Big Blue and Apple’s Soul

Wednesday, July 23, 2014Saturday, March 24, 2018

I hope you’ll forgive my writing about week-old news,¹ but I find it striking to compare the paucity of words written about Apple’s partnership with IBM, at least relative to what was written when Apple acquired Beats. After all, the IBM partnership is a much bigger deal.

It certainly seems that Tim Cook feels the same. On yesterday’s earnings call Cook spent, by my count, five times the amount of time talking about IBM than he did Beats², much of it unprompted by questions. The key paragraph was this one:

We also are in the — virtually all Fortune 500 companies, we are in 99% of them to be exact and 93% of the Global 500…[but] the penetration in business is low. It’s only 20%. And to put that in some kind of context, if you looked at penetration of notebooks in business, it would be over 60%. And so we think that there is a substantial upside in business. And this was one of the thinkings behind the partnership with IBM that we announced last week. We think that the core thing that unleashes this is a better go to market, which IBM clearly brings to the table

In other words, lots of enterprises have dabbled with iOS, but Apple doesn’t have an effective way to sell more.

Apple is in a fascinating position when it comes to the enterprise: it turns out that iOS is the best choice for enterprise from a product perspective.³ Blackberry has the integration, but everything else is obsolete; Android has less-effective device management built in and suffers from the usual Android fragmentation issues (which are improving),⁴ while Windows Phone, shockingly, has only in the last update added basics such as VPN support.⁵

However, especially in the enterprise, product is not enough; in fact, very few devices are sold to enterprises as-is. Rather, they are delivered as part of “solutions”, the total cost of which is multiples greater than the underlying device. These “solutions” include things like custom software, implementation, training, consulting, and service contracts. Each of these pieces is fully customizable and negotiable for each enterprise customer, and it is for this you need a massive sales force. Ultimately, no matter how good of a product the iPhone may be, without the sales force and willingness to build “solutions” – the right go-to-market, in Cook’s words – Apple was never going to fully realize the enterprise opportunity.

The problem is that building said sales force is massively expensive, and not just in dollars: it has a big impact on a company’s culture.⁶ As Jobs wrote in his biography:

The company starts valuing the great salesmen, because they’re the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company. John Akers at IBM was a smart, eloquent, fantastic salesperson, but he didn’t know anything about product. The same thing happened at Xerox. When the sales guys run the company, the product guys don’t matter as much, and a lot of them just turn off. It happened at Apple when Sculley came in, which was my fault, and it happened when [Steve] Ballmer took over at Microsoft. Apple was lucky and it rebounded, but I don’t think anything will change at Microsoft as long as Ballmer is running it.

To Jobs this was anathema. If Jobs was adamant about anything it was that Apple always focus on creating the best possible product. If that meant forgoing a massively lucrative enterprise market, then so be it.

That, though, is what makes this partnership so brilliant for Apple. By offloading everything onto IBM – who is playing the role of what’s called a “Value-added reseller” (VAR) – Apple can now sell into the enterprise without building the sales capability that in the long run would be poisonous to the product-centric mindset that is their ultimate differentiator.

To be clear, while I’ve been writing from Apple’s perspective, this is an even bigger deal for IBM. As I just noted, the total cost of a VAR “solution” is usually multiples greater than the cost of the underlying device or software; fully integrating a device into an enterprise is a messy business, but dealing with messiness is not only worth a lot of money, it also entails building deep and ongoing relationships with the company you are servicing. In other words, when it comes to the sort of enterprise deals that IBM is going to put together, iOS devices are much closer to commodities; it is IBM that will provide the most value from the enterprise’s perspective. This is a risk for Apple: it’s certainly possible to envision a scenario where IBM switches out iOS for another platform, and there will be nothing Apple can really do about that.

I’m sure, though, that Apple is well aware of this and counts it as a price they are willing to pay⁷ (in addition to the commission they’ll likely pay IBM on each iPhone or iPad, in case it’s not clear who will be the lead in this partnership). Apple is getting access to a massive market that had long been off-limits, and they are doing so without giving up their product-centric soul.

I was on vacation at the time ↩
777 words versus 174 ↩
It’s hard to overstate what a change this is; Apple has always prioritized the user experience over features, but in a market where the buyer is not the user, a user experience advantage is worthless. That’s what Steve Jobs was driving at in this classic clip ↩
Note: I originally said Android lacked device management completely, which was not right. I apologize for the error ↩
There is no greater example of Microsoft’s misplaced hubris than in launching Windows Phone without any enterprise features in the belief they could knock the iPhone off in the consumer market. Remember this? ↩
To be clear, I have no problem with sales forces or their effect on culture – they are critical for enterprise businesses. The issue is when you try to do both enterprise and consumer ↩
This is also an interesting contrast to Apple and Google Maps; in this case, Apple is prioritizing their culture over control. When it came to maps Apple prioritized control over the product ↩

It’s Time to Split Up Microsoft

Monday, July 21, 2014Tuesday, March 27, 2018

To understand why so many serious Microsoft observers were encouraged by Satya Nadella’s week-ago memo Bold Ambition and Our Core,¹ it’s useful to go back 10 years and read Steve Ballmer’s 2004 memo Our Path Forward. It was around this time that cracks were first starting to appear in the Microsoft machine: the stock had been stagnant for going on four years, Windows XP was besieged by a security crisis, and Microsoft was about to announce the reboot of Windows Vista née Longhorn. Meanwhile, the iPod was exploding, and Google’s stock price had quadrupled since its IPO earlier that year on the back of its 85% share of search.

