Store Wars: Opt out, opt in, sell out, capitulate?
Wed, Feb 16, 11
Apple’s new App Store rules now mandate that users themselves must decide whether they want to give their own personal info to publishers when they subscribe. What would be the reaction of the publishing industry to this? Straight from a publisher, Forbes:
Pam Horan, publisher of the Online Publishers Association, says the trade organization’s members — a group that includes Time Inc., Hearst, Conde Nast, Bloomberg, National Geographic and, yes, Forbes — are worried the new regime doesn’t give them the flexibility they need to serve their customers.
The flexibility to serve their customers
What does Apple do to deny publishers that “flexibility” then? One click to opt in to data sharing. Pam Horan, again:
Anything that requires the consumer to take yet another step is always going to reduce the number of people that participate in the process. It limits the ability to gather audience insights to build the right products. With this inability to know who your consumers are, it really affects the ultimate product for the consumer.
Put simply, publishers don’t want readers to opt in, because they know readers will prefer to opt out. Transparency is not a friend of publishers who for decades made a mint by selling out readers to advertisers and list brokers. Most readers may not be aware of this, but those who are don’t like it. Publishers know that and hate Apple for calling their bluff. If personal info harvesting isn’t essential for publishers’ business model and it is in the interest of readers, then why would they be against an instant referendum in the form of the opt in button?
Beyond the smokescreen
This, of course, isn’t about the readers. It’s not even about Apple’s App Store. It’s about the clash of two different business models. One that sells the customer to the highest bidder through a product and the other that sells a product directly to the customer. For the former, the product is a vehicle, often an excuse, since it holds no value for the publisher. For the latter, the product is the source of value, it lives and dies by the utility and delight it brings to the customer.
Transitioning from one format or platform to a new one is often a long, arduous and financially disruptive process. Lately, however, we are seeing a time compression in these transitions. For example, moving from dial-up to broadband or from landlines to wireless took quite a bit of time. Transition from analog to digital music or from featurephones to smartphones have been much shorter. Shorter the transition, bloodier the financial impact on incumbents. Print economics have been around forever, virtually unchanged for decades. All of a sudden, though, there is an incredibly convenient format (iPad) and a platform (iTunes) for what used to live in the dead-tree zone. No wonder we have publishers up in arms about the freight train suddenly in front of them.
The grand opening
We can also look at the new App Store rules as a grand negotiation being conducted in public. Apple’s iTunes and iOS ecosystem make it abundantly clear that there’s now a platform ready for transition. Table stakes: 30% cut for the platform owner. Publishers have several choices:
1. Set up their own stores — If the most business savvy of all publishers, Rupert Murdoch, who never shied away from big and expensive bets, has come to the conclusion that News Corp alone can’t set up its own independent online store, what chance do other smaller, cash-strapped, technophobic publishers have?
2. Collude to set up a BigPublishers-only store — This would be standard operating procedure…that has repeatedly failed. Disparate corporations banding together against a successful market leader nearly always fails. Witness myriad roadkill behind iTunes.
3. Negotiate with Apple directly — Murdoch did negotiate with Apple separately, but may not have received much in return other than some technical help and launch presence. Companies like Amazon and Netflix may try to negotiate with Apple directly to leverage their popularity to wring some concessions on rules or rates.
4. Wage guerilla warfare against Apple in the press — Adobe, Part Deux. This is inevitable since many of those who produce the anti-Apple hysteria write for the publications that would financially benefit from a change in App Store policies.
5. Ask for government help — Publishers will likely ask the government to intervene and conduct a threatening investigation of App Store policies to browbeat Apple into changing its policies. Also, as the last refuge of scoundrels, they will appeal to the Congress for tax payer support under the guise of saving jobs.
6. Give up subscriptions — Google would love publishers to just give up the notion of subscriptions and go ads-only, either as free apps supported by AdMob on mobiles or browser based apps supported by AdSense. Sadly, content providers aren’t immune to making monumentally stupid mistakes and…imploding.
7. Accept Apple’s terms — We heard similar, if not identical, complaints about the size of Apple’s cut or its intermediary position between content owners and customers at the onset of iTunes and later App Store. Nobody’s complaining much about those anymore, mostly because there have been no credible alternatives.
8. Create alternatives to iTunes/iOS — This is the perennial Plan B, if Apple doesn’t budge. The usual suspects are those with a store and the will to spend money liberally to undermine Apple, namely Google, Microsoft and Amazon. Google recently transferred its upcoming music store to Andy Rubin’s Android division and is now negotiating with publishers. Microsoft rolled Nokia’s Ovi into its own store and would be happy to bankroll publishers to attract Windows Phone users. Amazon has already tangled with Apple last year after the introduction of iBooks over the agency model Apple offered to publishers. These are all big competitive players with plenty of cash to render as absurd any notion that Apple somehow has a monopoly over digital stores. It is, however, a reminder that all such previous attempts to cut down Apple by direct competition has failed.
