Tag Archives: Google

Missing out on a break through company

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There are many stories in business today about how companies decide not to purchase a company that has since gone on to be a market defining company. Yahoo! is one of the worst offenders. Yahoo managed to turn down both Google and Reddit both in very different ways. In the case of Google, Yahoo realized their mistake and tried to buy Google and then Google turned Yahoo down.

A company like Yahoo is in a tough spot when approached by a novel company that’s trying to compete in a market that Yahoo doesn’t really understand. Although, this isn’t really the case with Google, but Yahoo was much more confident in the technology they knew as their search platform and didn’t understand the potential ad growth that Google was eventually able to deliver.

Reddit, according to Alexis Ohanian and his book Without their permission, an executive at Yahoo told him that reddit was a rounding error to Yahoo’s web traffic. Which so greatly insulted Ohanian that he has used this as a motivational statement to this day.

Eventually Google IPO’d while reddit was bought by Condé Nast media. I believe that because of the direction of management that these companies were both able to flourish to this day. Google is obviously, one of the largest companies in the world, while reddit has become a huge community that the members still feel as if they are in a special club no one knows about.

It is likely that if either company had been acquired and managed in a different way, we wouldn’t have the same internet we have today. Condé Nast essentially left reddit alone and has only started to push the company to become profitable – 7 years after they were bought. It was only 3 years ago they introduced reddit gold and within the last few months they included a daily target for profitability using reddit Gold. In that time reddit has exploded in user base and introduced features to increase user base and interest in the site. If you’re interested in reading more about the history of reddit Randal Olson has an amazing analysis here, it’s really interesting.

On the other hand, Google has gone on to create an amazing ecosystem in Android, Chrome, Glass, the web, and so on. They have shut down more heavily used platforms than most companies create. None of this would have happened if Yahoo had bought Google, because Yahoo doesn’t or at least didn’t think that way.

Yahoo has two fairly large social platforms, Tumblr and Flickr, and is looking to acquire imgur. Acquiring Imgur is essentially admitting defeat with Flickr, as imgur was designed to make sharing photos on reddit easier, and Flickr is horrible to share photos with on reddit. So, it’s likely Yahoo will survive and possibly thrive in the future, but why did it miss out on yesterday’s internet of the future?

Missing out

I believe that these decisions aren’t because of bad managers. In fact, it’s likely because of high quality “traditional” management. While the internet was evolving companies like Yahoo developed metrics like views, clicks, and click throughs, to measure success of a website and the growth of a platforms. As Yahoo is a platform, being approached by other potential non-compatible platforms that were smaller was something to be expected. It is likely that Yahoo turned down hundreds of other unsuccessful platforms along with Google and reddit.

Yahoo wasn’t able to understand the potential of these different platforms, because their metrics were different than Yahoo’s. Yahoo was likely looking at both volume and number of clicks within the platform, while both reddit and Google’s engagement model focused more on sending users to other websites while minimally keeping the users on their platform. However, because of the content the users would continually come back.

Using the innovator’s dilemma as a lens here, we see that the quality of these platforms is much lower than Yahoo’s. Google’s home screen is the same as it has always been. Just Google with a search box and two buttons. Reddit on the other hand is a series of blue links with little to no ads and some arrows next to each link. Very plain and simple. Very different than Yahoo.

Furthermore, these platforms were servicing different users. Google users were searching the internet more broadly, while Yahoo was trying to both allow searching and be a one stop shop. Reddit was trying to engage with the politically active techie, which is a VERY small subset of the internet user base. Yahoo was servicing a lot of the people that had fairly recently left AOL and wanted a similar portal. It makes the internet less scary to have a platform for inexperienced users.

Measuring these platforms with the same metrics and vision of Yahoo, these would have made very bad buys and likely would have been killed off, directionally changed from the trajectory they were on and led to their success. Condé Nast essentially provided a “skunk works” area for reddit and enjoyed the clicks to the other sites that they owned that redditors also visit frequently.

It is likely that if Yahoo had bought either or both Google and reddit, the end result would not have lead to internet we have today. These platforms would have been warped into very different products that many young people would have avoided. I believe that Yahoo has learned a great deal and will likely do a better job with Tumblr and Imgur than they have with Flickr.

Content is king, but if you build it will they come?

