly others, are going to give the iPod another shot in the arm.

* Apple is starting to feel the pricing crunch
People can only buy what they can afford. Lots of people want an iPod; they simply can’t plunk down a $300 for a digital music player. Some of them might save their pennies, other will buy something cheaper, even if it’s not what they really want.

The fact that the MP3 player market is still doubling, but that Apple has reached supply equilibrium points to them pretty much sapping what growth they can get with the iPod at its current price point. The early adopters with the cash have bought in. But drop the price point down into the realm where the masses can afford it and things go boom. The obvious example here would be the CD player or Walkman, but analogies to TV, DVD players or VCRs would be equally appropriate.

Apple recently redesigned the iPod a bit, while lopping off $100 and doubling the battery life. While much of this has to do with competitors fielding increasingly competitive offerings, it also very much has to do with the fact that for millions upon millions of people, $300-$500 is the price of a computer or rent for a month.

So the iPod can still use help, and things are only going to get tougher from here on out due to increased competition… entropy has a way of working its way through marketshare that isn’t artificially dominated; and much of the fruit coming out of the deals that have been inked by rivals won’t show up right away. But it’s coming…
The paper mache trojan horse

Consider that Apple has stated over and over again that the iTunes Store is really a trojan horse for selling iPods due to the margin differences, it would make absolutely perfect sense for them to look the other way while Real allows users of its store to choose iPods for their mobile music needs. This is absolutely well-founded business logic, but methinks thou doth protest too much.

To recap the popular trojan horse meme, remember that when the iPod was first released for Windows, Apple went and incorporated a 3rd party piece of software for Windows to sync and connect. This worked reasonably well, until iTunes for Windows was ready to ship. After using the mac base as beta testers for their software to reassure the music labels giving mac users first crack at the store, iTunes for Windows was released with great fanfare.

The iTunes Store wasn’t really aimed at those downloading gigabytes of music from Kaaza, but rather those who were sick of doing it due to the lousy experience it can offer and those who really didn’t do it at all. Make it painless… short and sweet, and they’ll load up on those FairPlay-DRM’ed AACs. Eventually they’ll want to take them with them, and the only thing that plays FairPlay AACs is the iPod. Cha-ching, they’re feeding off each other, with the low-margin iTunes store as a loss-leader for the high-margin iPod.

This has been a wildly successful meme; mostly because like all successful lies it has a kernel of truth behind it. It’s been picked up everywhere. When Napster released their branded MP3 player, the big thing you heard repeated was: “Smart. Remember Apple only makes pennies on each iTunes song, but a bundle on each iPod. Napsters’ business model wouldn’t hold up without using their service as a trojan horse.”

Again, there is truth to the above, and a whole lot of truth as far as Napster is concerned, but its a short-sighted-do-we-have-a-profit-this-quarter truth. Napster, Real, and WalMart don’t have the box of tools to use in tandem that Apple is quietly placing across the chess board.

But again, RealNetworks’ Harmony tech (or just opening the iPod) doesn’t clash with this meme at all; it only reenforces it and helps sell iPods, and its arguably the only thing keeping their market cap from equaling their cash hoard. Apple could simply be overzealous in wanting to control everything, but considering their screw up over not opening the original MacOS is held as a staple example in Business 101 of what not to do, I really doubt anyone there wants to be the responsible for repeating it with the iPod.

Most people believe that opening up the iPod is going to be in its future due to past history and simple economics, and Apple has even hinted that provided that the other Stores start getting some serious share they’ll look at doing it. If things turn really bad with Real, they could simply issue a software fix and make things pretty miserable for them while selling iPods all the way. So why would Apple be so… vehemently… against it?

We’re thinking about the iTunes Store, Napster and Rhapsody through trojan horse colored glasses, and not as what it truly is: The Gateway to DRM Content on the Desktop. RealNetworks is stepping on that, and it’s the long-term lifeblood of the company.

That’s why Apple is freaked about what Real is doing; it knows the iPod is going to be a surprisingly short-term success story, and that its era of growth is going to die out much faster than expected. This might sound stupid at first, due to how little Apple actually makes from the store, and how well the iPod is doing now…
Convergence kills

It’s a sad truth, but yes, the iPod is going to go away. Everyone knows it; they just don’t know when. This isn’t dismissing the fact that it’s shot out of the gates on a wildly successful run and become to MP3 players what Kleenex is to tissues, but it’s eventually going to start losing share in one form or another. This could be from pricing pressure, from a competitor or two hitting some products out of the park, Apple getting lazy, or just a few missteps.

Given enough time, any number of the things mentioned above would start to erode the iPods’ share at a fast rate, but they’re all irrelevant really, as the MP3 player isn’t going to be around for a whole lot longer.

Witness Exhibit A, whereby Apple and Motorola have agreed to bringing the iTunes Store to the next generation of Motorola phones:

…partnering to enable millions of music lovers to transfer their favorite songs from the iTunes jukebox on their PC or Mac, including songs from the iTunes Music Store, to Motorola’s next-generation ‘always with you’ mobile handsets, via a USB or Bluetooth connection. Apple will create a new iTunes mobile music player, which Motorola will make the standard music application on all their mass-market music phones, expected to be available in the first half of next year.

“We are thrilled to be working with Motorola to enable millions of music lovers to transfer any of their favorite songs from iTunes on their PC or Mac to Motorola’s next-generation mobile phones,” said Steve Jobs, Apple’s CEO. “The mobile phone market — with 1.5 billion subscribers expected worldwide by the end of 2004 — is a phenomenal opportunity to get iTunes in the hands of even more music lovers around the world and we think Motorola is the ideal partner to kick this off.”

