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Too soon…

Uncategorized By October 9, 2011 20 Comments

‘Humor is the politeness of despair’, an approximate, googlish translation of l’humour est la politesse du désespoir, a saying attributed to noted post-WWII Left Bank jazzman, writer, and engineer, Boris Vian, So, let’s start with the reverent, despairing humor of Chris Calloway in Wired Magazine’s memorial to Steve Jobs:

“Heaven got a major upgrade today…”

Yes, I can see Dear Leader in his new abode. Having climbed his last mountain, he summons Saint Peter and utters the words that he has heard throughout his life: “You’re doing it all wrong.”

“Look at the name above the door, the typeface sucks, the kerning is off. The furniture is out of style — get something cleaner, fresher. And the stairs… We need something airier…I don’t know, glass? Come to think of it, one of the founding partners of the architecture firm that designed the Apple Store moved in here a few months ago. Bernard Cywinski; look him up get to work.”

…and then it’s Saint Peter’s turn to mourn Steve’s untimely demise, and his own lost tranquility.

[Update: I just found this picture of the New Yorker’s upcoming October 17th cover. Obviously, this is before Steve starts to take matters into his own hands.]

Back in our Valley of Tears, this Onion article provides just the right amount of serious thought wrapped in knowing derision. I can’t resist but quote the entire piece, it’s too good and, in a way, it’s a consolation:

Last American Who Knew What The Fuck He Was Doing Dies

Steve Jobs, the visionary co-founder of Apple Computers and the only American in the country who had any clue what the fuck he was doing, died Wednesday at the age of 56. “We haven’t just lost a great innovator, leader, and businessman, we’ve literally lost the only person in this country who actually had his shit together and knew what the hell was going on,” a statement from President Barack Obama read in part, adding that Jobs will be remembered both for the life-changing products he created and for the fact that he was able to sit down, think clearly, and execute his ideas—attributes he shared with no other U.S. citizen. “This is a dark time for our country, because the reality is none of the 300 million or so Americans who remain can actually get anything done or make things happen. Those days are over.” Obama added that if anyone could fill the void left by Jobs it would probably be himself, but said that at this point he honestly doesn’t have the slightest notion what he’s doing anymore.”


Dreaming at the Kindle Potential

Uncategorized By October 2, 2011 12 Comments

With each introduction of a new reading device publishers around the world are overcome with the same recurring same fantasy: What if it worked, this time around? Could a reliable business model emerge for news publishing companies?

Last week’s launch of new Kindles is no exception to the cyclic fantasy. For those who where on Mars last Wednesday, here is a look at the revamped family:

To sum up: the new lineup features the widely expected Kindle Fire (full color display, multimedia capabilities and the clever, cloud-accelerated Silk browser — see Jean-Louis’ column). In addition, Amazon redesigned its e-Ink based Kindle with two models, including a small 6 inches version that fits in a pocket. All of them priced aggressively, below their production cost.

A lot has been written comparing Apple’s iPad and Amazon Kindle devices. Exciting but not relevant. The two companies’ strategies can’t be more diametrically opposite. Apple is in the hardware business and all other product lines — software, media offerings — exist for the sole purpose of raising perceived value and units volume. Then, great product execution and streamlined operations help maximize margins. Apple’s gross margin on iPads is about 30%.
By contrast, Amazon is a digital retail company in which all forms of media — books, videos, music, games —  account for about 40% of its sales. Its hardware strategy is designed to funnel customers to its retail business.

This explains why Amazon doesn’t care much about Kindle hardware margins, and is much keener to strike deals with content providers than Apple is. In parallel to the launch of its news Kindles, Amazon has harvested a large set of deals with media companies. Its Kindle Fire Newsstand is already impressive and features a 3-months free trial for a selection of magazines. Symmetrically, a growing number of publishers keep complaining about Apple harsh terms; as a result, in the coming months, we’ll see many prominent publishers exit the Apple ecosystem and switch instead to web-based apps (a move that is actually more complicated than it appears).


Google’s “Interesting” Week

Uncategorized By October 2, 2011 63 Comments

Let’s start gingerly, with Nokia. You’ll recall the indignation when Nokia threw Symbian under the Windows Phone 7 bus and osborned its existing product line. Nokia dead-ended Symbian handsets, causing sales to plunge while everyone waited for the new MicroNokia smartphones.

The company didn’t stop there.

It then presented Meego, the offspring of Intel’s Moblin (as in Mobile Linux) and Nokia’s own Maemo (also Linux-based), as their weapon of the future. This was their killer smartphone OS.

But Nokia gave up on Meego. The result was a risky but greatly simplified product strategy: One OS, WP7, instead of three or four versions of Symbian, S40, S60, Symbian^3, and Meego.
Such simplicity couldn’t last.

We now hear that Nokia is developing an operating system called Meltemi, the name of a Greek wind (I’m not making this up). The new OS targets the low end and intends to replace the S40 engine for Nokia’s dumbphones, a.k.a. feature phones.

A few thoughts.

First, both Meego and WP7 were, and are, too heavy for entry-level phones.

Second, Nokia sees a future in low-cost, low-margin products. Today’s smartphone BOM is excessive, north of $100, and that’s before the handset maker, Nokia in our case, gets a slice of the pie.


Steve: Who’s Going to Protect Us From Cheap and Mediocre Now?

Uncategorized By August 28, 2011 99 Comments

Not so fast.

Until the last sinew, the last synapse gives up, Steve will continue to influence the company he co-founded and later recreated. Seeing he could no longer ‘‘meet [his] duties and expectations as Apple’s CEO’’, Jobs kicks himself upstairs and becomes Chairman, director, and “mere” Apple employee. In a distant future, I see him haunting the circular hallways of Apple’s Cupertino spaceship, the Commendatore hunting the clock punchers and damning the linear thinkers straight to Hell.