In response, Ballmer said that Microsoft needed to innovate:

The key to our growth is innovation. Microsoft was built on innovation, has thrived on innovation, and its future depends on innovation. We are filing for over 2,000 patents a year for new technologies, and we see that number increasing. We lead in innovation in most areas where we compete, and where we do lag – like search and online music distribution – rest assured that the race to innovate has just begun and we will pull ahead. Our innovation pipeline is strong, and these innovations will lead to revenue growth from market expansion, share growth, new scenarios, value-add through services (alone and in partnership with network operators), and using software to open up new areas. Our focus areas are:

Ballmer then listed 10 different areas of “focus”, the vast majority of which were themselves so broad as to be meaningless. More disturbing than Ballmer’s abuse of the word focus, though was the fact that mobile barely figured in those ten areas. Here is the one mention:

Non-PC Consumer Electronics: The opportunity is virtually unlimited to integrate the richness and intelligence of the PC world with everyday devices such as mobile phones, handheld devices, home entertainment and TV. At the center of our efforts are products such as Pocket PC and Smartphone, Portable Media Center, MSTV, MSN TV, Windows Automotive, the Windows Media Center Extender, and other electronic devices built on Windows CE and Windows XP Embedded.

Even here, mobile phones are only useful insomuch as they “integrate the richness and intelligence of the PC world.” Ballmer and Microsoft simply could not break free of their Windows-first mindset, and while it would be another 3 years before the iPhone arrived, it was this memo and what it represented that marked the beginning of Microsoft’s decline.

The Power of Monopoly

It’s easy to dump on Microsoft now, but even easier to forget just how impressive and seemingly impregnable their core business once was.² I have written multiple times that tech companies ought to be either vertically/platform focused, with software and services that differentiate hardware (like Apple), or horizontally/service focused, with the goal of offering superior software and services on all devices (like Google and Facebook). To try and do both, as Ballmer explicitly did with his “Devices and Services” strategy, is to do neither well: differentiating your devices by definition means offering an inferior service on other platforms; offering superior services everywhere means commoditizing your own devices. “Devices and Services” was nonsense.

Still, it’s understandable why Ballmer thought differently: Microsoft in the 90s managed to do exactly what I just said was impossible. Because Windows was a monopoly, making their software and services work everywhere meant making them work on Windows. There was no choice between horizontal and vertical, and the company profited fabulously. Over time Microsoft added a server component to this virtuous cycle: people depended on Office, which ran on Windows, and was enhanced by services like Exchange Server, Sharepoint Server, SQL Server, etc. It didn’t matter that Office for Mac kind of stunk; that product mostly existed because of a (failed) attempt to fend off antitrust watchdogs, and it made a ton of money to boot.

This cycle is why breaking up Microsoft, as Thomas Penfield Jackson originally ruled in 2000, would have been truly destructive to shareholder value. The company was strong because its products built on each other, and at the root of that strength was the Windows monopoly.

Microsoft’s Opportunity

Fast forward to last Monday, and the opening of Microsoft’s Worldwide Partner Conference. COO Kevin Turner put up this slide:

Kevin Turner's slide at WPC. Curiously, and in contrast to the rest of WPC, Microsoft has not made Turner's keynote available publicly. — Kevin Turner’s slide at WPC. Curiously, and in contrast to the rest of WPC, Microsoft has not made Turner’s keynote available publicly.

A monopoly that is not.

My first reaction to this slide was quite positive, but the more I’ve thought about it, the more I think the slide represents Microsoft’s biggest issue moving forward. It’s not that their devices share is at 14% – that’s just a fact, and I applaud the honesty; rather, I’m bothered by the phrase “We have a big opportunity.” For Turner, the opportunity is in growing that 14%. As quoted by Gregg Keizer:

We want to go from 14% to 18%, from 18% to 25%, from 25% to 30%. That’s the beauty of this model … [the opportunity] is much bigger than anything we’ve had in the past.

Turner is still talking about devices, and it’s really too bad, because the real opportunity is in the 86%. Microsoft already has software and services like Skype, Bing, and OneDrive that work right now on 100% of that pie; it’s only a matter of time until the same can be said for Office. That is the opportunity; to even think about the share of devices, particularly at the executive level, is to handicap Microsoft’s greatest chance for growth before it even truly gets started. It’s not just that Windows is no longer Office’s only market that matters; it’s that Windows and Microsoft’s devices focus is actively damaging Office’s prospects.

