To be clear, this blog is not “famed”! Also, stratechery launched on March 25.
It’s interesting how some folks are always looking for some sort of institutional authority.1 I’ve been quoted as “Microsoft’s Ben Thompson,” as “former Apple intern Ben Thompson,” and “batshit crazy Ben Thompson.” I actually wish the third were true, because, unlike the first two, the descriptor rests on what I write, not on some sort of vague authority derived from whoever is signing my paychecks.
Besides, both workplace references are out-of-date: I was at Apple three years ago, and, as of July 1, I don’t work for Microsoft either. Instead, I am the author of Stratechery. What more is there to say? I’m a person, I put myself out there on this blog, and I trust that what I write represents me well.
One of the many transformative aspects of the Internet is how it empowers individuals to build their own institutions. In days gone by, my thoughts would have been confined to myself and a few close friends; now my friends are all over the world, and I communicate with them through an institution of my own making.
And yet, that sentence is oh-so-presumptuous. This blog has benefited hugely from a few key links and endorsements I’ve received to date,2 and on the technical side, the idea that I built Stratechery is ridiculous. Like millions of other writers who have built something on the Internet, the tool that made it possible is WordPress.
And so, as I continue to build out my place on the web on a blog built on WordPress, I couldn’t be more excited about actually working for Automattic and Matt Mullenweg, the creator of WordPress. I start the end of the month.
This is great news for this blog; WordPress’s original purpose was to be an elegant, well-architectured personal publishing system; the idea I speak for Automattic or that I derive any sort of “authority” from my employment is ridiculous, hopefully obviously so.
What that means for Stratechery is my full, unfettered opinions about all companies and all topics.3 I expect my work to stand on its own, and I hope to be known simply as the author of Stratechery.
One final piece of news: I just said I have friends all over the world – those aren’t just Internet friends. I previously lived for six years in Taiwan, my wife is from here, and we’ve decided to move back. In fact, we arrived this morning, July 4. I’m taking advantage of the fact that Automattic is a company that truly lives its commitment to the web: it exists completely on the Internet, and its employees live all over the world.
You may have noticed a slightly fewer number of posts over the last few weeks; blame packing and the logistics of wrapping up one’s life in one country, and preparing for life in another. I expect the slower pace to continue for at least the next couple of weeks.
I’m not picking on the Quora questioner actually; I’m assuming he/she wanted more information about me and my background. I trust the questioner will forgive being used as a rhetorical device ↩
There have been several others, but those two posts produced the greatest number of return readers by a pretty significant margin; I’m very grateful. ↩
The recent focus on apps is an example; I hadn’t written about apps previously because that was my focus area at Microsoft. To be clear, Microsoft’s blogging policy is very permissive and employee-friendly; I largely self-edited because I felt it was the right thing to do ↩
This series of posts is about enabling sustainable businesses on the App Store. In Part 1, I discuss why Paper and other productivity apps may not be doing as well as you might think. Part 2 explores why casual games, in contrast, are a sustainable business, but not a differentiator for platforms (I added a follow-up here). Part 3 analyzes why Apple in particular seems hesitant to enable sustainable businesses on the app store.
I love apps, especially productivity apps. If games are all about user input, with minimal app output, and consumption apps about app output, with minimal user input, productivity apps are about both. You put something into an app, and the app returns something back to you, better.
Think about Photoshop, or Excel: you put in data, and the data is returned to you, transformed. Same thing with a text-editing app, or a calculator, or a mileage tracker. Productivity apps add value, and the more you use them, the more valuable they become.
Unfortunately, productivity apps are a terrible match for app store economics. The app store favors:
Simple, inexpensive apps that are downloaded by a lot of people
Free front-ends for for-pay or advertising-based services
The solutions for enabling sustainable productivity apps are actually pretty obvious – just look at how productivity apps make money elsewhere:
More expensive apps with trials
Paid updates
Built-in subscription support
And yet, iOS 7 introduces radical change in nearly everything except for app monetization. Why doesn’t Apple do more to enable sustainable businesses on the app store?
I see a few reasons, ranging from the concrete to the more speculative.
Apple’s business model devalues developers
Apple makes money on hardware. It’s in their interest that said hardware be sold for as much of a premium as the market will bear. However, it’s equally in their interest that the complements to that hardware are sold as cheaply as possible, and are preferably free.
