How Facebook and Google Now Dominate Media Distribution

 

The news media sector has become heavily dependent on traffic from Facebook and Google. A reliance now dangerously close to addiction. Maybe it’s time to refocus on direct access. 

Digital publishers pride themselves on their ability to funnel traffic from search and social, namely Google and Facebook (we’ll see that Twitter, contrary to its large public image, is in fact a minuscule traffic source.) In ly business, we hunt for the best Search Engine Optimization specialists, social strategists, community managers to expand the reach of our precious journalistic material; we train and retrain newsroom staff; we equip them with the best tools for analytics and A/B testing to see what headlines best fit the web’s volatile mood… And yet, when a competing story gets a better Google News score, the digital marketing staff gets a stern remark from the news floor. We also compare ourselves with the super giants of the internet whose traffic numbers coming from social reach double digit percentages. In short, we do our best to tap into the social and search reservoir of readers.

hand_drawn_social_media_icons_by_rafiqelmansy-d41q4gm

Illustration by Rafiq ElMansy DeviantArt

Consequences vary. Many great news brands today see their direct traffic — that is readers accessing deliberately the URL of the site — fall well below 50%. And the younger the media company (pure players, high-performing click machines such as BuzzFeed), the lower the proportion of direct access is – to the benefit of Facebook and Google for the most part. (As I write this, another window on my screen shows the internal report of a pure player news site: In August it only collected 11% in direct access, vs. 19% from Google and 24% from Facebook — and I’m told it wants to beef up it’s Facebook pipeline.)

Fact is, the two internet giants now control most of the news traffic. Even better, they collect on both ends of the system.

Consider BuzzFeed. In this story from Marketing Land, BuzzFeed CEO Jonah Peretti claims to get 75% of its traffic from social and to not paying much attention to Google anymore. According to last Summer ComScore data, a typical BuzzFeed viewer reads on average 2.3 articles and spends slightly more than 3 minutes per visit. And when she leaves BuzzFeed, she goes back to the social nest (or to Google-controlled sites) roughly in the same proportion. As for direct access, it amounts to only 6% and Twitter’s traffic is almost no existent (less than 1%). It clearly appears that Twitter’s position as a significant traffic contributor is vastly overstated: In real terms, it’s a tiny dot in the readers’ pool. None of this is accidental. BF has built a tremendous social/traffic machine that is at the core of its business.

Whether it is 75% of traffic coming from social for BuzzFeed or 30% to 40% for Mashable or others of the same kind, the growing reliance to social and search raises several questions.

The first concerns the intrinsic valuation of a media so dependent on a single distribution provider. After all, Google has a proven record of altering its search algorithm without warning. (In due fairness, most modifications are aimed at content farms and others who try to game Google’s search mechanism.) As for Facebook, Mark Zuckerberg is unpredictable, he’s also known to do what he wants with his company, thanks to an absolute control on its Board of Directors (read this Quartz story).

None of the above is especially encouraging. Which company in the world wouldn’t be seen as fragile when depending so much on a small set of uncontrollable distributors?

The second question lies in the value of the incoming traffic. Roughly speaking, for a news, value-added type media, the number of page views by source goes like this:
Direct Access : 5 to 6 page views
Google Search: 2 to 3
Emailing: ~2
Google News: ~1
Social: ~1
These figures show how good you have to be in collecting readers from social sources to generate the same advertising ARPU as from a loyal reader coming to your brand because she likes it. Actually, you have to be at least six times better. And the situation is much, much worse if your business model relies a lot on subscriptions (for which social doesn’t bring much transformation when compared, for instance, to highly targeted emails.)

To be sure, I do not advocate we should altogether dump social media or search. Both are essential to attract new readers and expand a news brand’s footprint, to build the personal brand of writers and contributors. But when it comes to the true value of a visit, it’s a completely different story. And if we consider that the value of a single reader must be spread over several types of products and services (see my previous column Diversify or Die) then, the direct reader’s value becomes even more critical.

Taken to the extreme, some medias are doing quite well by relying solely on direct access. Netflix, for instance, entirely built its audience through its unique recommendation engine. Its size and scope are staggering. No less than 300 people are assigned to analyze, understand, and serve the preferences of the network’s 50 million subscribers (read Alex Madrigal’s excellent piece published in January in The Atlantic). Netflix’s data chief Neil Hunt, in this keynote of RecSys conference (go to time code 55:30), sums up his ambition by saying his challenge is “to create 50 million different channels“. In order to do so, he manages a €150m a year data unit. Hunt and his team concentrate their efforts on optimizing the 150 million choices Netflix offers every day to its viewers. He said that if only 10% of those choices end up better than they might have been without its recommendation system, and if just 1% of those choices are good enough to prevent the cancellation of a subscription, such efforts are worth €500m a year for the company (out of a $4.3bn revenue and a $228m operating income in 2013). While Netflix operates in a totally different area from news, such achievement is worth meditating upon.

Maybe it’s time to inject “direct” focus into the obligatory social obsession.

frederic.filloux@mondaynote.com

The iPad’s Future

 

The new iPad Air 2 is more than a mere iteration, but the real revolution in the iPad line may be heralded by the introduction of the iPhone 6 Plus.

The new iPad Air 2 looks and feels terrific. Hold an iPad mini in one hand and an iPad Air 2 in the other —  they seem to weigh about the same. This is an illusion: The 341 gram mini is lighter than the 444 gram Air 2 (.75 vs .98 pounds; both with cellular equipment), but the Air 2 is almost impossibly thin. At 6.1 mm, the Air 2 makes the mini’s 7.4 mm feel bulky.

340_aplSlim

The iPad Air 2 also has an improved screen, a better camera, enhanced motion capture, faster processing, and, perhaps most important, it has Touch ID, Apple’s fingerprint recognition system. This is a bigger deal than initially reported. For businesses that have increasingly stringent security requirements, Touch ID is a welcome replacement for annoying password entry and will help the selling iPads in “compliance-burdened” enterprises. (On this, and the rest of Apple’s announcements, see Charles Arthur’s column in The Guardian, IMHO the best overview.)

And liberation from the password or, more important, from lazy security, isn’t limited to IT-controlled environments. I hear from normal humans that they love the Apple Pay + Touch ID combination for their online shopping, an activity that was previously more convenient on a conventional PC.

If a MacBook Air showed up with a comparable pile of improvements, there would be oohs and aahs all over the Kommentariat. Instead, the slimmed-down, sped up iPad Air 2 has been met with either tepid, supercilious praise (“If the iPad has never appealed to you as a product, the Air 2 probably won’t change your mind”; CNET) or borderline dismissal on the grounds that it won’t fix iPad’s slowing sales (“But it is not clear that making the iPad Air 2 the Twiggy of tablet devices will be enough to reinvigorate Apple’s iPad sales”; NYT).

Indeed, after growing faster than anything in tech history, tablets have stalled. For the past three quarters unit sales have plummeted: iPad sales fell by 2.29% in the first (calendar) quarter of 2014 versus the same quarter in 2013, and they fell by 9% in Q2:

340_appl_tabl

(A thank-you to Apple for providing actual unit and revenue numbers for their product lines— does any other company do that?)

When Apple releases its fiscal Q4 numbers this coming Monday, we’ll find out how “poorly” the iPad did in the July to September period. We don’t expect the numbers to show a turn around, neither for the quarter and certainly not for the entire fiscal year.