Nadella’s Memo

And so we are back to Nadella’s memo. In contrast to Ballmer’s anything-but-“focus,” Nadella was quite specific:

More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy.

At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.

Nadella was clear that focusing on “every person” meant focusing on every device as well:

[Microsoft’s productivity apps] will be built for other ecosystems so as people move from device to device, so will their content and the richness of their services – it’s one way we keep people, not devices, at the center.

This is exactly right. Nadella is making a choice here: productivity as a single unifying principle, and by extension, services based on people, not differentiation based on devices. Moreover, it’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand. It was only a little over a year ago that Ballmer declared, “Nothing is more important at Microsoft than Windows.”

Last week, Nadella said “No.”

The Power of Culture

The problem, though, was elucidated by Nadella himself in an interview with The Verge:

At the end of the day, look, any strategy gets eaten for lunch if you don’t have a culture that’s also changing.

Nadella is referencing the famous Peter Drucker³ quote “Culture eats strategy over breakfast”; unfortunately, as we have already seen with Kevin Turner’s presentation, that is almost certainly what will happen at Microsoft. For all the talk of moving beyond Windows (and Windows Phone), I am deeply skeptical that Microsoft can truly pursue its potential as a software and services company as long as Windows is around. Culture is developed over years, and for decades everything at Microsoft was about Windows. Read again Ballmer’s statement:

Nothing is more important at Microsoft than Windows

The problem for Nadella and Microsoft is that ultimately this wasn’t a declaration of strategy; it was a declaration of fact, and facts don’t change by fiat.

Understanding Nokia

This is how one can really understand why Ballmer – over the objection of Nadella, among others – made the disastrously stupid decision to buy Nokia. We now know for a fact that my speculation at the time that Nokia was about to introduce Android phones was spot-on, and the terms of the deal suggest that Nokia was having financial difficulties as well; if Microsoft would have lost Nokia, they would have lost Windows Phone, and Ballmer saw that as a mortal threat. Never mind that Windows Phone is for all-intents-and-purposes already dead; the thing about culture is that it not only eats strategy, it washes it down with a potent mixture of selective facts and undue optimism.

In so doing, though, Ballmer dramatically compounded his 2004 error. When Nadella took over earlier this year Microsoft had not only missed the mobile boat, he was now saddled with a $7.2 billion dollar anchor and 34,000 new employees. That’s the thing about last week’s layoffs: even after shedding 18,000 employees Microsoft will still be about 16% bigger than they were before the acquisition, and still tightly bound to a devices group that is working at diametrically opposed goals from the software and services businesses that are Microsoft’s future.

The Solution

It was just about year ago that I wrote in Services, Not Devices:

The truth is that Microsoft is wrapping itself around an axle of it’s own creation. The solution to the secular collapse of the PC market is not to seek to prop up Windows and force an integrated solution that no one is asking for; rather, the goal should be the exact opposite. Maximum effort should be focused on making Office, Server, and all the other products less subservient to Windows and more in line with consumer needs and the reality of computing in 2013…

As for Windows, let it focus on solidifying Microsoft’s hold on the enterprise (it’s here the need to fight the iPad is most acute), with a nice spillover into Home PCs and gaming, and accept the fact Windows was only ever relevant in the consumer market because nobody got fired for buying IBM.

In other words, keep Windows as a cash cow, but be explicit that the future was in cross-platform services. Unfortunately, this was before the Nokia deal. The effects of that deal – and understanding why it was made – have convinced me that Microsoft cannot truly reach its potential as a services company as long as Windows and the entire devices business is in tow.

In short, it’s time to break Microsoft up.

In 2000, Windows, Office, and Server were a virtuous cycle. Today, Windows and the entire devices business is nothing but a tax. Microsoft is a company that is meant to serve the entire market, and the way to do that is through services on every device. It’s all fine and well to say that you will treat devices equally, but given Microsoft’s history – and the power of culture – I just don’t believe it’s possible.

I would create two companies: the devices side, which includes Windows, Windows Phone, and Xbox, and let them do the best they can to grow that 14%. Heck, make Kevin Turner the CEO. Windows profits will keep the company going for quite a while, and who knows, maybe they’ll nail what is next.⁴

The other company, the interesting company, is the services side – the productivity side, to use Nadella’s descriptor. This company would be built around Office, Azure, and Microsoft’s consumer web services including Bing⁵, Skype and OneDrive.⁶ These products don’t need Windows; they need permission to be the best regardless of device.

Of course, the Windows company does need Office, and Azure, and all the other Microsoft growth engines, and this cleavage would likely hasten Windows’ decline. But that’s exactly why a split needs to happen: anything Office or Azure or Microsoft’s other services do to prop up Windows – that focuses on that 14% – by definition limits Microsoft’s opportunity to address the far bigger part of the pie that ought to be the future.