Let’s review. In 1983, Apple’s Board of Directors felt that Steve required “adult supervision’’. John Sculley, the designated grownup, replaced Jobs as CEO and eventually pushed him out of the company.

Fast forward a decade and a half. In 1997, Steve returns to run his company unchallenged…but not unassisted. The Apple 2.0 management team, hand-picked, well-groomed, isn’t so much a stroke of genius as it is an emblem of the enfant terrible all grown up. As the Fortune chart below shows, Apple has no lack of ‘‘bench strength’’– and who’s providing the adult supervision now?

With Steve as Chairman, Tim Cook, Apple’s long-time COO, moves to the center of the chart. He joined the company 13 years ago, has always reported directly to Steve and saw his responsibilities increase over time. He now drives the team that made Apple the most valued and valuable high-tech company in the world.
As for ourselves: No whining. It’s our job, as consumers, to protect ourselves, to vote with our wallets against the bean counters, the Paint by Numbers product planners. It’s our place to provide ‘‘constructive feedback’’ when Apple products fail to meet the combined aesthetic and functional standards Dear Leader drilled into the marketplace. From MobileMe to “skeuomorphic” calendars, address books and bookshelves — to say nothing of fresh Lion bugs. Steve’s Apple may not be perfect, but…

A portentous example: The 1998 Bondi Blue iMac, the first visible re-assertion of Steve’s style — and of Jony Ive’s portfolio in the making:

Immediately iconic, users adored their iMacs. The unexpected shape and color set a new standard for high-tech products, so much so Apple competitors tried to rub the amulet for luck — and showed us what they really stood for: Cheap, imitative mediocrity. I recall going to Palo Alto’s Fry’s store and seeing beige PC clone boxes with candy-colored plastic inserts that approximated the iMac palette.

As a Forbes article put it, speaking of Dell’s similar fig-leaf attempt:

“Dell, ever concerned with keeping its inventory low, seems to be approaching colored notebooks in a much less risky way, using cheaper plastic inserts. Of course, the appearance of the Inspiron doesn’t inspire the way the first iMacs and iBooks did.”

The aesthetic knockoffs weren’t just cheap, they were ugly. The inserts looked even worse than the faux-wood ‘‘accents’’ on Chrysler dashboards. No cojones, no imagination, no taste.

Fast forward a bit more: Steve introduces the Apple Store. We’ll pass over the record-beating numbers and address the two messages the store imparts.
First, the architecture, an expression of the Apple ethos, says: ‘This is what we think of ourselves’.
Second, once inside the store, the experience states: ‘Here’s what we think of our relationship with you, our customer’.
In comparison, I see carriers trying to spruce up their store fronts with shiny metal appliqués — but go inside and you find cheap trade-show modular furniture.

Taste matters. Let’s turn to this YouTube video of the opening of an Apple Store clone. Not a Chinese counterfeit but a Microsoft Store in Scottsdale, Arizona. It starts much like the “real” thing: Happy customer, rows of high-fiving employees, a decor that looks familiar.  But 40 seconds into the one minute video, we get the “tell”, the killer detail that gives the imitation away.  Here we get the men in suits and ties:

Still more evidence of Steve’s influence: Just as HP decides to spin off its PC business (or perhaps not), PC clone makers demand an additional $100 subsidy per ‘‘ultra-portable’’ laptop from Intel. Why? They want to compete with Apple’s increasingly popular MacBook Air. It seems that the “Apple tax”, the premium we’re willing to pay for quality, isn’t enough to dissuade us.

PC clone makers can’t match Apple’s cost or its Bill Of Materials (BOM). The way Apple procures parts and subsystems, the way it runs contract manufacturing and stays on top of complicated but delicate distribution logistics is evidence of the company’s aggressive Supply-Chain Management (SCM). Steve – and thus Apple – understands that the channels need to be fed Just So, neither starved nor stuffed.

I found the BOM story interesting and looked up current ultra-portable prices. Who better than Sony in that product category? I went to their site and got this:

A nice MacBook Air competitor starting at $1969. The real thing starts at $1299.
Quite a reversal of the old world order and, I hope, a source of satisfaction for Jobs.

Spanning an amazing arc of thirty years, the company with the anti-establishment image has become the most disciplined, best-managed high-tech giant — and arbiter of taste.

When I first met Steve, in February 1981, he was sitting cross-legged on a credenza in the Apple board room, picking his toes. Since then I’ve watched with glee as he went against received wisdom, causing pundits to have fits at every turn. I picture them as a gaggle of eunuchs standing around the caliph’s bed, braying in high-pitched voice: ‘Steve, you’re doing it wrong!’

For a long time, I’ve seen him as having an animal inside him, the one with the desires, the instinct, the drive. In 1985, that animal threw Steve to the ground. He picked himself up at Pixar — you’d be a captain of industry for doing no more — and NeXT. Then, in 1997, armed with Pixar’s success and Next’s technical prowess, he came back to run Apple and make it really his.

He had learned to ride the animal.

Steve and Tim both speak, rightly, of Apple being at the crossroads of technology and humanities, liberal arts. In tribute to Jobs’ aesthetic sense, and why it deeply matters, I’ll conclude with a quote from Herman Hesse’s Steppenwolf:

‘’Before all else, I learned all these playthings were not mere idle trifles invented by manufacturers and dealers for the purposes of gain.  They were, on the contrary, a little or, rather, a big world, authoritative and beautiful, many sided, containing a multiplicity of things all of which had the one and only aim of serving love, refining the senses, giving life to the dead world around us, endowing it in a magical way with new instruments of love, from powder and scent to the dancing show, from ring to cigarette case, from waist buckle to handbag.  This bag was no bag, this purse no purse, flowers no flowers, the fan no fan.  All were the plastic material of love, of magic and delight.  Each was a messenger, a smuggler, a weapon, a battle cry.’’