Some folks look at these numbers and question the device’s future (Apple iPad Fad is Over). But technological viability and short-term sales effects are two different topics.

In The iPad Is a Tease last April and The Sweet Spot On Apple’s Racket in August, I tried to separate the merits of the tablet genre, which I see as established and durable, from the unreasonable expectations that arose from the sense of liberation from PC obfuscation. If you see the tablet as a one-for-one replacement for a PC, you’ll be disappointed, and the falling iPad sales will look like an inevitable skid into obsolescence. I flirted with membership in that camp when I accused the iPad of being unsympathetic to “ambitious” users (iPad and File Systems: Failure of Empathy; in my defense, that was in early 2013 — eons ago in tech time).

I’ve since recanted. Instead of a hybrid product as promoted by Microsoft, the sweet spot in Apple’s business model seems to be a tablet and a laptop, each one used for what it does best, unencumbered by hybridization.

As Tim Cook noted last week, Mac sales (laptops, mostly) grew 18% in the last reported quarter. This time, contrary to earlier expectations, it looks like the Mac is cannibalizing the iPad… not a bad “problem” to have. And it’s nothing like the evisceration of iPod sales after the iPhone was introduced. With the advent of the iPhone, the music player became an ingredient, it was no longer a standalone genre.

The new Air 2 won’t put iPad sales back on its previous growth curve… and I don’t think Apple is troubled by this. Making the iPad Air nimbler and more useful, a stand-out in a crowd of tablets, that’s Apple’s strategy, and it’s more than good enough — for the time being.

Talk of Apple’s game plan brings us to the iPhone 6 Plus. (These lengthening product names bring bad memories form the auto industry, but what can Apple do?) Does the new, larger iPhone say something about the future of the iPad mini?

I once thought the mini was the “real” iPad because I could carry it everywhere in a jacket pocket. But about two weeks ago I bought an iPhone 6 Plus, and I haven’t touched my mini since. (As punishment for my sin, I found 52 apps awaiting an update when I finally turned on the mini this morning…) Now I have an “iPad micro” in my (front) jeans pocket…and it makes phone calls.

With the introduction of the iPhone 6 Plus, the iDevices playing field has changed: A broader range of iPhones could “chase” the iPad upwards, creating opportunity for a beefier “iPad Pro”. Or perhaps Apple will use its now-proven microprocessor design muscle to make a lighter, nimbler MacBook Air.

Whatever Apple does next, the iPhone 6 Plus might prove to be a turning point.

JLG@mondaynote.com

HP’s Old Curses

 

Finally! HP did what everyone but its CEO and Board thought inevitable: They spun off the commoditized PC and printing businesses. This is an opportunity to look deeper into HP’s culture for roots of today’s probably unsolvable problems.

The visionary sheep of Corporate America are making a sharp 180º turn in remarkable lockstep. Conglomerates and diversification strategies are out. Focus, focus, focus is now the path to growth and earnings purity.

As reported in last week’s Monday Note, eBay’s John Donahoe no longer believes that eBay and PayPal “make sense together”, that splitting the companies “gives the kind of strategic focus and flexibility that we think will be necessary in the coming period”. This week, Symantec announced that it will spin off its storage division (née Veritas) so that “the businesses would be able to focus better on growth opportunities including M&A”.

And now Meg Whitman tells us that HP will be “a lot more nimble, a lot more focused” as two independent companies: HP Inc. for PCs and printers, Hewlett Packard Enterprises for everything else.

Spinning off the PC and printer business made sense three years ago when Léo Apotheker lost his CEO job for suggesting it, and it still makes sense today, but this doesn’t mean that an independent HP PC company will stay forever independent. In a declining PC market that they once dominated, HP has fallen behind Lenovo, the company that acquired IBM’s PC business and made the iconic ThinkPad even more ubiquitous. HP Inc. will also face a newly-energized Dell, as well as determined Asian makers such as Acer and Asus. That Acer is losing money and Asus’ profits have fallen by 24% will make the PC market even more prone to price wars and consolidation. It doesn’t take much imagination to foresee HP Inc. shareholders agitating for a sale.

Many think that Hewlett-Packard Enterprise’s future isn’t so bright, either. The company’s latest numbers show that the enterprise business, which competes with the likes of IBM, Oracle, and SAP, isn’t growing.  As with the PC business, such unexciting state of affairs leads to talk of consolidation, of the proverbial “merger of equals”.

Such unhappy prospects for what once was a pillar of Silicon Valley leads to bitter criticism of a succession of executives and of an almost surreal procession of bad Board decisions. Three years ago, I partook in such criticism in a Monday Note titled How Bad Boards Kill Companies: HP. This was after an even older column, The Incumbent’s Curse: HP, where I wistfully contemplated the company’s rise and fall.

I’m fascinated by the enduring power, both negative or positive, of corporate cultures, of the under-the-surface system of emotions and permissions. After thinking about it, I feel HP’s current problems are rooted more deeply and started far earlier than the Board’s decisions and the sorry parade of executives over the past 15 years.

Founded in 1939, HP spent a quarter century following one instinct: Make products for the guy at the next bench. HP engineers could identify with their customers because their customer were people just like them…it was nerd heaven.

HP’s line of pocket calculators is the exemplar of a company following its instincts. They worked well because they appealed to techies. The  amazingly successful HP-80 was a staple of the financial world; its successor, the HP 12-C, is still sold today.

But HP’s initial success bred a strain of Because We Can that led the company into markets for which its culture had no natural feeling. I’m not just referring to the bizarre attempt in 1977 to sell the HP-01 “smartwatch” through jewelry stores…

Hewlett_Packard_Digital_Watch_Modell_1_1977

No, I’m referring to computers. Not the technical/scientific desktop kind, but computers that were marketed to corporate IT departments. In the late ’60’s, HP embarked on the overly ambitious Omega project, a 32-bit, real-time computer that was cancelled in 1970. The Because We Can impulse of HP engineers wasn’t supported by a reliable internal representation of the customer’s ways, wants, and emotions. (A related but much more modest project, the 16-bit Alpha, ultimately led to the successful HP 3000 — but even the HP 3000 had a difficult birth.)

Similarly, when 8-bit microprocessors emerged in 1974, HP engineers had no insights into the desires of the unwashed hobbyist. They couldn’t understand why anyone would embrace designs that were clearly inferior to their pristine 16-bit 9800 series of desktop machines.

By the late 70’s the company was bisected into engineers who stuck to the “guy at the next bench” approach, and engineers who targeted the IT workers that they mistakenly thought they understood. Later, in 1999, the instrument engineers and products — the “real” HP to many of us — were split off into Agilent, a relatively small business that’s not very profitable. The company’s less than $7B in revenue is nothing compared to the more than $100B in yearly revenues for the pre-split HP.

In all industries, some companies manage to stick to their story, while others drift from the script. I’m thinking of Volkswagen and its 40-year old Golf (not the misbegotten Phaeton) versus Honda’s sprightly 1972 Civic hatchback that later lost its soul and turned into today’s banal little sedan. (To be fair, I see the Civic as alive and well in the Honda Fit.)

In the tech world, Oracle has kept to the plot – no doubt because the founder, Larry Ellison, is still at the helm after 37 years. Others, like Cisco, make bizarre acquisitions: Flip, a consumer camera company that it quickly shut down, and home networking company LinkSys (purchased at a time when CEO John Chambers called The Home his company’s next frontier). And now Cisco is going after the $19T (trillion!) Internet of Things.