I’m very puzzled by the URL here: It is “http://www.microsoft.com/en-us/news/ceo/index.html”, which means this email is the de facto home page for Satya Nadella. I presume that won’t be the case forever, but how then will you find this note? ↩
To be clear, from a revenue and profit perspective, the business still is incredibly impressive. Microsoft still makes more revenue and profits than Google. Revenue in particular, though, is trending in the wrong direction, and Microsoft’s decline in relevancy, particularly in the consumer market, is large ↩
Supposedly ↩
One more thing: this devices company would not have killed Nokia’s feature phone business. The “tax” works in both directions ↩
Don’t laugh; the thing with search is that when you reach the tipping point, it can become very profitable very quickly, and Bing is getting closer ↩
Probably the toughest division to split would be the on-premise server groups. On one hand, they make Office go; on the other hand, their incentives and sales patterns aren’t perfectly aligned with Azure and Office 365. I could see arguments on both sides, but would tend towards leaving them with the new Services Microsoft ↩

Site Note: Vacation and the Daily Update

Tuesday, July 15, 2014Thursday, July 20, 2017

Just a quick note that I am on vacation this week and do not plan on posting an article (although I certainly picked quite the week to be gone!).

The Daily Update will continue but instead of analysis of recent news, I have written brief overviews of the Strengths, Weaknesses, Opportunities, and Threats (SWOT) of five of the most important companies in tech (all links members-only):

These will be delivered to members as usual by email, private RSS, or via links on the right side of this page (bottom on mobile).

To become a member of Stratechery go here; to read through the archive of past Daily Updates, go here (members-only).

My thanks to all of Stratechery’s readers and especially members for your support. Look for new content starting on Monday, July 21.

Podcast: The Talk Show – Free Alcoholic Beverages

Saturday, July 12, 2014Monday, March 26, 2018

I was pleased to again join John Gruber on The Talk Show where we talked about Samsung’s struggles, Xiaomi, wearables, and a whole lot more.

Check it out. I think you’ll enjoy it.

Podcast: Exponent 009 – The Societal Perspective

Friday, July 11, 2014Monday, March 26, 2018

On the newest episode of Exponent, the podcast I co-host with James Allworth:

In this episode we first defend surge pricing before continuing our debate from last week: is society better off when corporations try to innovate, or would we be better off if we left the innovation to startups? Your answer to this question may change your opinion of Silicon Valley.

Nick Kokonas: Tickets for Restaurants – Alinea Restaurant
James Allworth: Heavy Rain and Black Cars – Medium

Note: In the podcast I talk about owning Microsoft stock; to be clear that was while I was an employee. As a matter of policy I do not currently hold any individual stocks. Also, this podcast was recorded before Satya Nadella’s recent strategy memo, which I analyzed in today’s Daily Update (members only)

Show Link

Feed | iTunes | Twitter | Feedback

Smartphone Truths and Samsung’s Inevitable Decline

Tuesday, July 8, 2014Monday, March 26, 2018

For me, anyway, the most surprising thing about Samsung’s disappointing earnings was just how surprised many folks seemed to be. The smartphone market is a massive one, but also rather predictable if you keep just a few key things in mind:

Everyone will own a smartphone – I don’t think this is controversial, but it’s important, as there are a few implications of this fact that are perhaps non-obvious.
The majority of buyers will prioritize price – The implication of a phone being a need and not a want is massive downward pressure on the average selling price for two reasons:
- Low income buyers who might normally not buy consumer electronics or other computing devices will be a part of the phone market, and will buy low-priced models by necessity
- Higher income buyers who are uninterested in other consumer electronics or other computing devices will be a part of the market, and will buy the low-priced models by choice
The net effect is that the average selling price for a phone will be low and always decreasing, while the high-end market will be relatively small in percentage terms.
Absolute numbers matter more than percentages – While it’s natural to talk about market size as a percentage, the absolute size is just as important. In the case of Apple, for example, the fact they “only” had 15.5% percent of the market in 2013 is less important for understanding the iPhone’s viability than is the fact they sold 153.4 million iPhones. That is more than enough to support the iOS ecosystem, percentages be damned.
There will always be a high end segment – The very reason why everyone will buy a phone (always with you, access to information, communication) are the same reasons there will always be a segment of the population willing to pay for a superior product. The analogy to cars is perhaps overdone, but for good reason: it makes a lot of sense. Like cars, phones are about appearance, performance, and experience; both are status symbols; and (in most parts of the world) both are necessities.
The high end isn’t that expensive on an absolute basis – Where the car analogy breaks down is absolute prices. The cheapest Mercedes-Benz you can buy (in the U.S.) is a surprisingly accessible $29,900. That, though, is 46x as expensive as an iPhone 5S. Sure, an iPhone 5S is a bit more than 3x as expensive as a Moto G, but the absolute price difference is only about $500; a car 1/3 the price of that Mercedes would have an absolute price difference of $20,000.
Low end quality is improving rapidly – That Moto G is a very nice phone that absolutely does the job for most people. It’s also not that big a deal, particularly in Asia where there are even cheaper and more capable phones available based on a SoC from MediaTek. Moreover, the entire supply chain continues to improve and bring down prices on every part of a smartphone, improving the quality of even the most inexpensive products.
Fleshed-out App Stores are table stakes – By fleshed-out app stores, I mean the iOS App Store and Android’s Play Store, full stop. It’s nice that Windows Phone and the Amazon Fire app stores are getting some big names, but the problem with an 80/20 approach (in this case, shooting for 20% of apps that satisfy 80% of needs) is that everyone differs on the remaining 20%, and it’s usually that 20% that is the most important for any one user. Of course, some users don’t really care, but those are likely super low-end customers anyway, which aren’t great for margins or your ecosystem.
Carriers matter, at least for the high end – Many customers, particularly in developed markets, are loyal to their carriers and only choose phones which are available on their preferred network. On the flipside, markets in which people move freely between carriers (or use dual-SIMs) are usually lower-income markets with smaller high end segments.
Screen size matters – The one physical characteristic that seems to impact phone selection is screen size. While the large screen phones are a relatively low percentage of the total phone market, they are a much higher percentage of the high end.
Software Matters – For years analysts treated all computers the same, regardless of operating system, and too many do the same thing for phones. I personally find this absolutely baffling; you cannot do any serious sort of analysis about Apple specifically without appreciating how they use software to differentiate their hardware. The fact is that many people buy iPhones (and Macs) because of the operating system that they run; moreover, that operating system only runs on products made by Apple. Not grokking this fact is at the root of almost all of the Apple-is-doomed narrative (which, by the way, is hardly new).

