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Carriers Still Think We’re Idiots

mobile internet By May 5, 2013 Tags: 13 Comments


“Carriers are confident we won’t read the small print that contradicts their tricky advertising. Once in a while, a public servant really does his job and forces a retraction. Why so rarely?.”

‘My goal in life has been to have just enough money to ignore 8-point Helvetica!’ Thus spake a close friend one night in a quiet San Francisco bar. His objection was neither stylistic nor ophthalmologic. We were, once again, lamenting the shenanigans and ruses, the hidden fees and “some restrictions apply” (see, if you can, Sprint’s mendacious use of Truly Unlimited here and here), the roach motels of mileage plans, the nickels and dimes extracted by subterfuge, legally or not. In a word, or six, the tyranny of the fine print.

By accumulating “just enough money”, my friend has the luxury of not having to fight the schemers to the last dollar, of not spending hours on the phone arguing with a robohuman who has been cruelly programmed to confuse and outlast the overly-curious customer. His benign neglect allows him to keep a sunny view of life and a calm mind.

Lucky man.

Most of us don’t lead such a charmed life. We can’t, or shouldn’t, ignore the amendments, refinements, and exceptions that belie the marketing come-ons. But the fine printers — the airlines, credit card companies, internet providers and, most of all, the cell phone carriers — rely on our neglect, benign or not. They think they can prey on us, that we’re too stupid or lazy to fight back, to protest their obfuscating plans and bizarre bills.

Because of their ubiquity, the cell phone carriers get the most heat. They’ll sell you a $650 iPhone for a mere $200…and then recoup the $450 shortfall by adding a bit of the difference to each installment of your (mandatory) 24 month “service” contract. If you try to break the manacles, you’ll pay for the fractured iron. It’s right there in the fine print.

Last year, a group of concerned professionals called for an end to the confusing and wasteful smartphone subsidies. The group? The carriers themselves (see Carriers Whine: We Wuz Robbed!).

Verizon and AT&T make a spectacle of groaning under the weight of these awful subsidies. They get the Wall Street Journal and others to repeat their stories wholesale in articles such as this one: How the iPhone Zapped Carriers.
Horace Dediu, for one, doesn’t buy the sob story:

“I repeat what I’ve mentioned before: The iPhone is primarily hired as a premium network service salesman. It receives a ‘commission’ for selling a premium service in the form of a premium price. Because it’s so good at it, the premium is quite high.”

Dediu’s observation applies equally well to all the top smartphone brands. They’re all bait, a great way to hook the customer into a revolving 24 month agreement, with high ARPUs (Average Revenue Per User) stemming from the nature, the breadth and attractiveness of services provided by these high-end devices.

T-Mobile, the perennial dark horse, has been one of the more vocal plaintiffs. Besides clearly stating that the company didn’t need the iPhone, T-Mobile has hinted that it would get rid of the blood-sucking payments to handset makers altogether.
Last month, the hints became reality. T-Mobile “re-imagined” itself as the Un-Carrier:

T-Mobile’s pitch:

With no more annual service contract required, we don’t lock you into a big commitment with our Simple Choice Plan.

It’s a clever idea: T-Mobile has seemingly decoupled hardware and service. If you bring your own phone, you just pay for service. If you need a phone, T-Mobile will be happy to sell you one, let’s say a 16Gb iPhone 5 for $99…and as an added convenience (watch the left hand), they’ll offer you a 24-month contract at just $20/month! You want out before serving your 2-year sentence? No problem! Just pony up the full price of the phone; other terms and conditions may apply.

Inexplicably, some pundits (who should know better) have fallen for the pitch. Here’s David Pogue in the New York Times:

“Last week, the landscape changed. T-Mobile violated the unwritten conspiracy code of cellphone carriers. It admitted that the emperors have no clothes.”

The forums buzzed with the party line: It’s the end of contracts and subsidies.
But the company’s too-clever way with words didn’t sit well with other observers. The no-contract claim is obviously disingenuous; it only applies to people bringing their own phone, a tiny minority. For typical customers — those who get their phones from their carriers — the manacles are too familiar.
The claim also didn’t sit well with Bob Ferguson, Washington State’s Attorney General. Ferguson didn’t dither, saying “No Dice” to T-Mobile’s deceptive “No-Contract” advertising:

“As Attorney General, my job is to defend consumers, ensure truth in advertising, and make sure all businesses are playing by the rules.” 

T-Mobile backed down. The company admitted that there actually is a contract, a subsidy, and they offered to make things right with customers who accepted the agreement under murky pretenses.
Happy ending, congratulations to the vigorous AG.

Still, what were T-Mobile execs thinking? Did they really think that we’re such idiots that we can’t see a 24 month obligation as a contract? What sort of corporate culture produces this type of delusion?
In theory, T-Mobile was onto a good idea. You bring your own phone, you truly pay less and you’re not tied to a contract. Come in, stay as long or as little as you’d like, pay by the month.
But this isn’t how the market works in practice. The rapid succession of new phones makes the latest model more desirable. As a result, carriers have an opportunity to tie their customers down by offering the newest device at an artificially low price — and get a comfortable two-year income stream to recoup the subsidy.
Meanwhile, there’s other news in the carrier world:

  • Verizon is locked in difficult negotiations for the purchase of Vodafone’s 45% share of the company. This is in a context where, two years ago, Vodafone made the decision to shed its participation in other carriers such as Orange, SFR or China Mobile. In their bid/ask conversations, Vodafone and Verizon are $30B apart, Verizon offering a mere $100B while Vodafone won’t take a penny less than $130B.
  • Softbank and Dish Network are in a bidding war for Sprint, probably out of gluttony for more punishment. Masayoshi Son, Softbank’s leader, graciously spared us the carrier-as-victim lament. But if Dish Chairman Charlie Ergen prevails, we can be sure this seasoned sob story practitioner will fit right in once he becomes a cellular operator.

These are the people who tell us subsidies are killing them. They really do think we’re idiots.


Facebook Home: Another Android Lock Pick

mobile internet, social networks By April 7, 2013 Tags: , 18 Comments


Facebook’s new Home on Android smartphone is an audacious attempt to demote the OS to a utility role, to keep to itself user data Android was supposed to feed into Google’s advertising business. Google’s reaction will be worth watching.

Amazon’s Kindle Fire, announced late September 2011, is viewed as a clever “Android lock pick“. Notwithstanding the term’s illicit flavor, Amazon’s burglary is entirely legal, an intended consequence of Google’s decision to Open Source their Android mobile operating system. Download the Android source code here, modify it to your heart’s — or business needs’ — content, load it onto a device and sell as many as you’d like.

Because it doesn’t fully meet the terms of the Android Compatibility Program, Amazon’s proprietary version isn’t allowed to use the Android trademark and the company had to open its own App Store. In industry argot, Amazon “forked” Android; they spawned an incompatible branch in the Android Source Tree.

The result of this heretic version of Android is a platform that’s tuned to Amazon’s own needs: Promoting its e-commerce without feeding Google’s advertising money pump.