Rock and a hard place
Apple, the one company that makes bet-the-company type moves all the time, has done it again: they have decided to cull parasitic middlemen and aggregators from the ecosystem. What choice do publishers have then? They first have to ask themselves two fundamental questions:
1. What business are we in? — Are we in the business of creating scarcity in news and media to leverage it against eyeballs for advertisers? Can our current model survive the transition to digital? Are we capable of setting up our own stores? If not, do we understand we must change our revenue streams radically? What sorts of structural and financial remodeling do we have to undergo internally to adjust to giving up 30% to Apple?
2. Quo vadis? — If our current distribution has to change, on whose digital platform will we move? Is there, in other words, an alternative to Apple App Store?
Whatever conclusions the publishing industry may arrive at, there’s one undeniable fact staring them in the face:
By next year, Apple iTunes/iOS ecosystem will have over 200 million of the most lucrative online demographics ever assembled by a company.
Apple didn’t become the world’s most valued tech company by being naive. The fact that Apple’s longstanding discipline of selling products direct to customers aligns nicely with customers’ interests of accessing a well curated, efficient, price-competitive, easy-to-use store is just the icing on the cake. Nobody else comes close. You can’t do business by ignoring the App Store.
¶
UPDATE: In case there was any doubt that Google would step in to exploit the situation, the company introduced in less than a day after Apple’s announcement its own One Pass subscription payment plan, with a 10% cut. Google CEO Eric Schmidt: “We aren’t in this to make money, Google makes money in other ways.”
How dogma begets anti-app myopia
Mon, Jan 31, 11
About a year ago, in Flash, HTML5, and Mobile Apps, USV venture capitalist Fred Wilson argued why web apps were the future of online opportunity and yet again chastised Apple and its “proprietary app centric universe”:
I know where I personally come out in this fight. I much prefer a “web-centric handheld world” to a “proprietary app centric universe”. And that’s why I carry a Google phone instead of an iPhone. For me, it’s a political statement as much as anything else.
I had previously explained why Wilson missed the boat on Flash in Does “A VC” have a blind spot for Apple? and most recently touched upon the business reasons why he is so bothered about Apple’s ecosystem in The Unbearable Inevitability of Being Android, 1995.
The reason why I’m referencing Wilson here is because he’s a prominent member of the anti-app brigade whose crusades are often camouflaged anti-Apple campaigns. The hit-man for the brigade is ex-Microsoft chief evangelist and current Google engineering VP, Vic Gundotra, who told us in 2009:
“We believe the web has won and over the next several years, the browser, for economic reasons almost, will become the platform that matters and certainly that’s where Google is investing.”
Likewise, Wilson believes mobile is an extension of the non-mobile web and the same rules of monetization should apply there:
I’ve been saying for a while now that I think mobile economics will trend toward web economics as the mobile web goes mainstream. In other words, the business models that work best on the web will ultimately work best in mobile. The corollary to that is that the business models that don’t work well on the web will not work well in mobile in the long run.
Given the nature of his investment portfolio this appears to make sense, at least to Wilson. Throughout all this, the one entity Wilson always cites and one that has become true north for him has been in general Google and in particular Android, the land of the “open”, living in a browser, same everywhere, without constraints…indeed a monopoly of business opportunity for one and all.
Now comes Google, according to Wall Street Journal in Google Searches for Mobile-App Experts, that is about to zig big time from true north:
Google Inc. plans to hire dozens of software developers to create applications for smartphones and other mobile devices, people familiar with the matter said, a new strategy aimed partly at helping Google counter Apple Inc. in one of high tech’s hottest sectors.
Google also has reason to try to spur quality, not just quantity, since getting hit apps first can drive demand for operating systems and devices. Some of the apps developed by Google’s new effort may be available only for Android, the people familiar with the matter said. The adoption of Android also helps ensure that Google’s search engine, the principal revenue source for the company, and other Google services are prominent on mobile devices.
The Google effort coincides with a rush by thousands of Internet professionals and college graduates to quit safe, salaried jobs to try their hand at mobile apps.
In a nutshell, Google, one of the most opportunistic web companies on the planet and Wilson’s true north, has seen the light, recognized the centrality of mobile apps and decided to join the revolution. If it’s taken Google 300,000+ apps and 10 billion downloads to see the light, I don’t know how long it might take Wilson to change his anti-app tune and re-calibrate his portfolio.
Google’s H.264 question
Fri, Jan 14, 11
In The Practical vs. Idealistic Scenarios for the Near-Term Future of Online Video, Gruber painstakingly outlines the permutations of outcomes Google’s decision to drop H.264 from the Chrome desktop browser may engender.