Software-based differentiation extends to apps. While a fully-fleshed out app store is table-stakes, for the high end buyer app quality matters as well, and here iOS remains far ahead of Android. I suspect this is for three reasons:
1. The App Store still monetizes better, especially in non-game categories
2. iOS is easier to develop for due to decreased fragmentation
3. Most developers and designers with the aptitude to create great apps are more likely to use iOS personally
None of these factors are likely to go away, even as Android catches up with game-based in-app purchases and as iOS increases in screen size complexity.

It is this final point that makes the Samsung news so unsurprising. Samsung had built up a healthy high-end business by:

Being available on nearly every carrier
Pioneering the large-screen segment
Producing hardware that was meaningfully superior to low-end offerings

All three of these factors either have or are in the process of disappearing:

After a two-year lull, Apple has greatly expanded iPhone availability worldwide
As noted above, the gap between low and high-end hardware is disappearing
Multiple manufacturers have moved into the large-screen segment, with the iPhone coming soon

In China Samsung has another problem: their brand and distribution channel, which they have spent billions building, is no match for Xiaomi’s star power which lets the startup sell phones at cost without any additional marketing or channel expenses. It’s not helpful to (rightfully) say this issue is primarily limited to China (I’m more skeptical of Xiaomi’s prospects elsewhere, but bullish on Lenovo) because the Chinese market is the largest market in the world.

Ultimately, though, Samsung’s fundamental problem is that they have no software-based differentiation, which means in the long run all they can do is compete on price. Perhaps they should ask HP or Dell how that goes.

In fact, it turns out that smartphones really are just like PCs: it’s the hardware maker with its own operating system that is dominating profits, while everyone else eats themselves alive to the benefit of their software master.

Previous articles on Samsung’s troubles:

Two Bears from April 2013
Two Bears Revisited from February 2014

Happy Independence Day Mr. Glass

Thursday, July 3, 2014Tuesday, March 6, 2018

Blessed with the sort of love him or hate him reputation reserved for the truly popular, Bill Simmons has received a lot of criticism from NBA fans for his propensity to act as the Body Language Doctor: he will make grand pronouncements about players or teams based on nothing more than a player or coach’s demeanor on the floor or in a press conference.

Still, I can sympathize with Simmons: it’s easy to give in to a similar sort of temptation when you read things like this New York Times article about Ira Glass and This American Life leaving Public Radio International:

On July 1, “This American Life” became independent, leaving its distributor of 17 years, Public Radio International, or PRI. That change is partly technical. The program is no longer delivered to local stations through public radio’s satellite system, but instead over the Internet through the online platform PRX, the Public Radio Exchange.

But the big impact is financial. Gone are a distributor’s financial guarantees, which in the case of “This American Life,” reached seven figures. Instead, Mr. Glass will now be responsible for the show’s marketing and distribution, as well as for finding corporate sponsors. It’s the equivalent of Radiohead’s releasing its own album “In Rainbows,” or Louis C. K.’s selling his own stand-up special — except all the time, for every show. It’s the kind of move that can signal radical changes in the public radio firmament, with National Public Radio and other distributors wondering who, if anyone, may follow suit, and whether Mr. Glass will return if he fails.

“You take on the risk if you have to do the marketing,” said Laura Walker, president and executive chief officer of New York Public Radio, which operates WNYC. “I don’t think it’s a slam-dunk way of making money. You’ve got to put in a lot of effort and do the work yourself.”

Set aside the implications for Glass and This American Life for just a moment: what is striking about the article, and this section in particular, is that there is zero discussion about upside. The “big” financial impact is the foregoing of financial guarantees, and questions are raised about what happens if Glass fails – but not if he succeeds. There is concern that Glass’s move towards independence is not a “slam-dunk way of making money.”