And that brings us to Facebook’s new Home.

(The company’s slick presentation is here. Business Insider’s also provides a helpful gallery.)

Zuckerberg’s new creation is the latest instance of the noble pursuit of making the user’s life easier by wrapping a shell around existing software. Creating a shell isn’t a shallow endeavor; Windows started its life as a GUI shell wrapped around MS-DOS.  Even venerable Unix command line interfaces such as C shell, Bourne, and Bash (which can be found inside OS X) are user-friendly — or “somewhat friendlier” — wrappers around the Unix kernel. (Sometimes this noble pursuit is taken too far — remember Microsoft’s Bob? It was the source of many jokes.)

Facebook Home is a shell wrapped around Android; it’s a software layer that sits on top of everything else on your smartphone. Your Facebook friends, your timeline, conversations, everything is in one place. It also gives you a simple, clean way to get to other applications should you feel the need to leave the Facebook corral… but the intent is clear: Why would you ever want to leave Home?

This is audacious and clever, everything we’ve come to expect from the company’s founder.

To start with, and contrary to the speculation leading up to the announcement, Facebook didn’t unveil a piece of hardware. Why bother with design, manufacture, distribution and support, only to sell a few million devices — a tiny fraction of your one billion users — when you can sneak in and take over a much larger number of Android smartphones at a much smaller cost?

Second, Home is not only well-aligned with Facebook’s real business, advertising revenue, it’s even more aligned with an important part of the company’s business strategy: keeping that revenue out of Google’s hands. Android’s only raison d’être is to attract a captive audience, to offer free services (search, email, maps…) in order to gain access to the users’ actions and data, which Google then cashes in by selling eyeballs to advertisers. By “floating” above Android, Home can keep these actions and data to itself, out of Google’s reach.

Facebook, like Amazon, wants to keep control of its core business. But unlike Amazon, Facebook didn’t “fork” Android, it merely demoted it to an OS layer that sits underneath the Home shell.

On paper and in the demos, it sounds like Zuckerberg has run the table… but moving from concept to reality complicates matters.

First, Facebook Home isn’t the only Android shell. An important example is Samsung, the leading Android player: it provides its own TouchWiz UI. Given that the Korean giant is obviously determined to stay in control of its own core business, one wonders how the company will welcome Facebook Home into the family of Galaxy phones and phablets. Will it be a warm embrace, or will Samsung continually modify its software in order to keep Home one step behind?

More generally, Facebook has admitted that differences in Android implementations prevent the first release of Home from working on all Android phones. In order to achieve the coverage they’ll need to keep Google (and its Google+ social networking effort) at bay, Facebook could be sucked into a quagmire of development and support.

Last but not least, there’s Google’s reaction.

So far, we’ve heard little but mellifluous pablum from Google in response to Home. (Microsoft, on the other hand, quickly attempted to point out that they were first with an all-your-activities-friends-communications shell in Windows Phone but, in this game, Android is the new Windows and Microsoft is the Apple of the early 90’s.)

Google has shown that it can play nice with its competitors — as long as they aren’t actually competing on the same turf. The Mountain View company doesn’t mind making substantial ($1B or more) Traffic Acquisition payments to Apple because the two don’t compete in the Search and Advertising business. Facebook taking over an Android smartphone is another matter entirely. Google and Facebook are in the same game; they both crave access to user data.

Google could sit back and observe for a while, quantify Facebook’s actual takeover of Android phones, keep tabs on users’ reactions. Perhaps Home will be perceived as yet another walled garden with a massive handover of private data to Facebook.

But Google already sees trouble for its Android strategy.

Many Asian handset makers now adopt Android without including services such as Google Search, Gmail, and Google Maps, the all-important user data pumps. Samsung still uses many of these services but, having gained a leading role on the Android platform, it might demand more money for the user data it feeds to Google, or even fork the code.

In this context, Facebook Home could be perceived as yet another threat to the Android business model.

A number of possible responses come to mind.

In the computer industry, being annoyed or worse by “compatible” hardware or software isn’t new. As a result, the responses are well honed. You can keep changing the interface, thus making it difficult for the parasitic product to bite into its host and suck its blood (data, in this case), or you change the licensing terms.

Google could change or hide its APIs (Application Programming Interfaces) in order to limit Home’s functionality, or even prevent it from running at all (at least until a particularly nasty “bug” is fixed). Worse, Google could makes changes that cause the Facebook shell to still run, but poorly.

I’ll hasten to say that I doubt Google would do any of this deliberately — it would violate the company’s Don’t Be Evil ethos. But… accidents could happen, such as when a hapless Google engineer mistakenly captured Wifi data.

Seriously, FaceBook Home is yet another pick of the Android lock, a threat against Google’s core strategy that will have to be addressed, either with specific countermeasures or with more global changes in the platform’s monetization.


The Mobile Rogue Wave

mobile internet By March 24, 2013 12 Comments


Publishers are concerned: The shift to mobile advertising revenue is lagging way behind the transfer of users to smartphones and tablets. Solutions are coming, but it might take a while before mobile ads catch up with users.
(A mistake in the ad revenue chart has been corrected) 

Last week, at a self-congratulatory celebration held by the French audit bureau of circulation (called OJD), the sports daily l’Equipe was honored for the best progression in  mobile audience. (I’m also happy to mention that Les Echos, the business group I’m working for, won the award for the largest growth in overall circulation with a gain of +3.3% in 2012 — in a national market losing 3.8%.) In terms of mobile page views, l’Equipe is three times bigger than the largest national daily (Le Monde). Unfortunately, its publisher tarnished the end the ceremony a bit by saying [I’m paraphrasing]: “Well, thanks for the award. But let’s not fool ourselves. The half of our digital traffic that comes from mobile represents only 5% of our overall digital revenue. We better react quickly, otherwise we’ll be dead soon”. While that outburst triggered only reluctant applause, almost everyone in the audience agreed.

Two days before, IREP (an advertising economics research organization) released 2012 data on advertising revenue for all media. Here is a quick look:

All media........... €13,300m......-3.5% 
Print press (all)....€3,209m.......-8.2%
National Dailies.....€233m........ -8.9%
Internet Display.....€646m.........+4.8%
Internet Search......€1,141m.......+7%

A few comments:
— The print press is nosediving faster than ever: In 2011, national dailies where losing 3.7% in revenue; in 2012, they lost almost 9%; and Q1 2013 doesn’t look better.
— On the digital side: Search is now almost twice as big as the display ads and it’s growing faster (7% vs. 4.8%). Google is grabbing most of this growth as the €1.14bn in revenue mentioned by IREP is roughly the equivalent of Google’s revenue in France.
— Mobile revenue is the fastest growing segment (+29%), but weighs only 2% of the entire digital segment (€1,830m revenue in 2012).