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In yesterday’s blog I wrote a lot about the different operating systems and what differentiates them. However, I didn’t answer the question around how to build a user base or even more importantly the app base. For all operating systems there is a chicken and egg problem, which comes first the apps or the users – you can’t get users with out apps and no users will go with your system with no apps!

I think a look at how two companies have worked to overcome this is crucial to provide a path forward for the other operating systems. First of all, Google entered the mobile market in exactly this position. I wrote a paper on this while I was in my Master’s (written 2011) the really details this if you want to read that. Google decided to approach the app issue from a very different direction than Apple. First, Google offered a good deal of money for developers to begin making apps for the operating system. Second, Google create a different reimbursement structure for their purchases of apps that provided incentive for developers to develop apps for them. Apple would essentially take ~30% of the total price the developer charged for their apps. This rent seeking behavior of Apple means that the developers could make more money on Android if they sold the same number of apps in both ecosystems. Both of these provided incentives for developers to develop – free money and more money for development. Furthermore, Google made it extremely easy to port an app from iOS to Android which increased the app development rate – Apple of course worked to eliminate this benefit. Finally, Google had different payment schemes than Apple for ad revenue and is a significantly better company for dealing with ads than Apple to this day. All of these provided a great deal of incentive in addition to the fact that there have always been anti-Apple developers and consumers.

The second case (which I didn’t do a research paper on) is of course Amazon. As I mentioned in yesterday’s post Amazon rarely makes a profit on any of their Kindle sales. Amazon’s current foray into tablet’s was not a serious surprise to me. The Kindle was clearly an effort to learn about their users and their consumption habits. Amazon first targeted their most loyal customers, book readers. Tablets weren’t really on the horizon at this point as anything beyond a novelty that Microsoft was pushing and eReaders had a questionable spot in the market when Amazon came out with the Kindle (the same year as Apple’s iPhone – I feel that the Kindle was a bigger step for Amazon than the iPhone for Apple). It was widely successful. I personally bought a second generation Kindle in 2009 (and have since upgraded to Paperwhite 1st gen). Amazon over time continually refined the Kindle and looked for more content to bring to the users. Amazon began to experiment with browsers, apps, and other features. Even at this point the Kindle was Android based, but their own custom version. This marked on of the first forks in the operating system. Amazon also developed applications for iOS, PC, Chrome, and Android for Kindle users. This helped to increase adoption and encourage Amazon that digital content is extremely valued by consumers. When Amazon introduced the Kindle Fire line of tablets they continued to focus on content. This is apparent from the design of the operating system. Content is first and foremost. Books, TV shows, and Movies are easily accessible and essentially the default view for the device. Through a different type of content Amazon has attracted users, furthermore, they are likely attracting a different set of users than the iPad or Nexus market. These users are very consumption focused and less engaged with applications.

Amazon has continued to push the quality of their products and can now compete spec to spec with any top of the line Android or iOS device. Their advantage is the Amazon ecosystem (which many tech writers scoff at), which is more accessible and connected with prime on their devices.

How can other operating systems learn from these cases? The owners of new operating systems need to provide an easy development platform. Many of Android’s applications are developed in HTML5 which should make it easier for porting from one OS to another. Another option is to partner with a third party company (if you know about it or not) like Microsoft did with Blue Stacks where it is possible to play any Android app on a computer. Google is doing something similar with the Chrome App store and browser, essentially turning any Win8 machine into a Chrome OS computer. Firefox OS could go this route on any computer and help to encourage developers to think multi-platform like this. Of the two problems, I believe that the app problem is the easier one to solve assuming it’s easy and there are the right incentive for developers. There are many platforms or tools that can even the playing field. Including marketing that users are able to use other platforms on your platform.

The more difficult type of content to pull is the licensed content from the RIAA and MPAA type organizations. I think that there could be a way for this content to gain the same feel as the Amazon experience. A mobile OS could partner with either Hulu or Netflix to provide an exclusive or personalized experience for the app that allows tighter engagement, then partner with B&N and build a strong app presence for the Nook. The next step would be to develop a seamless transition between the Nook application and Netflix/Hulu so that on one hand you knew when you switched, but it felt painless and enhanced the experience. Such as recommending books or movies based on your consumption of the other.

