Strategic shortcomings of Pre in the post-iPhone era

In Who can beat iPhone 2.0? we explored what it would take to compete against the now-iconic device months before the 3G version was introduced. Those 10 factors that specifically defined the strength of the iPhone then remain virtually the same today…to the dismay of its competitors.

In platform battles the victory depends not only on the disruptive prowess of the challenger but also on the ineptitude of the contenders. So it was for Microsoft whose competitors on the desktop from IBM to Apple to Novell made one strategic blunder after another for a decade. The same goes for Apple which established its dominance in digital music in just five years when all its competitors thought their feature-laden gadgets without an ecosystem would turn into iPod-killers.

By capturing nearly a quarter of the market share, a third of the revenue and most of the mind share in less than two years, Apple is well on its way to dominate the smartphone space. Apple’s competitors have shown a remarkable degree of ineptitude so far by copying disjointed aspects of the iPhone’s industrial engineering, multi-touch UI, media handling and App Store.

Until, that is, Apple’s former iPod division boss Jon Rubinstein, now the Executive Chairman of Palm, introduced the Pre at CES last week:

rubinstein2.jpg

Pre’s introduction, website, technology packaging, industrial design, UI, product naming and positioning…down to the flow of its CES presentation were pointedly, but perhaps not surprisingly, Apple-like. Of all the current iPhone competitors, Pre clearly captures the “soul” of the iPhone as much as any product not-from-Cupertino can. Whatever Pre “borrows” from the iPhone, it does so not with the brazen indifference of recent iPhone-killers, but with care and purpose.

The Pre challenge

As much as can be gleaned from a presentation, Pre does two things better than all the other iPhone competitors so far: attack Apple’s weak points and advance the art of mobile device design in its own right. There are the obvious ones iPhone naysayers have been quick to highlight: physical keyboard, pervasive multitasking, background processing, removable battery, Bluetooth stereo, camera flash and, of course, copy & paste.

pre3.jpg

More significantly, however, Pre goes beyond the iPhone in some interesting ways. Its TI OMAP 3430 processor is the highest performance, most power-efficient processor available from the ARM family. Pre is the first major phone with an optional back that can magnetically attach to a conductive device for charging wirelessly. Optimized for on-the-go, one-hand operation, it incorporates a “gesture bar” at the bottom that stands apart visually from the screen but is integral to it in being able to initiate a number of device-wide gestures. But what really separates Pre from all other iPhone-killers is the uniquely Apple-like systems thinking that has resulted in what Palm calls Cards and Synergy, as parts of its new Web OS.

precscreens.jpg

Cards is like Mac OS X Exposé in that, with a gesture, all running apps/windows are scaled down as a horizontal strip of small “cards.” Users can not only drag, re-arrange and flick these apps/windows off the screen, but also interact with them as they continue to be active.

Synergy, on the other hand, exposes Apple’s hitherto weak spot in social computing. Pre can seamlessly integrate multiple email, SMS, IM and social network accounts by keeping data separate but presentation unified. This also allows users to branch off into any of those services from within any entry point, without having to switch accounts or applications.

System-wide as well as cloud-based live search, local storage via HTML5, visual WebKit bookmarks, unified calendaring, unobtrusive notifications and a number of other software features indicate that, unlike other iPhone-killers, Palm has thought through a variety of pain points currently besetting the iPhone. Pre’s interface consistency goes much deeper than the few splashy touch-based screens we’ve come to expect from the recent crop of iPhone-killers that fall back to WIMP ugliness as soon as users navigate one or two levels down into an app.

So can Pre beat iPhone?

It turns out Pre’s most formidable challenge is not the iPhone, but its parent company Palm and exclusive carrier Sprint.

Palm (whose CEO famously dismissed the iPhone with “PC guys are not going to just figure this out. They’re not going to just walk in”) is beleaguered, to recycle an epitaph once attached to Apple of the mid ’90s. Prior to the Pre introduction most analysts had already left Palm for dead, and without the Elevation Partners’ recent $100 million investment it likely would have been. This is further compounded by the fact that by introducing the Pre six months ahead, Palm may have handicapped the current sales of the rest of its lackluster product line. Assuming it can stay solvent until revenues from Pre can resuscitate it, Palm has lost so much mind and market share, along with customers and developers, that erasing that “beleaguered” label will be a monumental undertaking.