The announcement of the deal kicked off two main forms of speculation:

* That Apple and Motorola are partnering to create the long-fabled iPhone
* That this is another trojan horse; many people haven’t bought into the iPod MP3 craze yet, but this will give them a taste… and, when they’re tired of only being able to store 12 songs they’ll pick up an iPod.

Forget about the iPhone. The iPhone as people envision just isn’t going to happen. The market is ungodly saturated, and while Apple could theoretically make a bundle with a sleekly designed-pricey offering there’s really only so much they can do here. Remember they didn’t create the iPod OS, they bought it. They don’t do that; and they aren’t some independent design firm you call when you want something sleek. In fact most of what’s in the iPod wasn’t designed by Apple at all, and while they could do much of the same with mythical iPhone as they did with the iPod (cobble a bunch of tech from others into something cool), the growth just isn’t there in that market. They’re all already eating at each others’ share.

You also have the fact that phones, while they can access the internet, by and large are massively dependent upon the subscriber network. If cell phones were using VOIP and plugging into massive 802.11g meshes it might be a different story. But they’re not, so in creating an iPhone Apple would have to pick a network and play by their rules; or they’d have to pick several… the entry costs here are just too high. What people are expecting this to look like is just not in the cards.

As for the second one, well, that’s a little more complicated, as there are two fascinating things going on with music and mobile phones right now:

* It started with ringtones; some became incredibly popular, and then people started creating their own. The phone companies started selling ringtones and, crazily enough, people started buying them en masse. Back in April we saw the first ringtone-only album released.
* The mobile phone market has gone from a high-growth market into a massive sucking black hole of feature consolidation.

The last is the truly fascinating one, as we’re watching cell phones eat up markets from the bottom like Ruben Studdard at a buffet; they’re bottomless pits and have become the poster child of convergence.

There are three main things leading to cell phones becoming these feature-vortexes:

* To a certain extent this is always going to happen as technology progresses and the prices get lower for a given tech. When you are buying a $29 webcam, you have to start wondering just how much of that $29 is inherent due to all the crap surrounding the sale. It has to be packaged, shipped around, go through a few distributors… the actual technology is in the sub-$5 range. After a certain point adding in features starts to come ‘for free’ and products start looking to converge.

* Mobile phone makers are getting squeezed; for the most part, phones are entering commodity status… when your high-tech product is being given away with a service plan, it’s a sure sign something is up. By adding in higher-rez screens, games, microphones, cameras, etc., they can keep an elevated price point and higher margins. Without it, the tech would just be priced artificially high (which makes them ripe for a competitor to swoop in) or would drop to a point where they’re paying you to buy it. As technology progresses, you start having problems buying a phone that doesn’t come with stuff you aren’t interested in, but you end up getting it anyways.

* If you take a look at your desk, there are lots of gadgets you want to take with you. Your mobile phone of course, your PDA, your MP3 player, your USB pen-drive, your digital camera. But out of all of these, there’s only one that you generally have with you at all times: your phone. Everything else is secondary; if you had to pick one thing, chances are it’s going to be your phone. If your phone just happens to also be a serviceable PDA…

I know, convergence products generally suck. It’s old news; dedicated devices are easier to use as the interface isn’t multifunction, and the components are geared towards the task at hand… a $500 digicam is going to have better DSPs, optics, and a better interface than a $500 phone that happens to include a camera. But the word here is serviceable. If it’s “good enough”, and you’re going to need your phone with you anyways, you at first carry around the extra gadgets and then eventually make what’s on the phone work and save some pockets.

Everyone laughed at the comparably monstrous-sized Treo line of hybrid phone/PDAs until they started to sell really, really well. And then companies like Sony, who was arguably one of the more innovative players, started pulling out of the PDA market altogether. Right now people are laughing at not being able to buy a PDA or cell phone without getting a damn camera, but low-end camera makers aren’t laughing. There are valid reasons for owning a separate DVD player, but if you hadn’t bought one and already had a Playstation 2, the likelihood of you buying one just dropped through the floor.

People aren’t giving up their their big fat digital SLR, but they’re finding the cameras in their phones and PDAs just keep getting better… and eventually they stop carrying that nice little slim camera with them or never find a need to buy one. And, you guessed it, phones are starting to come with MP3 players…

An iPod Mini is going to make a much better mobile music player than your cell phone. But when your cell phone has 5 gigabytes of storage and bluetooth headphones…. the writing is on the wall here. All that’s missing is a little time. Apple is one solid-state storage breakthrough (and the networks getting their act together on 3G) from having the market for the iPod evaporate to a pale shadow of its former glory, and they know it.

That’s why they’re so freaked out about what RealNetworks is doing, even though it’d sell iPods. At the end of the day it’s not going to be about who is selling what end-play device, it’s going to be about who is sitting in the middle. And Apple wants to be that benevolent dictator, parsing DRM-protected content to whatever device you’re using at the time. It’s also why the deal with Motorola is so significant; Apple can live without you buying an iPod, but if you’re going to be buying DRM-protected content, Apple damn sure wants it to be through them.

The iPod might only have a few high-growth years left in it, but the iTunes store is the sleeper. Right now, the iTunes Store sells ~2% of the legally purchased music sold in the USA. This is a market that is growing by leaps and bounds; imagine if Apple sold 2% of the legally purchased music world-wide. And then 5%. And then 10%. And everything is DRM’ed, meaning if you want to make a device that plays back the content, you’re paying them… let alone their own tailored-to-FairPlay devices like AirTunes, which only works with the Airport Express…
Watch the hands

There’s an old adage about magicians; if you want to learn the trick, close your ears and open your eyes. Well it might not go exactly like that, but that’s the lesson I took from it.

