On Jeff Bezos,”He had this unbelievable ability to be incredibly intelligent about things he had nothing to do with, and he was totally ruthless about communicating it.”
Transitioning To a Mobile Centric World
July 17, 2013: “If you choose not to decide, you still have made a choice.” — Freewill, Rush
If you happen to be a sports fan (I am), one of the coolest features to emerge in our lifetime is the ability to program your DVR remotely. The game is about to start, and you forgot to record it. No problem — you can simply talk to your DVR remotely. It’s like magic. When you get home your game is there. DirecTV has supported this feature for some time, initially on the Internet via the browser and more recently via their smartphone application. Ironically, the smartphone version of this experience renders the browser-based experience antiquated, even painful. On the browser, the DirecTV user is always required to sign-in, which is time consuming and tedious. Plus who remembers their TV provider’s login credentials? On the iPhone, the user is never required to log-in, which is a remarkable contrast. On the desktop navigating the schedule is cumbersome, slow, and deep in the feature hierarchy. On the smartphone it is quick, responsive, and right up front. When I am sitting at my desktop at work with the browser open and high-speed bandwidth at my fingertips and want to program my DVR, I pick up my iPhone.
For a large variety of applications and services, users favor mobile applications over browser based applications. Over 45% of Yelp’s* searches begin on mobile. For Zillow*, 50% of home views are now on mobile. For each and every Internet company out there, mobile is rising as a percentage of all user visits. Mobile applications are instantly accessible as the smartphone is always with you. The applications can also leverage mobile-only features such as GPS search and the camera interface. And many of them, like the DirecTV application, are simply designed better. Many will argue that there is a safe middle ground where you can “have your cake and eat it too” — the HTML5 based “mobile web.” Yet early user data disagrees. A recent Compuware survey found that 85% of users favor apps over the mobile web. Guess whose vote matters most?
When users greatly favor a new user experience over an old one (in this case the mobile application environment versus a browser based desktop environment), the implication is clear – we are in the middle of a critical platform transition. Platform transitions are rare, yet highly consequential. The first consumer-based transition was DOS to Windows in the late 1980s. Many fortunes were won and lost based on how well companies like Borland and Lotus executed this transition. Then came client-server, which also launched new winners at the expense of older incumbents. The next obvious transition was the rise of the browser in 1996, which transformed not only the software application market but also the print and media world. The browser-based Internet launched many new companies, several of which have achieved market capitalizations in the billions. Most interestingly, new company wealth (pure play Internet companies) far exceeds “transitioned wealth” (incumbent companies transitioning their model successfully to the new platform). TripAdvisor and Yelp rule the day, not Frommers and Zagat. Likewise Priceline and Expedia rule travel, not some travel company that existed pre-Internet. Google, Yahoo, Ebay, Facebook, and Twitter rule the Internet, not Microsoft.
We are now seeing a new transition – away from the browser and back towards stand-alone applications, this time on mobile devices. We are also seeing the emergence of mobile-only companies whose presence is singularly focused on mobile as opposed to the browser based Internet. Key examples include Instagram*, Uber*, Snapchat*, and a variety of game companies like Rovio, Supercell, and Natural Motion*. This critical platform shift should weigh heavily on the minds of all companies that have something to lose; primarily browser-based Internet incumbents. The stakes are quite high, and it may even be too late.
As we transition from one world to another the rules are changing under out feet. The development tools are different, and the development objectives have changed. The distribution techniques are completely new. On the browser, SEO and SEM are paramount, but the equivalent tools on mobile are either non-existent or at best immature. Living in the middle of these two worlds simultaneously creates interesting and unique challenges. Yet the consequences of not playing are high. Here are some key considerations as you look to map the mobile application transition for your own company.
Design takes on a greater role. Users favor mobile applications that are crisp, clean, and quickly responsive. My partner Matt Cohler has written that the smartphone is a “remote control for your life.” This is a clever metaphor that succinctly specifies the objectives for an ideal mobile application. Like a remote control, it should be quickly responsive, and do what you want with very few button clicks. The Uber* experience is a great example. Press a button, receive a ride, and everything else disappears – even payment is automated. Websites do not always have this same “one-click” usability expectation, and as a result web designers can easily come up short by building mobile applications that are overly complex. The limited screen real estate , and limited user-attention on the smartphone forces better design decisions. Lastly, lower mobile bandwidth (versus the desktop) increases the consumer benefit of pre-cached content and UI.