Looking at audiences reveals an even bleaker picture. Data compiled by the French circulation bureau for 87 media show that, between February 2012 and February 2013, the mobile applications audience grew 67% in visits and 102% in page views — again, in a segment that only grew 29% for 2012:

The conclusion is dreadful. Not only do audiences massively flock to mobile (more visits), but people spend more time in their favorite media app (with an even greater increase in page views) but, also, each viewer brings less and less money as ad revenues grew slower than visits — by a factor of two — and slower than page views — by a factor of three.

At the same time, in order to address this shift in audience, media are allocating more and more resources to mobile: Apps gain in sophistication and have to run on a greater number of devices. By the end of this year, the iOS ecosystem, until recently the simplest to deal with, will have at least five different screen sizes, and Android dozens of possible configurations. To add insult to injury, mobile apps don’t allow cookies, which prevents most measurements and users tend to randomly switch from their mobile devices to their PC or tablet, making tracking even more difficult…

Where do we go from here?

Publishers have no choice but following their readers. But, in doing so, they better be smart and select the right vectors. The coming months and years are likely to see scores of experiments. Native applications, meaning dedicated to a given ecosystem, might not last forever. As for now, they still offer superior performance but web apps, served from the internet regardless of the terminal’s operating system, are gaining traction. They become more fluid, accommodate more functionalities and improve their storage of contents for offline reading, but it will be a while before they become mainstream. In addition, web apps allow permanent improvements; if you look at the version number of web apps, you’ll see publishers pushing new releases on a weekly basis. They do so at will, as opposed to begging Apple to speed up the approval of native applications (not to mention the absence of a direct link to the customer.)

Similarly, many publishers are placing serious bets on responsive design sites that dynamically adjust to the screen size (see a previous Monday Note on Atlantic’s excellent business site Quartz). Liquid design, as it is also called, is great in theory but extremely difficult to develop and the slightest change requires diving into hugely complex HTML code (which also makes pages heavier to download and render.)

Technically speaking, in a near future, as rendering engines and processors keep improving, the shift to the mobile will no longer be a problem. But solving the low yield of mobile advertising is another matter. The advertising community evangelizes the promises of Real-Time Bidding; RTB basically removes the Ken and Barbie from the transaction process as demand and supply are matched through automated market places. But RTB is also known to pushes assets prices further down. As usual in the digital ad business, the likely winner will be Google, along with a few smaller players — before these are eventually crushed by Google.

The mobile ecosystem will come up with smarter innovations. Some will involve geo-located advertising, but the concept, great in demo, has yet to prove its revenue potential. Data collected through various means are much potent vector to stimulate mobile ads. Facebook knows it only too well: in the last quarter of 2012, it made $305m in mobile ads (that’s more than five times the French mobile ad market… in one quarter!); it accounts for 23% of FB’s total revenue.

Other technologies look more farfetched but quite promising. This article in the MIT Technology Review features a company that could solve a major issue, that is following users as they jump from one device to another. Drawbridge, Inc. was founded by Kamakshi Sivaramakrishnan, a statistics and probability PhD from Stanford. Her pitch (see a video here): bridging smartphones, tablets and PCs thanks to what she calls a “giant statistical space-time data triangulation technique”. In plain English: a model that generates clusters (based on patterns of usage and collected data) that will be used to create a “match” pinpointing an individual’s collection of devices. The goal is giving advertisers the ability to easily extend their campaigns from PC to mobile terminals. A high potential indeed. It caught the interest of two major venture capital firms, Kleiner Perkins Caufield & Byers and Sequoia Capital, who together injected $20m in the startup. Drawbridge claims to have already bridged about 540 million devices (at a rate or 800 per minute!)

This could be one of the many boards used to ride the Mobile rogue wave and, for many players, avoid drowning.



Growing Forces in Mobile

mobile internet By March 3, 2013 Tags: 12 Comments


As seen last week in Barcelona, the mobile industry is red hot. The media sector will have to work harder to capture its share of that growth.

The 2013 edition of the Mobile World Congress held last week in Barcelona was as large as the biggest auto-show in the world: 1500 exhibitors and a crowd of 72,000 attendees from 200 countries. The mobile industry is roaring like never before. But the news media industry lags and will have to fight hard to stay in the game. Astonishingly, only two media companies deigned to show up: Pearson with its huge education business accounting for 75% of its 2012 revenue (vs. 7% for its Financial Times unit); and Agence France-Presse which is entering the customized application market. No other big media brand in sight, no trade organizations either. Apparently, the information sector is about to miss the mobile train.

Let’s begin with data that piqued my interest, from AT Kearney surveys for the GSM Association.

Individual mobile subscribers: In 2012, the worldwide number of mobile subscribers reached 3.2 billion. A billion subscribers was added in the last four years. As the world population is expected to grow by 1.1% per year between 2008 and 2017, the mobile sector enjoyed a 8.3% CAGR (Compound Annual Growth Rate) for the 2008-2012 period. For the 2012 – 2017 interval the expected CAGR is 4.2%. The 4 billion subscribers mark will be passed in 2018. By that time, 80% of the global population will be connected via a mobile device.

The rise of the machines. When machine-to-machine (M2M) connections are taken into account, growth becomes even more spectacular: In 2012, there were 6.8 billion active SIM cards, 3% of them being M2M connections. In 2017, there will be 9.7 billion active SIM cards and the share of M2M connections will account for 13% with almost 1.3 billion devices talking to each other.
The Asia-Pacific region will account for half of the connection growth, both for individual subscriptions and M2M.

We’ll now turn to stats that could benefit the media industry.

Mobile growth will be mostly driven by data usage. In 2012, the volume of data exchanged through mobile devices amounted to .9 exabytes per month (1 exabyte = 1bn gigabytes), this is more than the all preceding years combined! By 2017, it is expected to reach 11.2 exabytes, that’s a 66% CAGR!

A large part of this volume will come from the deployment of 4G (LTE) networks. Between now and 2017, deploying LTE technology will result in a 4X increase in connection speeds.

For the 2012 – 2017 period, bandwidth distribution is expected to grow as follows:

M2M:......... +89% 
Video:....... +75% 
Gaming:...... +62% 
Other data:...+55% 
File sharing: +34% 
VoIP:........ +34%

Obviously, the huge growth of video streaming (+75%) points to a great opportunity for the media industry as users will tend to watch news capsules on-the-go in the same way they today look at a mobile web sites or an app (these two will be part of the 55% annual growth).

The growing social mobility will also be an issue for news media. Here are the key figures for today in active mobile users


Still, as important as it is, social usage only accounts for 17 minutes per day, vs. 25 minutes for internet browsing and a mere 12 minutes for voice calls. Most likely, the growth of video will impact the use of social networks as Facebook collects more and more videos directly uploaded from smartphones.

A large part of this growth will be driven by the rise of inexpensive smartphones. Last week in Barcelona, the largest stand was obviously Samsung’s. But a huge crowd also gathered around Huawei or ZTE showing sophisticated Android-powered smartphones — at much lower prices. This came as a surprise to many westerners like me who don’t have access to these Chinese devices. And for emerging markets, Firefox is coming with a HTML5 operating system that looked surprisingly good.

