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Stratechery.FM Episode 002: Fat as a Service

In Episode 2 of the official Stratechery Podcast, co-host Jon Nathanson and I discussed:

  • How Nike and Apple both sell experiences
  • What it’s like to work at Apple
  • The new luxury market
  • Wearables
  • A brief update on Stratechery’s business

Head on over to Stratechery.FM for the show notes, including time markers.

Podcast Feed | iTunes Link | @stratecheryfm

Note: The podcast is free. Sorry for any confusion caused by launching it at the same time as this site’s membership program

Apple and Nike

What kind of company is Apple, anyway?

They certainly have great technology, but to call them a technology company doesn’t seem quite right. They have great marketing, but to call them a marketing company isn’t true either. They have an incredible retail chain, but to call them a retailer is clearly off base as well.

You could ask a similar question about Nike.

They started with shoes, but their product line has extended far beyond that. Certainly they are a marketing company, one of the best in the world, but they also make many genuinely innovative products. Over the last few years they’ve been expanding their push into software and wearables, yet no one thinks of them as a technology company. And, despite self-owned and franchised stores in almost every neighborhood in the world,1 no one thinks of them as a retailer either.

Interestingly, both Apple and Nike have markedly similar business models: as various pundits never tire of telling us, Apple is selling a commodity and is doomed to inevitable margin pressure and/or massive loss of share in the face of good-enough cheap Android. For better or worse we in tech are stuck with these folks, because who knows what they would make of a company like Nike, selling pieces of leather and bits of fabric. Talk about a commodity! And yet, there is Nike, sporting a ~45% gross margin in an industry that averages 33%. Clearly they are more than just an apparel maker.


My wife just registered for the Nike Women’s Half Marathon here in Taipei; in order to register, you had to have logged at least 50km using the Nike+ Running App over the last month; immediately after registering you were presented with specially made products featuring the race logo. Typing that out sounds, well, rather annoying, but the reality was quite the opposite. My wife downloaded the app, clocked up the miles, counted down to the deadline, and joyfully bought a new pair of running pants (I was impressed at her restraint). It was fun.

What Nike is selling is the experience of being a runner (or a basketball player or a tennis player or a golfer, etc.) It’s not just the athletes in their advertisements, or the quality of their shoes, the sportiness of the clothes, or the sophistication of the apps. It’s the whole, and it’s greater than the sum of its parts. Nike is an experience company. They sell a commodity product, and make their profit off of the differentiation provided by the Nike experience. And they’re better at it than just about any company in the world, except maybe Apple.

After all, Apple too is an experience company. They are not selling you a computer, or a phone, or a tablet; they are selling an experience that encapsulates everything from their ads to their stores to their packaging to the actual user experience of their devices. They sell a commodity product, and make their profit off of the differentiation provided by the Apple experience.


Serving on corporate boards is fairly common for C-level executives, but not at Apple under Steve Jobs. To my knowledge the only exception was Tim Cook, who joined Nike’s board in 2005.2 A year later Nike and Apple released the Nike+iPod, a hugely successful collaboration that made an iPod Nano about as omnipresent as a water bottle for a great many runners, and a pair of Nikes the default choice for anyone with an iPod.

Since then the collaboration has continued, especially with the FuelBand, which has an app only for the iPhone, along with significant shelf space in Apple Retail stores. Of course the FuelBand also always seemed a potential stumbling block: would Tim Cook really release a competing product (the alleged iWatch) to the company on whose Board he sat?

Well, now that stumbling block is gone: CNET reported over the weekend that Nike fired a majority of the FuelBand team and will stop making wearable hardware:

The company informed members of the 70-person hardware team — part of its larger, technology-focused Digital Sport division comprised of about 200 people — of the job cuts Thursday. About 30 employees reside at Nike’s Hong Kong offices, with the remainder of the team at Nike’s Beaverton, Ore., headquarters.

Nike’s Digital Sport hardware team focused on areas like industrial design; manufacturing operations; electrical and mechanical hardware engineering; and software interface design. Products included not only the FuelBand but also the Nike+ sportwatch and other, more peripheral sport-specific initiatives.

First off, I highly doubt this was directly connected to Apple. By all accounts the FuelBand was a money pit and the Secret thread that first revealed the firings suggested the same. Secondly, the FuelBand was interesting in a product sense but didn’t make much business sense for Nike. It didn’t lead to the direct sale of any of their products, since it was meant for wearing around the home and office; relatedly, while there may have been some brand utility in people sporting a Nike+ wearable, a product meant to make you take the stairs doesn’t exactly remind you of an athletic lifestyle.

