China Mobile Adds the iPhone Follow-up

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I received some really interesting feedback from several readers to yesterday’s piece about China Mobile finally adding the iPhone:

  • China Mobile may not need its own iPhone. I updated yesterday’s post with this point, but in case you missed it, Naren Balaji pointed out this Forbes post:

    Apple AAPL new iPhone 5s and 5c support more LTE wireless bands than any other smartphone in the world. Currently the two new iPhones support 13 LTE bands including Bands 38, 39 and 40, which are needed to work on China Mobile network. However, China Mobile has also stated that mobile devices will need to support TD-LTE Band 41 starting next year.

    I asked one of the technical executives of a Radio Frequency semiconductor company to explain Band 41 and this is what he said, “Band 41 has a relatively broad bandwidth of 194MHz and its frequency range lays on top of Band 7 and Band 38. On the low end it is close to the top end of the ISM (Industrial, Scientific and Medical) frequency range, which may cause some co-existence challenges necessitating additions or changes to RF front-end components.”

    He added “If the current chip-set offers support for TD-LTE then the addition of support for Band 41 could be accomplished via software (and the RF front-end changes mentioned above) assuming a world phone capability is desired. If the current chip-set is not TD-LTE capable or if there is a desire for a TD-LTE only phone than a change in chip-sets will be necessary.”

    This is way out of my area of expertise, but what interests me the most is whether or not gray market phones can be used on China Mobile’s network. I still suspect no, which would likely have a material impact on Apple’s Greater China results, but we’ll have to wait and see.

  • China doesn’t have number portability, limiting the attractiveness of carrier switching. This was first pointed out to me by Jay Wang, although it’s not completely accurate. China has actually been trialing number portability in Tianjin and Hainan provinces since 2010, but to little effect, primarily due to restrictions put in place by the carriers. This paper has a lot more details if you want to learn more. The net result, though, is that in practice there are significant barriers to switching networks, which helps explains all those iPhones on EDGE on China Mobile.

    Moreover, in Chinese culture in particular, numbers have significant meaning. For example, when we were buying a car here in Taiwan, one of the incentives the salesperson offered us was the right to choose our license plate number. I’m not talking about personalized license plates – those don’t even exist here – but simply numbers. My wife was thrilled.

    This is compounded in China, where certain blocks of numbers have strong indicators of personal status. Lawrence Li explained this in an email:

    If we are going to talk about prestige, I think we need to break down the China Mobile subscribers by the first three digits of their cellphone numbers. Some of the more common CM numbers start with 139, 138, 137, and 158. Curiously, they have quite different associations in people’s mind.

    For instance, 139 is among the earliest cell numbers, back in the 1990s when only a small number of well-off people in China could afford a cellphone. It is for this reason that 139 numbers are considered to be prestigious by certain (but not all) people, especially in the business realm. I have a friend who explicitly says that he wouldn’t let go of his 139 despite its shitty GPRS/EDGE data network, because it often creates a positive first impression.

    The newer generation scorns this mentality, of course. And to be sure, owning a 186 number (owned by China Unicom) several years ago is considered cool and hip among the tech section, because it shows that you are an early adopter: 186 is among the earliest 3G numbers popularized in China.

    The implication is that it’s unlikely most would-be iPhone customers have fled China Unicom (as they did to an extent from Verizon and NTT Docomo for example). Rather, they have been biding their time for the iPhone to be available (or have bought a gray market one and used EDGE).

  • Those 45 million iPhones on China Mobile were unsubsidized. As Eugene Kim noted on Twitter, these folks by definition are at the upper end of the income curve. Zhe Wei expounded on this via email:

    There will definitely be quite a few new iPhone users, thanks to the contract offered by China Mobile. Before the deal, most China Mobile iPhone users bought unlocked iPhones, which have a higher price. (Actually, before the iPhone’s introduction to China with Unicom, there was not even a market for contract-based subsidized phones.) With the subsidized contracts now, the price of iPhone is actually lower. That will be a major reason for new iPhone sales due to this deal (especially for those who can expense their cell phone to their companies).