Feature depth is inherently limited. Consumers clearly dislike deeply nested features on mobile phones. They prefer the remote control “one button” experience. They want to get in, solve their problem, and be done. This is challenge for larger feature-rich sites like Facebook and Yahoo, and a real benefit for focused best-of-breed providers like Instagram. It is also why YouTube, Google Maps, Facebook messenger and Vine are separate from their mothership. This limited depth concept is huge and vastly misunderstood. Mobile values the single solution, one sharp blade rather than a Swiss army knife.
Development complexity is a reality as we transition. Not only do you have to continue to support the desktop web, but now each company must develop and test for iOS and multiple flavors of Android. These may not be skills you have in-house. Plus the design elements of the app world are different, implying that your desktop web developers may not be good at mobile app design. If that were not enough, you now have to support the “mobile web” platform also to capture any users that have not downloaded your application. Unfortunately, this is table stakes. You don’t get to choose not to play. One might think that this type of complexity favors larger companies with more resources. However, this is offset by the fact that larger mature companies typically lack the skills and the adaptability to develop quickly on new platforms. Complexity in this case favors the newcomer.
HTML5 is a head-fake. Due to the design complexity outlined above, many developers attempt to short-cut the system by blending elements of the desktop or mobile web world into their applications (or will argue to simply wrap HTML in a container and call that a mobile app). This is a dangerous decision where the developer is optimizing for themselves and not the user. You should never optimize developer convenience over user experience. One high profile example of this is ESPN ScoreCenter. You move through the different leagues and scores with blinding speed. However, try to download detailed stats and you can see the app open an embedded browser and load a web page. A user cannot help but feel cheated as they wait for this “page” to load. Does ESPN not have enough resources to build a fully native iPhone app?
SEO non-presence is hugely consequential. One of the key reasons that mobile apps have a cleaner design is the absence of SEO (search engine optimization). Design on the desktop web has been compromised by the need to intersect with Google’s search paradigm. This is the same reason no one uses Adobe’s Flash on leading web sites. “Links,” “deep linking,” and “structured taxonomy” are fundamental design requirements for the desktop web. No one can afford to risk losing their SEO mojo. Mobile changes that paradigm, and most of the emerging mobile-first companies listed above are non-SEO focused. As an example, Twitter’s lack of an SEO centric product made mobile app design much more straight-forward. Of course, the absence of SEO may be positive for design, but it removes a key customer acquisition strategy for many startups. Deep linking into apps is emerging as a new paradigm, but this is primarily a tool of incumbents with a large previous SEO presence.
The core concept of “search” is in transition. Search plays a completely different role on the desktop than it does on the smartphone. On the browser, nearly every activity starts with search. On the smartphone, apps replace search as a starting point. Consider the case when you are curious about the weather forecast? On the browser you might simply type “weather 94025” into the browser. On the smartphone you never do this. The same could be said for an Amazon search, a Yelp search, or a LinkedIn search. On the smartphone, these searches start in the application. This trend is quite positive for early smartphone application leaders.
A locked-in mobile application user is worth more than a desktop user. Talk to any leading Internet company, and they will echo this philosophy. The logic is that once a user goes through the trouble of downloading an application and committing their limited screen real estate, they are now a more committed user that will use your app more frequently and churn less. These early applications leaders become functional “goto” apps for the user (i.e. Yelp for local). Going to a competitor is not as simple as doing another search, or clicking on another link. You have to go to the trouble to download a whole new application and learn a whole new navigation interface.
Customer acquisition techniques are shifting. Startups like tried and true browser-centric customer acquisition techniques like SEO and SEM, but the mobile app world is different. To make matters worse, no new systematic customer acquisition model has emerged. Embedded placement deals would seem likely on Android (they were prevalent on feature phones), but this environment still feels nascent. More surprisingly, neither Apple nor Google offer the equivalent of SEM slots alongside their app store taxonomy (although this appears quite common in China). This represents a huge missed opportunity for both platform providers, and a missing resource for companies that wish to pay to acquire users (of which we all know there are many).