Palm is clearly late to iPhone’s party. By the time the first Pre is sold, the iPhone will likely have 30 million users in 70+ countries, 15,000 apps, a huge developer and peripherals ecosystem, perhaps a third of the market share and 40% of smartphone revenues. And that’s before the next generation iPhone device and OS are introduced.

Too little, too late?

Pre already has a number of shortcomings. Its enterprise story (corporate mail, security, vertical apps, deployment ease, etc.) remain largely unknown. As is its JavaScript-HTML-CSS based development platform Mojo. Is it powerful, fast, flexible and extensible enough? Can it compete with SDKs from Apple or Android? What about Palm’s app store regulation strategy? Not much has been explained about Pre’s graphics, animation, 3D or gaming capabilities either.

Being exclusively tied to Sprint can also be problematic for Pre. Having emerged as one of the casualties of the new smartphone wars and lost a significant number of customers and revenue, Sprint too is a beleaguered company. Its debt has been lowered to “junk” status by Moody’s and Standard & Poor’s last year. Sprint is considerably smaller than either AT&T or Verizon. Pre’s most likely would-be early adopters who can appreciate its design smarts are already tied up with multi-year contracts with other carriers and would be hard to switch. Finally, can two beleaguered companies properly price, subsidize and market the Pre in the middle of a recession?

Prejudging Pre’s prospects

Unfortunately for Palm, most markets generally coalesce around two, and at best three, players. By all accounts the iPhone is geared to claim one of those spots. The challenge for Palm then is to carve out an online-savvy demographic than can best exploit Pre’s social-computing Synergy focus with a beyond-iPhone strategy. Pre goes into this battle without Apple’s superior brand recognition, iTunes empire and mobile games franchise, or RIM’s business clout, Nokia’s volume, Microsoft’s corporate connections and Android’s openness banner. Trouble is, all these players are also in hot pursuit of that same 18-34 year-old, highly lucrative demographic segment. The notion that Palm may not have the wherewithal to successfully pursue that demographic and execute with uncharacteristic precision is perhaps why some regard the Pre as an attempt by Palm to finally get acquired by a player with deeper pockets.

As we have seen in Who can beat iPhone 2.0? it’s the seamless integration of critical factors from volume component pricing to games, from enterprise integration to App Store, from iTunes integration to a billion-dolar ecosystem and beyond that makes the iPhone such a formidable competitor.

Pre would have been favorably competitive against the iPhone as a platform two years ago. But six months from today it will have an extremely steep hurdle in front of it erected by a company with a golden brand, thriving mobile business and $25+ billion in cash reserves. Unlike RIM, Nokia or Microsoft, however, Palm must at least be given credit for fielding a credible iPhone-alternative device — hopefully not too late for its investors.

38 thoughts on “Strategic shortcomings of Pre in the post-iPhone era

  1. Pingback: Fallacy of volume and revenue: The iPhone difference « David's Blog

  2. Some very insightful points here, thank you for this.

    “some regard the Pre as an attempt by Palm to finally get acquired by a player with deeper pockets.”

    I looked at Palm’s patents. They have a legitimate point. Therefore, Apple’s strategy could very well be to crush Palm in the marketplace (as seems likely), then buy them in a weakened state to acquire the additional patents they’ll need to put a real hurt on future competitors. Their recent savior and big investor, Elevation Partners, would (with no hope in the marketplace) almost certainly insist on such a deal.

  3. Congrats for your excellent article!

    Now, as a low level developer, I feel the smartphones are in need of low level programming. That’s right: low level but fast and high performance, smartphones are small computers. That’s what Apple did with iphone, gives you the power of the machine. That’s what Microsoft did with Windows.

    If I can develop low stuff with the Pre and they create a good site for selling apps(with 70%benefit for author) I will be selling my voice and writing recognition programs for it. That’s accessing a lot of data directly(like ocarina, tens of thousands of operation in real time), impossible with java* or anything high level.

  4. Two points related to the article and the comments above:

    * Apple sells consumer. Those who plump for Blackberry as a contender are completely mistaking the marketplace that Apple intends to play in. Apple doesn’t care about workplace/enterprise.

    * Apple sells solutions. Those who plump for the Pre have to answer the first two question consumers will ask: In one word, how do I get my music? Apple has leveraged the iPod/iTunes solution, building iTunes into a holistic content solution: first music, now apps, and on.

