One of the many good things about blogging is that one can go back in time and look at one’s own thinking in a more objective way. Without putting it in writing it is all too easy to pretend, as history unfolds, that one had a great understanding way back. Our minds a terrific at rewriting our own thoughts — this tends to come out strongest when we talk about our career paths.
One example where I am reasonably happy with my own analysis is acquisition of Motorola Mobility by Google. I wrote that:
Apple is vertically integrated and Microsoft controls Nokia (without having had to buy it). Between that and having filed or acquired a lot of patents, these two pose formidable threats to Android. Buying Motorola lets Google fight both of these threats in one go.
and predicted that
… Google will only retain parts of Motorola - the patents and the hardware design capabilities, but close down or sell off much if not all actual manufacturing and handset distribution
Yesterday, Google announced the sale of Motorola Mobility to Lenovo. They retained the patent portfolio. I don’t know if they also retained any hardware design capabilities but they just acquired more of those with Nest.
Overall this re-enforces my view that Google very smartly understands that software is eating the world and is not pursuing the same deep vertical integration strategy as Apple. Recent purchases of robotics companies do not contradict this view as that hardware in that space is far behind on the commoditization curve.
PS I am sure that I have made quite a few predictions on Continuations that went the other way (and by all means please point this out to me). I am not focused necessarily on the outcome itself but more on the thinking about the event.
I wrote before that I am quite bullish on certain professional and niche personal applications of Google Glass but find the adoption strategy puzzling. Having just tried Glass for the first time I feel quite comfortable with both of these assessments which I had made prior to a first hand experience.
Glass is easy to wear and operate and the one I tried projected in way that did not force me to look up. I could completely see myself skiing or sailing with Google Glass (wondering if any of the America’s Cup teams will try this). Having relevant information projected right into my field of vision, take pictures and video and query various systems makes immediate sense in those contexts. That will very clearly also be highly relevant to many work environments from a warehouse or factory to an operating room (many of these will require some kind of always on mode).
Yet at the same time I also found this is not an experience that most people are likely to be ready for in their day-to-day lives (and by that I mean both the wearer and “second hand” Glass). Having additional information displayed makes you quite self conscious and those you are observing even more so. I can see that going away over time but that time will not be measured in weeks or even months.
Nonetheless Glass is a powerful glimpse of the future and a well executed piece of hardware. It will be interesting to see how long Google can and will enforce restrictions on Glass applications.
Two years ago I wrote a blog post titled “Is Google the New Microsoft?” hedging it with a question mark. I think after the announcements at Google IO there can be very little doubt that Google is the new Microsoft.
Here is a short check list. Dominant position in one market that generates huge profits: check. Desire to compete in every large market from payments to games to music: check. Extending influence from one market into another by integrating products with each other: check. Abandoning open standars such as RSS and XMPP: check. Having another large company in the field publicly accuse you of locking them out: check (and in the what-comes-around-goes-around department: that company happens to be Microsoft).
Now as a shareholder in Google since the IPO I have been very happy with Google’s performance. Yesterday Google’s shares reached a new all time high giving the company a market cap of over $300 billion. And if any of these new initiatives succeed there is more room for growth. On the other hand as someone who cares about the Internet as an open network and invests in startups I can only say: fasten your seat belts — the ride is about to get bumpy!
I am quite optimistic about the long term potential of augmented reality. But I question whether now is the right time for a top down adoption strategy with a polished consumer product. It seems to me that we are at the hacker and early adopter stage instead.
By going with an immediate mass market strategy and embracing celebrities I think Google is taking a very big gamble. Let’s keep in mind that the iPhone was far from the first smart phone. A lot of software and application tinkering had happened on Blackberries and other predecessors most of which had niche use cases.
I often find myself saying to entrepreneurs that you “can’t push on a string.” It may be a tired cliche but it seems highly relevant for consumer products. If people aren’t ready for it, no amount of hype or spending will make the product stick. The people who are ready now are the hackers and tinkerers. So why not embrace them instead?