Payment could be a new platform battleground. Continuing with the “remote control” theme, users will clearly want payment to disappear into their button-pushing experience. Many large credit-card/credential holders such as Amazon, Apple, Ebay/Paypal, and Google, have a great deal at stake in this battle. And of course, incumbents like Visa, Mastercard, Chase Paymentech and Bank of America have a view, as do disrupters such as Square, Braintree, Stripe, and Swipely. Even the large physical retailers see this as an opportunity to pry themselves out from under the 2%+ credit card payment fee. They have created an entity called MCX precisely with this in mind. We have been waiting 15 years (remember Microsoft Passport?) for one-button payment. Whoever delivers will be in a very strong strategic position, especially if they can also disrupt the processing fee. But prepare for a battle royal.
The platforms are still evolving. iOS and Android are dynamic platforms, and both Apple and Google are still evolving their corporate strategy for each. Google would likely favor an HTML centric world that returns search on the smartphone to the central place it holds on the browser (notice the recent voice search announcement). As they invented the app-centric Smartphone world we inhabit, Apple is likely to keep pushing in this direction. They even brought the app store backwards to the Mac desktop OS. Lastly, competitive dynamics may force each provider “up the stack” eating into the app ecosystem. We have seen this be the case with both music and maps.
Who are in winners in a mobile application centric world? In the near term, a continued move towards a more app-centric world is a big boon for the application providers who have made the transition to mobile and “locked-in” real estate on user’s mobile devices. Not only is the app “locked-in,” but so is the navigation know-how, which clearly creates switching costs for new entrants. Users will only keep a small number of brands on their smart-phone, and they start their activities in these apps – not with a traditional search engine. This is not to say we will not see new entrants – witness Snapchat. But the combination of lock-in and a lack of a truly liquid new distribution hooks will favor the “new incumbent” mobile leaders.
The biggest losers will be the web incumbents who do not understand the rules of the new road, or the consequences of missed execution. Anyone lost in the desktop world who fails to appreciate the criticality of the mobile-first mindset is subject to demise. Consumers prefer mobile and they prefer mobile apps to the mobile web. Deny that reality at your own risk.
A few weeks back, Nextdoor* – the leading social network for your neighborhood – launched their much-anticipated mobile application for iOS. This anticipation emanated directly from the user community, where a mobile application has long been the most requested feature. The first several reviews on the iTunes store included comments such as “I’ve been waiting to use Nextdoor via my iPhone after joining my neighborhood almost 7 months ago. So happy to see this finally launched!,” and “…the iPhone app turns Nextdoor into an even better tool.” Some of the reviewers even threw out this juicy comment – “this is better than the desktop application.” An increasingly common refrain.
*Benchmark is an investor in these companies.
The two strongest trends in Internet content are atomisation/unbundling on one hand and sealed silos within smartphone and tablets apps on the other. This is contradictory.
As we all know, many sites see the majority of their traffic going to individual pages rather than the home page, Tumblr and Pinterest disaggregate, reaggregate and remix individual pieces to content far away from where they started, and of course social sharing on Facebook or Twitter remixes and redistributes everything. Twitter cards and the trend for social messaging services to embed content within messages take this another step. In a sense, there is no home page for any site.
Every piece of content becomes a packet that can be routed anywhere across any service layer - but the service layer is Twitter, Kik, Line or AirDrop, not TCP/IP or HTTP.
But at the same time, after the end of the HTML5 head fake (as Bill Gurley put it), it seems clear that apps will also be a major component of content consumption. Hoping that this will not be the case is to wish to turn the clock back to 2007, and of course to ignore a pretty clear demonstration of what customers want. The last 6 years were not a temporary aberration.