    There are a couple of interesting nuggets here. First, the iPhone introduced the very idea of subsidization to China. I’m not surprised to hear this, as this was also the case in Taiwan. My last smartphone before the iPhone was the Nokia N73, for which I paid about $600 dollars from a phone dealer, and paired it with a $20/month contract from a carrier. That was totally normal. The iPhone, though, was introduced in Taiwan with a subsidy and higher monthly plan, which is now commonplace.

    Second, the addressable market for a subsidized iPhone is certainly larger than the addressable market for an unsubsidized one – there are only so many people who can afford $650 out-of-pocket.

Finally, a quick expansion on my last point from yesterday’s note:

The low-hanging fruit is gone. For several years now any questions about APPL’s growth prospects have had a simple answer: just wait until they add NTT Docomo and especially China Mobile. Well, they now have, and the only way forward for significant iPhone growth is the long slog of winning new customers. I certainly think Apple is up to it, but there are no more home runs.

To be clear, Apple will reap significant growth from this deal, and by definition that growth is in the future. However, said growth will be quickly priced into the stock (if it’s not already). What I’m referring to is growth beyond this deal. Apple is hugely dependent on the iPhone, and the easiest way to goose iPhone growth is to add distribution. That, though, is largely over now.

Apple, China Mobile Sign Deal to Offer iPhone

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From the WSJ

China Mobile Ltd. has signed a long-awaited deal with Apple Inc. to offer iPhones on its network, a person familiar with the situation said, an arrangement that would give the U.S. technology giant a big boost in the world’s largest mobile market.

The rollout of iPhones on the world’s largest mobile carrier by users, with over 700 million subscribers, is expected to start later this month, around the time of a Dec. 18 China Mobile conference in Guangzhou, according to two people familiar with the carrier’s plans. China Mobile is one of the world’s last major carriers that doesn’t offer the iPhone.

At the Dec. 18 event, China Mobile plans to unveil a brand for its fourth-generation, or 4G, network. China Mobile executives have said they would only begin to sell the iPhone after introducing 4G services. China’s Ministry of Industry and Information Technology said Wednesday it gave licenses to China Mobile and its smaller rivals to operate the higher-speed mobile networks, clearing one of the last hurdles.

This was all but confirmed back in September when the iPhone got a TD-LTE/TD-SCDMA license, but now we at least know the date.

Three thoughts:

  1. This is a very big deal. Feel free to ignore anyone making snarky comments about China’s average monthly wage being the same as the price of an iPhone 5C. The two pertinent facts about China are that:
    • There is tremendous income disparity
    • There are a TON of people

    So while many Western markets may have a greater percentage of the population that can afford an iPhone, the absolute number of Chinese who are potential customers is very high as well.

    China market potential

    China Mobile covers 50% of those customers.1

  2. The China Mobile iPhone will be a BIG upgrade – and it will only be available in China. There have been reports that there are as many as 45 million iPhones on China Mobile’s network, and every single one of those runs at EDGE speeds thanks to China Mobile’s use of the aforementioned TD-LTE/TD-SCDMA networking. It’s fair to wonder how much customers value LTE>3G, but LTE>Edge is a massive upgrade indeed; all of those 45 million customers are prime candidates for the China Mobile iPhone.

    Moreover, calling it the “China Mobile iPhone” is not an accident. This is a third version of the iPhone that will only be available for sale in China. There will be no gray market undercutting iPhone sales as is the case for China Unicom and China Telecom. At the very least, this fact alone will provide a nice boost to Apple’s quarterly China numbers.

  3. The low-hanging fruit is gone. For several years now any questions about APPL’s growth prospects have had a simple answer: just wait until they add NTT Docomo and especially China Mobile. Well, they now have, and the only way forward for significant iPhone growth is the long slog of winning new customers. I certainly think Apple is up to it, but there are no more home runs.

  1. I don’t know this for a fact – which is why this is a footnote – but I would bet there is a certain measure of prestige associated with having China Mobile – the lead Chinese telecom – as your carrier. In other words, while 50% of China’s mobile subscribers may be on China Mobile, the percentage of “rich” subscribers may be even greater ↩

Amazon and the Benefits of Vision

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In case you missed it – and how could you? – this happened:

While professional skeptics have been skeptical, the sheer audaciousness – and frankly, awesomeness – of Amazon’s drone proposal has attracted a near unanimous outpouring of amazement and adulation, at least if my Twitter feed is to be believed.

