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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

Sponsor: Igloo

Igloo is an intranet you’ll actually like: built with easy-to-use, integrated apps like shared calendars, Twitter-like microblogs, file sharing, and more. Everything you need is built-in, and everything is social. This means when you upload a file or write a corporate blog post, your team can share it, comment on it, rate it, like it, and even manage versions in the same spot.

If your company has a legacy intranet built on SharePoint, you should give Igloo a try. This report from Igloo outlines the five main areas SharePoint falls short and how Igloo does it better.

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

Welcome to Stratechery 2.0

A few weeks ago I wrote three pieces at Stratechery about the state of journalism in the age of the Internet.

The main takeaway of these pieces was that the Internet, with its wide reach and low costs, is fantastic for writers, but a very difficult environment for newspapers with their high fixed costs. It’s also great for readers, who can follow specific writers instead of broad-based publications focused on the lowest common denominator.

While these pieces stood on their own, the truth is the thinking behind them was not at all abstract: it is the foundation of the new Stratechery, launching today.

At Stratechery, I want to build a site that enables me to focus on writing in a way benefits not just myself but my readers as well. To do that I’ve focused on building a freemium model that will allow me to focus on writing, grow my audience, and reward those who want to join the conversation, get more content, or create a community.

This is how it will work:

  • The twice-weekly articles (usually fairly long) that I have been writing for over a year will continue, and will always be free. They will be sponsored on a weekly basis by advertisers who wish to reach the Stratechery audience of VCs, tech company executives, and technologists around the world. Sponsorships will appear on the front page and at the bottom of every article across the site for a week
  • For those who value Stratechery highly, I am offering three membership options that are all accretive in value:
    • Join the Conversation membership level ($5/mo or $50/year) and gain the ability to comment on articles. Those who join for a year will also receive a Stratechery t-shirt
    • Join the Content membership level ($10/mo or $100/year) and, in addition to Conversation privileges, gain access to new daily content by me. This content will primarily take the form of a linked-list, where I link to articles of note with an excerpt and one to two paragraphs of analysis. Those who join for a year will receive both a Stratechery t-shirt and a poster of the The Social-Communications Map
    • Join the Community membership level ($30/mo or $300/year), and, in addition to Content privileges, gain direct access to me and to other Community members via email, a private message board, and both virtual and in-person meetups around the world. Those who join for a year will receive a t-shirt, poster, and a Book by FiftyThree of Stratechery drawings
  • I have also launched the Stratechery.FM podcast, and will be available for speaking opportunities

With this model I am hopeful I can make a living, increase my audience, and reward those who value my writing the most. None of this would be possible without the Internet, and if I am successful, I hope Stratechery will stand as an example of the positive and transformative effect the Internet will have on writers and writing everywhere.

Thank you in advance for your support. You can learn more about the membership model and signup here.

The Heart of Dropbox

Last Thursday, after waking up to the news of Dropbox’s most recent announcements,1 I couldn’t have been less impressed. To quote myself from a chat I had with a friend: “Dropbox is an unfocused mess.” But then I actually watched the event.

I’ve long been a believer in cloud storage; back in college I experimented with storing files on shared hosting (and accessing them via FTP!), and was a day one subscriber of Amazon S3. I couldn’t have been more excited when Dropbox was launched in 2008, and not only moved my personal files to it but also used it to build a syncing system for a computer-based teaching system I had developed.2 At business school I would conservatively say I was responsible for 50 new Dropbox customers, and I’ve had the 100GB plan ever since it was available. As a consumer, I’m a fan.

The entire premise of this blog, though, is to take off the consumer product-focused hat, and instead look at the larger strategic picture and business fundamentals. On the first point, I’ve long been and remain very bullish about cloud storage as a business. Forgive the stretched analogy, but in a lot of ways cloud storage is to the enterprise as messaging, the other emerging category I’ve followed with interest, is to consumers.

  • Messaging targets what is most important to consumers: their communication with their friends and family (in many ways it is our connections that define us). Corporations, though, are defined by the sum of people, processes, and priorities, represented as data.3 This makes storage of that data equally indispensible.

  • Because they are the locus of what matters to our “real” life, messaging apps are a tremendous platform for all types of value-added services, ranging from stickers to better express ourselves, to shared entertainment (with oh-so-alluring in-app purchases), to an easy way to manage the day-to-day friction of life, from taxis to dining to buying something special.4 Similary, because cloud storage contains the data that for all intents and purposes is a corporation, it too is a fantastic platform opportunity for all types of value-added services, including specialized applications, appliances, and other cloud services.5

  • From a product perspective, both messaging and cloud apps are relatively simple and on their way to being commoditized. There are high double-digit messaging services with more than 10 million users, and all of the major tech players are driving the cost of cloud storage to zero. This means that differentiation will not be achieved through technical acumen alone.

