Monday, December 3, 2012

Someone Gamed Apple's App Store:Revenge of the Dentists Edition

It is encouraging to know the likelihood of breakout success in the app store is over 100 times better than the likelihood of winning the Powerball lottery. Unfortunately based on the sheer volume of apps in the store, it is still in the million to one range. Fortunately, unlike Powerball, we can increase the likelihood of success by charting. The top ten apps are easy to find and can build enough momentum to get millions of downloads. In this freemium world of ours, millions of free downloads means tens, maybe hundreds of thousand paying players. Most developers cross promote to their base, or use services like Appoday or Freeappaday to achieve the necessary velocity to crack the charts. But apparently, it is not the only path to success. Maura Thompson used a different method. She targeted a market with a large pent up demand and built an app for them - wanna be dentists.
You want to be a dentist? Ok, here is your chance! Dozens of Dental Surgery are waiting for you!

In this COOL Virtual Dental Surgery game you will have lots of fun drilling teeth, filling cavities, and using your dental skills to solve lots of dental dilemmas. hit the road and travel cross-country to lots of destinations, meeting new people and their mouths . . .
Yes, that really is the game's description. Now don't get me wrong. I've got nothing against dentists. My grandfather was a dentist and so is one my favorite uncles. But this is the first time I ever saw the words COOL, dental surgery and game all collected into a single sentence. This could come off as sour grapes. The good Maura Thompson found success where so many others did not, but I like to think this rant was ignited by bigger issues in the app store. Success is determined by discoverability and Discoverability is broken. Developers are playing playing a game with unknown rules and outcomes doled out from a slot at the bottom of a very, very black box.


Dental Surgery was released on November 20 of this year and ascended to the number 1 position in the app store shortly thereafter. I first noticed it on the 30th. It was kind of funny at the time and I thought someone at Apple was awake enough to see the game's position and do something about it. While I could be completely mistaken, the 3960 1 star reviews relative to 898 1 stars could indicate something is amiss. If Maura Thompson figured out how to game the app store, moved the app to number 1 for days and no one at Apple cared, there is a problem - and I want to meet her. If Maura Thompson legitimately built an app thousands felt compelled to download, but a vast majority found it to be . . . in the words of Tiger75 "is a piece of crap!" there is a problem.  Either way [I am waiting in silence as I hold my microphone out over the audience]

Let's first take a look at gaming the system. Everyone respects the rogue who takes it to the man. The person who provides solace to everyone who is not Supercell and Rovio by climbing to the top of App Mountain and planting a flag for the independents. We rally around him - or in this case her - and celebrate the victory while defending her from Apple's attack for the game played on the system.
Then the attack is followed by what should by now be called a "Mitnick," the offer to join the company. "How about you trade in that thar black hat for a white one?" But if this is not happening.  Where is the Posse?  If the number one position is the result of impropriety and Apple fails to react, the chart may soon become as useful as results 3 through 42,000,000 on a google search. Arguably they are useful if you are interested in finding out how a "hot nude lesbians waiting to meet you" corresponds to the search you did for an LED light bulb, but they are hardly going to help you find the the light bulb. Just as Google continues a glacial paced shift from useful to useless, Apple's only source of discovery may be commencing a migration.

But let's redirect and give Apple the benefit of the doubt. This post was typed on a Macbook Air and there are three iPhones, four iPads and countless Macs and iPods in my home. I bought all this equipment because I trust Apple. I continue to buy because I like the ecosystem. It works, and it is quality. This post was inspired three years ago by the attacks on Apple's walled garden approach.
Contrary to [Jason] Calacanis’ opinion, Jobs is not a dictator. We elected him with our dollars and put him up for confidence votes regularly. If he doesn’t listen, we can vote him out. We’ve done it before. Throughout the nineties, with no Uncle Steve and no network of developers, Apple suffered. And even though Uncle Steve is not always right – the Cube launch – at least Uncle Steve 2.0 reacts quickly – the Cube death. He reacts to the market. When it comes to the iTunes and the app store, Uncle Steve is more Frederick Law Olmstead to New York’s Central Park, than Michelangelo to the Sistine Chapel. He built a garden and invited the world to plant seeds. Like Central Park the form is established but the content will change. Also like Central Park, some content just doesn’t fit and has to be rejected or pruned. So far, it seems Jobs is the guy to do it. Jobs 2.0’s decisions are driven by long-term concerns over viability and stability of the platform. Do you think it was easy for him to allow an investment from Microsoft when he got back to the company It was an important decision that supported the continued relevance of the platform. Do you really need more proof?
So, here is the dirty little secret. It’s not [Douglas] Rushkoff’s disclosure that Apple is really evil, it is Apple is out to make a profit. At the present time, a walled garden is the best thing for the company. It will continue to operate in the best interest of its consumers, and its long-term viability. If there is conflict between the two, it will favor the company. Some of these decisions may include keeping competitive products off the platform for purely competitive or strategic reasons, but right now and fortunately, consumers have alternatives. If Apple goes too far, it could be 1992 all over again. I won't wait for the thank you card to the game industry for telling them what to do.
I supported Apple's approach because those of us old enough to remember the first run of "Mork and Mindy" remember Atari's crash. The game industry exists today because platform owners, starting with Nintendo, make sure content released on the platform is good. Atari users had so many bad purchase experiences when choosing from a very crowded market, they simply stopped buying. We see a flavor of this in the Android market today which is only a fraction of iOS sales.   Before the stories of his ouster from Apple, the press covered Scott Forstall as the guy who told Steve Jobs the app store should be open.   Jobs originally wanted it closed because he knew he had to give all consumers an Apple experience on their Apple product.   It is not really clear which side originated the walled garden, but it worked. As Ronald Reagan said before me "trust, but verify."  