That is why, for example, iOS updates are free, and OS X updates nearly so. Both cost hundreds of millions of dollars to develop, but they only exist to sell more hardware, not to make money in and of themselves.
This is standard strategy, especially in technology. Look at Google: the vast majority of their services are free because they want to drive usage in order to capture signals and serve ads. Microsoft, which has felt the pain of Google commoditizing services and Apple commoditizing OS updates, did the same thing to hardware makers: Windows supported everything under the sun because the increased competition would drive down the cost of hardware, leaving all of the profit to Microsoft.
In the case of apps, the current app store, full of a wide variety of inexpensive apps, is perfect from Apple’s perspective. It’s a reason to buy Apple hardware, and that’s all that matters. Anything that on the surface makes the store less desirable for hardware buyers – such as more expensive apps – is not in Apple’s interest.
Developers don’t have an advocate on Apple’s leadership team
Scott Forstall started at NeXT. He was a major contributor to NeXTStep, and then to OS X. He had every reason to be a fierce proponent of Cocoa, the NeXTStep-derived API that was native to OS X. Yet it was Forstall, in his role as director of API frameworks, that pushed for Carbon, the API that maximized backwards compatibility with Mac OS 8 and 9. More recently, it was Forstall, as head of iOS, who pushed most forcefully for 3rd-party apps to be allowed on iOS.
Forstall proved himself, again and again, to be a huge proponent of 3rd-party developers. And he’s gone.
I get why Forstall had to go, but to be clear, it was a massive loss, especially for apps.1 There certainly remain many, many people at Apple that care deeply about apps, but the policy changes I and others are calling for will be decided at the top.
In Forstall’s absence, who in the leadership team is making the case? I haven’t seen any evidence that anyone else in that Monday morning meeting prioritizes developer issues.
Apple has been burned by productivity apps before
As I just noted, the great thing about productivity apps is that they add value, and the more you use them, the more valuable they become – the potential value of a productivity app is limited only by the amount of data you are willing to put into it.
The trouble for Apple – or any platform provider – is apps that cross that line from nice-to-have to completely irreplaceable. It’s at that point a user’s loyalty shifts from platform to app, and there are no greater examples than the aforementioned Photoshop and Microsoft Office.
Last week I transcribed significant portions of the Steve Jobs keynote at Macworld Boston. In that keynote, he described how Apple was dependent on Adobe for many of its sales, and, more famously, introduces Apple’s “partnership” with Microsoft.
Jobs’ closing speech, where he said that “We have to let go of this notion that for Apple to win Microsoft has to lose,” is well-known and still cited; however, I think the full quote is more telling (emphasis mine):
You know, where we are right now, is, we’re shepherding some of the greatest assets in the computer industry. And, if we want to move forward and see Apple healthy and prospering again, we have to let go of a few things here.
We have to let go of this notion that for Apple to win Microsoft has to lose. OK? We have to embrace a notion that for Apple to win Apple has to do a really good job, and if others are going to help us, that’s great, cause we need all the help we can get. And if we screw up and we don’t do a good job, it’s not somebody else’s fault. It’s our fault. So, I think that’s a very important perspective.
I think, if we want Microsoft Office on the Mac, we better treat the company that puts it out with a little bit of gratitude. We like their software.
So, the era of setting this up as a competition between Apple and Microsoft is over as far as I’m concerned. This is about getting healthy, and this is about Apple being able to make incredibly great contributions to the industry, to get healthy and prosper again.
The emphasis brings home the point: Jobs’ statement was completely driven by Apple’s desperate state and the fact that Apple’s potential users cared more about Photoshop and Office than they did the Mac. For Jobs especially, it must have been humiliating.
I had a unique vantage point into how Apple looks at this time in its history due to my time spent on the Apple University team, and something that struck me was the powerful impact Apple’s near-death experience had on all those involved. That Wired cover, and the fact Apple lost nearly a billion dollars in 1996, came up unprompted again and again. For those that were there, it still fundamentally shapes how they view the world and how they make decisions.
To be clear, this has tremendous value: there is nothing like near-death to realize you have nothing to lose – a great recipe to avoiding disruption. In fact, one of my concerns for Apple is what will happen when all of the old guard is gone, leaving those who have only known success.