The now dysfunctional Wintel lost the plot by letting the PC-centric intuitions that worked well for so long blind them to the fact mobile devices aren’t “PCs – only smaller”.

I have a personal feeling of melancholy when I see that the once mighty HP has drifted from its instincts. The company hired me in June 1968 to launch their first desktop computer on the French market. After years in the weeds, this was the chance of a lifetime for this geeky college drop-out. At the time I joined, HP’s vision was concentrated. They rarely acquired other companies…why buy what you can build yourself? That all changed, and in a big way, in the 90’s.

To this day, I’m grateful for the kindness and patience of the HP that took me in. It was the company that David Packard describes in The HP Way, not today’s tired conglomeration.

JLG@mondaynote.com

News Media: Diversify or Die

 

The era of news media based on single product is over. In every field, diversification is mandatory, but yields will vary. Decisive prioritization will make a big difference. 

Below is a list – by no means exhaustive – of products and services to be found in most media organizations. Their targets include both individual customers (I use the term on purpose because it goes well beyond the notion of readers), as well as corporate clients. Difficult as it may seem, I’ve assigned a tentative value to each item. In turn, the sum of items in any given mix must translate into the famous Average Revenue per User (ARPU), a number that should be everyone’s obsession. (In the end, the metric of choice ought to be the Margin Per User, but it is very complicated to assess for two reasons: one, some products take a while to take off and, two, in integrated media companies, most resources are spread across many products). These precautions aside, here is a quick overview:

338_table_diversif

Now, let’s examine each item in detail, looking at the nature of the product (or service), its business potential and its priority level.

Daily Print Occasional Reader. This is, by all means, the least valuable customer. For premium brands that increased their street price in recent years, the margin can remain significant. But, for the vast majority of media outlets, the costs of serving occasional, rare customers in remote places are staggering. The practice needs urgent reassessment. In most cases, this means eliminating the weakest point of sales.
Potential: Zero. Setting rare exceptions aside, this amounts to decay management.
Priority: Low. (Well, high priority when it comes to cleaning up this line of business.)

Daily Print Subscriber. Its indisputable value relies on a single fact: Some customers (note the emphasis) will pay almost any price to see their dead-tree copy on their doorstep or on their desk every morning. True. But less and less so. It won’t resist the generational shift nor the objective practicability – and depth – of the digital vector.
Potential: Limited due to unavoidable reader depletion
Priority: Limited. Stick to the well-known mechanism of subscribers gathering (good data management helps).

Weekend Print Occasional Readers and Subscribers. Basically, same as above – with one caveat: Some weekend print products still bring sizable advertising revenue. In the US, large dailies are said to bring half of their revenue on weekends (another reason to reconsider weekday products).

Digital Occasional Reader. Can be funneled in through SEO and similar tactics. In most cases, annual ARPU (mostly ads) remains in the single digit.
Potential: Depends on the ability to go for volume and on decisiveness in terms of advertising creation. To put it another way, if you stick to IAB-like formats, you’re doomed. Conversely, If you take control of advertising creation on your own properties, the stakes rise quickly.
Priority: High. Go beyond the usual low-yield system.

Digital Registered Users. In short, anything must be done to get your audience to leave names and email addresses. These are your high-contribution customers of tomorrow. Then, don’t spare any resource, both in terms of technology and smart people to operate it.
Potential: High.
Priority: Top.

Digital Subscribers. For quality media, this is the most precious revenue stream. (It doesn’t apply, of course, to commodity news providers or aggregators who bet solely on volume.) Hence the importance of harvesting as much registered users as possible. Next step is to work on the conversion rate. A good CRM mechanism is a plus, but a great, valuable, unique product is mandatory. User’s won’t pay for digital access (whatever the platform — desktop web, mobile, web, apps) unless they are convinced that you provide irreplaceable stuff.
Potential: High.
Priority: Top.

eBooks Publishing. Disappointing, so far. This must remain cheap to operate. Preferably, opt for partnering with an established digital publisher eager to take advantage of your brand’s reach and reputation. They’ll do the tedious part for you, sparing you most operating costs.
Potential: Average, can become a quiet and steady P&L contribution.
Priority: Low.

Intelligence & Special Reports / Customized Intelligence. This only applies to highly regarded B2B brands. It can be expensive to operate (it requires specialized staff — that must be kept small). Highly customized, bespoke intelligence reports carry significant upside, but they border on consulting.
Potential: Sizable if you are able to sell high premium products to a high-paying niche of solvent customers (every word in the phrase counts).
Priority: Average. There is a significant risk of losing money for a long time before achieving traction.

Events & Conferences. According to people who organize such, the segment is (a) very crowded, (b) highly dependent on the general business climate. Conference attendance usually is the first budget item slashed by corporations in down times. One sure thing, tough: Conferences & Event indeed are editorial products. They must be supported (ideally induced) by the news staff; like the so-called enterprise journalism, they must be the product of deep editorial thinking, with an angle; and they must be focused on providing something unique. If these boxes are checked, high margin will ensue. (Read The Eight Types of Journalism Events That Works on PBS Blog)
Potential: High if well engineered and executed.
Priority: Depends on the level of competition in your market. I’d say: High.

Moocs & Training Products. One of my favorites. Three reasons: One is demographic: More and more people will have no choice but to immerse themselves in deep training simply to survive in the job market. The second is the dual market potential: Corporate for paid-in-advance products, and B2C for sponsored courses. I no longer believe in the ability for a media company to collect paid-for users since big Mooc outlets (Coursera, Audacity, Kahn Academy and others) are sterilizing the business of online education by proposing great courses at no charge. But media can leverage on their brand, reach, as well as their portfolios of advertisers.
Potential: High
Priority: Top. Because we are talking about tomorrow’s customers here. Better start showing up on their radar. Risk is limited as long as you stick to a cost structure in which productions costs are pre-guaranteed.

eCommerce. Important, but impossible to detail here: Too many possibilities. Some media are doing well selling tickets for sports events or concerts, other are more into high-priced items aimed at corporations. In the end, it depends on the performance of your lead-gathering machine. Many companies are learning fast. Potential varies widely, depending on your market.

Content Syndication. This needs serious consideration. Digital news is overwhelmed by shallow, recycled, often mediocre contents. Premium is rare because it’s expensive and risky to produce. Therefore it carries tangible value. Hence the importance of a selective dissemination towards outlets that can’t afford original production. In order to realize its full potential, quality editorial production needs the adjunction of essential attributes such as granular semantic and a powerful, API-based distribution platform.
Potential: High (especially for well-structured and well-distributed contents).
Priority: Should be on the very Top.

Again: Many more items can be added to this enumeration. But a fact insists: As journalism sees its economics faltering, diversification is mandatory. It requires agility, light structures (in some cases disconnected from the mother ship), dedicated staff who think fast and react faster. The upside is promising.

frederic.filloux@mondaynote.com

eBay Under New Management – Again

 

Apple Pay, not even launched yet, is already making waves. Apple’s payment system has caused eBay to move people and business units around.

Early in 2012, PayPal’s President, Scott Thompson, abruptly left the company to become CEO of Yahoo. During his four-year tenure at the eBay subsidiary, Thompson had doubled PayPal’s user population and increased payment volume by 26% per year to over $120B. So why did he leave? eBay CEO John Donahoe put it this way:

“Scott wanted to be a CEO, and that’s great. He felt the opportunity wasn’t going to come along again. He had the best non-CEO job in the world, but he wanted to be a CEO, and wanted to go for it.”