    • Believe it or not there is a large contingent of people who prefer not to have music and phone on the same platform. May not make sense but its true.

    • Remember, there was a large contingent of people who preferred not to use, say, a ‘graphical’ computer with a mouse.

  5. Two points related to the article and the comments above:

    * Apple sells consumer. Those who plump for Blackberry as a contender are completely mistaking the marketplace that Apple intends to play in. Apple doesn’t care about workplace/enterprise.

    * Apple sells solutions. Those who plump for the Pre have to answer the first two question consumers will ask: In one word, how do I get my music? Apple has leveraged the iPod/iTunes solution, building iTunes into a holistic content solution: first music, now apps, and on.

  6. Pingback: Fallacy of volume and revenue: The iPhone difference « counternotions

  7. Pingback: Yes: This Is Why I Want A Palm Pre « PrePoint

  8. Apple is the only smartphone which competes at EVERY level.

    … for people who want a fancy toy phone that cannot be used for business purposes.

    Seriously, only funky design types pull out an iPhone at a business meeting. Its PIM and contacts functions are awful, it doesn’t play well with Exchange and Lotus Notes, it doesn’t allow editing of MS Office documents, and its lack of a real keyboard is a serious problem.

    Lots of us work in environments where our personal and work lives converge. For those of us who don’t want to carry around two phones (with twice the expense), Pre is going to rock. It’s going to be the first business-class device that has personal functionality that is distinctly superior.

    Blackberry is all work, iPhone is all toy. Pre will be whichever you need, whenever you need it.

  9. I belive Palm has produced a remarkably good new line of product. The choice of Sprint was not the best, but has some unique benefits:

    - Sprint has horrible phones currently (no Android, no iPhone, no touch Blackberry)
    - Sprint has fast network
    - Sprint has a decent group of corporate customers

    —-

    The most important thing Palm now has is a good OS. Clearly, the OS and a reasonable user-base for it could easily return 200M+ if a phone manufacturer would buy them.

    Who could that be?
    - Motorola’s management is too stupid & too slow – all they desperately need an OS. Rumored to be looking at Android.
    - Nokia has Symbian, which needs refinement to keep up but is solid and open sourced. – so sorry.
    - Ericson… maybe.
    - Sony… Maybe.
    - LG – probably too high end for them.
    - HTC – just makes hardware
    - Samsung… Maybe.

    For those that dont know – Palm actually attempted to buy back Palm Source – but did not have the ability to make a large enough offer. Motorola also lined up for Palm Source, but did not offer enough money.

    If looking for suitors someone who builds lots of phone on the crappy Windows platform would be good.

    —-

    So in reality i dont thin Palm will sell. I dont think anyone is the right answer for them.

    I do believe Palm can find a nice niche… This is going to be a phone for every person on the planet market, with 2-4 year product lifecycle. Everyone can make a little money.

  10. Knotra:
    “One of the most remarkable aspects of Steve Jobs’ reign at Apple has been the patience to follow a plan: wait for weak competitors to bleed themselves to oblivion. It worked out to perfection in the iPod/iTunes market play. I smell a sequel in the smartphone market as well.”

    Where in the darkest side of the infinitive universe iPod/iTunes is the perfection?
    In Windows iTunes its a REAL pain in the a**. Crashes, Sync errors, a very good piece of crap, apple stat of art! When Steve Jobes clains that is “everything about software” maskes me laught big time because that the weakest side of apple.

    The apple universe is all the same s*#&, ppl needs to by apple products to get other apple products to work. Simple patetic brand. Look at 3.5 mini jack audio hadsets, look at the need of a apple to coding for iPhone, and many, many more. Apple is getting worse then microsoft some years ago.

    Please do not compare a toy (iPhone) to a REAL smartPhone (Palm Pré).

  11. Deanston: “So does this case prove you/us wrong in your past post regarding the performances of past Apple execs?”

    I call them as I see’em. :-) We don’t know the genesis of all that went into the Pre. How much of it was hatched under Rubinstein? After all, Palm does have some history of interface and product development expertise. Regardless, if the Pre incubation and launch is done with sufficient finesse, sure, we have to give Jon his props.