In years to come, the growing number of operating systems, screen sizes and features will be a challenge. (At the MWC, the trend was definitely in favor of large screens, read this story in Engadget.) An entire hall was devoted to applications — and software aimed at producing apps in a more standardized, economical fashion. As a result, we might see three approaches to delivering contents on mobile:
– The simplest way will be mobile sites based on HTML5 and responsive design; more features will be embedded in web applications.
– The second stage will consist of semi-native apps, quickly produced using standardized tools, allowing fast updates and adaptations to a broad range of devices.
– The third way will involve expensive deep-coded native apps aimed at supporting sophisticated graphics; they will mainly be deployed by the gaming industry.

In upcoming Monday Notes, we will address two majors mobile industry trends not tied to the media industry: Connected Living (home-car-city), a sector likely to account for most machine-to-machine use; and digital education taking advantage of a happy combination of more affordable handsets and better bandwidth.


Google’s Red Guide to the Android App Store

mobile internet By March 3, 2013 Tags: , 26 Comments


As they approach the one million apps mark, smartphone and tablet app stores leave users stranded in thick, uncharted forests. What are Google and Apple waiting?

Last week, Google made the following announcement:

Mountain View, February 24th, 2013 — As part of an industry that owes so much to Steve Jobs, we remember him on this day, the 58th anniversary of his birth, with great sadness but also with gratitude. Of Steve’s many achievements, we particularly want to celebrate the Apple App Store, the venerable purveyor of iPhone software. 

Introduced in 2008, the App Store was an obvious and natural descendant of iTunes. What wasn’t obvious or foreseen was that the App Store would act as a catalyst for an entire market segment, that it would metamorphose the iPhone from mere smartphone to app phone. This metamorphosis provided an enormous boost to the mobile industry worldwide, a boost that has benefitted us all and Google more than most.

But despite the success of the app phone there’s no question that today’s mobile application stores, our own Google Play included, are poorly curated. No one seems to be in charge, there’s no responsibility for reviewing and grading apps, there’s no explanation of the criteria that goes into the “Editors’ Picks”, app categorization is skin deep and chaotic.

Today, we want to correct this fault and, at the same time, pay homage to Steve’s elegant idea by announcing a new service: The Google Play Red Guide. Powered by Google’s human and computer resources, the Red Guide will help customers identify the trees as they wander through the forest of Android apps. The Red Guide will provide a new level of usefulness and fun for users — and will increase the revenue opportunities for application developers.

With the Google Play Red Guide, we’ll bring an end to the era of the uncharted, undocumented, and poorly policed mobile app store.

The Red Guide takes its name from another great high-tech company, Michelin. At the turn of the 20th century, Michelin saw it needed to promote automotive travel in order to stimulate tire sales. It researched, designed and published great maps, something we can all relate to. To further encourage travel, Michelin published Le Guide Rouge, a compendium of hotels and restaurant. A hundred years later, the Michelin Red Guide is still considered the world’s standard; its inspectors are anonymous and thus incorruptible, their opinions taken seriously. Even a single star award (out of three) can put an otherwise unknown restaurant on the map — literally.

Our Red Guide will comprise the following:

– “Hello, World”, a list of indispensable apps for the first time Android customer (or iPhone apostate), with tips, How-To guides, and FAQs.
– “Hot and Not”. Reviews of new apps and upgrades — and the occasional downgrade.
– “In Our Opinion”. This is the heart of the Guide, a catalogue of reviews written by a select group of Google Play staff who have hot line access to Google’s huge population of in-house subject matter experts. The reviews will be grouped into sections: Productivity, e-Learning, Games, Arts & Creativity, Communication, Food & Beverage, Healthcare, Spirituality, Travel, Entertainment, Civics & Philanthropy, Google Glass, with subcategories for each.

Our own involvement in reviewing Android apps is a novel — perhaps even a controversial — approach, but it’s much needed. We could have taken the easy path: Let users and third-parties provide the reviews. But third party motives are sometimes questionable, their resources quickly exhausted. And with the Android Store inventory rapidly approaching a million titles, our users deserve a trustworthy guide, a consistent voice to lead them to the app that fits.

We created the Red Guide because we care about our Android users, we want them to “play safe” and be productive, and we feel there’s no better judge of whether an application will degrade your phone’s performance or do what it claims than the people who created and maintain the Android framework. For developers, we’re now in a position to move from a jungle to a well-tended garden where the best work will be recognized, and the not-so-great creations will be encouraged to raise their game.

We spent a great deal of time at Google identifying exactly the right person to oversee this delicate proposition…and now we can reveal the real reason why Google’s Motorola division hired noted Macintosh evangelist, auteur, and investor Guy Kawasaki as an advisor: Guy will act as the Editor in Chief of the Google Play Red Guide.

With Guy at the helm, you can expect the same monkish dedication and unlimited resources we deployed when we created Google Maps.

As we welcome everyone to the Google Play Red Guide, we again thank Steve Jobs for his leadership and inspiration. Our algorithms tell us he would have approved.

The Red Guide is an open product and will be published on the Web at as well as in e-book formats (iBookstore and Kindle formats pending approval) for open multi-platform enjoyment.

No need to belabor the obvious, you’ve already figured out that this is all a fiction. Google is no better than Apple when it comes to their mobile application store. Both companies let users and developers fend for themselves, lost in a thick forest of apps.

That neither company seems to care about their online stores’ customers makes no sense: Smartphone users download more apps than songs and videos combined, and the trend isn’t slowing. According to MobiThinking:

IDC predicts that global downloads will reach 76.9 billion in 2014 and will be worth US$35 billion.

Unfortunately, Apple appears to be resting on its laurels, basking in its great App Store numbers: 40 billion served, $8B paid to developers. Perhaps the reasoning goes like this: iTunes served the iPod well; the App Store can do the same for the iPhone. It ain’t broke; no fix needed.

But serving up music and movies — satisfying the user’s established taste with self-contained morsels of entertainment — is considerably different from leading the user to the right tool for a job that may be only vaguely defined.

Apple’s App Store numbers are impressive… but how would these numbers look like if someone else, Google for example, showed the kind of curation leadership Apple fails to assert?


iPad Pro: The Missing Workflow

hardware, mobile internet By February 3, 2013 Tags: 40 Comments


The iPad started simple, one window at a time, putting it in the “media consumption” category as a result. Over time, such category proved too narrow, the iPad did well in some content creation activities. Can the new 128 GB iPad continue the trend and acquire better workflow capabilities?

Last week, without great fanfare, Apple announced a new 128 GB version of its fourth generation iPad, a configuration popularly known as the “iPad Pro“. The “Pro” monicker isn’t official, but you wouldn’t know that from Apple’s press release:

Companies regularly utilizing large amounts of data such as 3D CAD files, X-rays, film edits, music tracks, project blueprints, training videos and service manuals all benefit from having a greater choice of storage options for iPad. 