Next week: Recipes don’t a chef make.
And, for a good laugh, Macalope’s view of this week’s worse pundits.


Getting More Bang For Our Bucks

Uncategorized By August 28, 2011 9 Comments

(Includes correction with the right 3rd graph)

Two important questions in our times of large public debt and lagging economies: Is it effective to inject public money in support of the ailing media industry? And, in order to ensure the best readers’ bang for the taxpayer’s buck, are some models better than others?

Last week, I chatted with Rasmus Kleis Nielsen, a Research Fellow at the Reuters Institute for the Study of Journalism at the University of Oxford, and a communication professor in Denmark. With Geert Linnebank, a former editor-in-chief at Reuters, Rasmus wrote a compelling report on the subject: Public Support for the Media, A Six-Country Overview of Direct and Indirect Subsidies (PDF here). Together, they review public support systems for Finland, France, Germany, Italy, United Kingdom and the United States. A large part of the report looks at the funding of public radio and television channels, which varies widely from one country to another. In this column, I’ll limit myself to public sector funding for the print media.

When it comes to supporting its print press, Finland is a big spender. It invests 22 times more public funds per capita than the United States, nine times more than Germany, five times more than the United Kingdom, four times more than Italy, and three times more than France, see below:

Supporting the press sector is a big deal in Finland, then. In theory. Because, in Finland, like in all Scandinavian countries, newspapers enjoy a huge reach: 79% of the population. This might tempt you into thinking there is a direct relationship between subsidies and penetration. Actually, there is none: According to the report, Germany, which spends 11% of what Finland does, has a newspaper reach of 72%.

Using readership stats provided by the World Association of Newspapers, the picture looks like this:

Combining the two sets of numbers leads to a compelling result: While spending much more than any other country, the Finns get a much better performance. According to the Reuters Institute report, they perform 13 times better than Italy and France, the clear losers of the subsidies systems, as shown here:

We can draw three conclusions from these data sets.

1 / There are no Keynesian mechanisms in evidence when it comes to correlating public spending with print media penetration. The US spends only 16% more per capita than Italy, but have 94% more readers per thousand people. As for Germans, they spend 40% of what the Italians do, but have almost three times more readers. Practically, it means there is no hope to reverse the declining trend by beefing up subsidies.

2 / The Finnish performances is more a matter of editorial product than of public policy. I happen to know quite a bit about the kind of journalism practiced in Nordic countries. It is a fiercely independent, aggressive (in the best sense) kind or reporting. A couple of years ago, I was a jury member for the Schibsted Journalism Award (see my June 2009 column about it). I saw editors making choices, strategizing their coverage, assigning substantial resources to it, and striving to beat their competition. In addition, they provide very efficient public service journalism, lifting the veil on administrative shortfalls and occasional abuses by officials.

From a pure industrial perspective, Scandinavian media companies have once and for all decided competition had to stop right after the newsroom doorstep. For a long time, printing and distribution have been mutualized. Newspapers and magazines have not been spared by erosion, but they are in a much better shape than in most countries.

3 / Contrary to the cliché, internet growth doesn’t cause a decrease in print press penetration. Finland (again) and the UK have both strong readerships and a high number of online users (respectively 57% and 37%).

The Rasmus Nielsen report explains in great detail the complexity and diversity of public funding for media. In passing, it kills long lasting prejudices such as European media being massively state-funded, or an American public sector unsupportive of the media industry.

And there is no one-size-fits-all model.

Still, some ideas emerge — as long as you think media ought to be somewhat subsidized. Which I do, for several reasons:

  • Quality information plays a critical role in democracy.
  • Good reporting remains quite expensive to produce. Remaining able to preserve non-commercial formats (such as NPR or the BBC) leaves no choice but public support.
  • The industry — especially the print press — is in the midst of a radical and costly transformation, and many organizations don’t have enough capital to undertake it.
  • We are facing an historical wave of mediocrity in the information business with wealthy aggregators eager to repackage anything that fits their obsession with eyeballs. (I’m appalled to hear Le Monde is about to strike a deal with the Huffington Post.)

Having said that, for public support to work, critical conditions must be met:
1 / Tight management. Sounds obvious, but too often public money means outrageous waste (as often seen in public broadcasting).
2 / No open-bar. Meaning: no open-ended funding. If money is supposed to help a precise restructuring, it must be tied to measurable results.
3 / Sanitization. Subsidies should rather be indirect than direct. For instance, a tax break as opposed to a grant for a specific company falling below a certain level of advertising (as is the case in France).
4 / No life-support funding. Only support for transformation.


Gunning for the Copyright Reformers

Uncategorized By August 14, 2011 Tags: 13 Comments

Going after copyright reformers is risky business. To digital zealots, defending copyright is like advocating the return to the typewriter. (I personally like typewriters; I own several and I recommend a wonderful 1997 Atlantic piece on them at Going after sworn copyright opponents is what Robert Levine does in his just-published  book Free Ride — How the Internet is Destroying the Culture Business and How the Culture Business can Fight Back.

The pitch: Digital corporations are conspiring to promote the free ideology that has been plaguing the internet over the last decade. With their immense financial firepower, the Googles and the Apples and the Silicon Valley venture capital firms that funded Napster did whatever it took to undermine the concept of copyright. From lobbying the United States Congress to funding free-culture advocates, they created a groundswell for rip-and-burn products that would sell their MP3 devices. They got lawmakers and pundits to pave the way for a general ransacking of intellectual property — from music to journalistic content. Once Levine makes his point, he explores possible solutions to restore value to creativity (We’ll address these in a future column).

Needless to say, Robert Levine has produced a non-politically correct opus. And that’s what makes his book fascinating.