    This final point has, at least until the last few months, led many to dismiss both messaging and cloud services from a business perspective. However, what more and more people are realizing is that both deal in incredible scarce resources: attention, in the case of messaging, and perfectly unique data6 in the case of cloud storage.

You’ll note, of course, that I explicitly talked about storage in the context of the enterprise; the problem for Dropbox is that while they have a fantastic consumer product, they have traditionally not focused on businesses, the main category that has demonstrated a willingness-to-pay. As I wrote in Battle of the Box:

Dropbox’s model makes sense theoretically, but it ignores the messy reality of actually making money. After all, notably absent from my piece on Business Models for 2014 was consumer software-as-a-service. I’m increasingly convinced that, outside of in-app game purchases, consumers are unwilling to spend money on intangible software. That is likely why Dropbox has spent much of the last year pivoting away from consumers to the enterprise.

To that point, Dropbox held an event last November to announce their new Dropbox for Business. Last Thursday I actually watched the video of this event (thinking it was last week’s event), and it couldn’t have been a more dreary affair: Drew Houston interminably telling (again) the story of Dropbox’s founding, followed by an awkward segue into the introduction of basic business features that only scratched the surface of what enterprises truly need in a cloud storage solution.

The beginning part of this week’s event wasn’t much better. An uninspired rehash of Dropbox for Business and a recreation of functionality Sharepoint has had for years were, for the business model side of me, all that mattered, and they were nice, but nice doesn’t get you far. Not helping matters was the Mailbox demo: while Auto Swipe was very cool, Mailbox isn’t even close to being a real enterprise solution (it was telling that Mailbox for Desktop was demoed on a Mac7). Mailbox, at least, fits my initial reaction: a distraction.

But then came Carousel.

First, off, let me clear: Carousel looks amazing. But what was far more impressive, and telling in my mind, was the way in which Houston talked about the problem Carousel was meant to solve. You could feel his angst at the millions of photos we collectively are losing for lack of management, and his giddiness at what they had come up with. And, this is where I take off my business and strategy hat and speak with my heart: it was genuinely touching, and inspirational.

Touching and inspirational, unfortunately, don’t get you far in the enterprise; touching and inspirational, though, matter more than anything in the consumer space. Last week’s event made this eminently clear: Dropbox’s soul is that of a consumer company,8 not an enterprise one. And that matters.

From a purely objective business-minded basis, Dropbox is not only right to pivot to the enterprise, but are in fact wasting their time with products like Carousel. However, as I’ve written previously, it’s better to change your strategy than to try and change your culture. Business is not a game played by robots; it’s about real people building products that they believe in, and this presentation has completely changed my mind: Dropbox should build products for consumers, with just enough business icing to let IT look the other way.

The rub, as I noted, is that it is difficult to see how Dropbox earns its $10 billion valuation while competing head-on with Google and Microsoft, whose business models entail driving the cost of storage to zero. It’s clear Dropbox has long seen photos as a potential lever, going so far as to degrade the user experience of their apps with constant badgering to automatically import your photos (and thus push you past your free 2GB allotment). Carousel is a much better effort in this regard; storage will be free unless it is differentiated, and Carousel does just that.

Product alone, though, does not win in the consumer space; marketing is equally if not more important, and Dropbox does not have the most inspiring history in that regard.9 I actually think this presentation was a good start, although the video promoting Carousel was far more compelling in the context of the presentation than it was when I watched it in isolation. The issue, though, is that marketing takes significant investment, both in talent and in resources, yet Dropbox is funneling most of their money into the aforementioned business product.

My initial worry for Dropbox, then, still stands. I don’t think you can be both an enterprise and a consumer company, particularly in a space as competitive as cloud storage. Dropbox needs to pick a direction and go all out, and, in this case (and in opposition to where I stood a week ago), I think they should go with their heart.