There have been myopic rebuttals from the Flash amen corner, as expected. But no need here to go into why Google’s done it, as I’ve been chronicling Google’s growing hypocrisy as a necessary result of its chosen business model for many months now.
I’d like to add one question to Gruber’s list and it’s a simple one. Given that
- Apple will have well over 200 million iOS devices and 175 million iTunes account holders with credit cards by 2012
- Apple’s iTunes ecosystem is likely the most profitable commercial online demographics ever aggregated, with sustained, proven buying habits and the least purchasing friction
- Apple will not add WebM hardware support to iOS devices (surely, not without some major Google payoff)
Google’s board should ask the current management this very simple question:
Can Google afford to write off the iOS ecosystem?
If the answer is negative, and there are no other Google shoes to drop, then this was a monumentally shortsighted move.
Clones, what iOS clones?
Wed, Dec 29, 10
Android devices aren’t clones of iOS devices.
Also:
- Apple’s greatest product is hype.
- Apple iOS devices are expensive.
- Apple is closed.
- Apple is evil.
The Unbearable Inevitability of Being Android, 1995
Tue, Dec 28, 10
According to soldiers of the Android Crusade, 2011 is the year Google will crush iOS to declare its inevitable suzerainty over mobile territories.
Let’s meet this week’s crusaders: Seth Weintraub (2011 will be the year Android explodes) and Fred Wilson (The Smartphone Explosion).
Seth is the current commander of the “Google 24/7″ column at Fortune and a former IT manager. ‘Nuff said.
Fred is a VC. His business is mostly about scale, with a portfolio full of companies whose lucrative exits are predicated on having scale for commensurate multiples: Etsy, Zynga, Tumblr, Twitter, Foursquare, Disqus, etc. Unlike angel investors who prefer flipping smaller properties to larger acquirers in a short period at smaller multiples, VCs like Fred’s USV need hits, at least a few big hits to justify significant management fees, bigger funds, longer incubation times and higher expectations. No place for the Apple ecosystem in Fred’s portfolio. Nothing wrong with that, this is America. Neither is there anything wrong with “fearing and loathing” Apple and declaring it “evil” so long as we understand where that angst is coming from.
Fear and loathing in Googlistan
Even though he personally uses Apple products, Fred has no use for Apple as an investor. To him, the Apple ecosystem is not “open” enough for his portfolio companies to reach sufficient scale for lucrative exits. In fact, it wouldn’t be too much of an exaggeration to say Google’s business model for Android Fred prefers is diametrically opposed to Apple’s.
As business models go, there are currently two dominant ones: either people like your product enough to purchase it or they don’t care enough to buy it but will overlook its deficiencies if it’s “free” in exchange for their personal browsing and purchasing info sold to advertisers. The former model is Apple’s, the latter is Google’s.
Apple sells emotional experiences. The price is what users pay to be delighted by Apple’s stream of innovations and to be free of the lowest common denominator burdens and the pervasive harvesting of their personal info.
Google sells eyeballs. To be more precise, the clickstream attached to those eyeballs. Thus scale, indeed dominance, is absolutely crucial to Google’s model.
The weight of scale
Android may be a lackluster clone of iOS in terms of UI and fluidity, but as an economic proposition it’s nothing short of an extension of Google’s desktop/online business model. Google’s model wouldn’t work with something like 20% market share. If a market is highly fractured among smaller players, business models like Google’s that rely on massive scale wouldn’t work well. As with Microsoft’s Win32 API or Office formats, scale is erected to beget inevitability. Inevitability becomes its own marketing engine. Windows had virtually no security architecture by design for so many years, even long after its costly effects became obvious globally, but because it was ubiquitous, thought to be irreplaceable and thus inevitable, it has continued to net Microsoft billions year after year. Likewise, MS Word could get away with some of the most insane formatting problems ever invented by man only because it has so dominated “desktop productivity apps” that it’s become inevitable. If anyone, even Microsoft, were to design a modern word processor today, it sure wouldn’t be Word. And yet everyone else designing a better Word has had a very difficult time of competing with the inevitable. Inevitability is the Kerberos of profitability.
Like Microsoft, Google doesn’t sell best-of-class user experiences to paying customers. It sells their eyeballs to advertisers. The more eyeballs, the better. The most, the best. If it can dominate a market and thus make its products and platforms inevitable, it wouldn’t even have to care about user experience at all. Google Buzz didn’t have to have good user experience because Google management thought if they could just bolt it on top of the very dominant Gmail it would make Buzz…inevitable.