To start, the author reframes the famous quote, “Information wants to be free.” Free Ride recalls the complete sentence as far more nuanced. This is actually what tech writer Stewart Brand said at an 1984 a hacker conference:

“One one hand information wants to be expensive because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.”

Few quotes in recent history have been more twisted and misinterpreted than this one. Everyone jumped on Stewart Brand’s distinction between collecting information and making it available to the audience. While the cost of the former remains high — at least for those producing original information, or content — the marginal cost of broadcasting it fell dramatically, and that is what sparked the idea of a zero-cost culture. Yet, “media products have never been priced according to their marginal cost,” Levine says, and therefore, free is an idea that’s hard to defend.

As described in Free Ride, US lawmakers played a critical role in opening the floodgates of piracy and copyright violation on the internet. On October 28, 1998, Bill Clinton signed the Digital Millennium Copyright Act. That law, says Levine, gave a “safe harbor” to internet service providers and some online companies. No longer liable for copyright infringement based on the actions of users,  Levine writes that the “safe harbor made it easier for sites like YouTube to become valuable forums for amateur creativity. But it also let them build big businesses out of professional content they didn’t pay for.” That, he says, is how Congress created YouTube. (Google purchased it in 2006 for $1.65 billon).

The book’s most spectacular deconstruction involves Lawrence Lessig. The Harvard law professor is one of the most outspoken opponents of tough copyright. For years, he’s been criss-crossing the world delivering well-crafted, compelling presentations about the need to overhaul copyright. When, in 2007, Viacom sued YouTube for copyright infringement, seeking more than a billion dollars in damages, Lessig accused Viacom of trying to overturn the Digital Millennium Copyright Act. It was a de facto defense of Google by Lessig who at the time was head of the Center for Internet and Society at Stanford University. What Lessig failed to disclose is that two weeks after closing the deal to acquire YouTube, Google made a $2-million donation to the Stanford Center, and a year later gave another $1.5 million to Creative Commons, Lessig’s most famous intellectual baby. To be fair, Levine told me he didn’t believe Lessig’s positions on copyright were influenced by the grants from Google. Moreover, Google set aside $100 million to fight the Viacom lawsuit. Numerous examples throughout Free Ride show how technology companies are committed to influence public policy. Ironically, Lawrence Lessig’s newest crusade at Harvard is about corruption in Washington.

Robert Levine’s book could be disputed on a few items.

– One, he’s too kind to the music industry. (His view may have been influenced by his tenure as executive editor of Billboard magazine where he witnessed first-hand the self-inflicted deterioration of the music industry.) The music business missed all the trains: (a) it defended the physical model up to the last minute even as its annihilation seemed unavoidable; (b) it extended as long as it could the double screwing of consumers and artists alike (sadly, poor analog artists have been replaced by poor digital ones).

– Two, he tends to forget the general complacency of content creators toward all forms of digital looting. I’ve often described in the Monday Note how publishers – blinded by the short-term appeal of the eyeball count – became consenting victims of all sorts of aggregators (see my Lenin’s Rope series).

– Three, the advent of free content has in fact unleashed talent. Unknown authors have been able to rise from obscurity thanks to direct access to the audience. And some have found alternative ways to make money (more on this in another future column).

Lastly, the unfolding of technology made the relaxing of copyright unavoidable. The Digital Millennium Copyright Act may have accelerated the transition but it didn’t cause the upheaval. Today, BitTorrent file transfer for music and movies accounts for about 10-12% of the internet bandwidth consumption, and YouTube accounts for 11%. Pirated content represents almost 100% of the former and about a third of the latter. Huge numbers, indeed, and huge losses for the music and movie industries. But Netflix with its legitimate content now accounts for 30% of the entire internet traffic (Hulu has less than 2%) and iTunes is growing faster than ever. And some economists do consider that giving up a large quantity of content for free is the price that must be paid to preserve a marketable share.

The music industry paid a terrible price during the digital transition, with a drop of 50% of its sales in one decade. But it would be unfair to make lenient lawmakers and internet pirates the main culprits. Unbundling played a critical role as well, just as in the newspaper industry. Being able to buy a single song on iTunes (instead of an album), or hoping that a single article on a web page will generate enough viewers to pay for itself (instead or purchasing an entire bundled newspaper) caused a great deal of damage.

As plagued as it is by piracy, the movie industry is immune to the notion of unbundling, which partly explains why box office revenue between 2006 and 2010 rose by 30% outside the United States and by 15% in the US/Canada market. Although the number of moviegoers is slipping, the industry has been able to find its way into the digital world.

Robert Levine’s book is a must-read that reframes the debate on the evolution of copyright. In an unusual way, it encompasses a European view on the issue (Levine lives part-time in Berlin). That makes the book even more interesting as countries explore ways for content creators to finance their work while not killing the formidable creative freedom unleashed by the digital world.

Free Ride, By Robert Levine is published by Bodley Head in the UK (available now on Amazon UK)and by Doubleday in the US (available oct 25 on Amazon US) and is also available the iTunes iBook Store.


10 Years of Apple Stores: the non-celebration

Uncategorized By July 17, 2011 Tags: 12 Comments

Apple and understatement aren’t close relatives. Not that they don’t have a right to strut a bit: after all, under its returning co-founder, Apple 2.0 performed the most stunning corporate turn around ever — and shows no sign of slowing down. As a result, product launches, developer conferences and quarterly earnings announcements all turn into opportunities for the company to blow its own horn.
So, when the 10th anniversary of the first Apple Store came by, I expected a big celebration: fireworks, decorated stores, laser engravings on Anniversary Edition iPods, a coffee table book with a Steve Jobs foreword, a speech, a video… Yet, on May 19th, nothing happened. At least publicly.
All we got was a leaked internal poster celebrating 10 years of achievements and learnings:

An eyeful or an eye-chart. You can get a more legible PDF version from Or, courtesy of Tech Evangelist Joey deVilla, a version obligingly rendered in text with paragraphs. Longish as it might be, the document is worth reading: it rings true and proud; it is manifesto of Apple’s retail philosophy — and of its impact on the entire company.