But there have been downsides to this paranoia. Apple’s inefficient use of its cash is the most famous, but I think developer hostility is an aftereffect as well. I would go so far as to argue that that Boston keynote was at the root of Jobs’ opposition to any 3rd-party apps on the iPhone, much less app store policies that enable sustainable businesses. Never again would Apple be held hostage to an app that was bigger than Apple.
To be fair, Cook has already reversed Jobs’ position on cash. However, the enthusiasm with which he promoted $10 billion paid to developers – which I believe is mostly driven by in-app purchases in casual games – suggests he doesn’t appreciate there is a problem with the app store.
Then again, who is to say it’s a problem? I’ve already pointed out that cheap apps align with Apple’s business model.
And that’s fine, as long as the iPhone is dominant in other areas. But is it?
The Mobile Hierarchy of Needs – click image for original article
When the iPhone launched, it was, as Jobs said, five years ahead when it came to hardware and the OS. However, that was six years ago; today it’s apps that are the biggest reason to buy an iOS device (and services the biggest reason not to).
Were Apple to invest more in its ecosystem and enable sustainable productivity apps, I believe iOS could build a moat comparable to the one enjoyed by Microsoft for over two decades. Namely, for customers who care about apps, it ought to be unthinkable to consider any other platform.
While pondering this article, I was struck by this tweet from Aaron Levie:
Incumbents get disrupted because the very moats a company builds up to be successful in one era become a liability in the next.
Three years ago, I wrote an academic paper on Apple and the Innovator’s Dilemma, and argued that Apple’s narrow focus on the end-user shielded them from disruption:
Apple’s focus on user experience as a differentiator has significant strategic implications as well, particularly in the context of the Innovator’s Dilemma: namely, it is impossible for a user experience to be too good. Competitors can only hope to match or surpass the original product when it comes to the user experience; the original product will never overshoot (has anyone turned to an “inferior” product because the better one was too enjoyable?). There is no better example than the original Macintosh, which maintained relevance only because of a superior user experience. It was only when Windows 95 was “good enough” that the Macintosh’s plummet began in earnest. This in some respects completely exempts Apple from the product trajectory trap, at least when it comes to their prime differentiation.
Indeed, it seems that Apple simply isn’t very interested in moats. They do what they think is right by the user, strategy nerds like me be damned. This kills them on Wall Street, but perhaps is the only possible route to avoiding stasis, and ultimately, disruption.
This is why Apple is so fascinating.
This is a three-part series on enabling sustainable businesses on the app store.
This series of posts is about enabling sustainable businesses on the App Store. In Part 1, I discuss why Paper and other productivity apps may not be doing as well as you might think. Part 2 explores why casual games, in contrast, are a sustainable business, but not a differentiator for platforms (I added a follow-up here). Part 3 analyzes why Apple in particular seems hesitant to enable sustainable businesses on the app store.
Before I get to Part 3, I wanted to clarify a few points in Part 2
This is our new Ipad 4. Right now, we’re just learning the basics of it, but one day I hope to be fluent in all of the Apple lingo that everyone else seems to know by heart (like what the heck the iCloud is, for example). Up until this point, we’ve been using Apple’s competitors almost exclusively (Android, Palm’s Web OS, etc), so we have a little bit of a learning curve here.
All we know right now is how to get it connected to the Wifi and how to launch Letterpress. Yes, Letterpress factored into our decision to purchase an Apple product.
It’s a fair rebuttal as far as anecdotes go, but I think Letterpress is the exception that proves the rule. Check out this graph from AppAnnie:
Letterpress’s grossing ranks – Credit AppAnnie
I’m sure LetterPress has inspired many more people than Matthew’s relative to buy iOS devices, but LetterPress – which has only one in-app purchase – is clearly not a sustainable business. There is no way to earn additional money from existing users.
This is power of repeat purchases by existing customers.
Loren Brichter and Letterpress fit the popular idea of what casual game development is like: brilliant developer creates a new concept, releases it to the world, and gets rich. It’s certainly the image that Apple prefers to cultivate.
The truth is a little more complicated. Most casual game development is done by studios like King, and it’s all about playing the odds. Multiple games are developed, heavily analyzed and tested, with constant tweaking to the monetization forumulas. In this world of playing the odds, building for Android as well as iOS is an obvious choice – if a game breaks out, like Candy Crush Saga, you want the maximum audience possible, especially since casual games monetize on Android as well.