Cue the quotes from execs at seriously data storage-intense companies such as AutoCAD; WaveMachine Labs (audio software); and, quirkily, Global Aptitude, a company that makes film analysis software for football teams:

“The bottom line for our customers is winning football games, and iPad running our GamePlan solution unquestionably helps players be as prepared as possible,” said Randall Fusee, Global Apptitude Co-Founder. 

The naysayers grumble: Who needs this much memory on a “media tablet”? As Gizmodo put it:

The new iPad has the same retina display as its brothers, and the same design, and the same guts, with one notable exception: a metric crap-ton of storage. More storage than any decent or sane human being could ever want from a pure tablet…

(Increased storage is…indecent? This reminds me of the lambasting Apple received for putting 1 — one! — megabyte of memory in the 1986 Mac Plus. And we all recall Bill Gates’ assertion that 640 Kbytes ought to be enough for anyone. He now claims that the quote is apocryphal, but I have a different recollection.)

Or maybe this is simply Apple’s attempt to shore up the iPad’s average selling price ($467, down 18% from the year ago quarter), which took a hit following the introduction of the lower-priced iPad mini. (What? Apple is trying to make more money?)

The critics are right to be skeptical, but they’re questioning the wrong part of the equation.

When we compare iPad prices, the Pro is a bargain, at least by Apple standards:

The jump from 16GB to 32GB costs $100. Another doubling to 64GB costs the same $100. And, on February 5th, you’ll get an additional 64GB for yet another mere $100. (By comparison, extra solid state storage on a MacBook costs between $125 and $150 per 64GB.)

We get a bit more clarity when we consider the iPad’s place in Apple’s product line: As sales of the Mac slow down, the iPad Pro represents the future. Look at Dan Frommer’s analysis of 10 years of Mac sales. First, the Mac alone:

This leads Dan to ask if the Mac has peaked. Mac numbers for the most recent quarter  were disappointing. The newer iMacs were announced in October, with delivery dates in November and December for the 21.5″ and 27″ models respectively. But Apple missed the Xmas quarter window by about a million units, which cut revenue by as much as $1.5B and margin by half a billion or so (these are all very rough numbers). We’ll probably never find out how Apple’s well-oiled Supply Chain Management machine managed to strip a gear, but one can’t help wonder who will be exiled to Outer Mongolia Enterprise Sales.

Now consider another of Dan Frommer’s graphs:

This is units, not revenue. Mac and iPad ASPs are a 3 to 1 ratio but, still, this paints a picture of a slow-growth Mac vs. the galloping iPad.

The iPad — and tablets in general — are usurping the Mac/PC space. In the media consumption domain, the war is all but won. But when we take a closer look at the iPad “Pro”, we see that Apple’s tablet is far from realizing its “professional” potential.

This is where the critics have it wrong: Increased storage isn’t “insane”, it’s a necessary element…but it isn’t sufficient.

For example, can I compose this Monday Note on an iPad? Answering in the affirmative would be to commit the Third Lie of Computing: You Can Do It. (The first two are Of Course It’s Compatible and Chief, We’ll be in Golden Master by Monday.)

I do research on the Web and accumulate documents, such as Dan Frommer’s blog post mentioned above. On a PC or Mac, saving a Web page to Evernote for future reference takes a right click (or a two finger tap).

On an iPad, things get complicated. The Share button in Safari gives me two clumsy choices: I can mail the page to my Evernote account, or I can Copy the URL, launch Evernote, paste the URL, compose a title for the note I just created, and perhaps add a few tags.

Once I start writing, I want to look through the research material I’ve compiled. On a Mac, I simply open an Evernote window, side-by-side with my Pages document: select, drag, drop. I take some partial screenshots, annotate graphs (such as the iPad Pro prices above), convert images to the .png format used to put the Monday Note on the Web…

On the iPad, these tasks are complicated and cumbersome.

For starters — and to belabor the obvious — I can’t open multiple windows. iOS uses the “one thing at a time” model. I can’t select/drag/drop, I have to switch from Pages to Evernote or Safari, select and copy a quote, and then switch back to the document and paste.

Adding a hyperlink is even more tortuous and, at times, confusing. I can copy a link from Safari, switch back to Pages, paste…but I want to “slide” the link under a phrase. I consult Help, which suggests that I tap on the link, to no avail. If I want to attach a link to a phrase in my document, I have to hit the Space key after pasting, go to Settings and then enter the text that will “cover” the link — perfectly obvious.

This order of operations is intuitively backwards. On a Mac (or PC), I select the target text and then decide which link to paste under it.

Things get worse for graphics. On the iPad, I can’t take a partial screenshot. I can take a full screenshot by simultaneously pressing the Home and Sleep buttons, or I can tap on a picture in Safari and select Save. In both cases, the screenshot ends up in the Photos app where I can perform some amount of cropping and enhancing, followed by a Copy, then switch back to Pages and Paste into my opus.

Annotations? No known way. Control over the image file format? Same answer. There’s no iPad equivalent to the wonderful Preview app on the Mac. And while I’m at it, if I store a Preview document in iCloud, how do I see it from my iPad?

This gets us into the more general — and “professional” — topic of assembling a trove of parts that can be assembled into a “rich” document, such as a Keynote presentation. On a personal computer, there are plenty of choices. With the iPad, Apple doesn’t provide a solution, there’s no general document repository, no iCloud analog to Dropbox or Microsoft’s Skydrive, both of which are simple to use, quasi-free and, in my experience, quite reliable. (One wonders: Is the absence of a Dropbox-like general documents folder in iCloud a matter of technology or theology?)

Simply throwing storage at the problem is, clearly, not enough to make the iPad a “Pro” device.  But there is good news. Some of it is anecdotal, such as the more sophisticated editing provided by the iPad version of iPhoto. The better news is that iOS is a mature, stable operating system that takes advantage of fast and spacious hardware.

But the best news is that Apple has, finally, some competition when it comes to User Experience. For example, tablets that run Microsoft or Google software let users slide the current window to show portions of another one below, making it easier to select parts of a document and drop them into another. (Come to think of it, the sliding Notifications “drawer” on the iPad and iPhone isn’t too far off.)

This competition might spur Apple to move the already very successful iPad into authentically “Pro” territory.

The more complex the task, the more our beloved 30-year-old personal computer is up to it. But there is now room above the enforced simplicity that made the iPad’s success for UI changes allowing a modicum of real-world “Pro” workflow on iPads.


Quartz: Interesting… and uncertain

mobile internet, online publishing By September 30, 2012 Tags: 18 Comments


Atlantic’s new digital venture named Quartz is aimed at global business people. It innovates in many radical ways, but its business model remains dicey.

Two years ago, Atlantic Media’s president Justin Smith was interviewed by the New York Times. The piece focused on the digital strategy he successfully executed:

“We imagined ourselves as a Silicon Valley venture-backed startup whose mission was to attack and disrupt The Atlantic. In essence, we brainstormed the question: What would we do if the goal was to aggressively cannibalize ourselves?”