So apps are a new, permanent part of the content landscape, just like social or search before, and apps are silos. Yes, you can deep link, up to a point (including with things like AirDrop), and share back to the unsiloed web version of many content properties from within an app, but the app experience itself is essentially exclusive. You go in, you engage, and then, often after much longer than you’d spend on a website, you leave and do something else. This is quite different from the promiscuous flitting from site to site and tab to tab that’s the general model for the web. And, of course, it’s the complete opposite of the atomisation that’s happening in parallel.
This is a real challenge for content owners. How do you think about editorial on the premise that it will both be shared everywhere and read in the course of a half hour session with your brand’s app? Do you have to pick one model or the other? If you’re in the long-form business already (the New Yorker, say) this is an easy conversation, but if you run a typical magazine with a mix of content of all different types and lengths, what does your ‘digital’ proposition look like? How many different types of engagement do you need to think about? What’s your social messaging app sharing strategy? And, of course, how do you address this across 30 titles in three cities, most of which are only run by half-a-dozen to a dozen people who’re only just keeping up with updating a Facebook page?
The opportunity cost of buying iPhones and Cronuts
Quartz’s Ritchie King did some excellent reporting this morning, producing the infographic of the day: “The line for new iPhones vs the line for cronuts”. The line for new iPhones is 120 meters, or 92% longer than the line for the iPhone.
What this analysis fails to capture is the opportunity cost of waiting in line for the iPhone compared to The Cronut™. Here’s a back of the envelope calculation:
Conclusion: The Cronut™ has lower opportunity costs in absolute dollar terms, but far higher relative opportunity costs. Also, if you going to wait in line for an iPhone, buy a 5S. Interestingly, while Dominique Ansel is selling a baked good, the cost to his customers almost entirely consists of waiting in line.
To complete these calculations, you have to make a slew of assumptions (always a sign you are doing serious economic analysis). And each assumption has caveats.
Assumption 1: Line length in yards can be reliably converted into line length in minutes, and that this conversion rate is reasonably constant for both lines.
For the Cronut™, this relatively easy. The Cronut™ can sell out, so the only way to ensure you will get one is to arrive at Dominique Ansel Bakery early. Really, really early. Like 5:45 am, two hours and 15 minutes ahead of the bakery’s 8:00 opening. Anything else, and you expose yourself to waiting in line, and not getting the Cronut™. This isn’t the venue to put a cost on that type of moral failure.
For the new iPhones, people began lining up two weeks ago (albeit at not at the Soho store). Again, putting aside the almost moral failure to secure a gold 5S, you need several hours of early morning waiting to ensure you get an iPhone.
Caveat 1: Imprecision and variability. I tried to be conservative in my estimation of wait times, erring on the shorter side, but a conservative estimate is still an estimate. Nothing comparable to Dan Nguyen’s tracking of the wait times to get into MoMa’s Rain Room has been done for Apple lines. It’s very hard to know precisely how long the line at either store will take. For instance, when I called Dominique Ansel Bakery to ask how long the wait generally was based on how long the line was, an employee told me that it’s basically impossible to know. Some transactions, he explained, were very brief and involved a single Cronut™. Others took as long as ten minutes, involving multiple Cronut™s and lots of souvenirs, which he described as “the sort of things you could take on planes”. (Out-of-towners add a further layer of complexity: see caveat 2.)
Assumption 2: The salaries of the people waiting in both lines are uniform and equal, and equal to the average of the median individual incomes in New York and Kings County in 2011: $80,326 per year, which works out at $40.16 an hour using the standard 50 week, 40 hours per week, 2000 hours per year work year.
Caveat 2: Imprecision and variability again. There’s no good way of knowing precisely how much people’s time waiting in line is worth. Obviously, they make different amounts of money doing different things. Some of those things are the type of job (e.g. hourly-pay based job that they missing work hours at to wait in line) where waiting in line has a clear cost. But what about a salary worker who doesn’t need to be at work during the hours they are waiting in line? Does the lost sleep count as a monetary cost? If so, is it offset by the status signalling benefits of waiting in line? (See caveat 3)
Assumption 3: Waiting in line is a has a cost associated with it.