I decided there had to be a reason for the official quiet. I wanted to make the anniversary a Monday Note topic, but hearing the silence and unable to ascribe a meaning to it, I decided to bin the topic for a while.

The wait didn’t last long: Ron Johnson, Apple’s Sr. VP or Retail Operation announced his departure right after the June 6-10 WWDC. Divorce papers the morning after the anniversary… The muting of the celebration made (some) sense.

But why did Ron Johnson leave?

Under his tenure, Apple Stores have become the envy of the retail industry, breaking one record after another: revenue per square feet, year-to-year growth, store size, foot traffic and architectural design. (See here for a neat set of Apple Store statistics.)
With such a record, one can easily see Apple’s “retail guru” standing up, declaring “My Job Is Done” and leaving on a high note.
Then, sparing us the rote “spending more time with my family” explanation, Ron states he always wanted to be the CEO of a major retail chain. JC Penney just happened to need a new CEO, this was an opportunity to fulfill a long-time ambition, to become his own boss.

All very logical, but, for a number of reasons, the polished tale doesn’t quite ring true.

First, with 326 Apple Stores, the job isn’t quite done. Exceedingly well done so far, but not complete. For example, after the US, China is now Apple’s second market, it is where Apple experiences its largest year-to-year growth. According to, the site that does an excellent job of documenting the life of Apple Stores, Apple will open 25 more stores in China by the end of 2012. My own observations of Apple’s third market, Western Europe, lead me to believe Apple is very far from reaching saturation there. For example, with a population of about 36 million, California has 49 Apple Stores. France, with a population of 62 million, only has 7. Per capita GDP differences ($47K vs. $34K yearly) don’t account for the disparity. We can safely assume this applies to Western Europe as a whole, showing how much headroom Apple Stores still have there.
No one knows what the saturation is, fortunes have been lost by those who believe trees grow to the sky, but there is no reason to consider Apple Stores are “done”. One could just as easily call today’s Apple Stores network ‘’a good start’’.

Second, Apple Stores are always evolving. This gets us much closer to the real explanation than my previous point. The never ending stream of changes, the attention ranging from architectural design to minute furniture details all bear another man’s imprint: Steve Jobs’. We’ll recall he picked Bohlin Cywinski Jackson as the architects for Pixar’s elegant headquarters — and kept using the firm for most Apple Stores building or renovation projects. In the process, several Apple Stores became architectural icons. Then, when it came to interior design, Jony Ive, Apple’s Senior VP of Industrial Design took a lead role.
For the ever changing details, watch Steve Jobs proudly take us through the first Apple Store in this 2001 video. And compare with today’s setup.
For amateurs of minutiae, ignore the main checkout podium where MacBooks run transactions and, instead, take a look at a standard product display table. Your friendly Apple Store employee just performed a painless cashectomy using the newer iPod Touch-based portable Point Of Sale terminal. Now, where is the printer for your receipt? Affixed under the table’s main board, upside down, invisible. No unseemly display of non-Apple appliances. For the occasional cash transaction, foreign visitors mostly, a few tables also carry a barely visible cash drawer cut in the side.

Recently, stores reduced space dedicated to accessories, peripherals and, with the Mac App Store in mind, boxed software. This resulted in more room for something called Personal Setup, where an Apple employee helps a customer get started with his/her new purchase.

You get the idea: “Apple”, meaning Steve Jobs, is never satisfied, always looking for ways to improve its stores or, for that matter, anything else Apple.

In the end, in spite of his signal contribution to Apple’s success, Johnson must have felt disenfranchised. Coming in, he brought with him expertise and contacts “Apple” didn’t possess. Over time, Jobs’ keen interest in the matter turned into heavy involvement in every facet of the operation. Apple Stores became Steve’s brainchild, not Ron’s. Hence his decision to look for an opportunity to be really in charge, as opposed to working for a gifted, focused and strong-willed visionary.

Now, why did Ron Johnson pick JC Penney?

He doesn’t need the money, we’re told he made about $400M working at Apple. And JC Penney, to say it politely, isn’t the most attractive of US retailers. Once an American icon, JC Penney is now a tired chain. All the better, some say: Ron Johnson will bring some of the Apple magic and revive the company. This is drawing a very superficial comparison:  the two kinds of retail establishments couldn’t be further apart. Apple runs with a very small number of SKUs (Stock Keeping Units), a very short product line. Conventional retailers tens of thousands of different products. Apple is willing to spend tens of millions on a single store, JC Penney never did and very likely never will. Apple products are often elegant, if not iconic, not something that can be said of JC Penney’s merchandise.
Further, it looks like Ron’s CEO title isn’t exactly endowed with full meaning: Reuters and the WSJ let us know his role will be “limited”, at least initially, “focussed on marketing and merchandise selection, while Ullman [the real CEO and Chairman] will oversee the more common executive responsibilities of accounting, finance, corporate strategy and logistics…”
The Ullman in question is Myron (Mike) Ullman, age 64, a veteran retail executive with experience at LVMH’s DFS (Duty Free Stores) business unit and RH Macy, among others. He also sits on the Board of Directors of companies such as Starbuck’s and Global Crossings, and of several Bay Area charitable organizations.
Another unexplained datum is Ron’s start date: November 1st. The most likely but hard to confirm explanation must lie in a paragraph of his Apple exit agreement.
When that date comes, we’ll see if Mike Ullman really handles the reins to Ron or if the Apple alumnus finds himself working for yet another strong-willed boss.