In most media companies, that kind of statement would have launched a volley of rotten tomatoes. Atlantic’s disruptive strategy gave birth to a new offspring: Quartz (URL:, launched a couple of weeks ago.

Quartz is a fairly light operation based in New York and headed by Kevin Delaney, a former managing editor at the Its staff of 25 was pulled together from great brands in business journalism: Bloomberg, The Wall Street Journal, The Economist and the New York Times. According to the site’s official introduction, this is a team with a record of reporting in 119 countries and speaking 19 languages. Not exactly your regular gang of digital serfs or unpaid contributors that most digital pure players are built on.

This professional maturity, along with the backing of the Atlantic Media Company, a 155 years-old organization, might explain the set of rather radical options that makes Quartz so interesting.

Here are a few:

Priority on mobile use. Quartz is the first of its kind to deliberately reverse the old hierarchy: first, traditional web (for PC), and mobile interfaces, second. This is becoming a big digital publishing debate as many of us strongly believe we should go for mobile first and design our services accordingly (I fall in that category).

Quartz founders mentioned market research showing their main target — people on the road interested in global economy — uses 4.21 mobiles devices on average (I love those decimals…): one laptop, one iPad, and two (!) Blackberrys. (Based on multiple observations, I’d rather say, one BB and one iPhone.)

No native mobile app. Similarly, Quartz went for an open HTML5 design instead of apps. We went through this before in the Monday Note. Apps are mandatory for CPU intensive features such as heavy graphics, 3D rendering and games. For news, HTML5 — as messy as it is — does the job just fine. In addition, Quartz relies on “responsive design”, one that allows a web site to dynamically morph in response to the specific connected device (captures are not to scale):

Here is how it looks on a desktop screen:

… on an iPad in landscape mode:


…on an iPad in portrait mode:

on a small tablet:

..on an iPhone:

and on a small phone:

(I used Matt Kerlsey Responsive Design Test Site to capture Quartz renderings, it’s an excellent tool to see how your site will look like on various devices).

A river-like visual structure. Quartz is an endless flow of stories that automatically load one below the other as you scroll down. The layout is therefore pretty straightforward: no page-jumps, no complicated navigational tools, just a lateral column with the latest headlines and the main windows where articles concatenate. Again, the priority given to mobile use dictates design purity.

A lightweight technical setup. Quartz does not rely on a complex Content Management System for its production but on WordPress. In doing so, it shows the level of sophistication reached by what started as a simple blog platform. Undoubtedly, the Quartz design team invested significant resources in finding the best WP developers, and the result speaks for itself (despite a few bugs, sure to be short-lived…).

Editorial choices. Instead of the traditional news “beats” (national, foreign, economy, science…), Quartz went boldly for what it calls “obsessions”. This triggered a heated debate among media pundits: among others, read C.W. Anderson piece What happens when news organizations move from “beats” to “obsessions”? on the Nieman Journalism Lab.  Admittedly, the notion of “beats” sounds a bit old-fashioned. Those who have managed newsrooms know beats encourages fiefdoms, fence-building and bureaucracy… Editors love them because they’re much simpler to manage on a day-to-day basis; editorial meetings can therefore be conducted on the basis of a rigid organizational chart; it’s much easier to deal with a beat reporter or his/her desk chief than with some fuzzy “obsession” leader. At Quartz, current “Obsessions” appear in a discreet toolbar. They includes China Slowdown, The Next Crisis, Modern States, Digital, Money, Consumer Class, Startups, etc.

To me, this “obsessive” way of approaching news is way more modern than the traditional “beat” mode. First, it conveys the notion of adjustability to news cycles as “obsessions” can — should — vary. Second, it breeds creativity and transversal treatments among writers (most business publications are quite boring precisely due to their “silo culture”.) Third, digital journalism is intrinsically prone to “obsession”, i.e. strong choices, angles, decisions. For sure, facts are sacred, but they are everywhere: when reporting about the last alarming report from the World Bank, there is no need to repeat what lies just one click away — just sum up the main facts, and link back to the original source! Still, this shouldn’t preclude balanced treatment, fairness and everything in the basic ethics formulary. (Having said that, let’s be realistic: managing a news flow through “obsessions” is fine for  an editorial staff of 20, certainly not so for hundreds of writers.)

Quartz business side. Quartz is a free publication. No paywall, no subscription, nothing. Very few ads either. Again, it opted for a decisive model by getting rid of the dumb banner. And it’s a good thing: traditional display advertising kills designs, crappy targeting practices irritate readers and bring less and less money. (Most news sites are now down to single digital digits in CPM [Cost Per Thousand page views], and it will get worse as ad exchanges keep gaining power, buying remnant inventories by the bulk and reselling those for nothing.) Instead, Quartz started with four sponsors:  Chevron, Boeing, Credit Suisse and Cadillac, all showing quality brand contents. It’s obviously too early to assess this strategy. But Quartz business people opted for being extremely selective in their choice of sponsors (one car-maker, one bank, etc.), with rates negotiated accordingly.

Two, brands are displayed prominently with embedded contents instead of usual formats. Quartz is obviously shooting for very high CPMs. At the very least, they are right to try. I recently meet a European newspaper that extracts €60 to €100 CPMs by tailoring ads and making special ads placements for a small list of advertisers.

Again: such strategy is fine for a relatively small operation: as it is now, Quartz should not burn more than $3-4M a year. Betting on high CPMs is way more difficult for large websites — but niches can be extremely profitable. (For more on Quartz economics, read Ken Doctor’s piece also on Nieman.)

To sum up, three elements will be key to Quartz’ success. 

1 . Quickly build a large audience. Selected advertisers are not philanthropists; they want eyeballs, too. Because of its editorial choices, Quartz will never attract HuffPo-like audiences. To put things in perspective, the Economist gets about 7M uniques browsers a month (much less unique visitors) and has 632,000 readers on its app.

2 . Quartz bets on foreign audiences (already 60% of the total). Fine. But doing so is extremely challenging. Take The Guardian: 60 million uniques visitors per month — one third in the UK, another in the US, and the rest abroad — a formidable journalistic firepower, and a mere £40m in revenue (versus $160m in advertising alone for the with half of the Guardian’s audience, that’s a 5 to 1 ratio per reader.)

3 . Practically, it means Quartz will have to deploy the most advanced techniques to qualify its audience: it will be doomed if it is unable to tell its advertisers (more than four we hope) it can identify a cluster of readers traveling to Dubai more than twice a year, or another high income group living in London and primarily interested in luxury goods and services (see a previous Monday Note on extracting reader’s value through Big Data)

4 . In the end, Quartz is likely to face a growth question: staying in a niche or broadening its reach (and its content, and increasing its staff) to satisfy the ad market. Once its audience levels off, it might have no other choice than finding a way to make its readers pay. It should not be a problem as it focuses on a rather solvent segment.