When people are talking, you have a natural inclination to look at their eyes, and if they’re doing something with one hand chances are you really need to be watching the other if you want to see what they’re really up to. In other words, watch the hands. And Apple is particularly adept at misdirection…

Witness the Palm scenario. After the Newton put in grave, PDAs suddenly got really, really hot and Apple was doing lots of neat industrial design things. They were continuously asked about creating their own PDA, but they basically dismissed the entire market as irrelevant. Steve Job’s gave the infamous “Why would anyone want to use a little scribbly thing” line… but we now know that around that time Apple was seriously trying to buy Palm. Interesting, that.

They’ve also gone out of their way to talk about what a loss-leader the iTunes store is, how they make literally nothing from it and how much back-end work it took to make it a reality. Bandwidth, servers, credit-card companies… anyone else would be crazy to do it. Interesting, that.

Speaking of interesting, Steve Jobs gave an interview with Mossberg recently where he was asked about movies:

“The interesting thing about movies though is that movies are in a very different place than music was. When we introduced the iTunes Music Store there were only two ways to listen to music: One was the radio station and the other was you go out and buy the CD.

Let’s look at how many ways are there to watch movies. I can go to the theater and pay my 10 bucks. I can buy my DVD for 20 bucks. I can get Netflix to rent my DVD to me for a buck or two and deliver it to my doorstep. I can go to Blockbuster and rent my DVD. I can watch my DVD on pay-per-view. I can wait a little longer and watch it on cable. I can wait a little longer and watch it on free TV. I can maybe watch it on an airplane. There are a lot of ways to watch movies, some for as cheap as a buck or two.

And I don’t want to watch my favorite movie a thousand times in my life; I want to watch it five times in my life. But I do want to listen to my favorite song a thousand times in my life.”

He went on to mention how there might not be the same “opportunities” for the movie industry as there were for the music industury, but the above is what I’d saved. While the above is perfectly solid logic, to my admittedly paranoid mind what the above says to me is that Apple is in some really hot and heavy talks with the MPAA and movie studios right now; as one thing Apple isn’t mentioning is when it came to actually getting legal music online at the time it was cumbersome, laden with heavily-restricted DRM and just a general pain in the ass.

The whole process, until the iTunes Store, was needlessly complex and convoluted. Remember, iTunes wasn’t the first online store, it was the first that was successful.

There are some other pieces here; witness H.264/AVC, which I blogged about earlier in my… usual way… which probably means there’s no way you got through it all. So to recap some of what we learned that’s pertinent:

* Around a 30-40% bitrate (bandwidth) reduction over MPEG-4
* Massively streamlined networking, it’s absolutely ideal for various embedded devices
* Intel and others have been talking about working H.264 over home wireless networks since 2003
* It brings the bitrate into line for high-quality video over standard home broadband connections
* Artificial Intelligence will be born of an aberrant and bored ActiveX control.

Hmm… embedded devices. Apple sells one of those now, don’t they? That nifty little $150 product called Airport Express, featuring Air-Tunes; plug it in near your really nice stereo, jack in the audio from the Airport Express and wirelessly stream your (encrypted) FairPlay-DRM’ed AACs straight from iTunes.

And people with really nice stereos often have really nice home entertainment systems, and it really wouldn’t take a whole lot to add some video out and a beefier chip in a new version. Besides, if you’re using it for it’s AV functionality, chances are you have no interest in the USB port.

Wouldn’t that be nice? If you’re going to watch your home movies… why limit yourself to your computer? You could have the same ‘living room’ button right in iMovie. Sure you could rip them to a DVD, but that takes a surprisingly long amount of time.

And, while the H.264/AVC codec is heavy, we have G5 iMacs coming soon and the computer doesn’t have to rip the entire thing to H.264/AVC; it just needs to be able to do ~24fps plus a buffer. Using the Baseline Profile of H.264/AVC and giving up some bitrate, a 1.6-1.8GHz G5 iMac is going to be taxed out but should be able to pull it off at 720×480 (DVD sizes) if Apple really goes all out on the optimization side. Standard-Definition TV sizes (352×288) wouldn’t be a problem at all.

Of course that wouldn’t really be necessary if you’re actually buying something through the iMovie store; then it just needs to be streamed with a suitable buffer… and H.264/AVC is all about streaming. iMovie Store -> Computer -> Airport Express Rev.B -> TV. You may want it to spool to disk while it’s streaming for future viewing or other TiVo-ish things, but as Jobs said, how often do you watch a movie? So it’s not going to hang around that long, at most we’re talking about some fine points changing in the FairPlay DRM scheme.

Now there was another little nugget that Jobs threw out, and that was regarding the actual opportunity in the space due to the variety of ways you can get your movie fix. This is true, but kind of overstates things a bit, and something like the iMovie Store would make a lot of things drastically more streamlined, even if you hardly changed the interface from the iTunes setup at all.

Hell, iTunes has music videos now; which are practically the equivalent of trailers… and really, while Jobs has a very good point about the frequency with which you’ll be watching stuff, for the most part that just means you’ll rarely want to actually own it forever if the price is right.
A paradigm with legs

When it comes to movies, things have gotten a little over the top in the DVD world. You often can’t get ‘Extended Edition IV’ of something at your local rental shop, which means you have to buy it. Local shops, while having a big selection, don’t have everything… which means you have to buy it online. And even then you often don’t want to buy it, you’ve probably already seen the movie three times in its various forms, you might just want access to the special ‘making of’ features and not 4 copies of the same movie with 5 minutes of extra footage in each edition; you just want the really new stuff, which you can’t buy separately.

If it’s local, it also assumes that you haven’t been drinking with friends late at night and someone says “Oh, I’ve never seen that” and it’s decided that, for whatever reason, that persons life simply can’t continue properly until they’ve seen The Adventures of Buckaroo Bonzai. You can use NetFlix, but you have to wait until it’s in your slot and available, then shipped. Same for ordering online. Remarkably similar to where music was, eh?