It truly is a masterstroke, and perhaps the purest expression of the unbounded vision Jeff Bezos has. The benefits are manifold (even if the drones never actually come to pass):

  • Positive PR: To say that the drone story generated positive PR is a dramatic understatement. Amazon, particularly in the holiday season, is susceptible to horror stories about work conditions in their distribution centers, and this helps blunt that
  • Increased Sales: The happy coincidence of the drone reveal happening the day before “Cyber Monday” was certainly noted by the aforementioned skeptics, and there is likely some truth to the claim that Amazon saw great benefit in being front-of-mind for consumers planning holiday purchases
  • Improved stock performance: While Amazon’s stock is up over the last few days, the added justification of their insane P/E ratio is the more important takeaway. The most elementary valuation of a stock is the sum of all future (discounted) growth, and talking about drones leaves open the possibility that Amazon’s business isn’t even close to being fully fleshed out
  • Improved morale: My timeline, both on Twitter and Facebook, is full of Amazon employees simply in love with their company. That translates into that many longer hours at too little pay during the most difficult month of the year
  • Competitive pressure: In this case I’m referring to the pressure Amazon is putting on not just its competitors, but also its partners. Small surprise that UPS suddenly announced that they too are looking into drones. This helps keep them on their toes.

And yet, vision that moves the needle like this drone announcement is exceedingly difficult to pull off for a few reasons:

  • Vision must be aligned to the company’s mission: What is great about the drones is that they actually make a lot of sense given Amazon’s core business model. As I wrote previously in Amazon’s Dominant Strategy:

    Jeff Bezos’ critical insight when he founded Amazon was that the Internet allowed a retailer to have both (effectively) infinite selection AND lower prices (because you didn’t need to maintain a limited-in-size-yet-expensive-due-to-location retail space). In other words, Amazon was founded on the premise of there being a dominant strategy: better selection AND better prices – the exact same as Sears.

    And, just like Sears, Amazon has added convenience. No, they haven’t opened retail stores; instead they created the amazing Amazon Prime. Prime is the reason my family made 173 separate orders from Amazon in 2012: it’s so much more convenient to order toothpaste the moment you open the last tube than it is to make a trip to Target. And Amazon is pushing even further down this route, testing same-day delivery in multiple markets for everything from said toothpaste to TVs to tomatoes.

    And, now, potential 30-minute delivery

  • Vision must be surprising, yet (just) plausible: Vision that is totally predictable is likely attainable, but doesn’t garner any of the aforementioned benefits. On the other hand, vision that simply isn’t possible destroys credibility.

    Amazon Prime Air came out of nowhere, and yet, if you squint your eyes just enough, you can see it coming true. Talking about marginally decreasing page load times may be impactful (and you can be sure Amazon is focused on this), but it doesn’t exactly inspire

  • Vision must come from a trustworthy source who has done it before: Companies that regularly promise a fantastic new future and then fail to deliver lose vision because they lose credibility. This isn’t an issue for Amazon:

The benefits of vision are clear, and yet, given the necessary conditions, vision that resonates is quite rare. Just take a look at some of the largest consumer technology companies (in order):

  1. Amazon: Still laser-focused on completely owning shopping. Infinite selection, lowest prices, and, in the future, immediate delivery
  2. Google: Still laser-focused on organizing all of the world’s information, even if it makes folks uncomfortable that that information includes you. Things like self-driving cars and Google Glass fit the vision criteria nicely as well
  3. Apple: Still laser-focused on iterating great products that people love to use, but there are reasons for concern, particularly when it comes to the iPad. That’s not a surprise, actually: the iPhone and the Mac are operating in defined markets; while the iPad is defining a new one, and is thus more dependent on vision. This is precisely why I find recent iPad marketing so concerning; if Apple isn’t getting that right, is it for lack of vision? And if so, what does that mean for future products?
  4. Facebook: The challenge for Facebook is not a lack of vision – clearly, they wish to connect everyone – but rather, that they have just about accomplished their founding goal. What’s next?
  5. Twitter: Twitter is in many ways the exception that proves the rule. It’s not clear what vision, if any, the current management team has, but the product is so good that it hardly matters. Except, of course, it does, particularly now that Twitter is a public company. Will they maximize their potential?
  6. Microsoft: Microsoft suffers from a more advanced case of Facebook’s malady: they have long since accomplished their goal of a PC on every desk. From Skating Towards the Goal:

    But again, what is the new goal? What is Microsoft’s reason for being? What ends are achieved by a massive conglomerate spanning CRM systems to database software to gaming consoles? Microsoft, perhaps more than any other company, needs focus, vision, and a problem worth solving. To be sure, that falls on the next CEO, but the bigger question that must be asked is if such a problem – one suitable for the unwieldy behemoth that is Microsoft – even exists.

    This uncertainty is why Microsoft’s impressive R&D arm is still rather irrelevant. How can you create something aligned to the company’s mission when said mission is so murky? And, of course, this is compounded by Microsoft’s tendency to overpromise and underdeliver

  7. Yahoo: Marissa Mayer is nice, but does anyone yet know what the point is? At least Microsoft’s core business – enterprise software – seems more stable than Yahoo’s display advertising.

I could go on for quite some time, particularly with earlier stage companies, but the bigger conclusion is that vision at a minimum seems correlated with relevance on one hand, and stock performance on the other.

Unfortunately, by definition, it’s not something that can be learned through “best practices.”

Apple’s Black Friday Deal Was a Missed Opportunity

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As first reported by Mark Gurman, Apple’s Black Friday deal was for gift cards, not the traditional discounts.

As part of the American Black Friday sales tradition, Apple typically offers minimal discounts on its own products and third-party accessories via its online and physical retail stores. However, this year will be significantly different. According to multiple sources, Apple’s sales event this Friday will be based around gift cards, not discounts on products. If a customer buys a product from Apple on Black Friday, instead of receiving a discount, they will be given an Apple Store gift card. This gift card will likely not be able to be used at the time of purchase, solely at a later date. The setup is similar to that of Apple’s recent Back to School campaigns, but it is Apple Store cards, not iTunes cards.

In an update, Gurman expounds on the reasons (basically, it sounds like discounts were a massive PIA), but I’m much more interested – and disappointed – in the switch to Apple Store cards instead of iTunes/App Store cards.1

From a financial perspective, it makes sense:

  • For iTunes/App Store gift cards, Apple “spends”2 70 cents for every dollar (which goes to the respective developer)
  • For Apple products bought with the Apple Retail gift card, Apple “spends” 64 cents for every dollar (Apple’s margin last quarter across their product line was betweet 36 and 37 percent)
  • For non-Apple products bought with the Apple Retail gift card, Apple likely “spends” around 60 cents for every dollar (presuming a typical 40% retail markup)

Moreover, there is a clear logic to gift cards: there is no better way to induce a repeat purchase than to have a customer feel like they ought to buy something else – after all, that gift card is just burning a hole in said customer’s pocket.

And yet, there is so much more long-term benefit to be gained from iTunes/App Store gift cards.

  • Gift cards effectively inject millions of dollars into the app ecosystem to the direct financial benefit of developers, making the most appealing platform (iOS) for developers – particularly those who make paid applications – that much more appealing.
  • Paid applications – even if bought with gift cards – have a lock-in effect; any consideration about switching is likely to be weighed against the worth of purchases you have made
  • Gift cards encourage exploration and risk-taking in the app store, significantly increasing the chance users discover apps that make their iOS device magical

Still, this decision, while disappointing, is not surprising in light of Apple’s reticence to enable sustainable apps beyond consumable IAP, not to mention their having devalued many productivity apps by having made iWork and iLife free.