    “AIR a competing CloudOS platform”

    Remember, the Flash/Flex/AIR family run on another OS. So Adobe would have to slim down a Linux OS, get into the mobile OS business to compete against Android/Symbian or continue to rely on WinMo/Java/etc.

    “WebKit is gaining real momentum”

    I got a lot of flack over the last couple of years for my views on WebKit, but I think the mobile browser wars are pretty much over: it’s WebKit vs. anybody else.

    “There is nothing in WebOS that cannot be copied by Google”

    Yes. Recall also that Android is really “sold” to the carriers and handset manufacturers. Those that don’t already have their mobile OS lined up, mostly Asian manufacturers, don’t usually compete on hardware/software/service synergy, they compete on hardware first, and some funky service exclusives on the periphery.

    “Jobs is good at is knowing how to keep winning the bread and butter”

    This really is the key to Apple. I’m in awe of their consistently unbelievable fiscal discipline. They seldom ever release loss-leader products. They are in it to make money from v1.0, and they do.

  12. Nice article. So does this case prove you/us wrong in your past post regarding the performances of past Apple execs? Still, it would be unlike Jobs to let others copy everything about the iPhone all this time without having already anticipated this move and is preparing the knockout punch – what could next?

    Right about now Adobe is probably kicking themselves for having no hardware capacity to make the AIR a competing CloudOS platform like what Palm is aiming with WebOS. Yet having my web code blow up all over different browsers today at work also leave me to think browser client code is still not yet ready for heavy duty prime time until some more software, hardware, and user base maturation. That means a company with control over the entire product like Apple is always ready to advance a “Web OS” with no problems. Seems WebKit is gaining real momentum, becoming the mobile web browser of choice. That helps Apple too.

    That makes me think the downside to the WebOS, like the Android, is that competitors have no edge amongs all the equivalent platforms and frameworks available – whether it’s Mojo or Dojo, Andro or Symbo. There is nothing in WebOS that cannot be copied by Google and put into Android in the next 6 months. The only standout among all pervasive platforms, is still OS X. The App Store games is providing ever more revenue for Apple that Palm, as you pointed out, desperately needs. One thing Jobs is good at is knowing how to keep winning the bread and butter (iMac/iTunes/iPod) to fund the bread and butter for the future. I actually think Palm’s, and Dell’s, eventual downfall will come from not focusing and investing in Linux during certain windows (no pun intended) of opportunity when doing so would have provided them with a basis for the future, like what NeXT has done for Apple. The more desperate they are, the more short-sighted they become. All is left now is, as they say, a “race to the bottom”.

  13. Leonard Lin: “there was *no local storage* and *no device or sensor access*”

    This is true, although it wouldn’t have been hard to see where exactly HTML5/WHATWG was going.

    I’m assuming various HMTL5, canvas and device/sensor access functionalities will appear in Phone OS 3.0 this summer.

  14. (Oops, should have double-checked that 2.0′s WebKit added HTML5 storage. It still only provides 10MB of JS memory, so I think that my comments on non-native SDK dev still stand.)

  15. Kontra, I think your analysis is one of the sharpest that I’ve read, particularly in what Pre brings to the table (specifically re: Synergy) and also the enormous business challenges Palm faces.

    However, I think that it’s worth highlighting (speaking as a developer) that when the much bemoaned “make a web app” route was announced by Jobs originally, there was *no local storage* and *no device or sensor access* – these were explicitly *not* first class applications. You couldn’t get them to get them to run offline or even create one with a standalone icon. In short, that announcement was basically a complete sham, hence the developer backlash.

    A few other things worth mentioning: you mention HTML5, and although CoreData uses SQLite for storage, neither MobileSafari or WebViewUI support HTML5 storage semantics OOTB. Also, you mention Dashcode as a possible dev environment, but if you poke around, you’ll see that it actually also has almost no device access, making it useless for all but the most trivial apps. To summarize, if you’re developing for the iPhone, you’re going to do it in Objective-C. End of story. (Well, there are some interesting projects being worked on, but none are very mainstream, see: http://ejohn.org/blog/iphone-javascript-apps/ )

    You mention it yourself, but the fact that all of Palm’s own apps are written in Mojo, to me, suggests something much more interesting as a developer. I’m intrigued to see how their JSON messaging hub and other components worked, and curious as to what alternatives will be available for OpenGL and other low-level access, but so far (from the leaked screenshots of the SDK and from the performance and functionality of Palm’s own apps) I like what I’m seeing.