Back to the Apple stores and to Ron Johnson’s legacy: quoting David Berman and his quarterly DeeBee Index, USA Today reports Apple contributed to 20% of “all sales growth by publicly traded retailers in the U.S”, this for the first three months of 2011. One has to qualify the number a bit: it relates to publicly traded retailers only, not to the entire US retail sector. Still, keeping in mind the likes of Walmart are all publicly traded, Apple’s share is surprisingly high.

We’ll now more in a few days, when Apple releases its numbers for Q2, the April to June 2001 quarter.


Google’s SOE (Strategy of Everything)

Uncategorized By June 26, 2011 33 Comments

As a Venture Capitalist, I occasionally hear entrepreneurs lay out a Strategy of Everything, a plan to be all things to all people. (SOE rhymes with TOE, the Theory of Everything, the Holy Grail of mathematical physics, only less attainable than the sacred object…)

In practice, “all things to all people” invariably becomes too many different services in too many market segments. “We don’t know what will work or for whom, so we’ll spray and pray. We’ll shoot arrows in the dark and when the sun rises, we’ll paint a target around the one that lands in a good spot. We’ll declare victory and raise a second round while claiming that this had been our strategy all along.”

VCs hate SOE. It’s a grand way to waste large amounts of capital. We’re measured on capital efficiency and, as result, tend to tell entrepreneurs with SOE dreams to go pitch our competitors.

From this perspective, Google’s strategy doesn’t make sense: They, indeed, are trying to be all things to all people. They even brag about it on one of their sites where they arrange their products as a Periodic Table of Elements. The real thing (see for example) looks like this:

Google’s product line adopts a similar look:

Granted, Google’s table contains neat interactive features: If you hover over a category at the top – Mobile, Search, Data APIs — the related products light up. Well done. More proof of the breadth and depth of Google’s ambitions and skills.

So: Is this the type of SOE I just made fun of?

Yes and no. Yes, Google wants to be all things to all people, and, no, this is nothing to laugh at. Google continues to construct the largest computing infrastructure on the planet but still manages to generate large amounts of liquidities. At the end of March 2011, it had more than $36B in cash. Google is extremely capital efficient.

Let’s look at it from another angle.

Google’s one and only goal is to sell advertising. The path to this goal requires ‘‘radiation pressure’’: Google wants to make sure we don’t escape their ads. They want to insert themselves into all aspects of our lives, to find out much as they can about as many aspects, activities, and relationships as possible. In Eric Schmidt’s memorable Freudian slip at the D9 conference a few weeks ago: We know where you live… (The video is a bit long, not boring… and prescient.)

It’s that simple and complex — and breathtakingly audacious. And not without a downside.

The first general problem is quality. When you’re constantly pushing out new applications and services that compete on so many fronts, quality suffers. Bugs are inevitable, support is erratic, apps suffer from a “UI by — and for – Engineers” syndrome.

I have had several misadventures using Google Apps for Business, the paid-for variety. After waiting for days for the billing system to become “unstuck,” I finally contacted Customer Support — a needlessly complicated process. The suggested work-around was bizarre: Open an anonymous browsing window in Chrome. Things didn’t get much better. The billing system, which is clunky and displays inscrutable error messages, wouldn’t let me use Google’s own Checkout payment system — the same system I used when I purchased a domain name weeks ago. Ah well…

Regarding the UI, log onto Gmail and go the Settings page. What you see below is just the first of 13 settings tabs:

How does a normal human manage such complexity? Google’s engineering culture has made it the large-scale computing king, but these computer scientists don’t seem to have a feel for what lesser mortals experience.

Another problem is The Crack in the Wall. Google saw that smartphones were destined to be bigger than PCs. Android is a Google-scale success that shows what the company is capable of. But Google’s failure in social networking as Facebook and Twitter succeeded shows that you can’t man all the crenels in the fortress wall. Whatever the reason — management bandwidth, cultural deafness, lack of attention, arrogance as the toxic waste of success — Google either didn’t see Facebook or failed to develop the right service at the right time. And now Facebook has more than 750 million users worldwide. It’s become a kind of black hole sucking in Web traffic:

Facebook doesn’t have the kind of explosive revenue growth Google experienced at a comparable age, but they’re building an amazing ‘‘Overnet’’, a superstructure one level above the Internet.

Finally, Google is perceived as a threat. Following the lead of the European Union, the US FTC wants to take a close look at possible anti-competitive practices. On its official blog, Google responds with “Supporting choice, ensuring economic opportunity”. It reminds us of Steve Ballmer claiming that Microsoft is all about choice

Antitrust legislation is above my pay grade, but perceptions such as the one eloquently put forth by Bill Gurley have become pervasive. In The Freight Train That Is Android, Gurley argues that Google’s strategy is to flatten (kill or disintermediate) anything/anyone that stands between its advertising business and us, the eyeballs.

Does the FTC investigation confirm Google as Microsoft 2.0? Different times, different technology, but the same irrepressible need to dominate. Microsoft “ran” the PC industry, Google rules Internet advertising. Such dominion isn’t illegal per se, but many people and governments are unhappy about present and future consequences.

The Microsoft 2.0 moniker is a bit misleading. Microsoft built a franchise that’s easy to understand and manage: Windows + Office. With the possible exception of games, they haven’t fared well in other pursuits. The core business is likely to continue producing nice profits for a long time. PCs aren’t going to disappear overnight, and even if Web apps keep getting better, they aren’t yet as functional and pleasant as desktop apps.
Google, on the other hand, is much more complicated. They don’t make money from a simple Windows + Office combo. Indeed, they have to give away their products – smartphone OS, email, (excellent) maps, photo-editing, and many more — in order to sell ads.

This leaves Google with an interesting combination of threats. Actually, a chain of threats.

