Wednesday, April 18, 2012

RIM's Developer Dilemma

There's been quite a bit of news lately regarding RIM's efforts to entice developers to join the BlackBerry bandwagon.

First, RIM released some stats on BlackBerry App World, stating they have about 20,000 apps for the Playbook, without mentioning the quality of the apps.

Secondly, ReadWriteWeb had an interesting infographic about mobile app stores that showed 13% of BlackBerry developers have made more than $100k from their apps. Impressive, but remember the number of available apps (and developers) are significantly lower than iOS.

However, the stats are meaningless given the consumers' perception. The data linked above are only pertinent to developers, one half of RIM's problem.

This leads me to RIM's current dilemma: the diverging incentives of consumers and developers.

Consumers expect all the popular titles that are available on iOS and Android, apps like Angry Bird Space, Netflix, Skype, Infinity Blade, etc... on their mobile device. They won't consider a smartphone or tablet that won't have those apps.  The obscure apps, irrespective of quality, won't cause consumers to purchase a BB10 device.

On the flip side, RIM is targeting the app developers by telling them they can get noticed in App World due to the limited number of titles already compared to the iOS or Android markets, both of which have a lot of repetitive apps. A fair point, but this only applies to smaller developers, not to the Rovio's and Netflix's of the world. The big developers already have well known titles, they don't need to be "discovered". They will not be enticed by a platform that only has 1M users at the moment along with an unknown growth rate.

Therein lies the problem:
BlackBerry's App World may offer higher returns for the smaller developers, but the smaller developers won't draw in the consumers. Instead, the consumers are drawn by the well-known titles, whose developers may not be interested in Playbook/BlackBerry 10's small audience.
It's a difficult problem. Ultimately, it is the consumers who bring in the dollars so convincing (read: paying) the big dev shops to bring their app to BlackBerry should be priority #1. This would be supported by easing the development process, which RIM is finally starting to understand.

RIM's focus on 3rd-party development (in terms of toolsets, outreach, and documentation) has been fantastic in the past year or so. They've done the following:
  • new streamlined application submission process
  • new set of tools (NDK 2.0)
  • embraced existing popular (non-RIM) libraries for easier portability
  • contributed to open source initiatives (Webkit, Qt)
  • involved in the community (GitHub, Dev Events, social media, etc...)
These are monumental changes and a complete shift in corporate behaviour; very impressive that this turnabout could happen so quickly in a large organization. I can only imagine the fights they must have had with the internal Legal department regarding some of these initiatives.

However, will all this be enough to convince Netflix, Rovio, Epic Games, etc... to spend the resources to port their games to the BB10 platform?

Let's hope so. 

Monday, April 9, 2012

Facebook Buys Instragram for their ....?

$1 BILLION dollars.

That is how much Facebook is "paying" for a service that allows users to take photos from their phone, apply some filters, and upload it to the web, and share it over Facebook and Twitter.

The verb paying is in quotes because we don't know how much of the transaction is in cash and how much is in stock. Did Facebook mention $1 Billion based on a projected valuation of Facebook stock post-IPO or current valuation in the secondary market? Either way, it is still a lot of money.

What motivated Facebook's decision to purchase Instagram? Let's consider a few options:
  • Customer Acquisition
    Doubtful. Facebook has over 800M users and Instagram has about 30M users with about 300M monthly page views (eMarketer, Kimberly Maul, Feb 2012). It's a safe assumption that most Instagram users are already Facebook users.
  • Defensive Move
    Perhaps another competitor was in talks to buy Instagram so Facebook acted swiftly and decisively. It would be a strong signal to send to Google, but is it necessary? Don't think so.
  • Talent Acquisition
    While I'm sure this was a factor, it wouldn't justify a $1 Billion price tag.
  • Strategic Entry into Mobile
    Instagram has figured out how to capture people's attention on their mobile app. It has a great user experience, allowing folks to look at other people's photos and see the stories. Facebook's mobile app is fairly clunky and not conducive to photo viewing. Facebook could build their future mobile app around the Instagram foundation.
  • Buy into User Behavior
    As mentioned in a previous post, it's really hard to change user behaviour. Consider the following assumptions:
    • On Instagram, users explore and comment on artistic photos (made easier to generate with the filters), continuing to look at unique photo after unique photo, ultimately wasting a lot of time on their mobile phone. A great opportunity for ad placements.
    • On Facebook, users comment on their friend's drunken antics and move on once they've gone through the entire album.
    Rather than build something similar and hope users switch, Facebook just bought them out, hoping to monetize their users' behavior on a mobile platform.

    Here's an interesting stat: 64% of those surveyed said they view photos on their mobile phone  while only 39% said they use the phone for updating a social networking page*. (see image below)

    Instagram is the foundation of the Facebook's mobile strategy, giving Facebook access to a medium that captivates a user's attention on their mobile device. With Facebook's vast resources, they can easily expand the userbase beyond the current 30M userbase.

    Looks like Instagram is a lot more than just a fancy image filter service. To answer the question posed at the very top, Facebook is buying Instagram for the relationship they've built with the users.

    Is that worth $1 Billion dollars?

    Time will tell.
* Thanks Vivek for correcting my earlier interpretation.

Deviancy from Disruption - pt 2

The previous post discussed the differences between Google & Facebook and why Google is struggling to align itself with the new social web, where people are the data sets that are indexed and sorted, rather than the webpages themselves. My hypothesis is that this re-alignment isn't a technology challenge as it is about customers. Unfortunately, Google is the victim of their own success.

Google's re-alignment faces numerous challenges across various domains:
  • Technology
  • Organizational
  • Customer
This isn't a big issue for Google. They have the resources and talent to adapt their algorithms and R&D their way into a social web.