    If there’s a developer edition of the phone, I’d happily pick one up to play with (although I don’t think I’ll be dropping my iPhone anytime soon).

  16. I would mention Sony (in this context, Sony Ericsson), in particular, as a company that is very good at hardware but incredibly bad at software. Their only success is the XMB UI interface… which they bought from Q Games. However they have their X1 Panel interface for smartphones as well as XMB (with Linux underpinnings) for virtually everything else.

    Nokia is absolutely too invested in their current software strategy. Motorola is in deep trouble of their own. Samsung?

    A smart Japanese mobile company that wanted to move their business beyond Japan itself should find WebOS super-attractive. Think NEC, Sharp, and so forth—perfectly solid hardware, crap software. That said it’s possible, or probable, that they’re too stuck in their ways to change.

    Palm though, I’m moderately sure, is doomed. Their new OS on the other hand is nearly as good, equal to, or better than the iPhone OS in (as far as I can tell) every area—someone will snap them up.

  17. Ian Ollmann: “running with very low margins on a small carrier (Sprint)”

    Unless Sprint is desperate enough to subsidize the hell out of it.

    “The profitable end of the smartphone marketplace will be served by Apple, RIMM, and that company.”

    One of the most remarkable aspects of Steve Jobs’ reign at Apple has been the patience to follow a plan: wait for weak competitors to bleed themselves to oblivion. It worked out to perfection in the iPod/iTunes market play. I smell a sequel in the smartphone market as well.

  18. Palm is running their OS on some seriously hefty hardware. That might cost a lot to manufacture, and leave them either priced out of the market (no volume) or running with very low margins on a small carrier (Sprint). I am frankly wondering whether their business model is to sell phones or companies.

    My prediction is that one of the leading phone makers caught flat footed by iPhone OS — Nokia / MOT / Erickson / etc. may buy Palm, for the Pre OS as a successor to their current less-than-stellar offering. The profitable end of the smartphone marketplace will be served by Apple, RIMM, and that company.

    The rest will be in a race to the bottom, as these vendors look to make your next free phone a smartphone.

  19. Sachin Rekhi: “Unlike the iPhone and Android platforms that require development using Objective C or Java…”

    Hmm. You might recall when the iPhone was introduced JS+HTML+CSS was exactly the development solution Apple proposed and was roundly bemoaned by ISVs. So Pre has nothing new there. It runs the same WebKit, HTML5, SQLite, etc.

    Now, Palm said they developed their own platform apps using Mojo, so that suggests abstraction and extensions to JS to touch more of the device. But Apple also extends JS to do something similar and runs a few JS routines natively.

    If you look at Dashcode that’s in the latest iPhone SDK, you can not only develop widgets for Mac OS X but web apps for the iPhone in a way web developers would find very inviting.

    What we don’t know yet, is how extensible, fast and powerful Mojo is.

  20. james katt: “Apple not only is going after the 18-35 year-olds…”

    You’re quite right. I mentioned that demo because that seems to be Pre’s principal target, which also happens to overlap with one of the iPhone’s.

  21. Apple not only is going after the 18-35 year-olds, it is going after the 1-12, 12-18, 35-50, and 50-100 year-olds.

    Apple is the only smartphone which competes at EVERY level.

    When the iPhone 3G came out, there were many 50+ year-olds in line, for example, and many kids.

    This is a much larger market than what the other smartphones are competing for.