Yes, Thompson wanted to be CEO…of an independent PayPal, but Donahoe and the eBay Board wouldn’t have it.

Fast forward to this year. Carl Icahn believes that PayPal would be more creative and make more money for its shareholders if it were freed from eBay tangles, so he makes a non-binding proposal to separate PayPal from its parent company.

In a January 23rd, 2014 blog post, Donahoe rebuffs the offer and doubles down on his position:

“PayPal and eBay make sense together for many reasons. Let me highlight three that we believe are among the most important [emphasis his]:
One: eBay accelerates PayPal’s success.
Two: eBay data makes PayPal smarter.
And three: eBay funds PayPal’s growth.”

Donahoe prays at the Church of Synergy and Leverage: Together, eBay and PayPal will ascend to heights neither is able to reach on its own.

That was then.

Last week, Donahoe left the Church. He and the eBay Board announced their three-part game plan for 2015:

  • PayPal will become an independent company led by Dan Schulman (American Express, AT&T, Priceline, Virgin Mobile)
  • Devin Wenig, currently president of eBay Marketplace, will replace Donahoe as eBay CEO.
  • After the separation is complete, Donahoe will no longer have an executive role but will  serve on the Board of one or both companies

(Compensation packages for the new CEOs are detailed in this SEC filing.)

What happened?

In eBay’s Investor Presentation, Donahoe extolls the union’s accomplishments, but explains that “Now the Time is Right for Two World Class Independent Platforms” and that the decision to part company “[r]eflects confidence we can preserve relationships and avoid dis-synergies through arm’s-length operating agreements”.

Spoken like a true consultant. (Prior to joining eBay, Donahoe had a stellar career at Bain & Company, where his eBay CEO predecessor Meg Whitman also worked.)

There is a shorter explanation: Apple Pay.

Apple’s new payment system, tied to the iPhone 6, is supported by American Express, Visa, and MasterCard, and recognized by a number of merchants including Walgreens, Macy’s, Target, and Whole Foods.

This changes the competitive landscape in two ways.

The first is the gravitational well, the network effect: More participants will attract more participants. It remains to be seen how well Apple Pay will perform, but we know the Touch ID feature works well — better than this skeptical user expected, and better and more securely than its current competitors.

The second way Apple Pay changes the landscape is much more alarming to competitors: Business Model Disruption. For Apple, revenue from a payment system is peripheral, it’s yet another part of the larger ecosystem that sustains the iDevice money makers. To PayPal, of course, payment revenue is all there is.

This distinction isn’t clear to everyone. In a conversation in Paris last week, an otherwise sensible friend insisted that Apple Pay will be a “huge profit opportunity”. No, Apple will earn about $1 for every $700 charged through Apple Pay. In order to reach the $10B “unit of needle movement”, Apple Pay would have to transact $7T (trillion). For reference, 2013 US retail revenue was $4.5T.

According to their 2013 Annual Report, eBay processed about $180B in payments in 2013, yielding $6.1B in transaction revenues. For that same $180B, Apple would content itself with $270M….that’s about 0.15% of the company’s overall revenue.

When eBay purchased PayPal for $1.5B in 2002, the deal made sense — it certainly made much more sense than the later acquisition and disposition of Skype. In recent years, PayPal has grown faster than eBay’s Marketplaces business, to the point where the two were roughly equal last year ($6.1B vs $6.8B). Today, Wall Street values the combined companies at approximately $67B (although it will be interesting to see how much the PayPal “half” fetches).

The fast-growth, synergistic business Donahoe vigorously guarded last January has been kicked to the curb because its business model is threatened by Apple Pay.

It didn’t have to be that way. We’ve recently heard that PayPal and Apple had been in “massive” talks earlier this year…until Apple found out about PayPal’s partnership with Samsung, thus ending any hope of a collaboration with the Cupertino team. Recall that PayPal’s President David Marcus unexpectedly left the company last June to lead Facebook’s mobile messaging initiative. The official explanation at the time was that Marcus was simply looking for a new adventure, but it’s more likely that Marcus was frustrated with Donahoe:

“eBay CEO John Donahoe pushed for the Samsung deal even though PayPal president at the time, who left for Facebook following the Apple-PayPal deal collapse, David Marcus was ‘purposely categorically against the Samsung deal, knowing that it would jeopardize PayPal’s relationship with Apple.’”

Looking at the game board three months later, Donahoe dissolved the eBay-PayPal union and deliberately wrote himself out of a job — undoubtedly with the “help” of his Board.

In the meantime, we have PayPal’s reaction to Apple Pay: An ad mocking Apple for the selfies fracas. Yes, a number of individual iCloud accounts were compromised by clever social engineering techniques and outright password theft, but no one seriously believes the iCloud infrastructure itself was penetrated. Conversely, in May of this year, eBay suffered a massive security breach requiring all users to change their passwords because hackers did gain access to the company’s servers, something PayPal management chose to ignore.

Again, we don’t yet know if Apple’s payment system will live up to its promise, but with the iPhone 6 and 6 Plus looking like The Mother of All Upgrades (two weeks after the launch, people are still lining up outside Apple Stores), Apple Pay should be on solid ground on its rumored October 20th opening day. Nonetheless, with an ex-Amex exec at the helm of a soon independent PayPal, the payment game is going to be interesting.

JLG@mondaynote.com

BlackBerry: The Endgame

 

The BlackBerry was the first truly modern smartphone, the king of Personal Information Management On The Go. But under its modern presentation lurked its most fatal flaw, a software engine that couldn’t be adapted to the Smartphone 2.0 era.

Jet-lagged in New York City on January 4th 2007, just back from New Years in Paris, I left my West 54th Street hotel around 6am in search of coffee. At the corner of the Avenue of the Americas, I saw glowing Starbucks stores in every direction. I walked to the nearest one and lined up to get my first ration of the sacred fluid. Ahead of me, behind me, and on down the line, everyone held a BlackBerry, checking email and BBM messages, wearing a serious but professional frown. The BlackBerry was the de rigueur smartphone for bankers, lawyers, accountants, and anyone else who, like me, wanted to be seen as a four-star businessperson.

Five days later, on January 9th, Steve Jobs walked on stage holding an iPhone and the era of the BlackBerry, the Starbucks of smartphones, would soon be over. Even if it took three years for BlackBerry sales to start their plunge, the iPhone introduction truly was a turning point In BlackBerry’s life.

RIM (as the company was once called) shipped 2M Blackberries in the first quarter of 2007 and quickly ascended to a peak of 14.6M units by Q4 2010, only to fall back to pre-2007 levels by the end of 2013:

337_unnamed-1

Last week, BlackBerry Limited (now the name of the company) released its latest quarterly numbers and they are not good: Revenue plunged to $916M vs. $1.57B a year ago (-42%); the company lost $207M and shipped just 2.1M smartphones, more than a half-million shy of the Q1 2007 number. For reference, IDC tells us that the smartphone industry shipped about 300M units in the second quarter of 2014, with Android and iOS devices accounting for 96% of the global market.

Explanations abound for BlackBerry’s precipitous fall.

