To the first question, it is useful to know that there are two competing theories about what a corporations’ leaders motivations should be. On the one hand, a school of management established by Peter Drucker argues that (in his words) “There is only one valid definition of a business purpose: to create a customer.” Under this managerial view, making a better product, creating a better experience should be the top priority. On the other hand, many corporate executives have come to believe in the arguments laid out by finance professor Michael Jensen and Dean William Meckling of the Simon School of Business at the University of Rochester. Their theory argues that a corporate CEO’s number one goal should be to maximize shareholder value. (You can read much more about this clash of ideas in “The Dumbest Idea In The World: Maximizing Shareholder Value” by Steve Denning over at Forbes. Definitely worth the read.) The problem that arises from this point-of-view is that there are ways that a CEO can increase shareholder value without concerning him/herself with bettering a product. Most of these involve managing information in some way. The first method is that CEOs can manage the expectations of analysts who make investment advice. Exuberance has been shown to be able to increase stock value. This, to paraphrase Roger Martin in Fixing the Game, is like the coach of a football team managing the spread for the bookies instead of trying to win the game. A second method is to use advertising and product placement in media to manage brand recognition, and that part is important because of what psychologists call the recognition heuristic.

In Psychological Review (Vol. 1, No. 9) Daniel Goldstein and Gerd Gigerenzer put forward a simple mathematical function that fairly accurately predicts subjects’ decision-making (in cases with two options). The predictions indicated that, in very general terms, individuals will choose something they know over something that they are unfamiliar with. They call this decision process the recognition heuristic and speak directly to the fact that information transmitted via media has the advantage of appearing before an individual multiple times. What this accomplishes is to make an individual estimate that they have interacted with a brand more often than they actually have, increasing its recognition, and the likelihood that the advertised product will be chosen over the lesser or un-advertised.

Where corporations often run into trouble (Hi, RIM!) is that they come to rely on these informational crutches. Playing the spread becomes more important than winning the game. Talking up unproven projects in development becomes more important than actually shipping. Any advantages that a collection of skilled people brings begins to deteriorate as money is funneled away from design and development and into other channels better used for support, and talented people leave. If there’s one thing that annoys talented engineers and designers, it is seeing that the focus of a company is on something other than what is being produced. After a while, a firms lose the ability to innovate even when executives decide to change focus, because the talent needed to steer the ship has jumped ship. As the vaunted Steve Jobs might say, “Real artists ship”¹. In fact, Apple makes an exceptional example in this respect, reducing their advertising budget when compared to their revenue growth, and spending a fraction of what other technology companies spend while dominating multiple markets because of the effectiveness of their design and engineering. Managing shareholder expectations and engaging advertising are important aspects of corporate management, but they are no substitute for creating a product or service that compels consumers to want to engage with it. You can and probably should advertise, but don’t be surprised when consumers get wise to the fact that all you do is advertise.

• Update 2:55pm: The rumors are true; there will be copy and paste in iPhone 3.0.

Unless Robertson is not including the iPod Touch, then he has his assessment quite backwards. iPods are actually the iPhone killer. Everything from television to the landline network is gradually being sucked into TCP/IP. I don’t think anyone would be surprised by that statement. Data is data and data only needs one network, and that one’s already up and running on wifi and soon, wimax.

As someone who owns an iPod Touch with a microphone and that lives amongst (a University Campus and my house) ubiquitous wi-fi networks, I didn’t even see the point of getting a cell phone attached to my iPod. There’s nothing special about all the cellular networks with the exception of the fact that they are not as open as the Internet.

What other technological channel has managed to attach itself to the Internet without being entirely absorbed by it? Cellular networks and cable TV are being assimilated. Cell phones aren’t Internet devices–the iPod is. In fact, that’s got me wondering about Jobs’ inspiration for naming the iPod versus the iPhone. Did he realize the iPhone was just a hybrid while understanding that the iPod (a much more generic and flexible idea) was still the end-all-be-all?

Seriously though, is the Reality Distortion Field^TM hitting me this far out from California? There is only one well-known device on the market that is prepared for the transition from cellular network to wifi transmitted IP. The cost of maintaining cellular towers that can utilize 3G seems much higher than wimax. I really think the iPhone is a transition device, a hybrid. Still though, Apple has its bets covered on this one.

Moreover, the Flash plugin has historically been a resource hog. When I was doing more Flash development a few years ago, some fellow developers and I figured out that we could actually get the fan in a Pentium machine to turn on by running certain Flash scripts. What that means is Flash is eating up resources on the CPU at a ridiculous rate and heating up the chip. For Apple’s iPhone that would translate into both heat and lowered battery life. My bet, is that they want people to get used to the idea that the iPhone has great battery life and doesn’t heat up in your pocket. Then, when they do introduce Flash, consumers will more likely be aware of who is the correct party to blame when playing Desktop Tower Defense kills their iPhone.

As I’ve argued before there are two different types of product companies: commodity products and designer products. Designer products don’t tend to hold large marketshares but they do command higher prices. Up to this point, commodity products have been able to largely inflate their prices due to the proxy of brand as quality. As Chris Anderson points out in his article, when consumers are faced with a large variety of choices, they go with what they know. (Nobody ever got fired buying/hiring IBM, right?) And to further his point, as consumers are gaining more information from the market and becoming more informed, the effect of brand as a sign of quality is going to wear off. However, here he makes the leap and says that the tastemakers will become the stand-in for a symbol of quality.

But how do tastemakers choose their tastes? There are some that will take the money and wear whatever you give them. There are others that really do have a reputation for knowing what is the best quality product. I’m sure there are a lot of people who would take Bob Vila’s word on tools and materials without a second thought. And if you’re a tool company like Makita that comes highly recommended from many tastemakers then I’m not sure what you have to worry about. Designer product companies built themselves on reputation. Companies like Apple, BMW and Google don’t just have consumers&emdash;they have rabid enthusiasts ((Apple called their most vocal followers evangelists, which strikes a pretty good tone)) and NOT due to their brand but due to the quality of their products and the consumer experience. These companies, that make designer products, never needed a brand so much as a name to re-enforce their great reputation. Companies who have previously been concerned with their image are going to be forced to contend with their customer’s satisfaction.

The phony tastemakers will get eaten up by the information surrounding them. If they get paid to wear it, people will know. That might not even matter. But tastemakers who have an investment in being listened to by a market will make their choices carefully and they will do it based on quality and design. Those companies that make designer products will continue to survive just fine alongside everybody else and they’ll continue to retain their marketshare while everyone else’s fractions into a hundred little ones.

All in all, what Chris Anderson is spelling out in his article is Economics 101. (Though I mean no offense to him — his observations have been remarkable.) In a capitalist market (we are told) prices will work towards a market equilbrium provided that consumers have perfect information and there are a large number of competitors. That last quid pro quo hasn’t been true for the last few decades. It would appear that as the market-space begins to increase the capacity to contain a larger number of competitors and as consumers gain more information, we are well on our way towards a more perfect capitalism.