Ultimately, as always, Apple is counting on only itself and the experience it believes it can deliver to sell devices to repeat customers. Given their track record, it’s not exactly a terrible idea, but that doesn’t mean it’s the best one, either. After all, for many customers, Apple hardware is fantastic, but apps are the biggest reason to buy an iOS device.3

  1. You can, of course, buy iTunes gift cards with your Apple Store card, but that’s beside the point ↩

  2. This isn’t even remotely correct terminology – or, er, accounting – from an accounting perspective. I hope you’ll give me credit that I know that and let me use common English in peace ↩

  3. I’d love any pointers to specific research about customer’s reason-to-buy ↩

Happy Thanksgiving

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As noted in my last post, my parents are here for the week and I’ve been rather busy entertaining.

I did want to take the time, though, to thank all of you for what has been an absolutely incredible first eight months for Stratechery. I know you’re not all American (and I’m not even in America), but Happy Thanksgiving to all of you just the same.

See you next week.

Whose iPad Life?

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My mom just emailed me.

Normally, that would be unremarkable. She’s getting older, but isn’t that old, and surely an email isn’t that difficult of a task. This email, though, speaks volumes:

An email from my mom to me
An email from my mom to me

Start with the subject. HK is Hong Kong. My parents are flying from Chicago to Taiwan to see their grandchildren, and while they’ve done it before, they’re not exactly tech savvy. They certainly don’t have an international data plan – heck, they don’t even have smart phones! They don’t see the point in paying that much every month.

What my mom does have, though, is an iPad – you can see it there in her signature. It’s likely she doesn’t know how to change it, but that’s kind of the point: that signature speaks volumes. What it says is that she managed to connect to the Hong Kong airport Wi-Fi, agree to the Wi-Fi agreement, get online, and then email her son – and after a 15 hour flight no less!

The very idea of her doing this on a PC – Windows or Mac – is laughable. I doubt she would even take said PC out of her bag. And that’s what’s so amazing! It’s not only that she was able to connect to Wi-Fi, but that she was even willing to try. That is the power of the iPad, that is the magic. That is the sort of life that the iPad enables and that surely appeals to millions around the world.

Yesterday, Apple released several short vignettes that accompanied the video they showed at the iPad introduction. The series is called Life on iPad. They are remarkable, both in presentation and content, and multiple people thoughtfully reached out to me suggesting this was the magic I was looking for.

I can see where they’re coming from: there’s no question the iPad has unlocked amazing new use cases. But – and this gets at the trouble I have with Apple’s messaging – how many people work on windmills? How many people are surgeons? Who are these vignettes for? What is more meaningful? Is it these impressive but rather obscure examples, or is it the confidence and ability to connect to Wi-Fi in a foreign country, to contact your son and let him know you’re almost there?

The magic of the iPad is twofold: one, it empowers all kinds of people who find a PC just a bit intimidating to have their own bicycle of the mind – and, let’s be honest, that’s almost everyone but us geeks. Two, the iPad does enable brand new use cases, which these vignettes get at, but what about these use cases resonates broadly? Where are the examples of making music, drawing, or designing – things that unlock the creativity I, naive as it may be, truly believe exists in all of us just waiting for the means to burst out?

What excites me, what makes me so passionate about this subject, is the deep belief that there are millions of people whose lives could be made genuinely better by the iPad, and who may see these vignettes, and have no thought beyond “that life isn’t me.”

One aside: what these “Life in iPad” does emphasize is the developer opportunity. While I argue Apple should be selling the value of the iPad to everyday consumers, truly lucrative apps are likely to be found serving niches like windmills, speedskating, etc. The only limit is the developer’s willingness to find the right niche.

Scroogled

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Microsoft is selling Scroogled gear. From The Verge:

Microsoft’s anti-Google “Scroogled” campaign has been quietly attempting to convince consumers to avoid Google services for the past few months, but it’s back today with a vengeance. Microsoft has dedicated an entire section of its online store to selling anti-Google mugs, hats, t-shirts, and hoodies. The prices vary, but for $7.99 you can pick up a mug that advises you to “keep calm while we steal your data.” It’s a surprisingly brazen approach from Microsoft just in time for the holidays, and another direct and odd attack at Google.