To be fair, this is only one article, but the reason the body language doctor angle is so tantalizing is that this approach seems very representative of traditional journalism’s general discomfort with the Internet. When your world is collapsing it’s awfully easy to see only the downside, and to wish that things like disruption did not exist.

So let me provide a counter-narrative, and re-write the lede to this story:

On July 1, just days before the country he chronicles marks Independence Day, Ira Glass of This American Life celebrated his own independence, leaving his distributor of 17 years, Public Radio International, or PRI. That change is partly technical. The program is no longer delivered to local stations through public radio’s satellite system, but instead over the Internet through the online platform PRX, the Public Radio Exchange.

Of course This American Life is no stranger to Internet distribution; while 2.1 million people listen to the show live on the radio, another million download the podcast, making it the most popular show on Apple’s iTunes. In fact, it was Mr. Glass’s ability to connect directly with his show’s listeners that made an intermediary like PRI redundant.

To be sure, Mr. Glass is taking a risk by abandoning a distributor’s financial guarantees, which in the case of “This American Life,” reached seven figures. Instead, Mr. Glass will now be responsible for the show’s marketing and distribution, as well as for finding corporate sponsors. The upside, however, is enormous. The cost of a financial guarantee is limited upside – that is why distributors take on that risk – but by taking control of distribution Mr. Glass is reserving that upside for himself.

“The entity with the most to lose in this move is not This American Life,” said Ben Thompson, who has written frequently about the impact of the Internet on journalism at his blog Stratechery. “Rather, once other radio personalities realize that the Internet has made distributors redundant a lot more people are going to question why they don’t take control of their own destinies.”

The clear winners, though, are consumers: Mr. Glass has marked the occasion by releasing a new podcast called Serial, and it will be available to everyone worldwide, no distribution deal needed.

Happy Independence Day to Ira Glass.

And, dear readers, Happy Independence Day to you as well, both you in the U.S. actually celebrating the holiday, and also everyone around the world who I can reach with ease, no distributor needed.

Additional Thoughts on iWatch and Android Wear

Monday, June 30, 2014Sunday, March 25, 2018

A few points of follow-up on last week’s piece Android Where?:

So What About iWatch?

I only mentioned the iWatch tangentially in last week’s piece, which is just as well, for it gives me an opportunity to link favorably to this piece on Techpinions by industry veteran Tim Bajarin about the (alleged) iWatch:

I actually think the ID aspect of any wearable Apple brings out is probably central to its future functionality. This is speculative on my part but, after using the Disney band for seven days and seeing its incredible functionality, Apple has to be crazy not to make this part of any of their wearables. The ramifications for Apple’s future with this one ID implementation alone could make it a huge hit. Imagine going into a Starbucks and just touching your iWatch or iBand to the terminal, entering a PIN number and it is charged to your Apple account. Or to enter your house, you just touch the Apple wearable and enter a PIN number and your are in. Yes, you can do this with an iPhone now but that means taking it out of your pocket or purse and it is only single authentication at present. In a wearable, it is much easier to use for entering the home and for all types of interactions and transactions. Its convenience factor would be very compelling. I believe something like this would be very “sticky” and keep users of these tied closer to Apple’s ecosystem…

I believe when and if Apple does launch an iWatch or iBand or what ever form of wearables they bring to market, they will initially lead with the health and home automation apps first and over time add the ID features. As you can imagine, using an iWatch or iBand for ID that can be used to do transactions, lock doors and even handle proximity functions could be controversial without them first convincing people they can trust them even more than they already do today. That could take some time.

I agree almost completely with his piece, and encourage you to read the whole thing. In fact, it’s exactly what I was driving at in Android Where? when I said:

I question, though, if Now will turn out to be as meaningful to most people as Google thinks it will be. In other words, how many people actually want a personal digital assistant? There is an alternative view of computers in which they are more akin to a tool, something you pick up and use to do a job, and then set down when you are done with it. To be sure, that tool is incredibly powerful and capable of doing a great number of jobs, but it still operates in service of something outside of computers…A digital assistant, on the other hand, is simply a more efficient way of interacting with your computer – or your computer interacting with you – and I question how much that vision that will ultimately resonate with people.

The potential problem with Android Wear I see is its focus on being a conduit for your phone – a more efficient distraction from the real world, as it were. I suspect the iWatch will go in the opposite direction: it will be a means of pulling the real world into your phone (think sensors) as well as a means of projecting your phone out (think payments, proximity, etc.)

Interestingly, neither of these use cases necessarily even need a screen. And, if that’s not a requirement, the range of possible objects increases exponentially. It could be a ring, or a bracelet, or a clip, and so on – or all of the above. It would also be great for battery life, and for price (touch screens are the most expensive component in phones and tablets). Remember the Wall Street Journal article from a week-and-a-half ago:

Apple is planning multiple versions of a smartwatch—dubbed the iWatch in the media—later this year, according to people familiar with the matter.