Caveat 3: Maybe the opposite is true! People line up for all sorts of nutty, yet identifiably human, reasons: They want to be part of something; they want to spend time with friends; they want to the chance to be venerated as a deity; or they are being paid to be there by other people who don’t have the time to read this post but have enough money to pay someone else to wait in line for them. For the people standing in line, these are all, to answer Paul Vigna’s question, good or mediocre reasons to be there. Which means, if there is an Apple-store-line-length arbitrage to be had (and there is! The line at the Meatpacking store is measurably shorter than the line on Fifth Avenue!), there’s a mediocre argument that you get the most return by going to the store with the longest lines.
Assumption 4: After waiting in line, customers buy one product.
Caveat 4: Maybe. After waiting in line and sensing that they just burned through a bunch of opportunity cost, some customers buy more than one iPhone or a bunch of Cronut™s. This is smart: after waiting in line for a fixed amount of time, buying more products reduces the opportunity cost as a percentage of the full cost.
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Jeff Bezos and his journalists
I’m a huge admirer of Jeff Bezos, and the way in which he has managed to dodge the biggest pitfall facing the managers of public companies: rather than maximize short-term profits, he instead has concentrated — with enormous success — on building long-term value. Amazon is now worth about $140 billion, or more than 500 Washington Posts — more, indeed, than the combined valuation of every single newspaper in the world, put together.
Many of those newspapers, including the Washington Post, were once public companies, with stock-market listings and quarterly profit reports and the like; historically they had very fat margins, and as a result of those fat margins they had substantial stock-market valuations. When those margins imploded, taking the newspapers’ profits with them, the papers were left with almost no value: the Boston Globe was sold for essentially a negative sum, once pension obligations are taken into account, while the Washington Post was sold for the price of a nice Cézanne. Meanwhile, if Amazon were to start losing money for a few quarters, few people would blink an eye; the value of the company certainly wouldn’t plunge to less than a billion dollars.
On the face of it, then, the acquisition of the Washington Post by Jeff Bezos is very good news. If newspapers were ever suited to public stock-market listings, they’re not any more; private ownership, especially ownership by an individual benign billionaire, is a much better model for all concerned. Bezos is not the kind of man who worries about losing a few million dollars here or there: he has his eye on building long-term value and relevance, which is exactly how the best newspaper owners behave. After the Graham family bought the Washington Post in 1933, for instance, it took 20 years before the paper started making real money. Jeff Bezos, who has spent some $42 million building a clock designed to last 10,000 years, has exactly the amount of patience, and money, that a modern newspaper owner needs.
What Bezos lacks, I fear, is the kind of personal talent-management skills common to most great publishers. There’s a virtuous cycle to successful publishers: as you grow in size and prestige, both advertisers and readers flock to you, you start making lots of money, which in turn allows you to hire the best writers and editors and art directors, and to spend big money on fast, effective distribution. Those people, in turn, put out a first-rate product which is very difficult to compete with.
Until, of course, the internet comes along, and everything fragments into a million tiny pieces.
If Bezos were to look at the most successful large-scale publishing operations of the past few decades, he would see a lot of waste. Some publishers, like Condé Nast or the Time Inc of old, turned lavish profligacy into something of an artform; newer entrants into the scene, such as Bloomberg, are no slouches on that front either. Meanwhile, as journalists of all stripes find themselves converging on the same digital platforms, print journalists are increasingly direct peers and competitors of their TV counterparts, where money has always been much more abundant.
Online, it’s all too easy for such operations to be disrupted by lean and efficient upstarts. Bezos’s previous investment in the journalism space was in Business Insider, one such operation: the journalists there work very hard, in a no-slack, no-waste environment, putting out vastly more content per person than any print or TV operation would ever dream of. At places like the Huffington Post, or Gawker, or Business Insider, the goals are clearly articulated, and usually revolve around pageviews or unique visitors or some such metric. And while such outfits certainly can and do spend a lot of time working on projects which might not pay off in a narrow traffic sense, they generally do so consciously, deliberately, as a tactical departure from the hyper-efficient default mode.