And then there’s TV, who is starting to develop a love affair with DVD in a big, big way; except it’s still kind of a bitch. I can give Farscape as an example, since I’m an unabashed fan but I’ll spare you most of that… but it’s a great example of how screwed up things are here.

There were four seasons of Farscape, and you have a few options for viewing now:

* Wait and re-watch it on TV
* Buy a ‘Complete Season’ which includes all the episodes for that season for ~$100-$130. ($130 * 4 = ~$520)
* Buy a ‘Season Collection’ which includes 4-5 episodes of that season for ~$30… these were generally released first, with around 5 collections per season.

Feel free to substitute your personal TV show of choice in the equation, and of one the above options might very well make sense for you. But for myself it’s just annoying as hell.

You see I’ve already seen a ton of Farscape episodes, and while it’s one of the few shows I don’t mind re-watching too badly, I don’t have a big burning desire to. I want to see the episodes I haven’t seen, so awhile back I went to TV Tome and looked through the episode guides and compiled a list of the episodes I hadn’t seen. These are a smattering of Season 1, a larger smattering of Season 2, one or two of Season 3, and one of Season 4.

In a few years I might want to watch them all again, but I don’t really have the time to just watch the Sci-Fi listings to see when a particular episode might air and hope I’m around. I could buy the Season Collections that contain the episodes I want, but then I’m paying for a bunch of episodes I’ve already seen. I could just be simple about it and buy the Complete Season collection, but then I’m paying for a ton of episodes I’m not interested in watching right now.

I was in the same boat with Arrested Development (I’m eternally grateful to Jane for turning me onto it) but luckily enough it’s early in its run, and they replayed them back to back all the time so I was able to catch the two episodes I’d missed. If I could simply open up the iMovie Store, pull up the episodes (with info and synopsis!) and watch when I had the time I’d be in heaven, even if I had to pay a bit.

My only other option really is to turn to something like Bittorrent or something similarly illegal which, while it’s fine and works well enough, pretty much removes all the immediacy from the decision. Again, this is all remarkably similar to where the recording industry was a bit ago; lots of bundling, and everything is a much bigger hassle than it needs to be.

The only real differences are the amount of data involved between an AAC with a bitrate of 128K and an H.264/AVC with a bitrate between 500-1000k and the fact that the a movie is much longer in duration than a music track. Apple has already worked out payment; they’ve got a big lead on the DRM, and H.264/AVC brings the bitrate into line for what you’d need over a broadband connection. This isn’t to trivialize the work that it’d take, just that we’re talking an evolutionary leap here; much of the hard stuff has been worked out.

If this sounds too pie-in-the-sky for you, or too reminiscent of the Cable Co’s promises in the late 90s of video-on-demand which never materialized… it never really materialized because the technology and the infrastructure was never really there. It was primarily bluffing against the internet hype. Remember that for awhile there the telco’s were laying fiber like they’d skipped the chapter in business involving the railroad boom & bust back in the 1850s.

All the pieces are here for this now, and you’re going to be seeing it very, very soon. You’ll probably see it first with Satellite companies, but what they’re doing in places like China and South Korea right now are absolutely amazing… and Apple wants to be the GateKeeper here.
Inching towards the endgame

If I’m even close to right, look for more deals with phone makers as time goes on; the reason why they’re partnering with Moto first is that Moto’s next generation of phones is the most dangerous to them here (well, in the USA). The companies are really just starting to get their acts together in terms of 3G, mostly due to increasing competition and the increasing demands that come with higher-end features… when your camera phone has a 5 mega-pixel CCD emailing that thing off is a chore.

And there is no real blame here, the iPod’s era of growth being stunted short isn’t due to any fault of Apple; they aren’t the only ones being caught in this squeeze. And there’s remarkably little they can really do to save the iPod long term. Instead of letting the phone suck in the iPod, they could ‘let the iPod suck in the phone’ and add the functionality to it. But when you stop and think about that idea, besides noticing the fact that it’s almost buddhist in nature you’re left with the problem of everything else the phone is converging with.

But one can take heart that they’re recognizing the danger very, very early. It’s telling that they’re not only licensing the playback of FairPlay-DRM’d tech to Moto, but that they’re also building the playback software that will ride on top of it, and that’s the long-term endgame they’re moving towards, and the iPod, AirTunes and other things to come will be pawns in that game; they’ll all reinforce Apples DRM even if it costs some sales.

If you’re having trouble picturing that endgame, think of Microsofts ill-fated HailStorm initiative. One part of this involved them holding all of your personal information in escrow, including payment information, and they’d be your gateway towards purchasing anything on the internet, all the while siphoning off pennies here and pennies there.

They’ve also recently been working hard to incorporate DRM into the BIOS of your motherboard and pervasively through the operating system… much of it in an effort to put a hurt on piracy and the like, but much of it was very much an effort to court the media companies. You see Microsoft makes money when people decide they need (and buy) new computers, and people don’t buy new computers to be able to browse the web faster (unless they’re using OSX).

Apple is playing towards that exact same endgame, but with a twist: they’re creating a new light-DRM platform that is riding on top of everyone else’s platform. iMacs, Windows, mobile phones, everything. Google is also creating a platform riding on the backs of other platforms… except its based around becoming the access point for all things internet. Apple wants that, but for DRM content.

They weren’t kidding around with their vision of the computer as a hub for your digital life, they just forgot to mention that the hub will come with a lock. And guess who owns the keys? cheap essay writing australia

Camera phone helps label snaps

* 23 December 2005
* NewScientist.com news service

KNOWING where you are, what time it is and who you are with is obviously a huge help when it comes to filing a photograph in your collection. It also happens to be information that can now be compiled by any Bluetooth-enabled camera cellphone.