That is why, of the top 25 grossing apps on iOS,1 20 of them are also on Android (and two of them, Zoosk and MLB, aren’t casual games). The business model of casual gaming inevitably pushes publishers to be multi-platform, which is why they are not a platform differentiator.
Part 3 will focus on the types of apps that do differentiate platforms, what sort of business models might work for them, and why Apple may be reluctant to help.
This is a three-part series on enabling sustainable businesses on the app store.
This series of posts is about enabling sustainable businesses on the App Store. In Part 1, I discuss why Paper and other productivity apps may not be doing as well as you might think. Part 2 explores why casual games, in contrast, are a sustainable business, but not a differentiator for platforms (I added a follow-up here). Part 3 analyzes why Apple in particular seems hesitant to enable sustainable businesses on the app store.
The opportunity is there for mobile game makers who can strike the right cord with their audience. Mobile game sales are expected to ring in at more than $9.9 billion this year, up 13.5% from the $8.8 billion spent in 2012, according to market researcher PwC…
The company’s leading game, “Candy Crush Saga,” was launched on Facebook in April 2012. It is the most popular app on Facebook, with an estimated 15.4 million average daily users as of the most recent figures, according to AppData, an independent firm that tracks online activity.
“Candy Crush Saga” has also been one of the most frequently downloaded free apps via the iPhone and Google Play, according to App Annie, which tracks app store purchases. It is also among the highest grossing apps on iPhone and Google Play when users’ in-game purchases are considered, App Annie figures show.
Stories like this, along with the $10 billion dollars Apple has paid to developers, would seem to be the obvious counterpoint to my app store pessimism.
Tim Cook announcing that Apple has paid $10 billion to app developers (credit The Verge)
$10 billion is the single most important number supporting Apple's app moat.
But the more I think about it, the more I’m not so sure.
It’s games like Candy Crush Saga – free, with in-app purchase – that are fueling much of that $10 billion. According to App Annie1, for the iPhone:
95 out of the top 100 grossing apps feature in-app purchase
79 out of the top 100 grossing apps are free to download
The numbers are broadly similar on Android, with an even sharper skewing towards free: 96 out of 100 of the top 100 grossing apps are free to download.
There are some important implications here for both Apple and app developers:
New monetization options can enable sustainable businesses built on the app store
Apple allowed in-app purchases in free-apps in October, 2009. You can draw a direct line from that policy change to King’s IPO. For those who love apps, this is great news: it is possible to build a sustainable business on the app store, if the right policies and mechanisms are in place.
In the case of in-app purchase, a monetization mechanism built directly into gameplay is a powerful driver of purchase, allowing developers to make money from their existing customers. That is the key to a sustainable business.
Only games can build a business on in-app purchases
Unfortunately, building a sustainable business on in-app purchases requires an infinitely available good. For example, in Candy Crush Saga, if you die five times on a level, you can’t try again for 30 minutes. Unless, of course, you’d like to buy 5 more lives for $0.99. Providing those five lives entails nothing more than resetting a counter.
This doesn’t work for non-games. Look back at Paper: building the Mixer was a massive engineering challenge, yet they only charged $1.99 once.
Casual games do not differentiate app platforms
Candy Crush Saga was originally a web game, then a Facebook game, and was later ported to both the App Store and Google Play (it’s the top grossing app on both). In fact, cross-platform play is one of its selling points:
King.com kept the game near identical across all platforms, with a similar map screen, leaderboard, UI and more as well as letting the player carry their game progress across all platforms.
“It’s a great customer experience,” says Dave Rohrl, vice president of game production at Goko. “You can experience the game when, where and how you want. This lets players interact with your game a lot more, which ultimately increases their engagement and monetization.”
That’s great for King – more potential customers, and more opportunities for monetization – but it’s not something Apple (or Google) should feel particularly special about.
Unlike the PC wars, I don’t think casual games will prove to be much of a differentiator between the various platforms for a few reasons:
Games take over the whole screen; this means that tailoring a game to fit a particular platform’s look and feel isn’t important
There is an entire industry devoted to providing cross-platform compatibility from day one. Most game developers are targeting game engines such as Unity, not iOS or Android. This is acceptable because of point one
Games are much more likely to be faddish; how many of you are playing the same games you were three months ago, much less three years ago?