Many focus on the company’s leaders, with ex-CEO Jim Balsillie and RIM founder Mike Lazaridis taking the brunt of the criticism. In a March 2011 Monday Note uncharitably titled The Inmates Have Taken Over The Asylum, I quoted the colorful but enigmatic Jim Balsillie speaking in tongues:

“There’s tremendous turbulence in the ecosystem, of course, in mobility. And that’s sort of an obvious thing, but also there’s tremendous architectural contention at play. And so I’m going to really frame our mobile architectural distinction. We’ve taken two fundamentally different approaches in their causalness. It’s a causal difference, not just nuance. It’s not just a causal direction that I’m going to really articulate here—and feel free to go as deep as you want—it’s really as fundamental as causalness.”

This and a barely less bizarre Lazaridis discussion of “application tonnage” led one to wonder what had happened to the two people who had so energetically led RIM/BlackBerry to the top of the industry. Where did they take the wrong turn? What was the cause of the panic in their disoriented statements?

Software. I call it the Apple ][ syndrome.

Once upon a time, the Apple ][ was a friendly, capable, well-loved computer. Its internal software was reliable because of its simplicity: The operating system launched applications and managed the machine’s 8-bit CPU, memory, and peripherals. But the Apple ][ software wasn’t built from the modular architecture that we see in modern operating systems, so it couldn’t adapt as Moore’s Law allowed more powerful processors. A radical change was needed. Hence the internecine war between the Apple ][ and Steve Jobs’ Mac group.

Similarly, the BlackBerry had a simple, robust software engine that helped the company sell millions of devices to the business community, as well as to lay consumers. I recall how my spouse marveled at the disappearance of the sync cable when I moved her from a Palm to a Blackberry and when she saw her data emails, calendar and address book effortless fly from her PC to her new smartphone. (And her PC mechanic was happy to be freed from Hotsync Not Working calls.)

But like the Apple ][, advances in hardware and heightened customer expectations outran the software engine’s ability to evolve.

This isn’t something that escaped RIM’s management. As recounted in a well-documented Globe and Mail story, Mike Lazaridis quickly realized what he was against:

“Mike Lazaridis was at home on his treadmill and watching television when he first saw the Apple iPhone in early 2007. There were a few things he didn’t understand about the product. So, that summer, he pried one open to look inside and was shocked. It was like Apple had stuffed a Mac computer into a cellphone, he thought.

[…] the iPhone was a device that broke all the rules. The operating system alone took up 700 megabytes of memory, and the device used two processors. The entire BlackBerry ran on one processor and used 32 MB. Unlike the BlackBerry, the iPhone had a fully Internet-capable browser.”

So at a very early stage in the shift to the Smartphone 2.0 era, RIM understood the nature and extent of their problem: BlackBerry’s serviceable but outdated software engine was against a much more capable architecture. The BlackBerry was a generation behind.

It wasn’t until 2010 that RIM acquired QNX, a “Unix-ish” operating system that was first shipped in 1982 by Quantum Software Systems, founded by two Waterloo University students. Why did Lazaridis’ company take three years to act on the sharp, accurate recognition of its software problem? Three years were lost in attempts to tweak the old software engine, and in fights between Keyboard Forever! traditionalists and would-be adopters of a touch interface.

Adapting BlackBerry’s applications to QNX was more complicated than just fitting a new software engine into RIM’s product line. To start with, QNX didn’t have the thick layer of frameworks developers depend on to write their applications. These frameworks, which make up most of the 700 megabytes Lazaridis saw in the iPhone’s software engine, had to be rebuilt on top of a system that was well-respected in the real-time automotive, medical, and entertainment segment, but that was ill-suited for “normal” use.

To complicate things, the company had to struggle with its legacy, with existing applications and services. Which ones do we update for the new OS? which ones need to be rewritten from scratch? …and which ones do we drop entirely?

In reality, RIM was much more than three years behind iOS (and, later, Android). Depending on whom we listen to, the 2007 iPhone didn’t just didn’t stand on a modern (if incomplete) OS, it stood on 3 to 5 years of development, of trial and error.

BlackBerry had lost the software battle before it could even be fought.

All other factors that are invoked in explaining BlackBerry’s fall — company culture, hardware misdirections, loss of engineering talent — pale compared to the fundamentally unwinnable software battle.

(A side note: Two other players, Palm and Nokia, lost the battle for the same reason. Encumbered by once successful legacy platforms, they succumbed to the fresh approach taken by Android and iOS.)

Now under turnaround management, BlackBerry is looking for an exit. John Chen, the company’s new CEO, comes with a storied résumé that includes turning around database company Sybase and selling it to SAP in 2012. Surely, such an experienced executive doesn’t believe that the new keyboard-based BlackBerry Passport (or its Porsche Design sibling) can be the solution:

337_unnamed

Beyond serving the needs or wants of die-hard keyboard-only users, it’s hard to see the Passport gaining a foothold in the marketplace. Tepid reviews don’t help (“The Passport just doesn’t offer the tools I need to get my work done”); Android compatibility is a kludge; developers busy writing code for the two leading platforms won’t commit.

Chen, never departing from his optimistic script, touts BlackBerry’s security, Mobile Device Management, and the QNX operating system licenses for embedded industry applications.

None of this will move the needle in an appreciable way. And, because BlackBerry’s future is seen as uncertain, corporate customers who once used BlackBerry’s communication, security, and fleet management services continue to abandon their old supplier and turn to the likes of IBM and Good Technology.

The company isn’t in danger of a sudden financial death: Chen has more than $3B in cash at his disposal and the company burns about $35M of it every quarter. Blackberry’s current stock price says the company is worth about $5B, $2B more than its cash position. Therefore, Chen’s endgame is to sell the company, either whole or, more likely, in parts (IP portfolio, QNX OS…) for more than $2B net of cash.

Wall Street knows this, corporate customers know this, carriers looking at selling Passports and some services know this. And potential body parts buyers know this as well… and wait.

It’s not going to be pretty.

JLG@mondaynote.com

Brace For The Corporate Journalism Wave

 

 [Updated with fresh data]

Corporations are tempted to take over journalism with increasingly better contents. For the profession, this carries both dangers and hopes for new revenue streams. 

Those who fear Native Advertising or Branded Content will dread the unavoidable rise of Corporate Journalism. At first glance, associating the two words sounds like of an oxymoron of the worst possible taste, an offense punishable by tarring and feathering. But, as I will now explain, the idea deserves a careful look.

First, consider the chart below, lifted form an Economist article titled Slime-slinging Flacks vastly outnumber hacks these days. Caveat lector, published in 2011. The numbers are a bit old (I tried to update them without success), but the trend was obvious and is likely to have continued:

336_PRvsJ_516px

Update:
As several readers pointed out, I failed to mention a Pew Research story by Alex T. Williams that contains recent data that further confirm the trend: (emphasis mine)

There were 4.6 public relations specialists for every reporter in 2013, according to the [Bureau of Labor Statistics] data. That is down slightly from the 5.3 to 1 ratio in 2009 but is considerably higher than the 3.2 to 1 margin that existed a decade ago, in 2004.

[Over the last 10 years], the number of reporters decreased from 52,550 to 43,630, a 17% loss according to the BLS data. In contrast, the number of public relations specialists during this timeframe grew by 22%, from 166,210 to 202,530.

 Williams also exposes the salary gap between PR people and news reporters:

In 2013, according to BLS data, public relations specialists earned a median annual income of $54,940 compared with $35,600 for reporters.

And I should also mention this excellent piece in this Weekend FT, on The invasion of Corporate News. –

In short, while the journalistic staffing is shrinking dramatically in every mature market (US, Europe), the public relation crowd is rising in a spectacular fashion. It grows in two dimensions: the spinning aspect, with more highly capable people, most often former seasoned writers willing to become spin-surgeons. These are both disappointed by the evolution of their noble trade and attracted by higher compensation. The second dimension is the growing inclination for PR firms, communication agencies and corporations themselves to build fully-staffed newsrooms with editor-in-chief, writers, photo and video editors.

