Waze Winners and Losers

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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.
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.

Tim Cook is a Great CEO

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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.

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.

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.

This is our signature, and it means everything.

  1. See IBM for Exhibit A ↩

  2. I know you will accuse me of judging through the rear view mirror, but I absolutely felt this way at the time ↩

WWDC Predictions

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I’ve written two significant pieces about what I expect at WWDC.

  • Jony Ive is not a Graphic Designer link

As with most such debates, “skeuomorphism” versus “flat” is devoid of crucial context. When the iPhone came out, nobody used touch devices. The signaling benefits of skeuomorphism were very useful, especially since most iPhone buyers were buying their first iPhone.

Today, as the premium smartphone market moves towards saturation, an increasing portion of iPhone users are buying their second device. The context is changing. And, likely, so is iOS.

  • My Apple TV Prediction link

I think at WWDC Apple will announce an SDK for the current Apple TV, the control method will be an iOS device, and in the fall, Apple will launch an upgraded model that supports an optional wireless controller.

The entertainment options will be unchanged: no channel guide, no pass through, no DVR functionality. Apple will instead focus on stealing more and more attention away from pay-TV until the content owners are as desperate as the music companies were a decade ago.

"Strategery"

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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.

Samsung Electronics loses $12 billion market value on smartphone worries

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Reuters:

Samsung Electronics Co lost $12 billion in market value on Friday, hit by brokerage downgrades that have underscored concerns about slowing sales of its flagship Galaxy S4 smartphone. The share slide of more than 6 percent comes after it recently introduced two stripped-down versions of the S4, fanning worries that profit margins for its mobile business will suffer…The new stripped-down S4 models will help it widen its lead in the global smartphone market and fend off Chinese competitors, but some fear that the South Korean tech giant is trading in profits for volume.

Me, six weeks ago, in Two Bears:

Bear Argument #1 is the imminent collapse of the iPhone in the face of significantly lower-cost alternatives…[Actually] The iPhone faces little threat in the differentiated high-end of the market. Suggesting this market is limited in size is fair; counting the days until customers flee for cheap phones is silly.

That’s not to say that Bear Argument #1 is invalid; in fact, it’s the Bear Argument for Samsung.

There is precious little that differentiates high-end Android from low-end Android. The second, third, and fourth layers of the mobile hierarchy are identical; the difference is the hardware, and not only are low-end devices increasingly “good enough,” they’re also impossibly cheap.

If you missed it the first time around, I’d (subjectively) suggest you read the whole thing.

Additional Notes on TV

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This is a follow-up to my three-part series on TV:

  • Part 1: The Cord-Cutting Fantasy. Getting only the content you want without paying for everything is a fantasy. Pay TV is socialism that works.
  • Part 2: Why TV has resisted disruption. Great content is differentiated, has high barriers to entry, and depends on networks.
  • Part 3: The Jobs TV Does. The key question is attention, not set top boxes. What jobs do we hire TV to do?

Also see Steve Jobs on TV and my Apple TV prediction

I got quite a bit of feedback on the TV series – thanks for that! Here are a few additional notes based on some questions I received on Twitter and email.

International

In the introduction to Part 2, I said:

I should note that yesterday and today’s post are very US-centric; more on the international potential in Part 3.

Part 3 – The Jobs TV Does – argued for a model that competed for consumer attention instead of one that competed for content. This model has the added benefit of working everywhere, right now. To illustrate, in the iTunes Store, international availability is as follows:

  • Songs – 122 countries
  • Video – 109 countries
  • Apps – 155 countries

The actual songs and video available differ hugely by country as well. Apps, for the most part, don’t. It’s this consistency and go-to-market clarity that is one of the biggest draws of the approach I predict.

Partnering with the cable companies

An analyst report from Brian White predicting an “iTV” made the rounds last week:

We were told that carriers will be an important part of the go-to-market strategy for Apple’s TV ambitions and subsidize the $1,500-$2,500 “iTV”, offering customers a single bill that will include a wireless plan (i.e., iPhone, iPad), Internet connection services, an “iTV” plan and other services. As we have previously discussed, the 60-inch “iTV” (50-inch and 55-inch may also be available) is anticipated to come with one iPad-sized “mini iTV” with the option to add more “mini iTVs”.

Leaving aside the product details, most of which don’t make much sense, there is a certain allure to this model. It basically replicates the iPhone model, where Apple sells a high-price high-margin product that is subsidized by the service provider. However, I don’t think this is the way they will go, for a few reasons:

  • TVs aren’t phones. They’re replaced less often, and having a 30% margin (or 50% iPhone margin) would be exceptionally expensive for the same experience as a regular TV + Apple TV
  • Apple building the actual set-top box is more plausible, but then there is the problem of balkanization in both standards and customer access. In fact, Steve Jobs was asked about this directly and gave a similar answer
  • TV providers have little incentive to partner with Apple on favorable terms; in contrast, the carrier marketplace is far more competitive (which is saying something!). If Apple did partner with someone, it would likely be one of the satellite operators, who are unavailable to a great swathe of people, including many in Apple’s urban base

I could plausibly see the set-top box scenario happening, but for all the reasons I outlined, I think an Apple TV + SDK is more likely. And I think an actual TV set is off the table completely.