The thinking behind Scroogled is actually quite sound; Gmail, the primary target of the campaign, passed Hotmail last year, and Google’s services are not only beating Microsoft’s competing products, but, more critically, are funding free products like Android that are destroying Microsoft’s business model. It’s certainly a legitimate target.

Moreover, it’s a message that ought to resonate, at least with geeks. There’s no question Google is neck deep in our data, and email in particular feels more sacred than a Facebook post or tweet. And yet, Scroogled comes across as simply pathetic.

I think the campaign misses the mark for a few different reasons:

  • The entire campaign is remarkably cheesy and over-the-top. Enough said.
  • The campaign focuses on Outlook.com (and earlier, Bing Shopping) as the alternative. The problem is that Outlook.com is also supported by, you guessed it, ads! Sure, maybe it’s not based on the specific text of an email, but the distinction is drawn far too finely.
  • Microsoft is attacking with zero credibility. Beyond the fact they are pitching another ad-driven property, they are also getting signal from Windows 8.1 search, and even showing ads in Windows’ preinstalled apps.

It would be far better if Microsoft were to not attack Google specifically, but instead the very idea of “free.” Make no mistake: free will always be an effective business model for consumer services, for both sociological as well as technical reasons. Dr. Drang had an excellent post about this a few months back entitled Free:

The thing is, this sinister, creepy approach works, and it benefits us, too. A social network that isn’t free won’t have a huge number of users and won’t have everyone you know on it. A search engine that isn’t free wouldn’t be used much and wouldn’t be able to leverage the data collected on an astronomical number of searches. And it’s the same for maps.

Still, there are tradeoffs, and Microsoft ought to highlight them while offering a rock-solid suite of paid services as an alternative. Imaging a campaign that went something like this:

We all love free, but everything has a price. In the case of Gmail, that price is your privacy. Everything you do is tracked and sold to the highest bidder.

We believe in privacy, and in selling a great product for an honest price. For $10 a month, you can have best-in-class email, Office on your PC, tablet, and phone, and the peace-of-mind in knowing that you are paying for the tools that handle your most important information instead of a creepy marketer trying to sell you snake oil.

Of course, to land that ad, Microsoft would have to actually deliver said services. Email is there – Office 365 Exchange is great – but Office on the iPad is a glaring absence.

I don’t know if this approach would work. There is an increasing body of evidence that consumers will never pay for services, at least at the scale needed by Microsoft. But there’s equally little evidence that Microsoft is getting anywhere in their attempts to compete with Google head-on. Moreover, this strategy has the benefit of aligning much more closely to Microsoft’s culture and traditional business model.

And, it’s not lame. That must count for something

The Social/Communications Map

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I took another turn at my map of the social networking space I made for yesterday’s post The Multitudes of Social:

The Social/Communication Map
The Social/Communication Map

I made a few changes:

  • The primary change is relabeling the horizontal axis. Originally I had “Interest/Topic-
    Based” on the left, and “Real-life Relationship-Based” on the right, but as Victor Pope pointed out on Twitter, the real difference is really about the symmetry of relationships.
  • Relabeling this axis necessitated moving email and Skype to the right, which I think makes sense and is an indication that this is a a good change.
  • I added Tumblr and YouTube, and removed Photostream and Facetime. The original was based on networks I personally use; this new drawing is more representative of usage worldwide. I did leave LINE, but consider that representative of WhatsApp, Kik, Kakao Talk, WeChat, etc.

Finally, I’ve changed the title to make the broader point: social is about communication, and communication is, and always has been, conducted through multiple mediums.

Some additional observations, beyond Facebook and Snapchat (which were the focus of the original post):

  • There are three primary means of communication: text, photo, and video/voice. Usually a particular service, beyond competing in a specific quadrant, will also specialize in one of these mediums, and then grow into an adjacent medium over time (e.g. Instagram video).1

  • It is not an accident that most of the companies towards the top of the graph – the more permanent type of content – were founded in the PC era. The PC itself has always been a destination-type device; normal people weren’t using a PC most of the time, but rather made a point to use it.

    It’s the exact same with the type of content created for these PC-originated services: more permanent, thoughtful content is intentional; ephemeral content is much more whimsical and meaningful only at a specific moment in time. It follows that this type of content is really only possible in mobile on a device that is always with us.