We see in cases like the recent maps issue where Apple decided their own maps were not ready for prime time and highlighted other map applications in the store.   Apple will intervene and provide guidance if an app is not up to snuff.  Apple's decision to select and monitor content suggests the consumer can be comfortable enough to download, but Dental Surgery indicates otherwise.

Wait dear reader, before you jump down my throat and tell me Apple should not make decisions based on content. First they ban the dentists, then it is morticians and taxidermists and where does the madness end? No one will be safe. Don't worry, I am on board with you.  If the App is just not my taste or subjectively weak in the game play department but the market likes it - let it live.  I can't figure out what is going on in Rage of Bahamut, but you will never see me call for it to be yanked from the store. Is anyone going to support the original Madden Football beating Deer Hunter as a paragon of quality game play? But Dental Surgery is not just subjectively bad. According to the one stars, it is riddled with freeze bugs and lacking instructions. So the consumers who download this game can't play because it doesn't work and even if it did work, they would not know how.  How does this stay on top?

Apple's undertaking is monstrously large. While Microsoft, Sony and Nintendo deal with hundreds of games a year, Apple must deal with hundreds of thousands. Too much diligence creates anger in developers and hunger in consumers. Not enough means bad apps fall in the hands of consumers. There is a happy medium. Apple responded immediately to complaints generated by Capcom's Smurf Village and called for revisions in the game and revisions in the app store to prevent abuse of unwary consumers. Just like Kotaku's description of Google's shoot first, ask questions later treatment of financial anomalies, If Apple hopes to maintain consumer trust, it must respond anomalies in the charts. Unlike initial review, it would not a herculean task to assign a single person the responsibility of downloading and using the top ten free apps - especially the ones remaining in the charts for a week.

Saturday, September 29, 2012

Recapping: Recognition of Genius

Sometimes I even amaze myself. I was looking back at an old post - less narcissistic than googling myself but more than tweeting and thinking someone cares - and found this genius vision of the future. If I did this a few hundred years ago I would have been revered for magical powers - or killed as a witch.
This post was written about three and a half years ago but shows an uncanny, crystal clear vision of the digital and mobile game world - or another statement of the obvious. You be the judge.
Once we get to the other side, we will realize the USD 59.95 price point, and even the USD 49.95 were not carved in stone by the finger of the almighty. They are an industry created construct, which continues to drive us to make USD 20 million “Fields of Dreams.” In this insidious cycle, the consumer demands a certain amount of gameplay for their dollar and we supply it. Perhaps in this new world we will be able to build games of all sizes at various price points. Without inventory we can shift prices up and down and all around until we determine the proper price for each type of game. Really, Gabe Newell says its ok. We can take risks again. New mechanics and gameplay can be released in smaller versions or even to limited large scale beta groups to see if we are on the right track before putting in the second USD 15 to 17 million. We can even capture the long tail currently exploited by Gamestop in their bargain bin. I don’t know if I’ve seen the future or if the revolution will even happen in time to rescue the industry as we know it. I do know we can’t be so ignorant as to believe we are immune to the reconfiguration of the markets for every other form of media. If we don’t choose to be proactive in the change, it will be done for us and we won’t be happy.
 