That’s the first issue.

The second trend is the evolution of corporate communication. Slowly but steadily, it departs from the traditional advertising codes that ruled the profession for decades. It shifts toward a more subtle and mature approach based on storytelling. Like it or not, that’s exactly what branded content is about: telling great stories about a company in a more intelligent way versus simply extolling a product’s merits.

I’m not saying that one will disappear at the other’s expense. Communication agencies will continue to plan, conceive and produce scores of plain, product-oriented campaigns. This is first because brands need it, but also because there are often no other ways to promote a product than showing it in the most effective (and sometimes aesthetic) fashion. But fact is, whether it is to stage the manufacturing process of a luxury watch, or the engineering behind a new medical imagery device, more and more companies are getting into a full-blown storytelling. To do so, they (or their surrogates) are hiring talent — which happens to be in rather large supply these days.

The rise of digital media is no stranger to this trend. In the print era, for practical reasons, it would have been inconceivable to intertwine classic journalism with editorial treatments. In the digital world things are completely different. Endless space, the ability to link, insert expandable formats all open new possibilities when it comes to accommodating large, rich, multimedia contents.

This evolution carries both serious hazards for traditional journalism as well as tangible economic opportunities. Let’s start with the business side.

Branded content (or native advertising) has achieved significant traction in the modern media business — even if the quality of its implementation varies widely. Some companies (that I will refrain from naming) screwed up big time by failing to properly identify what was paid-content as opposed to genuine journalistic production. And a misled reader is a lost reader (especially if there is a pattern). But for those who pull out good execution, both in terms of ethics and products, native ads carry a much better value than banners, billboards, pushdowns, interstitials, or other pathetic “creations” massively rejected by readers. I know of several media selling dumb IAB formats that find out they can achieve rates 5x to 8x higher by relying on high quality, bespoke branded contents. These more parsimonious and non invasive products achieve a much better audience acceptance than traditional formats.

For media companies, going decisively for branded content is also a way to regain control on their own business. Instead of getting avalanches of ready-to-eat campaigns from media buying agencies, they retain more control on the creation of advertising elements by dealing with the creative agencies or even with the brand themselves. Such a move goes with some constraints, though. Entering branded content at a credible scale requires investments. To serve its advertising clients, BuzzFeed maintains 50 people in its own design studio. Relative to the size of their entire staff, many other new media companies decided from the outset to build fairly large creative teams (including Quartz). That’s precisely why I believe most legacy media will miss this train (again). Focused on short-term cost control, also under pressure from conservative newsrooms who see branded content as the Antichrist, they will delay the move. In the meantime, pure players will jump on the opportunity.

Newsrooms have reasons to fear Corporate Journalism — in the sense of the ultimate form of branded content entirely packaged by the advertiser — but not for the reasons editors usually put forward. Dealing with the visual segregation of native ads vs. editorial is not utterly complicated; it depends mostly on the mutual understanding between the head of sales (or the publisher) and the editor; the latter needs to be credible enough among his peers to impose his/er choices without yielding to corporatism-induced demagoguery.

But the juxtaposition of articles (or multimedia contents) produced on one side by the newsroom and on another hand by a sponsor willing to build its storytelling at any cost might trigger another kind of conflict, around means and sources.

In the end, journalism is all about access. Beat reporters from a news media will do their best to circumvent the PR fence to get access to sources, while at the same time the PR team will order a bespoke story from its own staff writers. Both teams might actually find themselves in competition. Let’s say a media wants to write a piece on the strategy shift of major energy conglomerate with respect to global warming; the news team will talk to scores of specialists outside the company, financial analysts who challenge management’s choices, shareholders who object to expensive diversification, advocacy group who monitor operations in sensitive areas, unions, etc. They will also try to gain access to those who decide the fate of the company, i.e. top management, strategic committees, etc. Needless to say, such access will be tightly controlled.

On the corporate journalism side, the story will be told differently: strategist and managers will talk openly and in a very interesting way (remember, they are interviewed by pros). At the same time, a well-crafted on-site video shot in an oil-field in Borneo, or on a solar farm in Africa will reinforce the message, in a 60 Minutes way. The whole package won’t carry silly corporate messages, it will be rich, carefully balanced for credibility and well-staged. Click-wise, it is also likely to be quite attractive with its glowing, sleek videos and great text that will have the breadth (but not the substance) of professional reporting.

I’m painting this in broad strokes. But you get my point: Authentic news reporting and corporate journalism are bound to compete as audience could increasingly enjoy informative, well-design corporate production over drier journalistic work — even though it is labelled as such. Of course, corporate journalism will remain small compared to the editorial content produced by a newsroom, but it could be quite effective on the long run.

frederic.filloux@mondaynote.com

How Linking to Knowledge Could Boost News Media

 

A key way to differentiate value-added news from commodity contents is to rework the notion of linking. Thanks to semantics and APIs, we could move from dumb links to knowledge linking.

Most media organizations are still stuck in version 1.0 of linking. When they produce content, they assign tags and links to mostly internal other contents. This is done out of fear that readers would escape for good if doors were opened too wide. Assigning tags is not exact science: I recently spotted a story about the new pregnancy in the British Royal family; it was tagged “Demography”, as if it was some piece about Germany’s weak fertility rate.

Today’s ways of laying out tags and and structuring topics are a mere first step; they are compulsory tools to keep the reader within the publication’s perimeter. The whole mechanism is improving, though. Some publications already use reader data profiling to dynamically assign related stories based on presumed affinities: Someone reading a story about General Electric might get a different set of related stories if she had been profiled as working in legal or finance rather than engineering.

But there is much more to come in that field. Two factors are are at work: API’s and semantic improvements. APIs (Application Programming Interfaces) act like the receptors of a cell that exchanges chemical signals with other cells. It’s the way to connect a wide variety of contents to the outside world. A story, a video, a graph can “talk” to and be read by other publications, databases and other “organisms”. But first, it has to pass through semantic filters. From a text, the most basic tools extract sets of words and expressions such as named entities, patronyms, places.

Another higher level involves extracting meanings like “X acquired Y for Z million dollars” or “X has been appointed to Finance Minister….”, etc. But what about a video? Some go with granular tagging systems; others, such as Ted Talks, come with multilingual transcripts that provide valuable raw material for semantic analysis. But the bulk of contents remain stuck in a dumb form: minimal and most often unstructured tagging. These require complex treatments to make them “readable” by the outside world. For instance, a untranscribed video seen as interesting (say a Charlie Rose interview), will have to undergo a speech-to-text analysis to become usable. This processes requires both human curation (finding out what content is worth processing) and sophisticated technology (transcribing a speech by someone speaking super-fast or with a strong accent.)

Once this issues are solved, a complete new world of knowledge emerges.  Enter “Semantic Culturonomics“. The term has been coined by two scholars working in France, Fabian Suchanek and Nicoleta Preda. Here is a short abstract of their paper (thanks to Christophe Tricot for the tip):

Newspapers are testimonials of history. The same is increasingly true of social media such as online forums, online communities, and blogs.
Semantic Culturomics [is] a paradigm that uses semantic knowledge bases in order to give meaning to textual corpora such as news and social media. This idea is not without challenges, because it requires the link between textual corpora and se-antic knowledge, as well as the ability to mine a hybrid data model for trends and logical rules. [...] Semantics turns the texts into rich and deep sources of knowledge, exposing nu- ances that today’s analyses are still blind to. This would be of great use not just for historians and linguists, but also for journalists, sociologists, public opinion analysts, and political scientists.