The phone will allow the growing number of camera phone users to organise their digital photo albums by automatically identifying and labelling the people and places within each snap, as they are taken.

The concept, being developed by Marc Davis of Yahoo’s Berkeley research lab in California, is based on a central server that registers details sent by the phone when the photo is taken. These include the nearest cellphone mast, the strength of the call signal and the time the photo was taken.

The system also identifies the other Bluetooth-enabled cellphones within range of the photographer and combines this with the time and place information to create a shortlist of people who might be in the picture. This can then be combined with facial-recognition algorithms to identify the subjects from the shortlist.

Facial recognition software on its own can only identify people with 43 per cent accuracy from the grainy shots taken by camera phones, but in tests Davis and his team found that by combining it with context information the system could correctly identify people 60 per cent of the time. The context information can also be combined with image-recognition software to identify places within photos.
Related Articles

* Cell phone could identify its owner by their walk
* http://www.newscientist.com/article.ns?id=dn8161
* 14 October 2005
* Camera phones will be high-precision scanners
* http://www.newscientist.com/article.ns?id=dn7998
* 14 September 2005
* Illicit snappers caught infrared handed
* http://www.newscientist.com/article.ns?id=mg18725156.500
* 03 September 2005

Weblinks

* Marc Davis, Yahoo Research Berkeley
* http://research.yahoo.com/researcher/marcd.shtml
* Yahoo Research Berkeley
* http://research.yahoo.com/berkeley/
* Bluetooth
* http://www.bluetooth.com/

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Linux Bluetooth hackers hijack car audio

Linux hackers have demonstrated a way to inject or record audio signals from passing cars running insecure Bluetooth hands-free units. The Trifinite group showed how hackers could eavesdrop on passing motorists using a directional antenna and a Linux Laptop running a tool it has developed called Car Whisperer.

The software was demonstrated during a Bluetooth Security talk at last week’s What the Hack hacker festival in The Netherlands. Trifinite has developed a specialism in unearthing Bluetooth security shortcomings, the latest of which illustrates implementation problems rather than more deep-seated security concerns with the protocol. Car Whisperer only works because many car manufacturers use standard Bluetooth passkeys such as “0000” or “1234” which are easy to guess. “This is often is the only authentication that is needed to connect,” according to Trifinite.

Once connected hackers can interact with other drivers or even eavesdrop conversations from inside other cars by accessing the microphone. And that’s just for starters.

“Since the attacker’s laptop is fully trusted once it has a valid link key, the laptop could be used in order to access all the services offered on the hands-free unit. Often, phone books are stored in these units. I am quite certain that there will be more issues with the security of these systems due to the use of standard pass keys,” Trifinite notes.

Reproduced from an article published by SecurityFocus
© 2005 SecurityFocus

BlueTooth Hacking: Step by Step Guide
By JIMA

You have heard of BlueSnarfing, but how do they actually work? Cryptonomicon has a nice guide on Bluetooth hacking.

Bluejacking is a mostly harmless activity. Though it is an unintended use of a technical feature, most hard-core geeks do not find sufficient technical challenge in the activity. For the more serious hacker, looking to explore the security features of their Handset, more technically demanding sport is required.

The summary of the steps are:

1. have a read at the War Nibbling: Bluetooth Insecurity for an overview
2. get Bluez, a Bluetooth networking stack that runs on linux
3. investigate the security characteristics of your handset thru BlueTooth Security Database or BlueStumbler
4. use BlueSniff and RedFang to eavesdrop on BlueTooth conversations
5. and finally BTScanner to query your device and report common settings

They’ve Got Your Number

… your text messages and address book, and a way to bug your calls. Why spam, scams, and viruses are coming soon to a phone near you.

It’s a beautiful afternoon in Shepherd’s Bush, a bustling neighborhood on the outskirts of London, and Adam Laurie is feeling peckish. Heading out of the office, he’s about to pick up more than a sandwich. As he walks, he’ll be probing every cell phone that comes within range of a hidden antenna he has connected to the laptop in his bag. We stroll past a park near the Tube station, then wander into a supermarket. Laurie contemplates which sort of crisps to buy while his laptop quietly scans the 2.4-GHz frequency range used by Bluetooth devices, probing the cell phones nestled in other shoppers’ pockets and purses.

Laurie, 42, the CSO of boutique security firm the Bunker, isn’t going to mess with anyone’s phone, although he could: With just a few tweaks to the scanning program his computer is running, Laurie could be crashing cell phones all around him, cutting a little swath of telecommunications destruction down the deli aisle. But today Laurie is just gathering data. We are counting how many phones he can hack using Bluetooth, a wireless protocol for syncing cell phones with headsets, computers, and other devices.

We review the results of the expedition in a nearby pub. In the 17 minutes we wandered around, Laurie’s computer picked up signals from 39 phones. He peers at his monitor for a while. “It takes only 15 seconds to suck down somebody’s address book, so we could have had a lot of those,” he says at last. “And at least five of these phones were vulnerable to an attack.”

The “attack” Laurie mentions so casually could mean almost anything – a person using another person’s cell to make long distance calls or changing every phone number in his address book or even bugging his conversations. There are, he says, “a whole range of new powers” available to the intrepid phone marauder, including nasty viral attacks. A benign Bluetooth worm has already been discovered circulating in Singapore, and Laurie thinks future variants could be something really scary. Especially vulnerable are Europeans who use their mobile phone to make micropayments – small purchases that show up as charges on cell phone bills. A malicious virus maker bent on a get-rich-quick scheme could take advantage of this feature by issuing “reverse SMS” orders.