  • The exception to the last point is Skype; in retrospect, it’s rather remarkable Skype was able to create such a foothold on the ephemeral side of the map despite its PC origins. It goes to show what value the original product had. Unfortunately, that value is fast disappearing as more and more apps like LINE incorporate VOIP, and Skype’s former strength – its network of users based on nicknames – is a liability relative to services like LINE or WhatsApp that ride along on phone numbers as unique identifiers.

  • The placement on these axis is not a technical description, but rather how users experience the particular services. For example, while tweets and Instagram photos have easily-accessible URLs, while Facebook posts don’t, the experience of Twitter and Instagram is more ephemeral from a user perspective relative to Facebook, which itself presents posts and videos as one specific moment in your lifelong timeline.

  • While I created this map in order to talk about Facebook, it turns out it is among the most difficult to categorize correctly. Facebook is, well, a book of faces; your permanent place on the network, centered on your identity and seen by those you connect with one-to-one. And yet, the primary mechanic on Facebook – the wall post – is a one-to-many medium. There is no question Facebook is good enough for a certain segment of the population that may have once upon a time started a blog or Tumblr.

    Yet, the nature of Facebook, and its drive to capture everything, ultimately devalues everything as well, making your content ever more ephemeral and just more digital flotsam. Facebook is pulling itself in two different directions – to the left, and downwards – and it’s not good for the product long term. Being everything to everyone is, as they say, the best way to be nothing to no one.

    Make no mistake: Facebook is a triumph. It completely dominates text, photo, and video sharing for the majority of the population, and it remains the most likely connection point for anyone I know in real life. What Facebook clearly is not, though, is something private or well-suited to conversations you may one day hope to forget. In other words, they’re not Snapchat, and wanting to be is to forget what makes it great.

One more point worth noting: Facebook remains the most valuable property on this chart, especially if they successfully crack effective brand advertising .2

The Social/Communications Map has been updated over time. This is the most recent version:

  1. Vine is clearly aspiring to be in the bottom left corner, but I haven’t seen any indication it’s really gotten much traction ↩

  2. YouTube is a clear second, with Twitter a very distant third ↩

The Multitudes of Social

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Do I contradict myself?
Very well then I contradict myself,
(I am large, I contain multitudes.)
– Walt Whitman, Song of Myself

Last week Snapchat reportedly turned down a $3 billion dollar all-cash offer from Facebook. Apparently Facebook was worried about losing the teen demographic, or perhaps they were unnerved by the 350 million photos Snapchat claims to process per day. What seems clear, though, is that Facebook is intent on “owning social.”

The only problem with this strategy is that the very idea of owning social is a fool’s errand. To be social is to be human, and to be human is, as Whitman wrote, to contain multitudes. Multitudes of apps, in my case.

In the last two days I have used 10 apps you might characterize as “social”. In no particular order:

  • Twitter, for keeping up on news and commenting on tech and stratechery
  • Facebook, for posting personal status updates and checking in
  • LINE, for text messaging with my wife and friends in Taiwan
  • Snapchat, for exchanging photos with my wife
  • Skype, for instant messaging with my colleagues
  • Facetime, for talking with my wife and kids
  • Instagram, for posting cool photos
  • Email, for all types of content, both work and personal
  • Photostream, for sharing photos with my family
  • WordPress, for posting to this blog1

In Mark Zuckerberg’s world, my behavior is at best nonsensical and inefficient, at worst a threat to Facebook in a zero-sum social face-off. After all, this isn’t the first time Facebook has tried to unify communications – that was the point of Facebook Messages, way back in November, 2010. From Wired:

Facebook is seeking to replace email with what it calls a “modern messaging system” that combines all the ways people send messages — including email, IM and SMS — into a single interface…

The new system, Facebook Messages, was announced Monday. It allows you to simply click on a friend’s face, type a message and hit Enter. Facebook handles the rest. And it comes with an optional “facebook.com” email address. But a new email address isn’t the point. Rather it is the unification of a variety of means of communication.