As a large organization, even with the famed flat organizational structure,  re-aligning the different teams to focus on a new vision is challenging. We've seen some results of these changes, as many of Google products have received an updated UX and Google+ integration. Kudos to Google for pushing the changes as quick as they did.

However, the larger challenge is changing customer habits. This is why Google's struggle is beyond their control. They can't engineer their way to get the users to be more social on Google products. We are trained to treat Google as a librarian, someone we ask to find a book (pardon the pun). Our interactions are only as long as the time it takes to find the book.  We are also trained to spend more time on a few specific books, much in the same way we tend to congregate at the same local lunch place. It is just our habit.

So, how does Google change our habits? Can they wean us of Facebook or will they find new avenues to be social? The biggest avenue is mobile and that is where they can win. Facebook hasn't really told us how they plan on monetizing their mobile presence, but I'm sure they are on it.

Thursday, April 5, 2012

Deviancy from Disruption - pt 1

There’s a great blog post by an ex-Googler, James Whittaker, on his thoughts on how Google has changed as a company during his tenure:

His talk about how the Google strayed from their roots to battle Facebook left me thinking about how disruption can cause a dominant player to completely change track and lose sight of their vision. More on that below.

I found the following bit interesting:
I couldn’t even get my own teenage daughter to look at Google+ twice, “social isn’t a product,” she told me after I gave her a demo, “social is people and the people are on Facebook.” Google was the rich kid who, after having discovered he wasn’t invited to the party, built his own party in retaliation. The fact that no one came to Google’s party became the elephant in the room.

Google went beyond building their own party, they tried to change their entire purpose in life.

Consider the following:

  • What was Google’s original mandate? To sort & organize the web.
  • What is their core technology? Matching ads based on the website content and user’s search/browsing history.
  • What’s the point of all the innovative, yet diverse, Google products? They keep users on Google-owned properties, reducing the cost of the displayed ads
  • What is Google’s supply chain? The websites that its spiders index and sort through.
What about Facebook?
  • What is Facebook’s mandate? To understand the people who use the web.
  • What is their core technology? Matching targeted ads with much higher accuracy. For example, a concert organizer for a Mos Def concert in Japan can create ads that reach out to rap fans (incl. specific rap fans who may like Mos Def based on their musical taste) living in Japan.
  • What is Facebook’s supply chain? The users’ interaction on the website.
Google is trying to change who they are because Facebook just disrupted the entire online advertising industry.

Google is scared for the following reasons:

  1. Facebook ad’s are more valuable because they can be targeted to a very specific individual and they can incorporate rich ad campaigns. Google cannot match that level of accuracy nor the richness with their dominant textual-based ads.
  2. Facebook ad’s have a significantly lower cost as they don’t have to pay a 3rd party website for ad placement as Google would with AdSense. 
  3. Facebook has greater user engagement. People spend more time on Facebook, so the ad impressions increase, resulting in greater revenue. Google, on the other hand, is used as a tool to find what they are looking for.
Google is stuck between a rock and a hard place. They can’t increase user engagement on the search portal by preventing users from clicking the links, because that would hurt their suppliers. To make it worse, their typical ad placements just lost their value, going from prime-time Seinfeld season finale ad placements to 2AM Everyone Loves Raymond re-runs ad placements.

Part 2 continues the conversation.

Google and the Commoditization of Mobile Computing

For a relatively new company, Google has not only disrupted numerous industries, but has also disrupted human behavior as well. Their brand is an action verb used almost daily by the technogeeks and the normals alike.

However, I’d argue their biggest disruption has claimed the smartphone market as its victim. With one fell swoop, Android essentially commoditized (apparently that is not a real word) the smartphone, dropping the margins of almost every incumbent in the industry, except for the suppliers (chip manufacturers, component manufacturers, etc..) and Apple.

This is no different to the strategy that Intel, Microsoft, and IBM employed to the PC market back in the ’80s. Thanks to the standardization of the hardware components and the availability of Windows, anyone could get into the PC game. Prices dropped, margins were squeezed, and companies suffered. IBM, the creator of this segment, left due to the lack of profits. Compaq, who previously relied on their specialized distribution network that targeted corporations and business users for sales, suffered since they couldn’t differentiate their product from the competition at the retailers. After all, the consumers were now smart enough to make purchases on their own at retail shops, no longer were specialized distributors required.

Google brought the same paradigm shift to the smartphone industry. Now, many have gotten into the smartphone & tablet game, because of the lack of capital required and because they may have a low-cost advantage due to geography. Gone are the expenses required for developing an OS or hardware platform. The latter are happily provided by Qualcomm and others. As more entrants enter, the profitability will reduce.

It shows in the financials. HTC has a gross margin of 29% and net income margin of 15% (Q4 2011). Another casualty, RIM, has also seen their margins squeezed as Android picked up steam.
The only exception is Apple. As it was during the PC era, their products were differentiated enough to justify a premium in price. In the mobile computing market, their differentiation is significantly larger due to their all-encompassing ecosystem they covers the entire product line.

But if you want an Android, what is HTC offering you that LG isn’t? What is Acer offering that Asus isn’t? Why would you choose a BlackBerry over any of these offerings?

Samsung is the only Android player with an advantage. Their own their supply chain with their design & manufacturing dominance in display panels, memory, and ICs; reducing their cost. They also have their appliance/consumer electronics business that could be integrated with their Android phones, providing differentiation.

Despite the intense competition by the handset manufacturers in the Android world, Google wins. As prices fall, more Android handsets are in market, and more users are inside the Google ad network. Eventually, the Android ecosystem will be dominated by those with the greatest low-cost advantage and Google will milk money from every ad displayed.

For other platforms to be a successful alternative, they will need to focus on differentiation.