Google just acquired DNNresearch, a spinoff company from the University of Toronto led by Geoffrey Hinton. The DNN in the company name stands for deep neural networks. As I have been learning from Professor Hinton’s online course, these are networks with multiple “hidden” layers of neurons. A hidden layer sits between an input and output layer. Hidden layers are responsible for much of the power of modern neural networks and the breakthroughs that have occurred are how to train these hidden layers (something that our brain does magnificently well).
I can highly recommend Hinton’s class. Even if you just watch the first couple of lectures to learn more about the recent advances in neural networks. Hinton has had an unwavering commitment to researching neural networks even at a time when it wasn’t popular. With all the hoopla surrounding neural networks these days its easy to forget that there was a long period where neural network researchers labored in relative obscurity (fun aside: in looking up Hinton, I discovered that he is the great-great-grandson of George Boole).
Germany’s parliament today passed the highly controversial “Leistungsschutzrecht" which is an ancillary copyright that requires payment for excerpting from and linking to content in some instances. When I walked around in a slight daze at Chicago O’Hare this morning after an all too short red eye flight, my Twitter feed was full of German friends and others outraged about the bill (just look for #lsr). Jeff Jarvis — who spoke out strongly against the law at this year’s DLD conference — in particular was tweeting up a storm.
I agree that the LSR is the wrong approach because it is a blunt instrument that will have significant collateral damage. Excerpting and linking are the lifeblood of the web. But it would be naive to think that there isn’t a problem here that needs addressing. It is very different if I excerpt and link here on Continuations than when Google does it. Why? Because I account for some vanishingly small faction of Internet traffic whereas Google often has 80 percent or more of all search queries.
When Larry Page took over as CEO of Google I wrote that I hoped he would address the problem of Google’s role in the Internet marketplace by figuring out how to share some of Google’s economics. Because that’s what this is all about. It’s about trying to fix rent extraction by a near monopolist in search. And that rent extraction is a very real issue (how do you think Google is financing self driving cars and Glass?).
Imagine for a moment a situation in which there are many competitive search providers and consumers switch easily between them. Now consider a company such as Yelp that has accumulated a lot of information about restaurants. If one of the search engines starts to publish more and more of Yelp’s data in the search results instead of finding the listing and driving traffic to it, Yelp could simply choose to not let that search engine crawl and index Yelp. That becomes a credible threat as consumers might switch to a different search engine if they can no longer find high quality restaurant data. That credible threat would over time lead to a situation where companies such as Yelp receive a licensing fee from the search engines for inclusion of the content, whenever including the content directly creates more value rather than driving traffic.
But with the market structure in search as it is, Google has been holding on to all of the value creation from including ever more content in its search results. All the while adding insult to injury by starting to build or buy competitive content services. That is not sustainable and Google needs to change its practices or we all risk seeing more legislation like the LSR that in trying to fix a market structure problem in search is likely to do more overall harm than good.
Despite my sarcastic tweet from last night, I am actually intrigued by Google Glass (and I even believe that Google Plus will matter as Google is all in). First, as Fred pointed out yesterday, Google’s machine learning capabilities are a key enabler for making Glass useful. You need voice commands to change Glass is doing or displaying and Google’s speech recognition is exceptionally good. Second, only a technology such as Glass will make augmented reality a viable experience. Holding up a phone is simply not compelling. Third, the success of GoPro shows clearly that people have a desire to record their experiences. When I was just skiing in Alta, my guess is as many as 1 in 20 skiers was wearing some kind of camera. Fourth, it’s not hard to come up with real world applications. For example, I recently drove a BMW with a head up display for navigation that was excellent and Glass could provide that experience (it will be interesting to see what the safety implications are). Of course the most likely early use cases will be for police and military but eventually I can see many specific professional applications (eg construction, medecine, etc). So good for Google to be pushing the envelope here and even showing off that they know how to make Twitter work for them in promoting Glass!