Net: no one is buying (or not buying) an iPhone or Android device because of Candy Crush Saga, or any other casual game.
Thus, from a strategic perspective, that $10 billion is not nearly as impressive as it looks, especially since in-app purchase has unlocked revenue for Google Play developers as well. Any discussion of Apple’s app moat should first discount the entire casual game genre.
This is a three-part series on enabling sustainable businesses on the app store.
This series of posts is about enabling sustainable businesses on the App Store. In Part 1, I discuss why Paper and other productivity apps may not be doing as well as you might think. Part 2 explores why casual games, in contrast, are a sustainable business, but not a differentiator for platforms (I added a follow-up here). Part 3 analyzes why Apple in particular seems hesitant to enable sustainable businesses on the app store.
I drew this to illustrate the first Stratechery post
Admittedly, compared to some of the stuff Made with Paper, my sailboats are nothing special. But for me, it was honestly a feeling I really didn’t anticipate: I drew something, and it didn’t suck!
Paper is a transformative, device-defining app, and has been awarded accordingly bybothAppleandthedesignindustry. According to App Annie, as of June 21, Paper ranked 7th in the Productivity category according to downloads (119th overall after a recent jump), and 4th in revenue (108th overall).
By every visible measure, FiftyThree, the makers of Paper, are the definition of an app store success story, and this week they closed a Series A round of financing led by Andreessen Horowitz.
It’s easy to see this as a big endorsement of the App Store: startup creates a breakthrough product, gets noticed, gets funding, changes the world. And perhaps that’s the path FiftyThree is on.
But there’s another scenario that may be in play, and if I were Apple, this round of funding and FiftyThree’s plans going forward should be a yellow flag that the App Store may not be as strong as it could be.
Some pertinent facts about this round of funding and the circumstances leading up to it that deserve a closer look:
As recently as January, FiftyThree had the same five employees they started with. In the intervening five months, they have quadrupled the size of their team.
The positive spin is that business is good, ideas are large, and amazing products are on the horizon. The more pessimistic view is that FiftyThree has decided they need to “Go Big or Go Home”. In other words, while they were an App Store success story, the revenue they generated wasn’t sufficient to support five employees, so they’ve decided to take their shot at massively increasing revenue.
Last October, Paper added the Mixer for a $1.99 in-app purchase. This was the first new additional item for sale beyond the original pencil, marker, pen and paintbrush (available for $1.99 each or $6.99 for the set).
Then, this May, Paper gained the ability to zoom in a really unique way. It was a major feature request, yet surprisingly, it was completely free. No in-app purchase required. Perhaps FiftyThree just loves their customers. Or perhaps this is the sign of a new business model.
The positive spin is that these are really interesting areas to take a creation app; imagine the possibilities!
But the truth is I really struggled to find the positive spin; collaboration and hardware, while interesting, seem counter to the original Paper vision:
It seems to me that Paper was originally about inspiration and ideas easily and simply created, not collaboration and finicky hardware. But, and I think this is the crucial point, collaboration and hardware have obvious paths to sustainable monetization.
Collaboration could require a subscription service that will provide revenue over time
Hardware can be sold for much higher prices than $1.99 (The Pogo Connect, which Paper supports, sells for $79.95 plus accessories).
This is what I think happened to FiftyThree and Paper:
The FiftyThree Timeline. Months mark the founding, Paper releases and updates, and fundraising.
With a small amount of seed funding, the original five employees set out to build Paper, the best place to capture your ideas. After launching a year later, they began to reap the rewards through in-app purchases. They kept improving the app, and came out with a significant update in October – the Mixer – for $1.99.
And then they realized that they were five people living in New York City without an obvious route to sustainable revenue.
The problem for Paper is the same for all productivity apps in the App Store: there is no way to monetize your existing users. Look at me:
The revenue FiftyThree has made from me (after Apple’s 30%) versus the value they have created.
My use of Paper is an essential part of stratechery, yet I needed to only pay $8.99 for two in-app purchases, for which I never need to pay again. That’s a hell of a bargain, but it’s ultimately unsustainable.
Productivity apps require regular maintenance and upgrades
Unfortunately, app store economics don’t really work here.