Unification, in 2010. Given the reality of what has happened since, it’s an idea that is positively quaint. However, for Facebook investors, $3 billion isn’t quaint at all: it would have been a massive waste of money for an app that is in fact not competitive with Facebook at all.

Look again at my list of apps: each of them has their own place. Some are for communicating with friends-and-family, others for a different audience centered around my interests. Some are more meaningful and permanent, others ephemeral and quickly forgotten. Some are for public consumption, and others are private. Some are photo-centric, others are about text. In fact, there is hardly any overlap at all – and none with Facebook:

photo-1

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

Facebook would do better to continue investing in improving their advertising signal. As I’ve written previously, Facebook is sitting on a display ad gold mine; they just need the targeting to match. That’s why Waze was such a loss. If they want to buy out a competitor, better to focus on one that either threatens their public-permanent space, or others – like Instagram – that are a great fit for their display business.

Most of all, though, Facebook needs to appreciate that their dominance of social on the PC was an artifact of the PC’s lack of mobility and limited application in day-to-day life. Smartphones are with us literally everywhere, and there is so much more within us than any one social network can capture.

  1. Disclosure: I work for Automattic, which owns WordPress.com. This article represents my personal views ↩

Microsoft kills stack ranking

Posted on

The Verge:

Microsoft is killing off its controversial stack-ranking system today.1 While it could be viewed as an internal change that won’t affect consumers directly, it will have a broad effect on current and future Microsoft employees that may just shape the future of the company. For years Microsoft has used a technique, stack ranking, that effectively encourages workers to compete against each other rather than a collaborative Microsoft that CEO Steve Ballmer is trying to push ahead of his retirement.

Let’s be clear: I, like the vast majority of Microsoft employees, loathed stack-ranking. But this move doesn’t sit very well with me, for a few reasons:

  • Why does Steve Ballmer keep making critical executive decisions that effectively tie the hands of his successor? First the reorg, then Nokia, then Microsoft’s financial reporting structure, and now employee compensation. These are not small decisions! Each of them goes to the core of how a CEO can truly impact and shape a company, and I find it borderline scandalous that Ballmer is making said decisions as a lame duck. It certainly gives credence to the idea that leaving was not his idea, and he’s hoping to get his last licks in before he goes.

    That said, Ballmer has long been the primary proponent of stack ranking, so why end it now? If he’s trying to simply curry favor with the troops, well, it’s awfully inconsiderate to steal that opportunity from his successor.

  • It’s not at all clear that the new system is much different from the old system. After all, to quote Lisa Brummel’s email (emphasis mine):

    Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.

    Fine, so this doesn’t ensure someone is at the bottom, but it’s not clear it makes it easier to compensate a great team, or to penalize a poor one. After all, each team has the same budget as before.

    Moreover, the larger problem with stack ranking was not the employee forced into the bottom; it’s rare they were an A player, or even B+. Rather, the problem came when you had too many A players, and one got compensated as a B. That is incredibly demoralizing.

    However, the squishiness of the new system may magnify that problem. Many managers may take the easy way out and give everyone about the same amount of compensation, which sure, prevents said manager from delivering really crappy news to the bottom of the curve, but unintentionally demoralizes the folks that are actually making a difference.

  • One of the weaknesses of a functional organization is the lack of accountability. In a divisional organization, when a product succeeds or fails, it is clear who is at fault – it’s the division leader and his lieutenants. In a functional organization, it’s much less clear cut, and much easier to pass the blame. Moving to a less accountable organizational structure while simultaneously blurring the individual compensation system may not be the best idea, particularly in an organization that is already highly political.

What makes a decision – or a product, for that matter – a good one, is not the surface level question of whether or not it’s a good idea. Stack ranking2 stinks, and it was hurting Microsoft for years. But simply tossing it out the door without carefully considering every aspect of the decision, including who is making it, what is replacing it, and how it interacts with the other seismic changes at the company, threatens to convert a good idea into a bad decision, and another example of the lack of deep consideration that undermines so many of Microsoft’s initiatives.

  1. I’m a little behind ↩

  2. Which, to be fair, is arguably useful for a limited time to weed out bad apples, which is why I think it just might make sense for Yahoo ↩