About those ESPN Numbers

Barry Kiefl pointed me to this Television Bureau of Advertising report that says 35.3% of households watch ESPN

That’s 36.712 million people, and lowers the a la carte price to around $15 (the affiliate fee is $5.13). That’s not completely outrageous, but as long as sports are scattered across multiple channels (including ESPN2), it’s still not practical.

Apple TV hardware

I predicted:

  • At WWDC Apple will announce an SDK for the current Apple TV
  • The control method will be an iOS device
  • In the fall, Apple will launch an upgraded model that supports an optional wireless controller

There are two big limitations with the current Apple TV hardware:

  • There is only 8GB of memory on board, which doesn’t leave much space to store apps
  • The SoC is a single-core A5

When I wrote my prediction, I knew about the storage issue, but figured it wouldn’t be a problem for developers simply testing. However, I was under the impression from this article at Anandtech that the current chip was a full A5X (i.e. the same chip as an iPad 3). Thank to Kirk Burgess for pointing me to this newer Anandtech article that says otherwise:

The old A5 package measured roughly 14mm x 13mm, while the new package is approximately 12mm x 12mm. Chipworks removed and de-lidded the new chip, determining that it’s truly a new piece of silicon with a single core ARM Cortex A9 and a dual-core GPU. The previous part was a die harvested A5 with one CPU core fused off (S5L8942), but this new chip physically removes the unused core (S5L8947). The GPU seems to be untouched. There are other changes however, resulting in a 37.8mm^2 die down from 69mm^2 in the previous A5 design.

This means CPU performance is less than an iPad mini (or iPad 2), with similar graphics performance. That’s not great, and throws a bit of a wrench in my prediction. Perhaps the SDK will end up depending on new hardware.

Alternatives

There’s a decent chance nothing happens at all. The TV market is not an easy or obvious one, and while I think Moore’s law has made my prediction possible, there’s the bigger question about focus.

Apple is already making a significant update to iOS, allegedly working on a watch, and perhaps a low-cost and/or large-screen iPhone. TV may continue to take a back seat:

We decided what product do we want the most: a better TV or a better phone. Well, the phone won out, but there was no chance to do a better TV because there was no way to get it to market. What do we want more? A tablet or a better TV? Well, probably a tablet, but it doesn’t matter, because if we wanted a better TV, there’s no way to get it to market. The TV is going to lose until there is a better – until there is a viable go-to-market strategy.

We’ll see on Monday!

My Apple TV Prediction

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I wrapped up my three-part series on TV yesterday, and in case it wasn’t clear, my conclusion was a pretty specific prediction about the Apple TV:

Imagine a $99 (or $129) “console” with an optional $49 controller and an App Store. That’s a lot of potential escapism, and a lot of user attention. It’s a lot of margin too (presuming the current Apple TV is profitable), especially at high volumes. I think it’s a space where a company that thinks different could have a “a significant contribution” and “crack” TV by not, in fact, being a TV at all.

To be more blunt:

  • I think at WWDC Apple will announce an SDK for the current Apple TV
  • The control method will be an iOS device
  • In the fall, Apple will launch an upgraded model that supports an optional wireless controller1

The entertainment options will be unchanged: no channel guide, no pass through, no DVR functionality. Apple will instead focus on stealing more and more attention away from pay-TV until the content owners are as desperate as the music companies were a decade ago.

Apple has sold 13 million Apple TVs without any advertising (except for this oblique reference) nor any easily articulated reason to buy. An App Store + marketing campaign + borderline impulse purchase price changes that in a very significant way.

The full three-part series.

  • Part 1: The Cord-Cutting Fantasy. Getting only the content you want without paying for everything is a fantasy. Pay TV is socialism that works.
  • Part 2: Why TV has resisted disruption. Great content is differentiated, has high barriers to entry, and depends on networks.
  • Part 3: The Jobs TV Does. The key question is attention, not set top boxes. What jobs do we hire TV to do?

Also see Steve Jobs on TV and my Additional Notes on TV

  1. There’s an outside chance the updated Apple TV + controller is also announced at WWDC. My initial thought was Apple would want apps before they actually launch everything, but announcing now could be a good fit for what seems to be a hardware hole in the WWDC lineup (and an overcrowded fall lineup). If they do, presumably it will be with a few name brand apps. Still, I think this is less likely, and probably would have leaked ↩

The Jobs TV Does

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This is Part 3 of a three-part series on what changes, if any, may be coming to TV

TV, as I have recounted in the last two articles, is as firmly entrenched as an incumbent can be.