Bluetooth security has become a pressing issue in Europe, where the technology is ubiquitous. The problem will migrate to American shores as the protocol catches on here, too. But in the long run, Bluetooth vulnerabilities are manageable: Handset manufacturers can rewrite faulty implementations, and cell phone users will learn to be more careful. A far bigger security nightmare for the US is Internet telephony, which is fast being adopted for large corporations and is available to consumers through many broadband providers. Voice over IP is, by design, hacker-friendly. No enterprising criminals have dreamed up a million-dollar scam exploiting VoIP technology yet. But when they do, it likely won’t be something a simple patch can fix.

Bluetooth hacking is technically very different from VoIP hacking, but they’re both surging for the same basic reason. Increasingly, telephones have become indistinguishable from computers, which makes them more useful, but also more vulnerable. VoIP, which routes calls over the Internet, gives users the power to port their phone number anywhere, package voice messages into MP3s and receive them as emails, and make cheap international calls. Yet VoIP, like Bluetooth, exposes your telephone to the same ills that regularly befall a desktop box – worms, spam, crashes.

“It’s not like we’ve fixed the vulnerabilities on computers,” says security expert Bruce Schneier, author of Secrets and Lies: Digital Security in a Networked World. “The phone network used to get its security from being closed, but VoIP phones will be just as bad as computers.”

Many of today’s hacks work because the traditional phone system was built on the premise that only large, monopolistic phone companies would be using it, and they would all play by the same rules. But the network isn’t the telcos’ private sandbox anymore; it can be manipulated and controlled by anybody who understands basic computer networking. The people who know this best are a new generation of phone hackers – aka phreakers – who aren’t interested in following the rules. They’re busy ripping apart the latest phones to discover what can make them turn against their owners. As the phone companies and handset makers lumber along, we can only hope that the phreaks in white hats figure out some fixes before the blackhats move in for the kill.

Laurie, whose laptop is now packed with information from vulnerable cell phones in the Shepherd’s Bush, has become infamous in Britain for conducting a similar experiment in the House of Parliament, where he had the opportunity (which he didn’t take) to copy the address books and calendars of several prominent politicians. That excursion resulted in a mandate that all Bluetooth devices be turned off in the House of Parliament.

As the inventor of “bluesnarfing,” a hack that uses Bluetooth to peek at data stored on cell phones, Laurie is dedicated to publicizing the danger of a wide-open Bluetooth connection. A bluesnarf attack can identify an unprotected phone and copy its entire address book, calendar, photos, and any other information that happens to be inside. Using a bluesnarf program, a phreak can also crash any phone within range by using Bluetooth to broadcast what Laurie calls “a corrupted message.”

Bluesnarf was born after Laurie scrutinized the code running some Bluetooth headsets his staff was using. He wasn’t happy with what he found. “Gaping security holes,” he says with a frown. Rebuffed by the cell phone companies to which he reported the problems, he conceived of bluesnarf as a publicity stunt, a tool that would dramatize the danger of owning these phones.

Compounding Bluetooth’s technical vulnerabilities are problems with the way people use it. Most folks leave Bluetooth on all the time, often because they don’t bother to learn how to turn it off. Even tech-savvy types tend to keep their connections open. “People have heard about ‘toothing,’ where strangers send each other flirtatious messages via Bluetooth,” he says. Hoping to get toothed, they risk an entirely different kind of penetration.

The risk doesn’t end with snarfing. Another way to use Bluetooth to hijack a phone completely is bluebugging, and Laurie gives me a quick demo. He runs the bluebug software on his laptop, and it quickly locates an Ericsson t610 phone he’s set on the table between us (not all phones can be bluebugged, but this model can). His computer connects to the phone and takes it over, remotely. Tapping the keyboard, Laurie sends the t610 a command to ring up the phone on his belt. It bleeps. He answers. We’ve got a bluebug.

Invented by Austrian researcher Martin Herfurt earlier this year, bluebugging is the perfect weapon for corporate spies. Let’s say you and I are competing for a big contract with an oil company. I want to hear everything that happens in your meeting with the VP of Massive Oil Inc., so I hire a blackhat phreak to take over your cell phone. Once he’s bluebugged it, I tell him to have your mobile call mine. The phone that’s sitting in your jacket pocket is now picking up everything you and the VP say during your conversation, and I can hear the prices you’re quoting as clear as a bell on my own phone. “A cell phone is the ultimate well-engineered bugging device,” Laurie says.

Unlike bluesnarfers, who need only some gear and know-how, the bluebugger first has to get your cell phone to pair with his computer, establishing a “trusted” data link. Laurie explains one crafty way to make this happen. “You just say, ‘Gee, that’s a cool phone, can I see it?’Punch a few buttons to establish the pairing, and hand it back.” As soon as the pairing is complete, the bluebugger can commandeer every aspect of the phone. He can initiate calls, send SMS messages, even overwrite the address book and contacts list.

Laurie’s revelation is disturbing, but the fact that phreakers need to approach and interact with their intended targets significantly cuts down on the number of victims. Yet British security consultant Ollie Whitehouse, whose Bluetooth-hunting program Redfang has made him a celebrity among phreakers, describes another a way to bluebug – a method that doesn’t demand the eavesdropper come into physical contact with the target’s phone. In this case, the trick is to sniff the data traffic traveling to and from a Bluetooth phone when it’s pairing with another device, like a headset. Armed with this information, an attacker can bluebug the phone by pretending to be the trusted device with which it regularly networks.

Cell phone companies argue that bluesnarfing and bluebugging are minor threats because Bluetooth is designed to work only over short distances, 20 feet or less, requiring attackers to be close to their targets.

Enter the Bluetooth sniper rifle. Made from $200 worth of off-the-shelf parts, the sniper is a Bluetooth antenna optimized for long-distance use. It can send and receive faint signals at more than a thousand yards. With the sniper – or a wireless weapon like it – bluesnarfers and bluebuggers no longer have to be in the same room as their targets. “By smashing any notion that distance is an issue,” says 24-year-old inventor Jon Hering, a student at the University of Southern California, “we showed that bluebugging is a real-world threat.”