At a large newspaper, the default mode cannot be hyper-efficient; the papers which have tried, which have modeled themselves on digital startups, have generally failed. A large and valuable franchise like the Washington Post generally improves the more slack there is in the system. If you have enough money that you can hire stars, treat them generously, and then leave them alone to do their thing, then they will ultimately reward you with first-rate (and very expensive) content. Your job, then, is to find a way to monetize that content.
Amazon, by contrast, is all about efficiency. It has a relatively small number of executives at its headquarters, who are paid overwhelmingly in stock; if the stock does well, they do well. It also employs, mostly indirectly, thousands of workers in warehouses around the world, picking and packaging the goods it sells; those workers are treated badly, and enjoy effectively zero slack in their working lives. What Amazon doesn’t have is paternalism, or a culture which in any way tolerates any unnecessary increase in labor costs. Its employees are cogs in the corporate machine, and they are expected to work as efficiently as possible.
The Grahams (or the Sulzbergers, or the Newhouses, or the Chandlers, or the Bancrofts) never thought of their journalists and editors that way. And the fact is that while you can achieve better profits by cutting here and maximizing there, you can never achieve long-term greatness that way. Greatness emerges mysteriously from the slack in the system, from source lunches and newsroom cross-pollination and expensive editorial whims. It emerges, ultimately, from the ability to give people time and space and money, in the certain knowledge that most of that time and space and money will end up being wasted, and embracing that waste as a good and ultimately necessary thing.
The Washington Post has not had the luxury of being able to waste time and space and money, not in many years — and as a result it is no longer a great newspaper. Maybe no newspaper can ever be great again, in that sense: the economics just don’t support it any more. But the fact is that Jeff Bezos is now an employer of journalists, and as such he is in charge of hiring and firing and paying a group of employees quite unlike any he has hired in the past. They’re not always rational, they’re not always efficient, and as a group they tend towards the skeptical and cantankerous. On top of that, they’re not entirely motivated by money.
Happy proprietors tend to like journalists — they admire what they do, and how they think. (Exhibit A: David Bradley, at Atlantic Media.) Jeff Bezos, I fear, is not going to be a happy proprietor. He’s going to keep himself occupied thousands of miles away from where his journalists will be working; he’s not going to get to know them on a personal level; he’s certainly not going to enjoy gossip-fueled lunches at the Four Seasons with Tina Brown or Arianna Huffington. If Ezra Klein is ever tempted to take Wonkblog to richer shores, or just to quit altogether to concentrate on a television career, it’s hard to imagine Bezos offering him a glass of whisky and promising to make whatever changes would be necessary to get him to stay.
To put it another way: the best proprietors are only happy when their journalists are happy. They throw resources at those journalists, and then the journalists smile, in their grumbly way, and waste a bunch of what they’ve been given, and ultimately produce wonderful content, which the proprietor can then turn around and monetize in one way or another. Bezos isn’t going to be like that, or at least I don’t think he will be. Still, I hope I’m wrong. Because if he does take an avuncular interest in whatever makes his journalists happy, then a man with his skills, and his resources, could yet turn out to be one of the most interesting and successful newspaper proprietors of all time.
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Apple’s BRIC Phone aka The Low Cost Phone
Will write a detailed analysis on this soon. For now, this my prelim look at the low cost iPhone. This is more then about the US markets, it’s about global reach and touching customers at various price points.
As I finalize this, I will then write more, but for now, here is what I am thinking in numbers.
Good read from Andy Dunn @dunn,the CEO of Bonobos, a clothing e-tailer. I have to admit I am a customer and own some of their clothes which is very well made and tailored to make you look good.
My favorite takeaways from this piece:
In two decades of e-commerce in the US, we have produced…
Raising Money For Charity Private Equity Style
Despite how you feel about investment banking, you have to give it to Goldman Sachs in how they made raising money for charity event pretty elegant.
Because the players aren’t contributing any money, they don’t need to worry about whether their contribution is fully deductible or not. Because the payers aren’t directly receiving the benefit of running around Manhattan all night, they don’t need to subtract the cost of the event. And because Goldman Sachs Gives gave the $270,000 to Good Shepherd Services rather than directly to the organizers of the scavenger hunt, that donation too was fully deductible.