Yesterday Facebook announced its long awaited search offering which they are calling graph search. It is the logical way to make the graph data that Facebook has been accumulating on its own and through its open graph accessible to users. Graph search is launching in beta with the obvious types of searches: people based on interests, places, movies, books, music, etc based on people. This is of course what Google has been fearing and why Google has been doubling down on Google+ at every turn (and I happen to agree with Brad Feld that Google’s patience has the potential to pay off).
At this point then it couldn’t be clearer that Facebook and Google are on an epic collision course. What is disappointing to me is that both are pursuing a vision which seems counter to the spirit of the internet as a collection of small pieces loosely joined. As an enduser I would much prefer a rich ecosystem of competing smaller services that work on specific problems, such as foursquare and yelp for places, netflix and vudu for movies, rdio and spotify for music, etc. The desire for a network of networks has also informed how we have invested.
I continue to believe that smaller services focused on specific areas can ultimately deliver a richer experience for endusers and also avoid a concentration of power. But the individual players are up against the powerful effects of supermodularity of information based production functions. On the margin I can make a better recommendation for say books if I also have information on movies. The big question then is whether the resulting complementarities doom us to face a few highly integrated players or whether it is possible for independent services to be sufficiently differentiated as to offset this advantage.
There has been a flurry of posts about Google’s acquisition of Sparrow. As I was reading the posts, I felt that a couple of important points were missed (or at least didn’t jump out at me). Let’s start with the discussion of whether users have a right to be upset. No matter what view you ultimately take here it seems worth remembering that the dollars spent on the software are not the only costs that were incurred by users.
First there is the cost of time. Let’s say that over the course of a few days after you pay for Sparrow you spend a total of an hour setting up your email accounts and getting up to speed on the product. If you value your time at $50 per hour, then your total cost of Sparrow has just gone up 5x on Mac and 15x on iOS. And I think many of the early adopters of Sparrow value their time at more than that. Even if you don’t put a strict dollar value on it people generally hate feeling like they wasted time.
Second, the emotional cost: there is a strong emotional tie to key tools. There are epic pieces on the Internet about text editors. Just search for “love vim”! Email is for most people what editors are for developers. So to fall in love with a new tool only to then find out that it will be “unsupported" which essentially means outdated soon and bugs not fixed (no piece of software the size of Sparrow is without bugs) can be a bit crushing. I am sure people’s reaction would be quite different if this was some disk optimizer utility that you use once a year.
There was also at least one post arguing that the acquisition somehow calls in questions whether you can succeed with paid software. I don’t think it questions that at all. It only proves that whatever Google offered was more attractive than the alternatives the team considered. The Sparrow team chose to go after a particularly hard problem and so we should read especially little into their choice. In case you are not convinced that a paid email client is hard, please consider the following:
First, you are competing with free offerings which are heavily subsidized by big vendors with huge resources and are seen as integral by those vendors to their platform strategies. So the bar for being better is actually reasonably high (I know a lot of people hate their email but that doesn’t mean improving it is easy). Add to that the cost of time argument from about and you will see that getting people to try a new email client is hard.
Second, email itself is hard. Anyone who has ever dealt with the intricacies of the standards involved knows that there are tons of weird edge cases and odd implementations out there. Getting an email product to work well at all times and with all accounts is hard even if you are leveraging existing open source components.
Third, going after a general purpose application for a broad audience is hard. How do you build differentiated value? How do people find that they want to use Sparrow as opposed to what they already have? All of this get easier when you make a more niche application where figuring out what drives value and who might be willing to pay for that value is easier to identify.
Fourth, marketing diffuse benefits such as elegance and simplicity is difficult. Here I think the Sparrow could have maybe tried to be more aggressive. Some Sparrow users I know claimed that Sparrow saved them an hour or more of time per week. If that’s indeed the case then more hard charging marketing copy and a much higher price point might have both been justified (this is cost of time again from the very first point).
So all in all I think that drawing conclusions about the viability of the paid model in general from the Sparrow acquisition is vastly overstating the case. And as my last point suggests, it may even be possible to make this work for email — it’s just a particularly hard problem.