  22. I would love to get 1 of these… does it have:

    Built-in wi-fi that runs faster than the iPhone’s?
    Which phone opens Word, Excel and PDF file attachments?
    Weigh less than 5 ounces?
    Which of them are thinner than iPhone at 0.5″?
    Which can I install more than 11,000 different apps into? (Many are free!)
    Which can I write my own code for?
    Which phones sell refurbished models for under $99?
    Which phone can use over 17,000 AT&T wi-fi hot-spots, for free?
    Which phone has more than 8-16 BILLION bytes of ram? (Without buying extra mem cards)
    Which have a better/faster browser than Safari?
    Which have 100 accessories that I can buy at stores all over the world?
    Which phones cost less than the iPhone’s $199?
    Which have multi-touch screens bigger than 3.5″?
    Which phone sells more than 1 million units… just in the 1st weekend?
    Which phone has more than 3 GPS methods? (Cell, satellite, wi-fi.)
    Which phone gives you high-speed, UNLIMITED data for under $30/month?
    Which phone has more than 25,000 developers writing apps for it?
    Which phone can I buy in more than 62 countries?
    Which screens are sharper than 163 pixels/inch?
    Which phone quickly sold 13,000,000 phones?
    Which screens can display more than 16 million colors?
    Which has a built-in battery that last 5-10 hours of continuous talk-time?
    Which phones let me leave 5,000 songs on my home computer, but still play them on my phone from anywhere in the world?
    Which phone let’s me listen to more than 1,000 free radio stations, even though it has no radio in it?
    Which phone can play 50,000,000 movies/videos/TV shows, without storing any of them in the phone itself?
    Which phone can make free voice-calls over wi-fi, all over the world?

  23. GQB: “If Sprint goes wheels-up (or more likely, is acquired) by, say, AT&T…”

    Sprint’s acquisition is certainly not out of the question. A minor detail for Palm, however, is the fact that, unlike Sprint, AT&T is a GSM shop and happens to have bet on the iPhone.

    If in fact there is a hitherto unexploited demographic between BlackBerry and iPhone, geared for social networking and online content creation, and it’s shown to be lucrative, Palm won’t have a problem finding a career partner, Sprint or not.

  24. Just a thought, but might not Sprint’s ‘beleaguered’ status work to Palm’s benefit?
    If Sprint goes wheels-up (or more likely, is acquired) by, say, AT&T, then doesn’t that instantly open up the market for the Pre many fold?
    Maybe Palm picked a weak carrier precisely hoping it would fold by the time the device is released.

  25. flo: “from a development standpoint will have at least as much limitations as the iphone, maybe more …”

    We don’t really know what’s involved in developing with Mojo yet. Sure, both target WebKit. As you know, Apple also accelerates parts of JavaScript by running them at native speed on the iPhone. If and how much Palm may have abstracted JavaScript to run it fast(er) or how they give access to various Pre functions remain to be seen.

  26. Luis Alejandro Masanti: “how strong are the ‘differential capabilities’”

    Synergy is non-trivial. Pre’s ability to fetch disparate data from local and cloud sources and then present them in a unified manner everywhere is unique and interesting.

    There’s also a very significant but so-far overlooked aspect of this. Pre doesn’t assume local storage. It’s agnostic with respect to data, whereas the iPhone, for example, assumes that the principal data repository is with the syncing Mac or PC. Pre is designed to live without a computer as it can and does update its data in the cloud. That’s a fundamentally new and very interesting architectural difference, especially compared to the iPhone which in many ways remains an extension of the PC.

    That’s why, for the cloud generation whose lives are stored in GMail, Google Docs, Facebook, etc., Pre makes eminent sense. Palm, of course, has nothing to lose by ignoring the PC.

  27. Although there are now 6 credible players, lumping them as a group going after the same demographic is too broad a generalization.

    MS and Google are pursuing a licensing strategy and so are at the mercy of tweaks by carriers and device manufactures (even the best WinMo phone, the Xperia shows that massive surgery is needed) so their brands will always be diluted.

    RIM has fallen flat with the Storm, I think they are really looking like a niche corporate player. This leaves Nokia which is fighting a multi-front war and the N97, though cool, will not make a dent in the US with no distribution.

    So I think they really have a fighting chance.

    Though the choice of Sprint shows desperation, Palm knows how to switch radios so I suspect their plan is to get an initial order with a small exclusive window and move on to a global radio.

  28. I have read half a dozen articles on the Pre from various sources.

    This is definitely probably one of the best.

    Kudos.

    Augustus

  29. not to forget (at least that’s how I see it) from a development standpoint will have at least as much limitatins as the iphone, maybe more …

  30. quote:
    “Palm must at least be given credit for fielding a credible iPhone-alternative device ”

    This is the most important and unexpected outcome from Palm.
    I applaud this and share with you the “advancement” of the development.

    On the other hand, I would ask myself if –addind multitasking and cut-and-paste to– the iPhone’s apps can “add” this synergy on social sites.
    In other words, how strong are the “differential capabilities” in lieu of the other contenders?

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