First, the need to be “all services to all people” exposes the company to sloppiness and to silos, to UI by and for engineers, to “featuritis”, to products that don’t interconnect.

Second, as if the threat of mediocrity wasn’t enough, the 360 degrees of products have only one role: sell the real thing, advertising. As a result, Google has to use its products/services to kill or disintermediate everything in the path of its advertising.

Third, for all Google’s “Don’t Be Evil” motto, the company has now reached a point where the more it excels, and it often does, the more it is perceived as a threat by individuals and governments around the world.

This is what a “successful” SOE yields.


Trifling Twitter

Uncategorized By May 29, 2011 15 Comments

When a member of the old guard barges into their cozy backyard, the Digerati jump up and strike indignant poses. And when the intruder’s point is missed, its author gets crucified. This is what happened to Bill Keller, the New York Times’ executive editor, when he dared to write a column critical of Twitter. In short, Keller’s well-documented piece, titled “The Twitter Trap“, contends the medium’s shallowness encourages superficial exchanges to the detriment of in-depth discussions. When, as a minor provocation, he twitted “#TwitterMakesYouStupid. Discuss“, someone keyboarded back “Depends who you follow” — and should have added: “… Depends also on how you follow people”.

I will stop short of joining the crowd of zealous Bill Keller critics. But I’m not fond of the piece, either: on several counts, I consider it misguided.

1 / Twitter is in fact small, and therefore cognitively inoffensive. Officially, the micro-blogging network (we ought to call it a media) born five years ago has 200 million users. This supposedly huge user base allowed it to raise about $360m in capital, including a last round of $200m led by Kleiner Perkins, the Valley venture capital grandee, on a $3.7bn valuation. Stunning indeed.
Now, let’s get back to Earth. Over the last 18 months, traffic has stayed flat. Time spent is eroding: 14 mn 6 sec per user in March 2010 vs. 12 mn 37 sec in March 2011. Contrast this to more than 6 hours spent on Facebook. (According to a recent cover story in Fortune, Mark Zuckerberg is said to pay less and less attention to Twitter’s evolution). Despite occasional news cycle-triggered traffic outbursts (the Spring unrest in Arab countries is a good example), such spikes don’t really translate into audience gains. As for the number of accounts, half are idle. And, as usual on the internet, the usage is extremely concentrated: 10% of all users account for 90% of the twits.
In the latter figure lays Twitter’s peculiar character: as they get better at using the medium, its most powerful users’ voices becomes louder than ever.

2 / Twitter is controlled by the user. The most notable fact in Twitter’s evolution is the increasing sophistication of its users. The top ten percent have become good at finding the best “relevancy niche”, i.e. a sector in which they’ll be able to rise above the crowd. Many do so by mastering all the available tools: they look a their retweets data, monitor who retweets them, and watch their ranking.
Symmetrically, the passive audience (reading more than actually twitting), has become adept at continuously refining their feed selection. Prattlers prone to comment on the Saturday night sports games tend to be abandoned to the benefit of those who stick to their expertise. Trimming subscriptions has become mandatory on Twitter (as it is on Facebook).

3 / Twitter’s pervasiveness has nothing in common with what we observe on Facebook or Google. As a business, Twitter’s trajectory looks more like Yahoo’s (unfortunately in a more precocious way) than a Google’s or Facebook’s. Zuckerberg’s social network enjoys unabated growth and much better monetization: it extracts about $3 in revenue per user (and makes a profit at it) versus $0.25 for Twitter.
This gap allows Facebook to continuously roll out new features. As a result, its already faithful users end up even more solidly anchored, increasing their time spent on the service. Twitter, on the other hand, has yet to show a sustainable business model, and its small core of heavy users remains difficult to monetize. This results in a hard to break vicious circle: no cash-flow => no investment capacity => costly investments due to a theoretically large user base. Twitter’s inability to introduce new sticky features is likely to further concentrate the twitterer base, while the broader circle of less involved users will tend to look elsewhere for excitement.
It will be difficult for Twitter’s management and investors to find their way out of this decaying orbit.

Already, Twitters’s limitations are visible in the way users consume online news. According the a study conducted by the Pew Research Center for Excellence in Journalism and based on Nielsen data (PDF here), Twitter is an insignificant referral (1%) for news when compared to Facebook (5%) or Google (30%).  However, the use of Twitter deserves to be encouraged in the newsroom (and taught in journalism schools), since:
a) it is an effective promotional tool for value-added stories;
b) it allows reporters to actually pinpoint their most loyal audience – and establish a relationship with it;
c) it doesn’t kill value like RSS feeds do (see a previous Monday Note on that matter).

Twitter will increasingly be a one-to-a-few medium, with a small base of hard-core users, increasingly selective about the contents they broadcast and who they follow. In passing, this trend will further reinforce the ongoing news sites traffic concentration where about 5% of the users account for 75% of the page views. (As an example, the Pew Research study indicates that 85% of USA users visit the site less than 3 times a month. And for the top 25 American news sites, “power users”, i.e. visiting a site more than 10 times a month, account for only…. 7% of the total).

Bill Keller’s handwringing about Twitter largely miss the point. Twitter remains largely controlled by its users, on both emitting and receiving sides. That is not the case for the search business that relies on sophisticated and secret algorithms to serve contents supposedly tailored for us – without our knowledge of this invisible editing (see this enlightening TED video by Eli Pariser on what he calls the “Filter Bubble”). What Bill Keller ought to worry about is the algorithm-powered news stream, designed to maximize its audience — and the advertising revenue. Therein lies the real danger for the brains of our children and their ability to learn how to judge by themselves. In comparison to the AOL Way (I’m referring to the stats-based news master plan exposed by Business Insider), the use of Twitter is a trifling matter.