In other words, and viewed through my own glasses, these two scientists suggest to go from this:

335_semantic1

…To this:

335semantic2C

Now picture this: A hypothetical big-issue story about GE’s strategic climate change thinking, published in the Wall Street Journal, the FT, or in The Atlantic, suddenly opens to a vast web of knowledge. The text (along with graphics, videos, etc.) provided by the news media staff, is amplified by access to three books on global warming, two Ted Talks, several databases containing references to places and people mentioned in the story, an academic paper from Knowledge@Wharton, a MOOC from Coursera, a survey from a Scandinavian research institute, a National Geographic documentary, etc. Since (supposedly), all of the above is semanticized and speaks the same lingua franca as the original journalistic content, the process is largely automatized.

Great, but where is the value for the news organization, you might ask? First of all, a trusted publication (and a trusted byline) offering such super-curation to its readers is much more likely to attract a solvent audience: readers willing to pay for a service no one else offers. Second, money-making business-to-business intelligence services can be derived from modern tagging, structuring and linking. Such products would carry great value because they would be unique, based on trust, selection and relevance.

frederic.filloux@mondaynote.com

Apple Watch Is And Isn’t…

 

The Apple Watch isn’t just another iDevice, a “wearables” accessory to the Apple ecosystem. It’s a bold attempt to create a new kind of wrist-worn personal computer that looks like a smartwatch.

In previous Monday Notes dealing with the putative iWatch and other “wearables”, I thought the new product would be a nice add-on to the iDevices ecosystem — a bit player that would make the iPhone more desirable —  but that it wouldn’t move the needle, meaning $10B or more in revenue. I reasoned that a watch battery would be too small to feed a computer powerful enough to offer a wide range of apps and communications capabilities.

I was wrong.

In his demonstration (76 minutes into the official video) at the Cupertino Flint Center last Tuesday, Kevin Lynch, the Adobe defector who now runs the Apple Watch software engineering effort, showed us that the Watch isn’t just a shrunk-down iPhone: It can stand on its own, it has introduced an entire new genre of user interface, and will have its own App Store. The reinterpreted watch crown, a side button, touch and pressure on the face, plus voice all combine to a potentially rich and unique set of ways to interact with this newest very personal computer.

As Horace Dediu, our disruption scholar, puts it:

“The Apple Watch is as much a Watch as the iPhone is a Phone.”

The almost overwhelming richness of the user interface and of demonstrated apps led one twitterer to express a concern I can’t suppress:

Dr. Drang Apple Software Army

Will the software overwhelm the hardware, resulting in problematic battery-life, or befuddle normal humans?

Indeed, I remember how I worried when Steve Jobs first demonstrated the iPhone on January 9th, 2007 and stated it ran OS X. Knowing Jobs’ occasionally robust relationship with facts, I feared embarrassment down the road. But, no. When the iPhone shipped almost six months later, on June 29th, hackers immediately dissected it and discovered it ran a bona fide pared-down version of OS X — later renamed iOS.

As with the original iPhone, we might be six months away from a shipping product, time for Apple to fine-tune its software and work on the S1 SoC (System on a Chip) that drives the watch… and to put in place the supply chain and retail operations for the many Apple Watch variations.

In the meantime, some choice morsels of context will help as we consider the impact of Apple’s new Watch. We’ll start with Marc Newson, the famed designer (and Jony Ive’s friend and collaborator)  who just joined Apple. If you haven’t done so already, take a look at this video where Newson flips through his portfolio of watch and clock designs, including this striking reinterpretation of a great classic, the Atmos Clock from Jaeger-LeCoultre:

Newson Atmos

(The pages that Newson surveys in the video are taken from a book published by Taschen, the noted publisher of lovingly designed art books.)

For more context, follow this link supplied by Kontra (a.k.a. @counternotions) and regard the sea of watch designs from Newson’s Ikepod days, a company Newson left in 2012.

Newson Ikepod Manatee

Turning to the Apple Watch mega-site, we see a family resemblance:

Apple Watches

Professional watchmakers and industry executives seem to appreciate Newson’s influence and Apple’s efforts, although they are quick to point out that they don’t think the Apple Watch is a threat to their high-end wares (“It’s a techno-toy more than a watch, but what a fun toy,” says Laurent Picciotto of Chronopassion Paris).  Watches by SJX provides a quick collation of What The Watch Industry Thinks Of The Apple Watch. Swiss watchmaker Eric Giroud voices the majority opinion:

“It’s a nice product; good shape and amazing bracelet – thank you Marc Newson for the resurrection of the Ikepod strap. It’s difficult to speak about its impact on watchmaking because the Apple Watch is not a watch except that it is also worn on the wrist.”

Benjamin Clymer is the editor of Hodinkee, an on-line magazine dedicated to the world of watches. In a post titled A Watch Guy’s Thoughts On The Apple Watch, Clymer provides a review that’s informed by a deep personal knowledge of the watch scene. If you don’t have time to read the whole article — it’s a long piece — the author provides a good summary in the introduction [emphasis mine]:

[…] though I do not believe it poses any threat to haute horology manufactures, I do think the Apple Watch will be a big problem for low-priced quartz watches, and even some entry-level mechanical watches. In years to come, it could pose a larger threat to higher end brands, too. The reason? Apple got more details right on their watch than the vast majority of Swiss and Asian brands do with similarly priced watches, and those details add up to a really impressive piece of design. It offers so much more functionality than other digitals it’s almost embarrassing. But it’s not perfect, by any means.

Not everyone in the watch industry is so impressed. In an article titled Apple Watch ‘too feminine and looks like it was designed by students’, says LVMH executive, The Telegraph provides the money quote [emphasis mine]:

“To be totally honest, it looks like it was designed by a student in their first trimester,” added Mr Biver, who heads up the brands Tag Heuer, Zenith and Hublot.

The article evoked general hilarity and prompted more than one commenter to dig up the infelicitous Ed Colligan quote about the iPhone:

“PC guys are not going to just figure this out. They’re not going to just walk in.”

I’ll offer a rewrite for Jean-Claude Biver and his haute horlogerie colleagues:

“We like Apple products, they provide productivity and fun in our daily lives; we respect the sense of design Sir Jony and now Marc Newson bring to the company. I wish I could say more but, try as I might, I couldn’t get the livestream of Mr. Cook’s presentation to work in my Rue de Rive office in Geneva. First, there was this Mandarin dubbing, I can understand why but it was really annoying. Then, the transmission kept breaking down. I imagine that the tons of concrete now being poured for Apple’s next headquarters will provide a suitable resting place for the individual in charge.
Again, congratulations on a well-executed global launch.”

More seriously, let’s put streaming glitches glitches aside, they won’t matter in the longer run because they don’t concern the product itself. Last week’s launch, its detailed preparations, including the no-longer mysterious white building, attest to the gravity of Apple’s long-term ambition.

As additional evidence that the Apple Watch isn’t just a hobby, recall that the iPhone was initially offered in one size and one color. By comparison, the Apple Watch is an explosion: It comes in three styles and two sizes (in millimeters, 38 and 42, because that’s the trade vocabulary), two material/finishes for each style (silver and space gray, yellow or rose gold), nine bands for the basic Apple Watch, six for the Apple Watch Sport, and at least four for the gold Apple Watch Edition — and all with matching crown buttons.  Henry Ford has definitely left the building.