Thursday, September 13, 2012

Definite Answer to What is Wrong with Zynga: Obvious Edition



I pride myself on my “brilliant grasp of the obvious.”  But sometimes concepts bathed in divine light before my eyes are hidden to the entire world leaving me sitting like the solitary school-boy laughing to himself in a corner while the world doesn’t know why.    My gift tells me Zynga is in a good place.

For those of you who feel I put too many words to my thoughts on this blog, this time I will get to the point before I digress.  Even though you cannot swing a dead cat without hitting a Zynga naysayer, show me one person in the business who would not give their left nut – women included – to be in Zynga’s position today.   Lots of these well intentioned but sadly misguided folks are offering advice and statements about what should be done, and I will certainly start listening,  as soon as one of them shows me the 2 plus billion dollar company (Zynga’s current “depressed” value) with 60 million people a day checking in that they built.    They can all provide input from high towers about directional changes and missed opportunities revealed by hindsight, but it is just not useful.  My old boss at Eidos, Charles Cornwall was an investment banker who said making games, like any other form of entertainment, is about distribution and access to capital.   He then accessed both and grew a company from nothing to the second largest publisher in the world and a billion dollar market cap in a little over 2 years. The fundamentals of the business have not changed and Zynga has more of both than any other company in the business and perhaps, than any game company in history. 

No one is going to say Zynga has not hit a dry patch relative to the massive growth it enjoyed early on, but remember when Activision, the largest game publisher in the world, went through a prepackaged bankruptcy and emerged with less money and a lower valuation than Zynga has today?   Historically, publishers gained access to fixed distribution channels through relationships with third parties who owned them.  These could be retailers and at one point, middle men like GTI.   The publisher owned the content and the relationship with the retailer, but the connection to the consumer was only as strong as the retailer’s tie to its customer.  We hardly ever found out who purchased the product.    Zynga knows who buys it and they touch more of them.

Let’s put Zynga’s audience in perspective relative to other media.  In two and a half days the company is visited by the number of people who saw this year’s number one movie, The Avengers, globally, during it’s entire box office run.  Wait, before you point out these people paid for the film and do not pay for Zynga games, compare it to the multi billion-dollar television market.   The final episode of MASH, the most watched television show in US history had 50 million viewers.  The average daily viewership of all four US television networks combined ranges between only 40 and 50 million per night.  This is a powerful distribution channel for games and in a world of on demand movies and time shifting of media and disappearing print media making it impossible to know which media to buy, it is a powerful channel in the media world as well.   Zynga’s customer acquisition numbers to grow this audience are well reported, but now that it is there, the cost to reach this number of people is very low.  All the company has to do is make a hit.   This gets us to the money part of the truism.

One of the first examples I use to show the differences between the film production and video games is the different meanings attributed to the word “development.”   I explain how in film, the word means working on a concept to see if the studio can come up with a shooting script and cast.   During this time one person is working and no commitments are made to production.  Games, I explain, are the polar opposite.  “Development” means we are making something.   A team of people is working and a product will be completed and released.   While this paints a clear picture for the uninitiated, it is not an entirely accurate description of the business when I worked at a publisher and it is not an accurate reflection of Zynga.  The hyper accurate analysis of the term reveals they are exactly the same process.
We knew how much product we could push into a channel and sell through regardless of what was in the box.  In the short term, if we did not exceed the number, we knew our “development” of new IP was covered.  In the long term, if we abused the consumer by putting shit in the box, we lost our brand and therefore, our channel.   If the product sales exceeded expectations, we made sequels.  If not, we moved on to the next new IP.    The market for console is much different now, but not for Zynga.    By virtue of its audience size and infrastructure, Zynga is able to build out concepts, test them, determine revenue potential and tune, move forward or kill all before it incurs major expense.   Publishers like Acclaim and Midway are gone because they ran out of money to develop products.  With 1.4 billion dollars in the bank, they can do a lot of building, testing and tuning.   Only a meticulously executed strategic focus on hit avoidance could cause the company to burn through its pile of cash and build something worth while.