One more thing: a portfolio of wearables certainly would explain hiring someone like former Yves Saint Laurent CEO Paul Deneve as head of special projects. Regardless, I think it’s very safe to say whatever Apple releases will look nothing like the devices shown by Google last week.

Android Wear/TV Can’t be Customized

One interesting detail about Android Wear (and Android TV) is that Google is prohibiting OEM’s from customizing the look-and-feel. From ArsTechnica:

One thing about both of them sticks out: their software behaves pretty much the same way no matter which device you have. There are small differences that Google has outlined here, but interacting with each watch is exactly the same, and digging down into the settings shows that they’re both running the exact same Android versions and build numbers. This would be unusual for Android phones or tablets, which generally come with OEM-controlled UI skins, hardware and software flourishes, and pre-installed apps.

Talking with Google engineering director David Burke confirmed that all of the new Android initiatives announced at the keynote this week—Android Wear, Android Auto, and Android TV—will have user interfaces and underlying software that is controlled by Google, not by the OEMs.

“The UI is more part of the product in this case,” Burke said to Ars of Android TV in particular. “We want to just have a very consistent user experience, so if you have one TV in one room and another TV in another room and they both say Android TV, we want them to work the same and look the same… The device manufacturers can brand it, and they might have services that they want to include with it, but otherwise it should be the same.”

So here is my question: if “the UI is more part of the product” when it comes to Android Wear devices, does that mean the UI is not part of the product when it comes to Android phones?

Obviously that is not the case in a strict sense – UI is incredibly important in a phone – but looked at broadly Burke’s statement does have a grain of truth. The fact Google does not lock down the UI for Android on phones is not because they don’t think it is important, but rather that the context in which Android was launched was a far different one. As I wrote after last year’s Google I/O, Android was originally developed not as an iPhone alternative, but as a Windows Mobile alternative. Google wanted to ensure that Microsoft did not dominate mobile in the same way they dominated the desktop.

To that end, they needed to have a “better” offering than Microsoft, where by better I mean an offering that was more appealing to OEMs (remember, back then Microsoft was using their PC business model for mobile – OEMs were their customers). Part of this was “free,” but part of it also was the promise that OEM’s could create unique experiences. Microsoft had been seeking to lock down PC Windows for years at this point, and had taken a much stricter approach to Windows Mobile.

What’s interesting, of course, is how that last sentence perfectly describes Google’s approach to Android and Android Wear. Increasingly locked down, and, now that they are dominant, their new platform can’t be customized at all.

(As an aside, while I have said this multiple times, it’s worth repeating: Android was a strategic masterstroke. It’s not just that Google now controls the platform on the vast majority of the user’s phones and all the power and data that come with that, but also that mobile’s emphasis on apps over the browser would have severely magnified Microsoft’s chokehold had they been as dominant as Google feared.)

Parenthood iPhone Ad

Back to the iWatch, there is a great new iPhone ad by Apple. From Recode:

Today is the seventh anniversary of the very first iPhone release and Apple is celebrating it with a new ad touting the device’s role in the Internet of Things and its ability to support parenting and foster family interaction. Showcased in the spot are all manner of family-friendly peripherals: the WiThings baby monitor, the Belkin WeMo plug, the ProScope Micro Mobile microscope, the Tractive GPS dog collar, the Kinsa thermometer and Parrot’s Flower Power wireless sensor for plants, as well as a bunch of related apps.

A few weeks back in my Daily Update (members only) I wrote that Apple’s new fitness ad, while being nominally about the iPhone, probably ought to be viewed as the beginning of the iWatch marketing campaign:

As countless commentators have noted, one of the central challenges of the alleged iWatch is that it’s not super clear how big of a need there is among the general population. What, though, is advertising? In many respects the best sort of ads make you aware of a need you didn’t realize you had. This sort of effect, though, is not achieved with a one-off spot or campaign. Rather, it’s a long slog that only sees results over time.

To put it more bluntly, it’s very possible that we just saw the first iWatch commercial. Oh sure, there is no iWatch to be seen, and there are benefits depicted in the commercial that accrue to the iPhone today, but I wouldn’t be surprised if this is Apple starting to set the table amongst the broader consumer market.

To my mind this new ad confirms that thesis. Apple is working to set the expectation that your iPhone is better with additional peripherals, and golly, wouldn’t it be something if Apple had a peripheral of their own to sell you?

Beyond that, as a parent I really did enjoy this ad, and felt it hit the right notes. That said, they did manage to skip over the “use-an-iPhone-playing-YouTube as a sedative” angle. 🙂

Android Where?

Thursday, June 26, 2014Tuesday, March 27, 2018

There is no questioning the scope of Google’s ambitions. Consider the fact that yesterday’s two-and-a-half hour keynote was shorter than the 2013 version, and that the two keynotes had almost zero overlap!

While last year Google spent a lot of time both enhancing the Android development environment and Google+, this year was about extending Android to a whole host of new devices, including watches, cars, and TVs. However, just because Android has been an unqualified success on phones – and deservedly so – I’m a bit dubious as to how well Google’s vision will translate to the next generation of devices, in particular Android Wear.