The fact that Apple invited fashion editors to Cupertino (some of whom had to be told where that town is) is another Think Different sign. Nerds are still welcome, but this is a new game. Again, turn to the Apple Watch site and look at the bands/bracelets. As Ben Clymer notes in his piece, the level of detail tells us this isn’t just another iDevice.

Stepping back a little, when I see the team of watch industry execs, design luminaries, and fashion experts Apple has brought on board, I have a hard time believing that Apple is going to stop at watches. At the very least, will Mssrs. Ive and Newson bring livelier, more varied designs to the iPhone? And what does Tim Cook mean when he slyly alludes to products that “haven’t even been rumored yet…”?

But let’s not get ahead of ourselves — we’re still barely past the demo. We’ll have to wait for the actual product to come to the wrists of real users. Only then will we have the Apple Watch make-or-break moment: Word-of-mouth from non-experts.

And, still in the not getting ahead of ourselves department, for Apple, today’s make-or-break product is the iPhone 6. The Apple Watch makes great “ink” and iPhones make the money.

JLG@mondaynote.com

BuzzFeed: An Open Letter to Ben Horowitz

 

Ben Horowitz, the erudite cofounder of the Andreessen Horowitz (A16z) firm is a respected heavyweight in the Silicon Valley’s venture capital milieu. But A16z’s $50m BuzzFeed funding looks surprisingly ill-advised, to say the least. 

From: frederic.filloux@mondaynote.com
To: Ben Horowitz, Andreessen Horowitz, Menlo Park, California
Re: A16z investment in BuzzFeed
———————————————————
Dear Ben:

May I ask you something? How long did you spend on BuzzFeed before deciding to invest $50m? I’m not talking of Jonah Peretti’s PowerPoint deck or spreadsheets, which, I’m sure, must be quite compelling. But did you sample the real thing, the BuzzFeed site?

And how many times a day do you log in? Please, don’t tell me it’s part of your mandatory media diet, I’ll have to struggle not to express polite disbelief.

Frankly, your investment leaves me bewildered.

Judging by your blog and your remarkable book (I energetically proselytize both), you embody a mixture of vista, courage, combining focus on details with broad systemic vision, all supported by deep hands-on experience.

In addition, you are of the generous type and I was even happier to buy two copies of your book (including a paper version for a friend) knowing all proceeds will go to Women in the Struggle — a noble cause.

In short Ben, I have a great deal of respect for you. You are the type of person our modern economy needs.

Except that I don’t share your vision of the news business. In fact, I’m standing at the polar opposite of it.

Let me be clear: I do not question the goals and means of the VC business you’re in. In fact, I think this extraordinary ecosystem of financing innovation has long been a vital booster to the economy. Whenever I get the opportunity, I preach this in France, only to find out that my plea is beyond the cognitive grasp of the French governing elite (our VC perimeter is 33 times smaller than yours for a GDP only 6 times smaller.) The whole system sounds fine to me:  investors gives you money — $4.15bn for Andreessen Horowitz at my last count —  your mission is to multiply, you create scores of high qualified jobs. Great.

But is BuzzFeed really such a good multiplier?

Obviously, you know more than I do about BuzzFeed’s long term’s prospects: Impressive growth, heavy reliance to technology. From a pure business perspective tough, I would be very careful to put other people’s money in a traffic-machine that depends for 75% on social referrals because not all clicks are born equal. BF’s are myriad, but they are worth a tiny fraction of, say, a click on The New York Times.

I spent some time trying to overcome my reluctance to BuzzFeed’s editorial content. I wanted to to convince myself that I might be wrong, that BuzzFeed could in fact embody some version of journalism’s future. But if that’s the case, I will quickly resettle in a remote place of New Mexico or Provence.

BuzzFeed is to journalism what Geraldo is to Walter Cronkite. It sucks. It is built on meanest of readers’ instincts. These endless stream of crass listicles are an insult to the human intelligence and goodness you personify. Even Business Insider, a champion practitioner of cheap click-bait schemes, looks like The New York Review of Books compared to BuzzFeed. And don’t tell me that, by hiring a couple of “seasoned editors and writers” as the PR spin puts it, BuzzFeed will become a noble and notable contributor of information. We never saw a down/mass market product morphing into a premium media. You can delete as many posts as you wish, it won’t alter BF’s peculiar DNA.

Fact is, quality content does exist in BuzzFeed (an example here), but in the same way as a trash can contains leftovers of good food: you must go deep to find it.  It won’t change the fact that what people enjoy the most on BuzzFeed is unparalleled ability to package, organize and disseminate mediocrity broken down in this promising nomenclature:

334-buzzfeed

Ben, don’t tell me you’re proud of A16z investment in BuzzFeed. By funding it, you are contributing to the intellectual decrepitude of readers, the youngest ones especially — already severely damaged by Facebook and Snapchat sub-cultures. Did it ever cross your mind that these people are going to vote some day?

Two years ago, one of your competitors, the Founders Fund (I believed it held values similar to yours) published an essay titled What Happened to the Future?. Their article outlines the conflict between “funding transformational technologies (like search or mobility)” and supporting “companies that solved incremental problems or even fake problems”. Do you realize that, by funding a company such as BuzzFeed, you fall on the wrong side of the fence?

Look, I’ve no problem to see BuzzFeed or The HuffingtonPost thrive. They’re run by super-smart people (such as this one) who developed audience-building techniques that legacy media should pay more attention to.

What bothers me the most is to see smart money such as A16z’s being diverted to such a shallow product.

Ben: You want to invest in the information business? Consider what the Sandler Family did with ProPublica: they provided the seed money for a fantastic public interest journalism project (which, in passing, snatched two Pulitzers). Technology-driven ProPublica is now financially autonomous. Or consider emulating Pierre Omidyar who supports First Look Media, which promotes the kind of journalism a democracy badly needs.

Of course, these two ventures won’t produce VC-caliber ROI, but you already have plenty of items in A16z portfolio to keep your investors salivating. So, why wallow in BuzzFeed?

And if you want to put your excess of cash into something even more meaningful, hop on a Netjets plane and go to Africa. I recently bumped into an investment banker from Lazard who gave me the full picture of the economic potential of African countries, in every possible field — including leapfrogging technologies that build on the explosion of the mobile internet. For that matter, I’m personally exploring opportunities and the development of mobile apps for health and education in poor countries (a non-profit project). I started modestly by lending an Android phone and other items to an eye surgeon who runs (pro-bono) surgery campaigns in Sub-Saharian Africa. After her last campaign in Burkina-Faso last spring, we debriefed and the conclusions are staggering in terms of demand and opportunities. And I know the same thing is happening with mobile education. I decided to put €10,000 of my own money, just to see some of the ideas I’m nurturing could fly. If I were you Ben, I’d put a million dollars to explore this. And if I were running A16z, I would invest millions in long-term projects such as the automated large-cargo drones system described at the end of Alexis Madrigal’s recent story in The Atlantic that could change a whole continent economy. Or in mobile phone-based projects in Africa funded by PlaNetFinance Group or others. Tech investment in developing countries is indeed a Next Big Thing — much bigger than listicles. Risks and upsides are both huge. Right up your alley.

Best regards,

—Frederic Filloux