  1. I’m based in Taiwan, 15 hours ahead of San Francisco
  2. Probably not the best idea, considering it was still in beta, but Dropbox, along with a bit of AppleScript, continues to do the job perfectly
  3. The three P’s reference is from Asymco
  4. For more on messaging, see Messaging: Mobile’s Killer App
  5. For more on cloud storage and platforms, see Box, Microsoft, and the Next Enterprise Platform
  6. My data is irreplaceable, even as data in a general sense is a commodity
  7. Not to mention the fact that only Mac’s have a good-enough trackpad for Mailbox’s gestures; I have yet to use a decent trackpad on Windows, and I’ve used a lot of Windows computers
  8. Steve Jobs should have paid whatever it took to acquire Dropbox in 2011; it’s a nearly perfect match. Consumer at the core, like Apple, with expertise in Apple’s biggest product weakness.
  9. Two things about that post:

    • I actually wrote that on another blog, which I imported to Stratechery to flesh it out at the beginning
    • While I stand by my criticism about syncing laptops and desktops, clearly sync is critical when it comes to “computers,” which, of course, includes phones and tablets

Why the Web Still Matters for Writing

Thanks to that Flurry post about the time spent in apps versus the mobile web, Twitter has been abuzz with the idea that the web is dead. In fact, I was quite early on the “apps > mobile web” bandwagon, but in this case, I think people have gone too far, particularly when it comes to writing.

I detailed why in a guest post on Matt Mullenweg’s blog. Key graf:

There is no question that apps are here to stay, and are a superior interaction model for some uses. But the web is like water: it fills in all the gaps between things like gaming and social with exactly what any one particular user wants. And while we all might have a use for Facebook – simply because everyone is there – we all have different things that interest us when it comes to reading.

You can read the whole thing here.

Black Box Strategy

With the announcement of the Amazon Fire TV and the leak of the alleged Android TV, all of the major players have (or soon will have) a TV offering. There’s been a lot of talk about how similar the products are, but those similarities are for good reason; what is more interesting to me are the very different motivations.

Note: The specifics of this article are going to be US-centric

Why TV is So Attractive

As I’ve written multiple times, the scarcest resource for consumer tech companies, especially ad-supported ones, is user attention. There are only so many minutes in the day, and their consumption is zero-sum: a moment spent doing activity A is not spent doing activity B, and then that moment is gone.

Meanwhile, TV continues to monopolize a significant amount of that user attention. Although digital products have overtaken the amount of time spent on TV, primarily due to the accretive time spent on smartphones, the absolute time spent on TV has remained stubbornly persistent at about four-and-a-half hours per day per U.S. adult (source).

That four-and-a-half hours really is the gold at the end of the rainbow for tech companies: just over the next hill/technical hurdle, yet never actually attainable.

Why TV is So Persistent

The primary reason I haven’t written much about TV recently is that I really haven’t had much to add to my series from last year. Everything still applies:

  • The Cord-Cutting Fantasy discussed why unbundling cable is economically unworkable
  • Why TV Has Resisted Disruption was primarily about great content; it’s expensive to make and doesn’t have many substitutes
  • The Jobs TV Does identified the role TV plays in our lives; traditionally it has kept us informed, educated, given a live view of sporting events, delivered enlightenment and story-telling, and provided escapism

While the Internet has unbundled information and education, the final three remain, and they are proving much more of a challenge.

Bunches of Black Boxes

Most of the tech players are coalescing around the little black box strategy Apple pioneered with the Apple TV: an inexpensive add-on with most of the major streaming services built-in. Crucially, none of them live on HDMI1, the primary input on your TV that is usually owned by your cable box. The strategy seems to be centered on chipping away at the time spent on HDMI1, until you finally realize it’s really not worth however much you’re paying. It’s not a particularly inspiring strategy, but like I said, TV has resisted disruption for good reason. The exception to both points is Microsoft: their box (the Xbox One), while black, isn’t little by any means, and they are absolutely gunning for HDMI1.

What is interesting is that while the products (except for Xbox One) are increasingly homogenous, the motivations of the various companies making these little black boxes differ tremendously, and that may give a hint as to who will be successful, and who will simply fade away.

Apple TV

Apple has one of the most differentiated black box offerings: it’s the only one to include iTunes content, and it’s the only one with Airplay. While iTunes has long been a differentiator for Apple’s devices,1 I believe that over time it is Airplay that will be of increasing importance as a way of differentiating and thus selling more iPhones and iPads. This makes sense: while Apple differentiates primarily through software, they make their money through hardware.

To that end I expect a new Apple TV soon with a specific focus on improving the Airplay experience, perhaps by combining the Apple TV with an Airport to reduce Airplay lag, thus enabling more and better iDevice/TV gaming scenarios (with the additional benefit of increasing the Apple TV’s reason-to-buy). It’s a rather elegant solution if you think about it: most people’s Internet comes in through their cable line anyways, so it’s already in the correct physical location.