If you have a low price, you need massive volume to make up for the upfront costs
If you have a high price, users are much less likely to buy your app, especially since there is likely a learning curve
If you can’t monetize over time, your users are extracting MUCH more value than you are receiving in revenue. That’s great if you’re a user, up until the company you love sells out because they can’t make money. Sparrow is the canonical example here. How many Sparrow devotees would gladly pay $5 a month to have the app available and continually updated?
Trials do ameliorate the pain a little, particularly if you pursue the high price option, but they don’t address the time mismatch: as a productivity app becomes more valuable, the developer doesn’t get a dime of more revenue.
There is so much more Apple (and the other platform owners) could be doing to improve this situation; paid updates and app-store supported subscriptions (beyond Newsstand) would be great places to start.
Moreover, it’s something Apple should be investing in. The App Store remains the largest moat around iOS; apps like Paper simply don’t exist on Android. Perhaps FiftyThree planned to go in this direction all along, and if so, good for them. But if they originally wanted to make a living on the App Store, and can’t, then their future probably includes more platforms than just iOS (a loss for Apple) and a chance of outright failure (a terrible loss indeed).
Of course, there were no significant changes to monetization options in iOS 7; the team was too busy. But were they busy on the most essential things?
This is a three-part series on enabling sustainable businesses on the app store.
I’d like to propose a new term in the business strategy lexicon: a strategy credit. It’s basically the opposite of a strategy tax. As I wrote a few weeks ago:
A strategy tax is anything that makes a product less likely to succeed, yet is included to further larger corporate goals
An obvious example is last week’s release of Office for iPhone, but not iPad. I don’t have any visibility into the thinking here, but clearly it’s best for Office to be on as many platforms as possible, but better for Windows that Office only be available on Windows 8.
Apple has always placed a priority on protecting our customers’ personal data, and we don’t collect or maintain a mountain of personal details about our customers in the first place. There are certain categories of information which we do not provide to law enforcement or any other group because we choose not to retain it.
For example, conversations which take place over iMessage and FaceTime are protected by end-to-end encryption so no one but the sender and receiver can see or read them. Apple cannot decrypt that data. Similarly, we do not store data related to customers’ location, Map searches or Siri requests in any identifiable form.
You can almost hear it now:
How admirable! Golly gee, Apple is such a better company than those hypocritical evil-doers at Google! Why can’t everyone treat customers so well? Apple good. Google bad. Facebook worse.
The truth is this is nothing more than a strategy credit:
Strategy Credit:An uncomplicated decision that makes a company look good relative to other companies who face much more significant trade-offs. For example, Android being open source
User information of this type isn’t important to Apple’s business model, so they “choose not to retain it.”1 There’s nothing worth praising here – or denigrating – but it’s worth acknowledging.2
In the meantime, though, Apple will happily score rhetorical points in the court of public opinion for a decision that wasn’t difficult at all.
They do, however, happily retain all of your credit card information, to choose one example ↩
Before you say that all companies should have Apple’s business model, I suggest reading Free by Dr. Drang ↩
“I felt like a dope,” says Jobs, thinking back to summer 2000, when his fixation on perfecting video editing on the Mac distracted him from noticing that millions of kids were using computers and CD burners to make audio CDs and to download digital songs called MP3s from illegal online services like Napster. Yes, even Jobs, the technological visionary of his generation, occasionally gets caught looking in the wrong direction. “I thought we had missed it. We had to work hard to catch up.”
Eight months later came the launch of the iPod.
In October 2012, Jony Ive replaced Scott Forstall. In 7 months, 1 week, and 5 days iOS has undergone a seismic shift:
iOS 7 preview page on left (link); iOS 6 preview page on right (link)
The question we should be asking is what this shift, and the urgency with which it was executed, portends.1
Google acquired Waze earlier this week for a reported $1.03 billion. This is an interesting deal for a few different reasons with a clear set of winners and losers.
Big Winner: Waze
This is an incredible exit for a company with only ~17 million active users and negligible revenues. Waze is a great product – I’m a big user – but it was ever only going to be a niche player. Maps are too integrated into every mobile platform, and if a user is dissatisfied with the default app, Google Maps is a readily available option.
Moreover, the value of mapping comes not from direct monetization, but from the signal it sends about users and their location; the monetization comes via targeted ads on other devices and in other apps.
The signal-to-ads cycle. Click the image for the original article.
Waze was never going to build out this cycle, which limited their direct revenue options to incredibly annoying pop-up ads that distracted from driving.