Note: I reviewed all of Google’s announcement in today’s Daily Update (members-only)

Watches Are Not Phones

Beyond the rather obvious fact that one is on your wrist and the other is in your pocket, the primary difference between a watch and your phone is that you buy the former by choice and the latter by necessity. This has a significant effect on not just the size of the addressable market, but also the type of buyer in that market.

Because a phone is a necessity – everyone is going to buy one – there is going to be a very large segment of the market whose purchase decision is driven primarily by price. In turn, this means the minimum acceptable product with the lowest price is going to garner the largest market share. Indeed that is exactly what has happened with phones: while the iPhone is actually increasing its dominance of the high end, Android has covered the entire rest of the market. And, as we learned yesterday, that market is now >1 billion in size (and the purpose of Android One is to capture the huge swathes who cannot or will not pay more than $100).

To put it another way, in the case of a phone, the only decision to make is which phone to buy. When it comes to a watch or other wearable, though, there is another question that has to be answered first: do I even want to buy one at all.

This additional question will make wearables a much more difficult market for Android to crack. Instead of simply making available an item the customer needs to buy at a low price, the wearable maker must first demonstrate a reason to buy into the category in the first place, and only then does price come into play. Moreover, any item that is purchased because you want it is a sort of luxury good, at least relative to something you buy because you need it, which by extension means the percentage of buyers who will prefer a premium option will be much greater. This is the primary reason why Android’s tablet share is much less than its phone market share, and its usage share lower still.

New Devices Need New Interfaces

In many respects Google’s push to take their dominant platform and port it to what’s next is reminiscent of Microsoft’s previous attempts to take their dominant platform – Windows – and port it to phones. Which is why the Pocket PC 2000 (a.k.a. Windows Mobile v1) looked like this:

A screenshot from Pocket PC 2000 (Windows Mobile 1.0)

We laugh now at the idea of shrinking a PC UI to a phone, but I got the same sense from the Android Wear UI:

It’s hard to see the notification UI clearly, but it basically looks the exact same as a phone notification, just shrunk down. And, just like the phone, you swipe to dismiss. Sure, it’s very cool how the notification then disappears from the phone, but at the end of the day it’s hard to escape the feeling that you’re simply wearing a second phone on your wrist. Is saving the effort of reaching into your pocket really worth the cost, not just in dollars, but also in comfort and fashion? I’m skeptical, and it’s hard to see a device like Android Wear being anything more than a niche product, just like Windows Mobile.

Is Now the Future?

Notifications are nice, but probably the biggest selling point of Android Wear is as a conduit for Android Now. It’s Now that to my mind really speaks to Google’s ambition: having mastered the world’s information, Google is now focusing on the individual. Now seeks to be your digital personal assistant, anticipating your needs and providing you the information you need when you need it (and, of course, building one heck of an advertising profile). And, when it comes to just-in-time information, the presentation of which is initiated by your device, a watch is in fact a rather compelling addition to a smartphone. After all, as long as your phone is in your pocket you may not see the reminder about your upcoming meeting, or that you ought to leave a few minutes early because of bad traffic. By virtue of being in a more accessible place on your body a watch may be superior for this sort of passive interaction.

I question, though, if Now will turn out to be as meaningful to most people as Google thinks it will be. In other words, how many people actually want a personal digital assistant? There is an alternative view of computers in which they are more akin to a tool, something you pick up and use to do a job, and then set down when you are done with it. To be sure, that tool is incredibly powerful and capable of doing a great number of jobs, but it still operates in service of something outside of computers.

Consider your Android phone: it’s a way to connect with friends and family, a way to entertain yourself, a way to capture memories, and a way to learn. It’s meaningful because it lets you do what you want to do better. A digital assistant, on the other hand, is simply a more efficient way of interacting with your computer – or your computer interacting with you – and I question how much that vision that will ultimately resonate with people.

During yesterday’s keynote Benedict Evans posted this tweet:

Google and Apple are in a race. The end point: pic.twitter.com/JGJ7TjZWjh

— Benedict Evans (@BenedictEvans) June 25, 2014

I think there is more than a grain of truth here when it comes to Google, but I do feel Apple thinks about computing differently. Recall Steve Jobs’ famous characterization of the Mac – a bicycle for the mind. While a bicycle makes a human more efficient, it still depends on that human for locomotion and direction. I think we see that today with Siri. Siri does not try to anticipate your needs or tell you what to do, instead she responds to questions delivered by humans, helping them to find the answers far more efficiently than they could on their own.

The true test, of course, will come when we see Apple’s wearable. All of the criticisms I have levied against Android Wear potentially apply to Apple’s offering, particular the lack of a reason-to-buy. More fundamentally, though, the philosophical question I have raised is at the root of which company you think is more likely to own the future. Google already has the best computer, and their lead is only increasing; Apple, though, has always made the best bicycles.

Podcast: Exponent Episode 008 – Debating Disruption

Wednesday, June 25, 2014Monday, March 26, 2018