Amazon Fire TV

I know I don’t spend nearly enough on Amazon, which is a shame: they have a dominant strategy based on superior selection AND superior pricing, and everything they do is primarily focused on driving ease-of-purchase, primarily through Amazon Prime.

Fire TV fits right in: it’s another reason to be an Amazon Prime customer, which isn’t really about streaming video. Instead, the end result is you buying everything from Amazon without thinking twice. The decision to add gaming was a curious one though: on one hand, it’s more stuff to sell, and another reason-to-buy; on the other, it made the device more expensive, which reduces the addressable market. If the end-game is Prime, as I believe it is, then trying to get digital game sales seems shortsighted.

Android TV

Given that attention is the lifeblood of advertising, Google has more motivation to succeed in TV than just about anyone. As I noted when Google acquired Nest, there’s reason to believe that Google’s growth could start to flatten soon, and TV is an obvious place to reverse that trend, particularly with Google’s valuable YouTube asset.

Google’s problem, though, is that their business needs aren’t necessarily aligned with consumer needs: what would an Android TV offer that the other black boxes don’t? YouTube is already available everywhere, befitting its role as a horizontal service. Just as it would make no sense for a vertical company like Apple to share iTunes, it makes no sense for a horizontal company like Google to hoard YouTube. The Android TV, if it exists, seems to be primarily for Google’s benefit, not consumers, and I would expect sales numbers to reflect that. I’m a much bigger fan of the Chromecast, primarily because of its price, and again, sales numbers seem to agree with me.

Roku

The last of the black boxes is a bit of a misfit: Roku is a relatively tiny company for whom the black box is their raison d’être. Unsurprisingly, this means they have many consumer-friendly features like lower prices, innovative designs,2 and the ability to search for shows across services. However, it’s difficult to see how they compete effectively as a standalone company.

In fact, there is an obvious acquirer: Facebook. They are the one technology giant without a TV play, and, like Google, they are advertising based. TV watching is certainly a social activity: it’s thought of as a Twitter stronghold, although Facebook has challenged that assumption. I think the angle for Facebook, though, would be more on the data side: what you watch is likely incredibly valuable information, and better targeting is the most sustainable way to increase ad revenue. Facebook could buy Roku, sell the device at cost, and increase the richness of their profile information, even as they increase their optionality when it comes to the most attractive advertising medium of all.

Microsoft

Once again, Microsoft was early to a category; from day one the strategy for the Xbox has extended far beyond gaming to a dominant presence in the living room. Unfortunately, once again Microsoft erred in the details. The advantage of starting with a console is that there is a built-in market; for all of the little black boxes I discussed the various reasons-to-buy, which aren’t always clear, whereas the reason-to-buy an Xbox is obvious – you can play games on it. However, this reason-to-buy comes at a cost, quite literally. The Xbox One launched at $499, putting it far beyond the reach of non-gamers, and making it wildly uncompetitive with the little black boxes. There is also a cost when it comes to flexibility; Microsoft must focus first-and-foremost on gamers, whose needs are not necessarily aligned with normal consumers, and this is compounded by the long console cycles driven by the massive upfront development costs.

What is most worrisome for Microsoft is that this strategy duality has hurt them with gamers, too. The Xbox cost $100 dollars more at launch than the PS4 despite having slightly less power, primarily because of the built-in Kinect. While this does have a gaming function, the main reason it was included was to enable the Xbox to make a play for HDMI1. Microsoft has certainly made it much further down this road than any of the other players, but close doesn’t cut it; without DVR functionality and full programming guides, it’s simply not a viable competitor for the lowly cable box. This is a truly distressing outcome for Microsoft: they handicapped themselves in gaming in pursuit of their original goal, which they’re not going to realize. It’s another muddle.

I expect the Xbox One to have decent success as a console, due to Microsoft’s dominance of first-person shooters if nothing else, but after three generations it doesn’t seem any closer to fulfilling the original Xbox charter of winning the living room.

So Now What?

All that said, and despite all these new products, nothing substantial has changed on the content front; we have the system we have because, all our kvetching aside, it benefits most of the main players most of the time, including consumers. Whatever finally topples TV will win not because it delivers the same content better, but because it steals more and more user attention.

To that end, I actually ranked these companies in the order I like their chances, and I still give Apple the clear lead. Airplay remains very compelling both from a technical and business model perspective; Amazon has the business model, while it’s more difficult to see the long term upside for Google or Roku, and Microsoft is stuck in its niche.

  1. Seriously people: iTunes is not going to be on Android
  2. I love the headphone jack in the remote