Still, you are worth the price someone will pay, and Waze did a tremendous job playing Google, Facebook, and Apple off of each other. The price is justified.
Winner: Google
Google claims Waze will remain independent, and why not? The actual product doesn’t matter to Google at all. Rather, this was all about moat building. As I’ve written previously, Google dominates the signal-to-ads cycle because they have both the best signals and the best ad delivery platforms.
Facebook is probably their closest competitor for the advertising side of that equation, but their signal, particularly in mobile, is much weaker. Buying Waze so that Facebook can’t is a victory all by itself.
Neutral: Users
There are two big wins for users here:
The weakest part of Waze is the search experience. Frankly, it’s terrible. I have a sneaking suspicion that Google can help out here.
There’s a decent chance that Google will kill Waze’s current monetization model completely, which will make the app much more pleasant to use.
There are also clear downsides:
If you didn’t want to send your location information to Google, well, now you have one less option.
Google’s history with acquisitions is not great to begin with. Add in the fact that this acquisition was purely defensive, and it’s hard to see how Waze doesn’t wither on the vine. That’s too bad.
Loser: Apple
Waze was one of the data sources for Apple Maps. It’s unclear what data they contributed exactly, but regardless, the last thing Apple Maps needs is less data.
That said, I don’t think an acquisition made sense, especially at this price. Apple doesn’t play (much) in the ad game, so there wasn’t the same strategic imperative to pay. I’m sure they’re sad to lose the data, but not $1.03 billion sad.
Big Loser: Facebook
This is a huge missed opportunity for Facebook. They are, for better or worse, locked in to the advertising game, and there are few more useful signals than mapping. When you add in the fact that Waze is social at its core, this seems like a perfect fit.
I’m sure Facebook was concerned about the small amount of active users Waze had, but more than that, I suspect Facebook had their hands tied by their disastrous IPO. Investors are very suspicious of Facebook – for good reason – and may not have tolerated such a large expenditure for so little short-term gain. There are a lot of Facebook employees still underwater, and Zuckerberg and team may not have felt the risk of investor backlash was worth it. To be clear, this is conjecture, but there really doesn’t seem to be another good reason why Facebook wouldn’t have outbid Google.
Then again, maybe outbidding Google was impossible. They know better than anyone that advertising is trending towards winner-take-all, and that monopolizing signals is priceless.
Perhaps my favorite Steve Jobs keynote moment was one of his last, at the iPad 2 introduction in March 2011. The last demo of the day, just before Jobs introduced the idea that Apple existed at the intersection of technology and liberal arts, was GarageBand for iPad. The demo was truly spectacular, and it clearly moved Jobs:
Even in the moment, it was clear to me this was far more than another Apple keynote demo; music had always been hugely important to Jobs, but more than that, the idea that computing ought to be personal, and ought to be enabling, had been Jobs’ mantra. The iPad, more than any other device, and GarageBand, more than any other software, were the culmination of Jobs’ life work.
It’s amazing watching Jobs after these demos. You can see it. His dreams coming true. “A computer for the rest of us…”
I thought I witnessed a similar moment yesterday when Tim Cook formally introduced iOS 7.
The content of these clips is totally different, but to my eye, the emotion is the same. Just as Jobs saw his life’s ambition coming to fruition, so did Cook.
Cook is clearly a different person than Jobs, with different skills, and different motivations. That’s wonderful news for Apple; while a company can reinvent itself around new products and new categories, and continue to thrive,1 I believe culture is the sort of pie that can only be baked once.
I had the good fortune of being an intern at Apple, which gave me the opportunity to spend an hour (along with a few hundred of my closest intern friends) with every member of the leadership team, including Jobs and Ive. Cook was, by a significant margin, the most impressive of all of them.
It’s difficult, in retrospect, to explain why he was so impressive, but I find my struggles eerily similar to the struggles business historians and sociologists have in explaining what company culture is, and why it matters. Tim Cook, at least to my young, rather unjaded eyes, was Apple. He spoke to me – and to every person in the room – as if I were the only person in the world, and that he truly wanted me to understand what made Apple unique. Oh sure, the words were there – he spoke about Apple’s focus, and willingness to say “no,” and about design – but it was the way in which he said it that made you believe. For me anyway, his reality distortion field was far more powerful than Jobs’.