Mobile Advertising:
The $20B Opportunity Mirage

advertising, mobile internet By June 10, 2012 Tags: 152 Comments

There are a lot of questions left to be answered about Facebook’s IPO fiasco, but one thing we know is this: As consumers shift their use of Facebook from PCs to smartphones, investors worry about lower mobile advertising revenues. Is this a temporary situation that will be remedied when usage patterns settle, or do investors have a right to be concerned? Must the advertising industry learn to adapt to a permanently leaner income stream from smartphones?

Let’s start by taking another look at Mary Meeker’s latest Internet Trends presentation from last week’s All Things Digital conference. On slide 17, she projects a $20B opportunity for Mobile Advertising in the US:

When Meeker uses the word “opportunity”, she means “unfulfilled potential”: Mobile Ad Spend in the US alone should be $20B larger than it is. For reference, Google’s latest quarterly revenue was about $10B worldwide.

$20B is a big number, and it got me thinking. How is it possible that the industry’s richest and most sophisticated players are unable to grab such a big pile of money? They have the brains and the computers, they’re aware of the situation…Is there a deeper problem?

A too-easy answer is the market’s age: Mobile advertising is still in its infancy. But that’s an indefensible excuse: The first iPhones shipped in late June 2007, the Smartphone 2.0 era is now five years old. Both Android and iOS are prosperous platforms with bulging App Stores, they sell tens of millions of devices every month, close to half a billion this calendar year. Brand managers, advertising agencies, search engines, social networks, a myriad of vibrant startups keep trying, but mobile advertising barely moves the needle.

We get closer to the heart of the matter when we look at a common thought pattern, an age-old and dangerously misleading algorithm:

The [new thing] is like the [old thing] only [smaller | bigger]

We’ve seen this formula, and its abuse, before. Decades ago, incumbents had to finally admit that minicomputers weren’t simply small mainframes. Manufacturers, vendors, software makers had to adapt to the constraints and benefits of a new, different environment. A semi-generation later, we saw it again: Microcomputers weren’t diminutive minicomputers but truly personal machines that consumers could lift with their arms, minds, and credit cards.

The “Tech-savvy We” should know better by now; We should have learned, but the temptation — and the lazy easiness — of the “X=Y but for the form factor” algorithm continues to derail even Our most “different thinkers”. When the iPad was introduced, a former Apple Director described the offering thus: “It’s just a big iPod Touch” (which proves nothing more than that Steve Jobs didn’t burden his Board of Directors with loads of information).

At the D8 conference in 2010, in front of an iPad-toting audience, a bellowing CEO dismissed Apple’s tablet as just a PC, minus the keyboard and mouse. (And I’ll share the shame: On April 3rd 2010, I looked at my new iPad through PC goggles and lamented the Mac features that were “missing” from my new tablet.)

Now we have advertising on smartphones, and we’ve fallen into a comfortable, predictable rut: “It’s just like Web advertising on the PC, shrunk to fit.” We see the same methods, the same designs, the same business models, wedged onto a smaller screen.

PC advertising has successfully navigated different screen sizes. On a large screen you might see something like this:

Plenty of space for both advertising and content. Even on a smaller screen, the ads are unobtrusive:

But on a smartphone, this is the advertising that’s supposed to entice us:

…and this is the NY Times, one of the better mobile apps.

Mobile ads aren’t merely smaller, they have less expressive power, they don’t seduce…and they’re annoying.

Of course, there’s more to the smartphone misunderstanding than the fairly obvious screen size problem. There’s also a matter of how we use our computing devices.

When we sit down in front of a laptop or desktop screen, our attention is (somewhat) focused and our time is (reasonably) committed. We know where we are and what we’re doing.

With smartphones, we’re on the move, we’re surrounded by people, activities, real-world attractions and diversions. As yet another Mary Meeker presentation suggests, time spent on mobile devices is fragmented:

We’re not paying (a loaded word) the same type of attention as we do on a PC.

Business Insider features an InMobi report on mobile ads, with the following comment [emphasis mine]:

Those ads were served across 6 billion mobile devices. That’s less than $1 per device, per year—a tiny sum. That tells you how far mobile advertising has to go, and how massive it will become in the next five years.

The dollar-per-device statement is a fact, the assumption of “massive” growth is wishful thinking.

When I hear that there’s a mother lode of advertising revenue in location-based ads that are pushed to my mobile phone as I stroll down Main Street (with my permission…I hope), ads that offer succulent deals in the stores and restaurants I’m about to pass, I wonder: Do we want barkers on our devices? Is this the game changer for mobile advertising, yet another kind of spam? LBA may be a hot topic among marketers but the public is dubious, as this MobileMarketer article soberly explains:

The reality is that this scares consumers, rather than excites them. Mobile marketers need to realize that what gets them and their peers fired up does not necessarily move consumers in the same way.

And this…

According to [Rip Gerber, CEO of Locaid Technologies, San Francisco], marketers create their own privacy obstacles when they forget relationship, relevance and preferences in favor of short-sighted metrics.

If the industry hasn’t cracked the mobile advertising code after five years of energetic and skillful work it’s because there is no code to crack. Together, the small screen, the different attention modes, the growing concerns about privacy create an insurmountable obstacle.

The “$20B Opportunity” is a mirage.


Apps Features: Social vs. “Related”

mobile internet By June 3, 2012 Tags: , 2 Comments

Mobile application design is hard. For websites, we have well-established graphic rules. For PC screens, the tolerance for interface mishaps is fairly broad. Mobile apps are the  opposite: space is much scarcer, every pixel counts. Try shrinking a tablet app screen down an to a smartphone size: homothecy (linear reduction) rarely works. This is the reason why we often see fine iPad applications turn into flunked smartphone ones. It sometimes takes a while for a successful iPad app turn in to a well-adapted iPhone one: Flipboard, Zite and Bloomberg BusinessWeek were wise enough to take as much time as needed to roll-out great apps for the small screen.

When designers (and marketeers) perform user tests for a small screen app, they realize their design will have to adjust to many new circumstances and constraints. Reading time and general use conditions change substantially from a tablet to a smartphone: while the former is definitely a lean-back device, the latter will be used in many different ways, often including uncomfortable settings — I glance at my phone in a lobby, a waiting line, in the subway, etc. All this deserves thoughtful consideration when designing an application. The same applies to advertisers: they can’t expect to capture the same level of attention when moving from tablets to the smartphones.

With this in mind, I made a quick list of mandatory features for mobile applications.

Social vs. “Related”. Today’s hype leaves no other option but making an application as “social” as possible. This being the certitude du jour, allow me to think differently.

True, some apps are inherently social: when it comes to rating a product or a service, the “crowd factor” is critical. Beyond that, it should be a matter of personal choice — an antinomic notion to today’s the “Social” diktat. When you enroll into Spotify, the default setting is to share your musical taste with your Facebook friends and to suffer theirs in return. I personally can’t stand such obligation: I quickly dumped the application and cancelled my account.