Surely the phone companies must be doing something to protect us from all this. Keith Nowak, a spokesperson at Nokia, suggests “just turning off Bluetooth – or switching into hidden mode.”

Whitehouse laughs at that advice. Redfang, his signature phreak tool, is specifically designed to find Bluetooth devices in hidden mode. And given that so few people actually do turn off Bluetooth, their phones are susceptible to countless hacks – ones that Hering’s sniper rifle could launch from half a mile away.

The Default Radio boys, rock stars in the phreak underground, are onstage at DefCon, the venerable hacker conference that’s sort of a cross between the Ozzfest mosh pit and an after-hours party for NSA agents. Wearing baseball caps, T-shirts, and baggy jeans, the boys are doing a live version of their phreak-friendly streaming-audio talk show. The long table in front of them is covered with telephone equipment and computers.

A Defaulter using the nom de phreak Lucky225 steps up to the mike. With a phone tucked between his ear and shoulder and the keyboard under his fingers, he looks like a cross between a DJ and a telephone line repairman.

Lucky regales the audience with a tale about his favorite VoIP hack: He can make a VoIP phone display whatever caller ID number he chooses. To prove his point, he tells us he can impersonate “Jenny,” the girl from the pop song by Tommy Tutone.

Earsplitting static issues from the speakers, and suddenly we hear a thunderous dial tone. Lucky has routed his VoIP phone through the sound system. He dials MCI’s caller ID readback line, a service that identifies whatever number you’re calling from. A robotic voice slowly intones Lucky’s number: “eight-six-seven-five” – the crowd erupts, screams of laughter mingling with groans – “three-zero-nine.”

Having demonstrated his power over caller ID, Lucky proceeds to tell the phreak-packed auditorium how he spoofed the number. Turns out the whole thing is a social hack. A few days before, he called his service provider, Vonage, and told them he wanted to port all his cell phone calls to the Internet phone connected to his computer. His cell number is 867 5309, he lied, and Vonage believed him. Now it’s rerouting all calls made to Jenny on the Vonage network to Lucky.

Naturally, Vonage also set the caller ID on Lucky’s VoIP phone to Jenny’s number – so any time he dials out, it looks like he’s calling from 867 5309. A lot of systems depend on receiving accurate caller ID – credit card-activation lines, voicemail systems, even 911. So being able to control what a called party sees after you dial can be a potent weapon. Armed with your caller ID, an identity thief could order a new ATM card, activate it over the phone, and use it to empty your bank account. And, given that many voicemail boxes will play their contents to any phone with the right caller ID, you could be opening up your private life to anyone with a Vonage phone.

After the show, I ask Lucky why he got into the phreak scene. “Well,” Lucky deadpans, sketching out plans for a network of cans and rubber bands, “I wanted to start this elastic-based phone system ” He’s a prankster, but with a purpose – to make clear to the public that VoIP is a privacy nightmare. “Yup,” he concludes, still pondering voice over elastic, “I think this tin can shit is really going to take off.”

Steve Wozniak, the Apple computer pioneer whose phreak days began in the 1970s, says pranks are what it’s all about. “Those of us who have the phreaker mentality see playing with the world as fun, but in these times it’s hard for people to see us as harmless.”

Maybe so, but Vonage doesn’t seem too concerned. When I contact the company later to find out whether they know about Lucky’s caller ID trick and what they are doing to stop it, executive VP Louis Holder admits they’re not doing anything. “We allow people to do what he did,” Holder says. “We give people a temporary phone number before we verify it with the phone company, and verification takes a couple of weeks. Somebody could pick the White House number and pretend to be the president.”

Today’s phreaks have the power to crash the phone system – but they also have the power to rebuild it. Lucky’s joke about creating his own network out of tin cans and rubber bands isn’t that far from the truth. Slestak, Da Beave, and GiD are the crew behind Florida-based Telephreak.org, a free VoIP service that they’ve built to run on a roll-your-own, open source private branch exchange (PBX) system called Asterisk.

Typically used by businesses, a PBX consists of computers that route calls between what amounts to a phone intranet and the public telephone system. A company using a PBX might pay for 100 lines that service 500 employees, linking callers to the outside world, voicemail, or conferences by dynamically connecting phone calls using whichever landlines are open. In the past, all these connections would be managed by the phone company or a proprietary, closed black box in the server room. But with Asterisk, there’s no need for the phone company to manage your lines anymore. You can do it yourself.

The Telephreak crew has created its own private phone company for themselves and their friends – one that never sends a bill. Dial an access line to check voicemail, create conference calls, forward calls to other phones, even get a new number. And never pay a cent.

Currently, there are several hundred voicemail accounts, and the system can handle a hundred simultaneous calls. Although the Telephreak crew has to pay for connectivity to Ma Bell, the amount is so negligible that they’re willing to eat the money. It’s a small price to pay for freedom.

I’m talking to them on a Telephreak conference call, and the sound is a little fuzzy. Beave, identifiable by his slight southern twang, tells me he’s working on ironing out the bugs. It’s a little strange to know someone is manipulating your phone connection while talking to you. Suddenly, the sound is perfect. We’ve been rerouted. Slestak’s voice comes in loud and clear: “My connection to you guys right now is going across a cordless phone with a box to the server, then to Telephreak. My dial tone is coming from the West Coast.”

One of the best things about building your own PBX is that you can do what Slestak calls “chemistry experiments” with the phone system. Some PBX phreakers, like Telediablo, even provide a caller ID spoofing service: With it, there’s no need to lie to Vonage – you simply call up Telediablo’s PBX, plug in the number you want to use as your caller ID, then dial the party you want to trick. When I try out his little hack, I pick the number 666 6666. Next, I key in a nearby friend’s number. It rings. My friend shows me his caller ID window: Now I feel like a phreak. Instead of displaying my number, his phone is displaying the devil’s digits.