It was obvious that Cook understood Apple, loved Apple, and was clearly the right man to make the decisions necessary to preserve Apple.
Decisions like firing Scott Forstall.
Forstall spoke to the interns as well. It was an incredibly impressive talk, and an incredibly disturbing one. Forstall was clearly the smartest person in the room; what was disturbing was that he obviously knew it, and wanted us all to know it as well.2 When the news broke about his firing, I was totally shocked, yet totally unsurprised.
Still, imagine what guts it took to fire him. Forstall is, more than anyone on the planet – including Jobs – responsible for the iPhone (for this reason alone I found the potshots taken at Forstall, particularly by Craig Federighi, to be in poor taste). He is an incredible engineer – legend has it he could write, or rewrite, nearly any part of the iOS source code on command, and would routinely do so to win disputes in managerial meetings – and a NEXT man, and the closest thing to a Steve Jobs 2.0.
Yet Cook fired him anyway.
Apple didn’t need another Steve Jobs. The price of individual brilliance is collective friction, and only a founder has the cultural capital to make the elevation of the individual possible. After all, he/she created the culture to begin with!
It’s not unlike a revolutionary movement: typically there is the transcendent leader, surrounded by the true believers. Eventually the leader departs, but the revolutions that endure have an ideology that continues to unite. To be sure, over time said ideology ossifies into rules enforced by a bureaucracy, until a new revolution uproots the old one, but this can take many years, even decades.
Most revolutions, though, don’t make it that far. Usually, when the leader departs, his closest lieutenants scheme and fight for the throne, and the entire movement implodes. This was always my fear for Apple: Steve Jobs was the glue that united a strong, stubborn, and talented company that continually operated under high pressure. What would happen when the glue was gone?
Tim Cook has answered that question: the glue is Apple, and the ideology is design. It is a shared belief system that “No” is more important than “Yes,” that focus is essential to making great products, and that no one individual is essential. Not Steve Jobs, and certainly not Scott Forstall.
I don’t know if iOS 7 is going to be a smashing success. I certainly have my opinion, and I’m sure I will share it in due course, although I will give Ive and team the benefit of actually using the product first. However, I am confident that the process of creating iOS 7 was sound, and, more importantly, it was sustainable and accretive to Apple and Apple’s culture.
I’ve never seen Cook so happy. It’s as if his big bet paid off. Forstall firing was certainly the hardest thing he’s done.
That is why Cook was so happy. While Jobs’ mission in life was personal computing, and Apple the by-product, Cook’s mission in life is Apple, and iOS 7 was the by-product of his commitment to ensuring that Apple endured.
The job of Apple’s CEO is, first and foremost, to understand what makes Apple, Apple. That is far more important than product sense, or operations excellence, or taste, or a million other attributes thrown around by pundits and analysts. On this criteria, it’s clear that Cook is the right man for the job. I would contend that anyone that says otherwise doesn’t understand revolutions, doesn’t understand culture, and doesn’t understand Apple.
The truth about the greatest commercial of all time – Think Different – is that the intended audience was Apple itself. Jobs took over a demoralized company on the precipice of bankruptcy, and reminded them that they were special, and, that Jobs was special. It was the beginning of a new chapter.
“Designed in California” should absolutely be seen in the same light. This is a commercial for Apple on the occasion of a new chapter; we just get to see it.
This is it.
This is what matters.
The experience of a product.
How it will make someone feel.
Will it make life better?
Does it deserve to exist?
We spend a lot of time on a few great things, until every idea we touch enhances each life it touches.
You may rarely look at it, but you’ll always feel it.
UPDATE: I switched it up. It’s struh tek er ee, as in strategy and tech
Wikipedia:
The word “strategery” (/strəˈtiːdʒəri/ strə-tee-jər-ee) was coined for a Saturday Night Live sketch, written by James Downey, airing October 7, 2000, which satirized the performances of George W. Bush and Al Gore, two candidates for President of the United States, during the first presidential debate for election year 2000. Comedian Will Ferrell played Bush and used the word “strategery” (a mock-Bushism playing on the word “strategy”), when asked by a mock debate moderator to summarize “the best argument for his campaign”, thus satirizing Bush’s reputation for mispronouncing words. The episode was later released as part of a video tape titled Presidential Bash 2000.
The clip:
Keep this in mind the next time you want to refer to this site verbally.
