The Big 5 Year in Review: Apple, Google, Microsoft, Amazon, and Facebook

Good morning,

Welcome to the last Daily Update of the year. It has been an absolute delight writing for you all this year, and I want to sincerely thank you for giving me the best possible present: your attention and critical thinking.

As I promised last week, my goal is to deliver high-level summaries of where my head is at with regards to the Big 5: Apple, Google, Microsoft, Amazon, and Facebook (I ended up covering my high-level thoughts about the startup ecosystem in the unplanned SpaceX post from last week; Uber and Twitter will have to wait). I’m going to start by spending a significant amount of time on Apple; I think where the company is at right now is fascinating, and it also provides the context for my thoughts on the rest which will be much more brief.

On to the update:

Apple

I actually intended for most of this daily update to just be commentary and analysis, without the usual excerpts. But this piece by Nilay Patel at the Verge, entitled 2015: Apple’s Year in Beta, is really good and a great jumping-off point:

The Gizmodo headline last week was blunt, in the way that the best Giz headlines are blunt: Everything Apple Introduced This Year Kinda Sucked. It’s worth reading; it is surprisingly easy to make the argument that everything on Apple’s huge list of new products and features this year sucked a little bit.

But that’s not actually true. All of Apple’s products this year were just fine. You could settle yourself totally within the Apple ecosystem and use Apple Music and Apple News on your iPhone while taking Live Photos and you would be just fine. You wouldn’t have the best time, but you wouldn’t have the worst one, either. It would just be fine…

I would go so far as to say every new Apple product or feature released in 2015 was essentially in beta. Apple released a lot of big new platforms that, by themselves, weren’t nearly complete. Apple needed — expected, really — its vast army of dedicated and passionate third-party developers to come up with killer apps for things like the Apple Watch and iPad Pro. And when it wasn’t releasing new platforms, Apple was adding new features to existing platforms like iOS in an attempt to create sticky new user behaviors which would reinforce their dominant status in the market — new features that all need far more time to develop into those powerful lock-in mechanisms.

It may not seem like it, but Patel’s piece is fundamentally optimistic. I occasionally cite what I consider one of John Gruber’s best-ever pieces (which, much to his chagrin I’m sure, is not on Daring Fireball), entitled This is How Apple Rolls, that I think nails what Patel is driving at:

Apple has released many new products over the last decade. Only a handful have been the start of a new platform. The rest were iterations. The designers and engineers at Apple aren’t magicians; they’re artisans. They achieve spectacular results one year at a time. Rather than expanding the scope of a new product, hoping to impress, they pare it back, leaving a solid foundation upon which to build. In 2001, you couldn’t look at Mac OS X or the original iPod and foresee what they’d become in 2010. But you can look at Snow Leopard and the iPod nanos of today and see what they once were. Apple got the fundamentals right.

I’m not sure I’m as much of an optimist as Patel (presuming I understood him correctly). And while I think Gruber was spot-on when he wrote that in 2010, I certainly am curious what a 2015 version would read-like. There are two big concerns I have about Apple at the end of 2015:

  1. Contra Gruber’s piece, too many of Apple’s new products have too many features that don’t work well all the time. It’s the inverse of what made Apple unique previously, and much more in line with how most tech companies operate.
  2. The fundamentals at the core of many of Apple’s new products aren’t as strong as they could be not because Apple is necessarily incompetent, but rather because they involve skills and technology that Apple is simply not good at. Specifically, Siri and services

Number one, in isolation, would certainly be concerning, but manageable: slow down the pace, focus on polish, and get back to the sort of iteration that Apple excels at. It’s number two that is the real issue: technology moves in cycles, from devices to services and back again. To be sure, these are long cycles, spanning half-decades or more, but to the degree that you can trust a mere 40 years of history, it does seem inevitable that, for the next several years, it is services that will matter more than the devices on which they run on.

And, by extension, that means Apple is at a disadvantage: the skills to make great products are orthogonal to the skills needed to create great services. That’s not a fault of Apple’s! If anything, it is the company’s dedication to creating great products — the quality that is most to be admired about the company — that is their Achilles heel when it comes to services, and I for one am glad they make that trade-off. After all, we still need devices to consume said services.

Indeed, that’s why I wrote just a couple of months ago to Stop Doubting the iPhone; Apple’s existing businesses are as strong as they have ever been, difficult year-over-year comps notwithstanding. In other words, my pessimism, such as it exists, is subtle (and, I think, gets at the difference between what I’m trying to accomplish versus, say, a stock analyst): Apples short to medium term future looks better than it ever has, thanks to the seeds that were planted years if not decades ago. What, though, of the seeds that are being planted today?