All that said, Nike can read the rumor sites just as well as we can, and do happen to have particularly special access to Tim Cook and a history of partnering with Apple. And Apple is certainly better at “industrial design; manufacturing operations; electrical and mechanical hardware engineering; and software interface design.” I would not at all be surprised if Nike were happy to cast aside the FuelBand in favor of recreating the Nike+iPod with the (alleged) iWatch.

The question, then, is were such a partnership to come about, what might Apple gain from Nike? Obviously we are well into the realm of speculation, but certainly the biggest question about a potential iWatch is what job it might do. And, perhaps, it really is there right in front of us.

Think about the iPhone: before it could make a call or go on the Internet, there was the iPod, which did nothing more than play music. But the foundation built by the iPod, iTunes, and the iTunes Music Store helped the iPhone tremendously, leading not only to software innovations like the App Store, but also hardware breakthroughs in miniaturization and battery life. You have to start somewhere.

So it is with a wearable. It’s not too difficult to imagine a future where your wrist is the center of your digital life, projecting a contextually appropriate user interface to the nearest dumb screen, but it’s even easier to see how that’s just not possible now – just like the iPhone wasn’t possible when the iPod launched in 2001. But you have to start somewhere.

So then, if you want a beachhead, is there a population that is already in the habit of wearing electronic accessories and loves measuring themselves? And, if you wanted the absolute best chance of winning that market, might you not want to partner with the company that sells the experience you want to provide?

Truthfully, the only reason to think Apple might not want to partner with Nike in this way is, well, because they’re Apple. But remember, Apple was quite pleased to launch the iPhone with Google services,3 and has cooperated with Microsoft for years; they’ve also long had by far the best and most comprehensive content deals. Apple’s business development acumen is one of its least appreciated competitive advantages, and their products are better when it is utilized. I bet that’s exactly the case with the iWatch.

  1. There are five Nike-branded locations I can think of off the top of my head within a kilometer of my house, none owned directly by Nike
  2. Eddy Cue joined the Ferrari Board of Directors in 2012
  3. Yes, I’m quite aware of how that turned out

Free Stratechery and the Daily Email

I hope you will forgive one more solipsistic post; I’m as eager as you to get back to the kind of writing that you are here for.

First off, thanks for your support. I’ve been pretty overwhelmed with the number of signups so far; it’s a great affirmation of what I’m doing here.

As expected, launching a membership program has not been without its hurdles; beyond the payment gate snafu, there has been lots of folks that have expressed concern about my erecting a “paywall,” cutting them off from content they had come to expect.

My sincere belief is that this is not a paywall, which I view as being punitive and arbitrary. Instead, I wanted memberships to be additive, giving my most loyal readers more and different premium content, while the long-form articles this site is known for remained free.

It was, however, around the 10th time I was explaining this that I realized I was making the most classic of mistakes: blaming the customer for my complexity.

The truth is while I perfectly understand the distinction between content types, I am also heavily invested in that understanding: after all, it’s my livelihood. My readers have busy lives with their own cares and worries particular to them, and to assume they would take the time to understand what I am selling was unfair to them, and ultimately, unfair to me as a proprietor.

To that end, I am making a change to the membership plans, specifically the additional content portion:

The Linked List Content Will Become the Daily Stratechery Email

The additional premium content that I plan on writing daily (~3-4 500 word items) will be moved to a daily email, fresh in your inbox every morning (an advantage of being 15 hours ahead).

This has lots of advantages:

  • If something is on this site, it’s free to read and share. Period. No need to think twice or wonder if your friend or coworker will be able to read the link you share, which ultimately, helps me grow.
  • What I am selling will be much clearer and easier to explain: a daily email, with my opinion on the most important stories and articles of the day. It’s something that doesn’t exist now, but will if you pay for it.
  • Significantly reduced complexity in the design of the site, including a return to one full RSS feed.

There are disadvantages:

  • I’m changing what I sold. If anyone strongly prefers the linked list and objects to receiving the same content in email, I will gladly refund your money.
  • I’m removing the additional traffic on site that would have been generated by the daily content, which may affect sponsorships. To that end I’m also reducing the sponsorship price to $750.
  • It will be much easier for people to share premium content. Once or twice would be ok, but I trust my readers would not do so systematically.