Finally, I think the crucial step is to find the right market. There are tons of under served markets especially in the smart phone/tablet sector. Firefox OS is going after the extremely low budget market, while it’s likely that both Ubuntu and Cyanogenmod are going to be going after the extreme high end market. I think those two are going to have more competition with the Nexus line up of devices and the extra support Google is providing to non-Samsung manufacturers like ASUS and LG. Google is doing everything they can to keep the market competitive and not owned by a single manufacturer. Cyanogenmod and Ubuntu could also work those same manufacturers to help them develop other markets that aren’t served by Google.

I think that the battle is going to be on the low budget space. Amazon is working hard to capture that with powerful but affordable tablets that are subsidized by ads. While Motorola is going after a similar market with the Moto G, a high power phone that is affordable. However, if a company looks at the base of the pyramid they are likely to find a huge untapped market that will never even own a laptop. They will go from a phone only capable of texting directly to smart phone or tablet. Developing tools that these underserved users can exploit will create a huge market that will catapult the operating system past all the others in global market share. It’s just a matter of figuring out how to survive on little to no margin.

Content is king, but if you build it will they come?

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We are in a time when the number of operating systems are growing incredibly rapidly. This is essentially a throwback to the time when every company that made a Mainframe or Minicomputer developed their a custom operating system for that line of systems. This was because it was difficult to translate operating systems from one system to the next, each system had such radically different components that were hand built by the engineers designing the system, and the OS was a differentiator on the market that would increase sales based on its capabilities.

As it is the mobile operating system market has already gone through at least one round of expansion and contraction. Blackberry is on the brink, Palm was bought by HP and then sold to LG, Windows Mobile replaced by Windows RT (or just Windows 8), Nokia’s Symbian, Nokia’s MeeGo, Samsung’s operating systems Pre-Android Bada, and there are likely others. In general these have contracted down to two primary operating systems: iOS and Android on mobile. Windows is still trying to threaten with Windows 8 (the ARM version) but their market share is very limited (4.5% in August of 2013). Which essentially puts it down with all the other new operating systems that have recently come to market.

In my opinion there are two front runners for OSes not based on Android that have a chance to take market share. The first is Firefox OS, which has just begun shipping phones. I would argue that Firefox OS is actually more similar to Chrome OS than to Android because it’s very webcentric and focuses on apps that can be developed for Firefox and HTML5. I believe this does allow for a great deal of flexibility as Firefox is a great brand and already has a set of applications for the browser. These, hopefully, will be easily transferred to Firefox OS from the browser.

The second OS that I find especially interesting is Ubuntu mobile OS. This operating system I believe offers the future path that all OSes need to be considering. While running purely on battery it enters a scaled down operating system and power consumption, but when the phone or tablet is plugged in it converts to a full blown Linux operating system with a significantly higher level of processing power behind it. I believe that in the long run this type of operating system and processor combination will ultimately be the future (Samsung is doing some of this with their 10.1 2014 edition), because we will want to eliminate as many of our computing devices as possible. Tablets are already beginning to do this, and with the Phablet tablets are being replaced in some sizes. The lines will continue to blur and I think Ubuntu will be in a unique position to take advantage of that in the upcoming year.

There is one other dark horse OS that I know very little about, it’s Samsung and Intel’s joint venture. It is Linux based like Ubuntu and Android and it’s called Tizen. This has little to no adoption, but could be a player in the very low cost market. Which is where Firefox OS is positioning itself, while Ubuntu is putting itself at the high end market.

As for the Android derivatives, the most successful and largest threat to both iOS and the general Android platform is Amazon’s Fire OS. Amazon has had a long practice of pushing content over the cost of the product. In fact with most of their Kindle products they are barely breaking even or making pennies on each one sold.

The other derivative is also wildly popular but with a specific type of user. Cyanogenmod has offically become its own company and recently raised $23 million from venture companies. This is going to be a change for Cyanogenmod because they will not longer be able to use the Play store, which may not be that big of a problem because they’ve had an underground app store for some time.

There are others, I’m not trying to display an exhaustive list of mobile operating systems. What I’m trying to display here is that there’s a lot of competition in the mobile operating system space that is only going to become more difficult.