(Note: No product captures the tension between Apple’s product skill and service shortcomings more than the Apple Watch, and I think my review does a good job explaining that).

Google

Google is the yin to Apple’s yang: any context where one of them excels is likely to be a context where the other struggles. Given that, it makes sense that I am significantly more optimistic about Google at the end of 2015 than I was even a year ago. Like all such evaluations, part of it is due to the company: Google has acted more focused, and at least some parts of the company seem to finally be remembering that Android exists to serve Google’s aims, not vice-versa

Much more important, though, is the shifting cycle I talked about above: Google is at its heart a services company, the bizarro Apple with all that entails. Right now, that entails optimism: A world driven by services, particularly those based on a foundation of machine learning, is Google’s oyster. Probably the biggest question facing the company is from whence will come a business model to match?

Microsoft

The shift to a service-centric world suits Microsoft as well. What is impressive, though, is that said shift being beneficial was not a foregone conclusion. If we hold to the idea of tech moving in a circle, from devices to services and back again, the reality is that Microsoft has been behind for the last two phases: the company’s heyday was when the PC (devices) reigned supreme, while the twilight was when Internet services came to the fore. That presaged complete irrelevance in mobile devices.

Today, thanks first and foremost to Satya Nadella, the future is brighter: Microsoft has positioned itself well to transition to the cloud with its corporate customers, and its investment in Azure is itself a mobile investment (what is a smartphone without cloud services?). Still, the company faces an uphill battle both against Amazon and also against a start-up mindset that has no pre-existing space for Office or any other of Microsoft’s tentpole services.

Amazon

Were one to follow the pre-existing Stratechery pattern, then one would expect that next year I would be worried about the ecommerce-cum-logistics company. After all, in 2013 I was a bull, in 2014 a bear, and in 2015 I came back around to the bull case. Frankly, though, I’m going to stick right here: it is difficult to imagine a company better situated than Amazon.

If services are rising to the forefront, then it is good to be the preeminent seller of the infrastructure on which those services run. If the enterprise is accelerating its move to the cloud, then it is good to be the default option. And if technology is spreading its wings from pure software to affecting the physical world, then it is definitely good to be building the most impressive logistics network that anyone has ever seen.

It’s even possible to spin the downsides as positives: sure, Amazon is limited geographically, but that limitation is a function of just how impressive their infrastructure is. Similarly, the company spends an incredible amount of money on capital expenses and capital leases, but said expenditure is a fantastic moat.

Facebook

2015 was unquestionably the year of Facebook. I have long been one of the company’s biggest cheerleaders: the opportunity is massive and the execution has been excellent.

As a whole, my outlook remain sunny, but there is one cloud on the horizon, one that was seeded years ago: back in 2009 Facebook changed the default posting status to being public. The move was in part a response to Twitter’s rise, and one could argue it killed the old-school blog. It also left a big opening, something I wrote about back in 2013 in a post called The Multitudes of Social:

Facebook has made their choice: they are the public record of your life and the best way to connect with your friends and family. Snapchat works with friends, but in every other respect it’s the exact opposite product.

This is why I’ve been such a big proponent of messaging: people love to communicate, but not everyone loves to broadcast. That’s why Facebook’s purchase of WhatsApp was so important, and why the work on Messenger is the most critical thing happening at the company (and, while I don’t have space for Twitter, the company’s complete reliance on broadcasting is a big problem).

As for Facebook itself, one piece that didn’t make yesterday’s Year in Review but was arguably one of the most important was Facebook and the Feed:

Was Krugman wrong [about the Internet’s potential] because he didn’t appreciate the relative worth people put on what folks in their network wanted to say, or because he didn’t appreciate that people in their network may not have much to say but a wealth of information to share?

I suspect that Zuckerberg for one subscribes to the first idea: that people find what others say inherently valuable, and that it is the access to that information that makes Facebook indispensable. Conveniently, this fits with his mission for the company. For my part, though, I’m not so sure. It’s just as possible that Facebook is compelling for the content it surfaces, regardless of who surfaces it. And, if the latter is the case, then Facebook’s engagement moat is less its network effects than it is that for almost a billion users Facebook is their most essential digital habit: their door to the Internet.

Should Facebook successively solve this conundrum, then we could be looking at the decade of Facebook, not just the year. It’s exciting, at least for someone like me, that it’s still an open question.


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