The price will remain $100 a year with gifts or $10 a month. The signup flow is the same – I automatically enroll you when you buy a membership.

The Conversation Plan

I’m changing this to the t-shirt plan and reducing the price: $30 for the year with a t-shirt, $3 a month without. I will issue refunds to those who have bought conversation plans (but there were many fewer than the other plans).

The Community Plan

No changes. I’m very happy with the response and can’t wait for our first meetup. Email and Glassboard access coming soon (it’s been one of those weeks).

Donations

I’ve received several request for a donation option, and will offer one soon.

Also, please note it will take a few days to incorporate these changes fully, but I wanted to make this announcement sooner rather than later.


It’s humbling to, on one hand, preach clarity in product offering and the importance of clear value propositions in my articles, and then stumble when it’s my turn. However, I think flexibility of mind and action are important as well, and I hope I’ve demonstrated that.

Above all, though, I want to express how grateful I am for the many who have already bought in. I aim to make it a bargain – and a less confusing one at that!

If you haven’t signed up, and don’t intend on it, I still welcome you as a reader and hope you will continue to share content you like. Again, everything on this site is free. If you’d like to come on board and get that daily email, or access to me, or just a t-shirt, the membership page is here.

Thanks so much for your support. I look forward to getting back into the tech next week.

Dropbox’s Acquisitions Fit Their Apple Strategy

Dropbox made another set of acquisitions today, picking up Loom and Hackpad. Loom is similar to Carousel, Dropbox’s new photo app, while Hackpad is a collaborative document tool. From Recode:

In addition to a massive hiring spurt and fundraising stockpile, Dropbox has been quietly acquiring startups that make productivity and media apps so their teams can work on similar products internally.

In just the last three months, Dropbox’s acquisitions have included photo app Loom, collaborative document tool Hackpad, corporate chat tool Zulip and social e-book reader Readmill. The first two were undisclosed until now; the latter two had previously leaked out.

As I wrote extensively in The Heart of Dropbox, I think Dropbox needs to focus more clearly on either business or consumer (and I now think they should choose consumer). I do think, though, that I could have done a better job in that article differentiating between enterprise type businesses versus small and medium-sized businesses; the latter are much more realistic targets for “the consumerization of IT (which I think is overstated, particularly in the case of enterprises).

More broadly, though, what Dropbox is doing is actually very much in the Apple model. Apple sells a quote-unquote “commodity” product that they differentiate with software; this differentiation lets them charge a premium.

Similarly, Dropbox is selling a commodity product: cloud storage. Apps like Carousel and these that they have acquired are software meant to differentiate that commodity, allowing Dropbox to charge a premium.

The strategy makes sense; the larger question is the degree to which consumers value non-tangible goods period.

Does Jeff Bezos Read Asymco?

Horace Dediu has an absolutely essential post on the taxonomy of innovation:

The definition of innovation is easy to find but it’s one thing to read the definition and another to understand its meaning. Rather than defining it again, I propose using a simple taxonomy of related activities that put it in context.

Novelty: Something new Creation: Something new and valuable Invention: Something new, having potential value through utility Innovation: Something new and uniquely useful

There’s not too much more to say – I presume most of you already read the piece, and it’s one with which I completely agree.

What is interesting, though, is a little factoid I heard recently about Amazon: Amazon has well-established leadership principles that, by all accounts, permeate the culture. One of those principles is “Invent and Simplify.”

However, rumor has it that lots of senior managers have lately been using the term “Innovate and Simplify,” and, given the fact that one of Amazon’s many strengths is the unusual longevity of their senior leadership – no SVP has been there for less than seven years – it’s doubtful that’s an accident (The term is also showing up in recent job listings, although, to be fair, so is invent and simplify).

Anyhow, I’m sure the alleged Amazon change and Dediu’s article are unrelated in cause, but almost certainly aligned in thinking.

Stratechery.FM Episode 001 – Welcome to Stratechery.FM

Along with the relaunch of Stratechery, I am very excited to announce the launch of the official Stratechery podcast, Stratechery.FM1

Our topics on this first episode includes my new launch, why the movie industry resists disruption, Google Fiber, Dropbox, and what Wall Street values in tech companies.

Check it out: Website | Feed | iTunes | Twitter

  1. Fans of Exponent, we couldn’t make it work at this time, and are putting it in hibernation; hopefully it will return soon though, so stay subscribed

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My thanks to Igloo for being the launch sponsor of Stratechery. Definitely check them out!