For a mobile operating system to be successful they need two things, applications and content that is viewable in those applications. This is the number one thing that most tech pundits talk about when discussing which platform is better between iOS, Android, or Amazon. In fact, they argue that Amazon’s weakest because of the limited number of apps partially because they do not have access to Google Play. Currently, Android and iOS are well over a million apps each. Which essentially means that they both have a huge number of apps and most of them are never used. It will take years for Amazon to come close and even longer for the other OSes to reach those numbers.

How can the other operating systems over come this limitation? I’ll answer that question in my next blog (published on 12/20/2013).

Disrupting Mobile Phones – Google’s taking the lead and Apple is going to lose

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http://news.phonebloks.com/

Photoblok’s high level picture of their design

For some people, Motorola’s Project Aria, in partnership with Phonebloks, is going to be a game changer, while others are kind of like, meh. I think that the end result of this phone will actually be a game changer, but not everyone will switch to this format of phone. Many people will continue to buy phones that have been designed for the full experience. However, I do think that theses phone will significantly impact in how many people think of phones.

These phones represent a disruptive shift for the phone industry. Why are these disruptive when I said that Kayak isn’t disruptive? Well, in the book Innovator’s Dilemma Dr. Christensen argues that when new industries are formed the leaders are companies that are able to combine all the pieces that are needed for producing that good under one roof. In the case of airline travel all the booking used to take place through the airlines, eventually this was outsourced to Travel Agents which were something of an extension of the airlines. The first disruption came when other groups were able to use the internet to book reservations. The act of reserving a seat on a plane became decoupled with the actual flight and service.

So, in the case of mobile phones, specifically smart phones of course, the most successful firms were the ones that were able to combine everything you needed for the phone to be useful. Blackberry did this, but Apple was clearly the best at it. The original iPhone was basically an iPod with a cell antenna in it. This was an amazing thing though. Apple had disrupted the music distribution industry with iTunes and was able to leverage that innovation into smart phones. This of course was a disruption in that industry because everyone was focusing on productivity first, Apple approached it from a content perspective. Content always beats out productivity. In a very real sense, the market changed over night. Apple owns everything in their cell phone, the OS, the design of the chip, the distribution network for apps, music, movies, etc. This is a very classic example of fully integrating as much of the supply chain as possible.

This is exactly how computers started. Large companies like DEC and IBM built everything for a computer. The boards, the operating system, the software, and the interfaces. These companies were large and structured in a way to make money from extremely expensive mainframes which had a very small market. Between Xerox and IBM the personal computer as we know it today was invented.

Our PCs today are modular, which means that every portion of the computer can be built and designed by different firms. This allows a lot more innovation across the platform because it doesn’t rely on one firm to create everything. It allows specialization and diversification for an assembly company. It was because of this modular nature that Intel, Dell, and Microsoft became successful. They were able to leverage the platform that IBM delivered with the PC and grow and develop new capabilities.

This modularity also allowed just about anyone that wanted to the capability to built their own custom made computer. This has become less so with laptops – you can’t buy an empty laptop but you can customize it from a company. This just isn’t the case with smart phones – which are essentially mini computers. The new tablets coming out are as powerful as computers from the early 2000s.  The modularity of PCs offer an additional benefit, you have the ability to easily fix them. If your processor dies or your graphics card does you can buy another and simply pop it in. Even if the motherboard goes, you can still replace that and plug all your existing components into the board. The case is the only thing you don’t have to change if you don’t want to.

With phones the screen is like the case. You don’t really need to upgrade your screen every time. Especially with how hard the screens are unless you drop the phone and crack the screen you don’t need to replace it. Furthermore, we’re getting to the point we are with TVs that the resolution of the screen isn’t going to make much of a difference. Yes, we’re in a DPI battle between Amazon, Google, and Apple but we’re getting close to the point where we can’t tell the difference. Which means that the screen is a perfect thing to act as the phone’s “Case” for modularity purposes. The modularity will help immensely with repariability, which current scores pretty low, if you’re interested in those scores check out iFixit.

So, how does Phonebloks come into all of this? They are essentially pulling an IBM by creating a system that can be modular. Google’s Android will be the operating system of choice, but it’s likely that even this could be flexible in the manner that PCs are today. It’s unlikely that iOS will be on these phones legally, although I’m certain someone will figure out a way to install the operating system on these phones. This will hurt Apple in the long run as people will not be using their operating system will leave their ecosystem and prevent them from making as large of revenues in the future. People will still buy their products, but there will be much less sales. Apple could be repeating history if they don’t offer to sell their operating system for phones like this.