Media & tech: Reconcilable Differences

Uncategorized By May 22, 2011 14 Comments

Media and tech worlds must work together. There is not a shred of a doubt about it. The former have lost the dual battle for growth and economic performance; the latter are attracting eyeballs and endless funding. Still. When combined, their relevance to society can be greater than the sum of their respective parts.

Last week in New York, I was asked to share my views on the matter. This was before an audience of 350 media executives gathered for the Inma World Congress. Most were looking for ways to effectively partner with digital companies. As I worked on my speech, I asked my tech world contacts how they see us, the media crowd. Here are some quotes, from people who requested not to be identified.

“You guys, are geared to compete rather than collaborate. You’re not getting that collaboration is the new name for the game”. “Even among yourselves, you are unable to cooperate on key industrial issues, shooting yourselves in the foot as a result”. “Your internal organizations are still plagued by a culture of silos. The winners will be the ones  who break silos”.

Tech executives also underline they see media companies as co-managed with unions – the consequence being a wage system that discourages rewarding valuable individuals. Media companies are also viewed as having a tech-averse culture. “Media don’t understand that their business has become engineering-intensive. Their investment in technology is grossly insufficient”.

Symmetrically, I collected adjectives summing up media people’s perception of the tech world. “Arrogant, condescending”: true, old media people always have the feeling of being looked down upon by the guys in chinos. “Nerdy, left-brained”: well, it goes along with the flip-flops and the hoodie… “Wealthy”, (I’ll come to that later). “Alien to the notion of value for content”: also true; and that might be the most difficult obstacle to a reconciliation.

More than anything else, techies view the contents news outlets painstakingly put together as an annoyance. They don’t have a clue, nor are they interested in getting one, to the complex, costly and often dangerous process of collecting original information. “Euro-ignorant”: let’s just recall what the geographic distribution looks like in large tech corporations. The often-used EMEA  acronym encompasses Europe, Middle East, and Africa, i.e. from Germany to Burundi. Practically, when landing in Silicon Valley from Paris, you’re often made to feel you’re dropping in from the Third World.

“Contract Nuts”: when a 30 pages contract lands in your inbox from California, written in knotty legal English (even for a France-based deal), stipulating the relevant jurisdiction will be the Santa Clara County Superior Court, you can’t help but feeling a bit bewildered and put off. In dealing with tech companies, the amount of money spent in legal fees suddenly appears out of proportions. We have no choice but getting used to it.

The only identical critic, evenly spread on both sides, concerns bureaucracy: medias point at intricate technostructures staffed with legions of people working on the same subject; tech people mock news media needing six weeks to sign the innocuous non-disclosure agreement covering a routine project.

Let’s stop for a moment on the financial issue. Three key factors differentiate the tech from the media world.

1 / Size. The combined revenue of the US newspaper + magazine industry, all sources combined is about $60bn. This is sector is facing the following: Apple (most likely $100bn in revenue this year); Google ($29bn last year); Microsoft ($62bn) or Yahoo ($6bn). As for stock valuations over the last 10 years, consider the graphic below. It shows the performances of three mostly newspapers groups with market values above $1bn: Gannett Co. (market cap: $3.5bn), The Washington Post Co. ($3.33bn), The New York Times Co. ($1.13bn). Over the last 10 years, their stock prices went like this :

Now, on the same 10-year scale, let’s superimpose, Apple, Google, Microsoft; the scale flattens quite a bit:

You get the point. The media industry faces dramatic value depletion.

2 / Access to cash. Technology companies have access to a huge pool of money. After years of disappointing results, the Venture Capital industry is red hot again. In a previous Monday Note, I mentioned Flipboard – great app for the iPad, 32 people, no revenue —  with a current valuation of $200m, roughly the equivalent of the McClatchy Company with its 20 newspapers, 7700 employees, 24% EBITDA for a revenue of  $1.4bn.

3 / How to spend it. In itself, the cash allocation illustrates the cultural gap. In a tech company, once a project is approved, money will be injected until the outcome becomes clear: success or failure. As I asked an exec in a large tech group what the budget of the project we were discussing was, he answered: “Look, honestly I’ve never seen any spreadsheets on this. This project has been decided at the highest level of the corporation. We’ll pour money into it until it works or closes”.

By contrast, in a media company, investment will be kept at a bare minimum. Any engagement is set as low as possible: temporary staffing,  outsourced work, everything is in penny-pinching mode. Not exactly the “No Guts, No Glory” way…

Nevertheless, the more I’m involved in digital media projects, the more I’m convinced that both worlds need a rapprochement. Medias have a lot to learn from tech companies. The way they conduct projects, their relentless drive for innovation, their bold imagination, coupled with a systematic and agile “Test & Learn” approach…  For the news industry, drawing inspiration from such a culture is a matter or survival.

As for the tech ventures, they must admit they need the media industry more than they like to think. Flipboard, Google Reader, Bing: all aggregators would lose a great deal of their appeal if they no longer had original contents to aggregate or organize.

Over the past fifteen years, we kept hearing stories telling us Google or Yahoo could swallow any old media in a single gulp. It didn’t happen. Nor did these deep-pocketed corporations find within themselves the vision and skills to create a decent news gathering operation from scratch. The reason is simple and complicated: it’s a métier of its own; thousands of people have been practicing and evolving it for decades.

People like me, working on both sides of the fence, strongly believe in the virtues of cross-pollination. On the media side, it might have to start by finding out what we expect from the tech world, whether they are aggregators, distributors, or search engines. Then, we’ll need to change the way we innovate. In a nutshell, screw the bean-counters that will strangle decisive investments while being unable to stop the hemorrhage in their “legacy” businesses; assign small teams on a small numbers of really (as opposed to cosmetically) crucial projects; do more prototypes and less spreadsheets. Be bold and fearless. As the techies like to say: Go big, or go home!

Failure must be an option. Paralysis is not.