The social idea’s biggest mistake is the belief in a universal and monolithic concept everyone is supposed to be willing to embrace with a similar degree of scope and enthusiasm. That’s a geeky, super-cartesian, Zuckerberg-esque view of society. Among my friends, some like opera (the singing, not the browser), others prefer heavy metal and I’m more into jazz tunes; some are tech-minded like me, others are more inclined towards literature. When it comes to sharing news, I tend to be naturally selective about the people I send a link to: I don’t want to swamp everyone with stuff they don’t care about. I might be wrong, but this is the way I see the social cyberspace: segmented and respectful of each other.

Where am I getting with this: When I read news online, I care about what is related (i.e. recommended by editors) as much as what is social (recommended by the crowd). Of course, Trending, is a good indicator of what’s hot. Here is a good example on TechCrunch iPad app, by any measure a thoughtfully designed one. Its Trending sidebar cleverly displays what’s hot and how it evolves:

Even better: when you dive into a story, the app will give you a better-focused “Trending” indicator on a particular company, in this example Buddy Media….

… will send you to the Crunch Base repository of people and companies:

TechCrunch’s social treatment is mostly Twitter-based. Subjects are connected to relevant tweets with the underlying story shown in a web view:

Related contents come in different flavors. Take the Bloomberg way shown in its remarkable BusinessWeek application. Companies mentioned in a stories can pop-up in a black sidebar drawn from the Bloomberg financial app.

Similarly, ProPublica’s application uses a lateral “drawer” to display related contents in an efficient way:

These features are by no means secondary. Providing related contents or a supplement of data, such as financial of biographical information, is the best proven way to retain users.

Finally, a word about graphics. Apple and the iPad have set the bar pretty high and very few apps takes fully advantage of their graphics power. One company rises way above the crowd: Roambi, in a class in itself when it comes to visualizing information. My take is, someday, most business sites will borrow from Roambi’s spectacular way of displaying graphics (part explanation of its design sophistication: the core of Roambi’s designers comes from the video game industry).

One last world about the ongoing debate between open web-apps and proprietary ones such as iOS or Android: The gap is narrowing. The, which pioneered the genre two years ago, made tremendous progress in its app. Periodically, a new release comes up with slight improvements in fluidity and ease of use. The iOS system and its software development kit remain a must for games and 3D intensive applications, but for news and data apps, HTML5 is getting closer.

One feature, though, is missing in most of these apps: the ability to use them offline. 3G coverage and cellular data transfers are more unstable than developers tend to believe; users should have more leeway in configuring their apps to download content in the background, ready for later offline use.


Facebook: The Collective Hallucination

mobile internet, Uncategorized By May 27, 2012 Tags: 13 Comments

Facebook’s bumpy IPO debut could signal the end of a collective hallucination. Most of it pertains to the company’s ability to deliver an effective advertising machine.

Pre-IPO numbers looked nice, especially when compared to Google at this critical stage of their respective business lives:

Based on such numbers, and on the prospect for a billion users by the end of 2012, everyone began to extrapolate and predict Facebook’s dominance of the global advertising market.

Until some cracks began to appear.

The first one was General Motors’ decision to pull its ads off Facebook. This was due to poor click-through performance compared to other ads vectors such as Google. No big deal in terms of revenue: according to Advertising Age, GM had spent a mere $10 million in FB ads and a total $30 million maintaining its presence on the social network. But Facebook watchers saw it a major red flag.

The next bad signal came during the roadshow, when Facebook issued a rather stern warning about its advertising performance among mobile users.

“We believe this increased usage of Facebook on mobile devices has contributed to the recent trend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered.”

If Facebook can’t effectively monetize its mobile users, it is in serious trouble. Numbers compiled by ComScore are staggering: last March, the average American user spent 7hrs 21 minutes on mobile versions of Facebook (80% on applications, 20% on the mobile site). This represents a reach of more than 80% of mobile users and three times that of the next social media competitor (Twitter), see below:

(source : ComScore)

More broadly, Facebook experiences the unlimited supply of the internet in which users create inventory much faster than advertising can fill it. This trend is known to push ads prices further down as scarcity no longer contains them. The reason why the TV ad market is holding pretty well is its lasting ability to create a tension on prices thanks to the fixed numbers of ad slots available over a given period of time.

Unfortunately for its investors, in many ways, Facebook is not Google. First of all, it has no advertising “killer format ” comparable to Google’s AdWords. The search engine text ads check all the boxes that make a success: they are ultra-simple, efficient, supported by a scalable technology that makes them well-suited for the smallest advertisers as well as for the biggest ones; the system is almost friction-free thanks to an automated market place; and its efficiency doesn’t depend on the quality of creation (there is no room for that). One cent a time, Google churns its enormous revenue stream, without any competition in its field.

By contrast, Facebook’s ad system looks more traditional. For instance, it relies more on creativity than Google does. Although the term sounds a bit overstated considering the level of tactics Facebook uses to collect fans and raise “engagement” of any kind. For example, Tums, the anti-acid drug, developed a game encouraging users to throw virtual tomatoes at pictures of their friends. On a similar level of sophistication, while doing research for this column, I landed on the Facebook Studio Awards site showcasing the best ads and promotional campaigns. My vote goes to the French chicken producer Saint Sever, whose agency devised this elegantly uncomplicated concept: “1 ami = 1poulet” (one friend, one chicken):

If this is the kind of concept Facebook is proud to promote, it becomes a matter of concern for the company’s ARPU.

Speaking of Average Revenue Per User, last year, Facebook made $4.34 per user in overall advertising revenue. A closer look shows differences from one market to another: North America, the most valuable market, yielded $9.51 per user vs. $4.86 for the European market, $1.79 in Asia and only $1.42 for the rest of the world. Facebook’s problem lies exactly there: the most profitable markets are the most saturated ones while the potential for growth resides mostly in the low-yield tier. In the meantime, infrastructure costs are roughly identical: it costs the same to serve a page, or to synchronize a photo album located in Pennsylvania or in Kazakhstan (it could even cost more per user in remote countries, and some say that FB’s infrastructure running costs are likely to grow exponentially as more users generate more interactions between themselves).

Facebook might be tempted to mimic a rather questionable Google trait, that is “The Theory Of Everything”. Over the last years, we’ve seen Google jumping on almost everything (including Motorola’s mobile business), trying a large, confusing array of products and services in order to see what sticks on the wall. The end result is an impressive list of services that became very valuable to users (mail, maps, docs). But more than 90% of Google revenue still come from a single stream of business, search ads.

As for Facebook, we had a glimpse already with the Instagram acquisition (see a recent Monday Note), which looked more like a decision triggered by short-term agitation than by long-term strategic thought. We might see other moves like this as Mark Zuckerberg retains 57% of the voting shares and as the company sits on a big (more than $6 billion) pile of cash. Each month brings up a new business Facebook might be tempted to enter, from mobile phones, to search.

All ideas that fit Facebook’s vital need for growth.