  • The idea that you can cut the cord and simply watch the shows you currently want to watch (unbundling) is a fantasy; the economics that make those shows possible depend on the current pay-TV model (See Part 1: The Cord-Cutting Fantasy)
  • Great content has few substitutes, high barriers of entry, and depends on networks as de facto venture capitalists willing to take risks on new shows (See Part 2: Why TV Has Resisted Disruption)

Competing with this model has, and will continue to, fail. There is no go-to-market strategy that is feasible.

In fact, the only way things will change is through true disruption.

Disruption is a funny word; in most of the tech press, it has come to mean little more than “competitive,” and functionally superior products are often labeled as “disruptive.”

This is precisely backwards; a disruptive product is inferior to the incumbent, and usually relies on a completely different business model (usually a lower margin one). A disruptive product is almost always cheaper, and in fact usually doesn’t seem competitive at all, at least in the beginning.1

Competitive (or “sustaining”) products simply try to provide the same function but better. TIVO is a classic example in this space; TIVO’s competitive proposition is that it is a better set top box than the one you get from your cable company:

  • Both the set top box from your cable company (STBFYCC) and the TIVO change channels
  • Both the STBFYCC and the TIVO display a channel guide
  • Both the STBFYCC and the TIVO pause live TV
  • Both the STBFYCC and the TIVO record shows to watch later
  • Both the STBFYCC and the TIVO can be programmed to record a specific show

The TIVO does a lot more, and does it better, but the differentiation is at the margins. It is a sustaining product, and has serious limitations: getting cable cards is a pain, and the upfront cost is significant relative to STBFYCC. I have no doubt Apple, say, could create a set top box even better than a TIVO; I also have no doubt that it would suffer the same fate.

So, if a better set-top box is doomed, what might disrupt TV?

The theory of disruption rests on the idea of “jobs to be done.”2 TIVO does the same job as a set top box; but – and this is the crucial point – the set top box is only a means to an end. What is the job we hire TV to do?

It turns out there are quite a few. Some of the jobs TV has traditionally done include:

  • Keep us informed
  • Educate
  • Give a live view of sporting events
  • Enlighten and story-tell
  • Provide escapism

For decades TV was better at each of these jobs than anything else in consumers’ lives. It was in this period of superiority that the present economic system of pay-TV was developed, and, in a world where so many jobs were done by one device, any price was a great deal.

It’s in jobs-to-be-done, however, where the unbundling that matters is happening. “Keep us informed” is the obvious one: the idea of relying on TV news is so archaic to most of you that I know I raised your hackles by even putting it in that list. Same thing with “educate” – one can learn far more from the web than even the best TV.

In other words, two of the jobs TV has traditionally done are now done far better, and far more cheaply, by personal devices like computers, tablets, and phones. That is disruption.

Yet, we pay more than ever for TV; the vast majority of the population gives enough of their attention to some combination of sports, story-telling and escapism to sustain the current model.

It’s attention that is key; our attention is a zero sum resource – every minute I spend playing a game, for example, is a minute I don’t spend watching TV. And, if any company “cracks” TV, it’s not that they’ve figured out how to do TV better, but that they’ve figured out how to win a greater and greater share of consumer’s attention by doing the same jobs that TV does, but better.

TV is so entrenched because it’s actually cheap for what you get, it benefits from tremendous network effects, and it’s a default choice for most people. In fact, its entrenchment is not unlike the entrenchment of the PC, which ruled the roost for 25 years: cheap for what you get, tremendous network effects, and Windows was the default choice.

Ultimately, what disrupted the PC was not a competitive product; even today Windows still has >90% share of PCs. However, Windows commands an ever dwindling share of the time spent on all devices; phones and tablets have taken away attention because they do many of the jobs we previously hired PCs to do – read, draw, music, video, games – better.

The disruption of TV will follow a similar path: a different category will provide better live sports, better story-telling, or better escapism. Said category will steal attention, and when TV no longer commands enough attention of enough people, the entire edifice will collapse. Suddenly.

I’d bet on escapism being the next job we give to something else, for a few reasons:

  • The economics of live sports are completely intertwined with the pay-TV model; this will be the last pillar to crumble
  • Networks still play a crucial role in providing “venture-funding” for great story-telling. Netflix is the great hope here
  • Escapism is in some sense indiscriminate; it doesn’t matter how our mind escapes, as long as it does. Yet it’s also highly personal; the more tailored the escape, the more fulfilling. This is why there are hundreds of TV channels. However, there will never be as many TV channels as there are apps.