Why do I think that these phones are going to be winners? Well, it will increase the longevity of the phone. With phones costing upwards of $600 for the top of the line phone anything that can increase the length of time that a person is using one is a good thing. Secondly, as Android and other OSes evolve they require more capabilities from the phone which means older phones aren’t able to use the latest operating system. Buying a much cheaper CPU to install would be a lot better for end customers. This will also disrupt the supply chain as companies like Qualcomm aren’t used to selling directly to customers. Finally, as long as the design is good, then it won’t seem as much of a burden to have the same phone year in and year out. It will require people to think differently, but that’s something that I believe Motorola and PhoneBloks can over come.

These phones are going to change the industry and possibly enable other companies to develops phones in the same way. Hopefully they pick one standard interface like the Motherboard that all companies conform to. This will allow companies like Google and Microsoft to go back to innovating on operating systems and to get out of the phone building business.

Looming battle: Content providers vs. service providers

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In my last post about the PS4, I discussed how the PS4 is a long term play and that over time the product will move away from playing directly on the PS4 towards utilizing servers to stream the game to the user. This was an argument to counter many PC gamer’s disdain for the specs for the system. Sure, the specs aren’t great, but they are a huge advancement over the PS3, which is still able to play, rather well, new games.

Most of the feedback I got on the article basically went “well that’s great and all, but the infrastructure isn’t there for this in the US.” This is extremely valid feedback. AOL still records $500 Million in revenue from dial up connections. The US rates among the worst in developed world for internet speeds and penetration. Of course there’s the argument that our country is so much larger, well, the EU as a whole tops us, it’s not uniform across the EU, but that still makes it a valid comparison. The other thing to remember, the console won’t just come out in the US. Many of these features will work better in Korea and Japan than in the US. Typically Sony has released different features by region and will likely experiment with the sharing features in Japan before rolling it out to the US, where Sony knows it will have infrastructure difficulties.

This discussion raises additional concerns though, infrastructure isn’t just about the lines in the ground, but also the structure of the service providers that allow access. In the case of the US, not only does quality and speed of the connection vary wildly but we also have more restrictions on the amount of data we can download than other countries. For a typical family you end up buying the internet 2 or 3 times at the minimum (smart phone access per family member and then the main house connection). Each of these connections likely has a different maximum for downloading or uploading with fees for going over this.

This creates a lot of difficulties as we don’t always know how much bits a specific file will use as we access it. In many cases, it likely drives consistent under utilization of the service do to excessive fees and user dissatisfaction for those hitting the cap. Americans are starting to cut the cord in record numbers, my wife and I don’t have TV, just cable internet; I have a lot of options without Cable. This is going to start increasing the rate of frustration users have with caps. I typically watch live streaming video in 720p while my wife surfs the net and watches a show on Hulu.

I have absolutely no idea how much bandwidth is being consumed on a typical night. There is no easy way for me to measure this or plan for getting close to a cap. Furthermore, both my wife and I use our phones to access the internet, listen to music, watch videos, and play games on our phones. Again, all of these use bandwidth and likely push us against our cellular plan. Sure there’s meters for these, but they are notoriously inaccurate.

This issue with be further exacerbated by the proliferation of cloud services like Drop Box, video sharing on YouTube, streaming new services all the time, and the eventual goal of offloading computing power to the cloud. The measurement of these services will be extremely difficult and planning for how much data these services will require will be absurdly difficult at best for the average user. It is likely that these services will push users over the usage caps on a monthly bases.

I think that we need to start looking for another solution. I think that Google Fiber is a start, it would make sense for Netflix, Amazon, Dishnetwork, Microsoft, Intel, and other content providers to join a consortium that will introduce a new service provider to attack the incumbents. I have heard that Dish is currently working on creating their own system with Google or some other company, I think that this could potentially shake up the industry and allow users more options. There are going to be a wealth of new services that require more and more bandwidth and higher speeds. If these content providers want users to be able to access and enjoy their services they need to challenge the status quo to enable their customers.