There are other PBX tricks – like caller ID unmasking, which can sometimes reveal the actual phone number of a caller, regardless of whether they’ve paid to have their number blocked. So if you think you’re anonymous on the telephone system, think again.

Probably the most unsettling discovery made by whitehat phreakers is that VoIP providers and wireless companies are willing to peddle phones and services that they know perfectly well are vulnerable to all kinds of attacks. After several months of bad publicity in the UK, where Laurie and Whitehouse are based, the cell phone companies are responding. Nokia and Sony Ericsson have issued patches, and Motorola says that its security flaws have been fixed in the newer models. And upstart VoIP provider Skype is marketing built-in encryption. Meanwhile, the Bluetooth Consortium – a group of industry leaders, including Nokia and Sony Ericsson, whose products incorporate Bluetooth – focused explicitly on security at its UnPlugFest in Germany last month. At the meeting, security experts (including Laurie) rated each company’s phones in terms of their resistance to common attacks. Still, nobody is tracking bluesnarf or bluebug attacks to measure the extent of the problem – nobody but the whitehat phreaks themselves.

Whitehouse has written a program he calls Sweet Tooth that can detect the signature radio signals sent by bluesnarfers. Modeled on honeypot programs that law enforcement and security analysts use to detect hackers on the Internet, Sweet Tooth could provide accurate statistics on how prevalent bluesnarf attacks really are. The program is ready for action, says Whitehouse. The question now is whether law enforcement and the phone companies will actually deploy it, however. Ignoring the problem is not going to make it better – especially because phone hacking is only going to get easier.

Bluetooth phreaking is just the beginning. The holes will get patched, but the problem won’t go away, because all the tools that hackers have spent decades developing will now be repurposed to hijack your phone. Next-generation handsets will have three entry points for the blackhats: If a snarfer can’t suck down your data with Bluetooth, he’ll try your Wi-Fi port, and if that doesn’t work, infrared.

“I guess that’s the price you pay for convergence,” Whitehouse says.

Source: Wired
By Annalee Newitz

Television proved it was possible to send moving pictures along wires. This raised the further possibility of what had always sounded like a great idea – videophones on which callers could see as well as talk to each other. But there were some problems with that vision.

There was a technical problem. Television pictures carry a lot of signal information – more than ordinary phone lines can accommodate.

There was a human issue, too. The truth is that people don’t always want to be seen on the phone. But it took the pioneers of videophones a little while to learn that lesson.
World’s first videophone system (1964) : seeing as well as hearing A British videophone on trial, early 1970s

Videophones, transmitting a picture of the speaker as well as his or her voice, are older than most people think. Commercial systems were used in France and Germany during the 1930s but they were cumbersome and expensive.

Even the American company AT&T’s Picturephone of 1956 was crude – transmitting an updated still image only once every two seconds. By 1964 AT&T had developed a complete experimental system, the ‘Mod 1’. To test it, the public was invited to place calls between special exhibits at Disneyland and the New York World’s Fair. In both locations, visitors were carefully interviewed afterward by a market research agency.

The findings were not encouraging. It turned out people didn’t actually like Picturephone. It was too bulky, the controls too unfriendly, and the picture too small.
The first videophone service (1970) : a million within ten years…A videophone concept produced by Plessey, 1960s – the unit itself is a Connected Earth artefact, now in the National Museums of Scotland collection

Despite far from encouraging market research findings, AT&T executives in the USA were convinced that their Picturephone system would eventually be a winner. Following a six year trial, a commercial Picturephone service made its debut in Pittsburgh in 1970, with AT&T executives confidently predicting that a million sets would be in use by 1980.

They were wrong. Take-up was painfully slow and the service was later withdrawn. Despite its improvements, Picturephone was still big, expensive and uncomfortably intrusive. There was also doubt as to whether people actually wanted to be seen on the phone at all (indeed, there’s quite a lot of research in the industry which proves they don’t!).
First desktop videoconference system (1990) : attending virtual meetingsVideoconferencing

The Picturephone experiment in the USA during the early 1970s had been a failure. But by the 1990s four new factors had come together to make widespread videoconferencing a realistic proposition. These were: the growing use of the personal computer (PC) placed a screen on virtually every desktop; falling prices for image capture devices connected to PCs making digital photography and video affordable; use of the Internet provided a low-cost means of connecting voice, images and people in real time over unlimited networks; and last – but not least – international standards ratified in 1996 and 1998 ensuring the compatibility of all equipment.

In fact, the first PC-based video phones were demonstrated by IBM and PictureTel as early as 1991 but the system was expensive and the results less than convincing. Even today videoconferencing is by no means universal, partly because the extra equipment necessary to provide full-screen pictures and sound as good as normal television costs as much as the PC itself and requires a special ISDN or broadband telephone line.
Relate 2000 videophone (1990s) : here’s looking at youRelate 2000 videophone – a Connected Earth artefact, now in the Amberley Museum

Videophones have been a dream for many years, and with this telephone the dream almost became reality. This videophone was the first one BT made commercially available, in the 1990s. It promised callers the chance to see, and be seen by, the person they were talking to.

The snag was it didn’t work very well. The technology of the telephone was good, but the network’s bandwidth wasn’t broad enough to carry all the pictures, sound and colours at once. A caller could see the person but the image would shift very jerkily from one frame to another, which was quite disconcerting.

The telephone was designed with a flip-up screen on the right, where the video played. They were available for £500 each or two for £900 – but with such poor image quality, and with so few others having them, take up was minimal.