Imagine a $993 “console” with an optional $49 controller and an App Store.4 That’s a lot of potential escapism, and a lot of user attention. It’s a lot of margin too, at least at high volumes. I think it’s a space where a company that thinks different could have a “a significant contribution” and “crack” TV by not, in fact, being a TV at all.

This is a three-part series.

  • Part 1: The Cord-Cutting Fantasy. Getting only the content you want without paying for everything is a fantasy. Pay TV is socialism that works.
  • Part 2: Why TV has resisted disruption. Great content is differentiated, has high barriers to entry, and depends on networks.
  • Part 3: The Jobs TV Does. The key question is attention, not set top boxes. What jobs do we hire TV to do?

Also see Steve Jobs on TV, my Apple TV prediction, and my Additional Notes on TV

  1. You could get far with the assumption that anything the blogosphere calls disruptive, isn’t. It’s simply competitive ↩

  2. For more on jobs-to-done, check out this article on the Facebook Phone ↩

  3. Or maybe $129? I think Apple would shoot for their traditional 30% margin ↩

  4. Probably the most potent form of escapism is gaming, and within gaming, I would segregate hard-core gaming from casual gaming. The former is mentally strenuous, the latter decidedly less so. Moreover, the hardware costs required to support hard core gaming are prohibitive for many consumers ↩

No Week In Review for May 26-June 1

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Just a note that there will not be a week in review for May 26-June 1. In addition, I’m evaluating what is the best format for the Week In Review moving forward.

If you’ve enjoyed the Week in Review in the past (archive here), I’d appreciate your thoughts on what section was the most valuable.

[polldaddy poll=”7145598″]

Have a great weekend.

Steve Jobs on television

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I’ve written two pieces this week on television, with the intent of exploring what changes, if any, may be coming:

I’m working on Part 3, which is about what might be next given these constraints, and in the process re-watched Steve Jobs talking about the problems with TV at D8 in 2010.

It absolute fits the story arc I’m on; I couldn’t find a transcript, so I quickly made one using the amazing Draft webapp:

Question: A topic that was noticeably absent tonight in your talk was television. And you talked about how to make the iPad and iPhone you needed to throw out the human interface in order to really make those products interactive. Do you think it’s time to throw out the interface for television, the classic up-down-left-right, and bring in a new human interface to make television truly interactive, and if so, when is Apple going to do something in that arena?

Jobs: The problem with the television market, the problem with innovation in the television industry is the go-to-market strategy. The television industry fundamentally has a subsidized business model that gives everybody a set-top box for free, or for $10 a month, and that pretty much squashes any opportunity for innovation, because nobody is willing to buy a set-top box. Ask Tivo. Ask ReplayTV. Ask Roku. Ask Vudu. Ask us. Ask Google in a few months. All you can do – Sony has tried as well, Panasonic has tried, a lot of people have tried, they’ve all failed – so all you can do is add a box on to the TV system. You can say, “Well, gosh, I noticed my HD TV has a bunch of HDMI ports on it, well, I’ll just add another little box with another one!”

Well, you just end up with a table full of remotes, a cluster full of boxes, a bunch of different UIs, and that’s the situation we have today.

The only way that’s ever going to change is if you can really go back to square one and tear up the set-top box, and redesign it from scratch with a consistent UI, across all these different functions, and get it to the consumer in a way they’re willing to pay for it. And right now, there’s no way to do that. So that’s the problem with the TV market.

We decided what product do we want the most: a better TV or a better phone. Well, the phone won out, but there was no chance to do a better TV because there was no way to get it to market.

What do we want more? A tablet or a better TV? Well, probably a tablet, but it doesn’t matter, because if we wanted a better TV, there’s no way to get it to market. The TV is going to lose until there is a better – until there is a viable go-to-market strategy. Otherwise you’re just making another Tivo. That’s the fundamental problem. It’s not a problem with technology, it’s not a problem of vision, it’s a fundamental go-to-market problem.

Question: In the phone area you were able to recreate that go-to-market strategy by working with a carrier, so does it make sense to partner with a cable operator?

Jobs: Well, then you run into another problem, which is there isn’t a cable operator that’s national. There’s a bunch of cable operators. And then, it’s not like there’s a GSM standard where you build a phone for the US, and it also works in all these other countries. No, every single country has different standards, different government approvals, it’s very, uhm, what’s the right word, tower-of-Babelish, no that’s not the right word, balkanized, it’s very balkanized.

I’m sure smarter people than us will figure this out. But that’s why when say Apple TV is a hobby, that’s why we use that phrase.

Incidentally, were I to define the niche I hope stratechery fills in the blogosphere, understanding and articulating go-to-market strategies isn’t a bad place to start.

Part 3 soon.