In Fragmandroid: Google’s mad dash to Microsoftdom a year ago, I looked at the undeniable similarities between the two companies’ willingness to raise their paranoia to a level of corporate survival strategy:
During its growth period, Microsoft entered into one risky bet after another, from cable TV to office equipment automation to Dick Tracy watches. It saw threats to its core revenue base from every new development, every new player to come along. And expand and spend it did. It did, mostly because its management thought it could.
So Google too has to be everywhere software could possibly run: wikis, cars, windmills, electric meters, audio ads, location-based services, microblogging, catalogs, print ads, web page layout apps, online answers, social networks…even when, as you may have noticed from the list, it fails to get any traction.
For Google, nearly all of whose profits depend on advertising revenue, dominance expressed as clickstream traffic is the currency. To maintain that dominance the “Don’t Be Evil” company has been willing to go into business in China despite all evidence of rampant human rights violations, get into bed with the worst phone carrier to rape net neutrality, let its “walled backlot” search become a cesspool of SEO swindlers, collect unauthorized data via illegal WiFi mapping all over the globe, risk exposing private email account data in hopes of capturing social graph info by default, favor its own properties in search results in surreptitious ways and so on.
Whether it’s on the desktop, mobile or TV, the ability to sell advertising by maintaining market dominance is everything to Google. But then what’s in it for Google’s Android hardware “partners”?
Bondage
What happens when one company ties its market destiny to another’s rate of innovation? The movie “One OS, Many Partners” that we’ve seen before in Wintel theaters didn’t have a happy ending. Having secured a very fat market dominance, Microsoft displayed an embarrassing level of paternal indifference and inability to innovate.
Even Microsoft’s biggest partners complained: Acer about lack of proper tablet OS support, Dell about better server support against Linux, HP about media center innovation and nearly everyone about getting burned by the WMP/PlaysForSure/Zune debacle. At the end of its inevitability run, most of the Microsoft “partners” were left holding the bag…of stalled innovation, disappearing margins and market irrelevance. That’s the leitmotiv of the “One OS, Many Partners” screenplay.
It’s a classic dominance play, and Google is perfecting it in its rerun. For years, Google played deaf to complaints from publishers and studios about its copyright violations of their books, news and video. Until, of course, its own operations scaled enough to dominate those distribution channels to then dictate terms to content owners: “You can’t live without our traffic to your website, so let Google commoditize and leverage your properties for next to nothing.” Just like the Wintel hardware manufacturers who had no OS of their own and were thus at the mercy of Microsoft, content providers that stood by and never developed their own digital platforms find themselves now at the mercy of a dominant Google. This inevitability is worth so much more to Google that the several hundred million dollars it has already spent on Android to give it away for “free” remains a rounding error on its balance sheet.
Between Android’s market dominance and overwhelming commoditization of mobile content, stand Apple’s iOS devices and Facebook (and perhaps to a lesser extent Microsoft and Twitter). On these platforms, Google search – the key to dominance and inevitability – is either absent, highly mediated, in decline or mostly obviated. That’s why Google’s most belligerent words and actions have recently been directed towards those two companies. In a reversed mirror-effect, Microsoft used to call open source an anti-capitalist “cancer” then, Google’s Android head likens “un-open” Apple to North Korea today. Google loves to index Facebook social graph data, but won’t let Facebook access Gmail relationship graph – of course, all in the name of “openness”.
One company. One OS. One explosion.
So the Android crusaders will be circling us in 2011, swinging their $85 smartswords to demand our capitulation in a rapture of inevitability. Inevitable like Knoll, Orkut, Froogle, Lively, Health, NoteBook, SideWiki, Answers, Wave, Buzz, Nexus…like an army of 41 shades of blue. No matter. Resistance is futile.
Curiously, even the most successful Android hardware manufacturers like Samsung and HTC are hedging their bets on Google’s mobile platform either with their own OS (Bada) or Microsoft’s (WP7). Why would experienced OEMs hedge their bets on Android if it were so open, so free and so benevolent? Let’s hope they too have seen the “One OS, Many Partners” movie and still remember the OEM extras with un-speaking roles in the “Razor Thin Margins” and “Race to the Bottom” scenes…when everything exploded.
Update: Incidentally, none other than Vic Gundotra, former Microsoft chief evangelist and current Google engineering VP and hit-man for mobile and social, echoes precisely the strategy outlined above that Google has been using: ”It’s an art to create a sense of inevitability,” reports BusinessWeek:
In Silicon Valley, that kind of evangelism usually involves firing insults at the competition. While that hasn’t typically been Google’s style, Gundotra hasn’t shied away. As he says, “It’s an art to create a sense of inevitability.” In a keynote speech at a Google event for developers last year, he even took aim at Steve Jobs and “a draconian future where one man, one company, and one device would be our only choice. … That’s a future we don’t want.”