I do not know Zynga’s specific plans, and while this bothers a lot of folks actively writing about the subject, I am not bothered.  If you were trying to find success in a highly competitive market, would you telegraph your next move?   However, the company announced it will be looking more toward the core market (code words for increasing the percentage of whales), looking at mobile and preparing for a potential change in legislation which could make gambling legal.  I understand why gamers attack.  The industry hates to see anyone succeed and if a company breaks out and starts minting money a chorus forms to sing about why the winner is “not really a game” or “missing the point” or just a bunch of assholes.   Unless of course you are EA and then you are either management who is angry about the number of employees who moved over to Zynga or one of the remaining employees who is upset to be standing on the sideline while all the other kids got picked.  I can even understand why the mainstream is on the attack.  I mean, the only thing more popular than building heroes and putting them on giant pedestals is tearing them down.  It is kind of the American thing to do.   All those people who missed out on the opportunity to make money while the company was private, can hold themselves out as the smart ones who never got in.   But c’mon on folks.   If Zynga does well, we all do well.   If Zynga does poorly, the financial world hates games again and we return to the tiny incestuous world we are trying to escape.  Let’s give the company some breathing room and watch the folks who built the company to where it is put it back on a growth path. 

Thursday, September 6, 2012

Is Amazon Appling Apple?: New Kindle Fire Edition

This is the exact post I put up in January of this year.   I could say nothing has to do with my being lazy, but I would be lying.  I am proud the post Jeff Bezos' announcements today made the post almost as relevant today as it was the day I wrote it, and perhaps I am showing off, but it has really been a long time since I wrote a new post and this is a good way to get started again.  






By now I am sure Walter Isaacson's report of Steve Jobs feelings about Android is news to no one. At one point during the interviews leading up to the greatest retelling of the monomyth since Luke Skywalker, Jobs said:

I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40bn in the bank, to right this wrong," . . . . I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this.

The timing of that last breath relative to the life of Android is also news to no one. What I have not seen is the realization that Google may have stolen the frame, but Amazon stole the art. And while the media continues to report on the Amazon vs. Apple battle for the bedtime and reclining market, the real battle is Amazon vs. Google. The success of Amazon’s Android running Kindle Fire and focus on the Apple battle masks Amazon’s role as the new standard bearer in Steve Jobs’ war against Google which may well have cause Google to be hoist with its own petard.

Apple never hid its focus on what products can do, rather than providing tech specs. In fact, from the day he returned to Apple, Jobs talked about it to anyone who would listen. The message was clear in the first iMac commercial telling people they were two steps away from getting on the Internet,


At the same time, Dell, the world's largest computer maker, Dell, was running a commercial showing an astronaut floating in space. Twelve years later, Palm still didn’t get it when they launched an iPhone competitor by showing people dancing in a field,


and Motorola was no better with their iPhone killer introduction looking more like a teaser for a Michael Bay film than a phone.


Jobs vision for Apple was not at all curious, but it was certainly curious that no other technology company copied him - until now - and Amazon copied it all.
Apple did a ton of things right to make the iPad work, but the most important was ensuring the quality of the user experience by building and guarding its own ecosystem. Unlike Google, Apple makes sure there was only one type of hardware, running one flavor OS. Then it built a wall around its beautiful garden.


Ensuring the user experience is so important, Apple takes great steps to protect its garden from the detritus left by foreign bodies. It entered into license agreements for distribution of broad swaths of content and committed to review and approve every single piece of software introduced into the garden and even acquired an ad service to make sure the commercials inside the products accepted into the garden would be up to Apple standards. The result, is the single largest homogenous technology base in the industry. Oh yeah - one more thing – Apple has everyone's credit card number.

Amazon was hitting its stride at the time Steve Jobs returned to Apple, and Jeff Bezos also knew success depends on customer service. The company started to provide customer service when it was easy. It only had to deliver the right product on time, and have a customer support phone number. Just like Apple’s simply providing a computer that worked, Bezos simply gave customers what they ordered. At the time, both concepts were revolutionary. Like Steve Jobs, Jeff Bezos did not stop after the easy parts. Just as Jobs famously made sure the parts of the products on the inside are as beautiful as the outside, Bezos invested vast amounts into building unseen technology to magically enhance the user experience – even in ways the consumer never noticed. By doing so, he built a massive user base into a massive company. Oh yeah- one more thing- Amazon has everyone’s credit card number.

Lots of tablets launched last year, but Amazon and Apple were the only ones to launch tablets with clear paths to doing things – and they are the only successful players in the market. It is also no coincidence both tablets are neutered relative to most of the others on the market. Techies think everyone wants to customize and program their shiny little noisemakers, but Apple was the first to identify that just like in video games, the perception of freedom is much more important than freedom itself. Steve Wozniak said it best when I asked him whether he thought the iPhone was a modern version of the Newton (little known bit of trivia – Jonathon Ive designed the Newton 110) and he said
No, the Newton learned you, you learn the iPhone.

Any game designer will tell you that giving a player too much freedom will make them bored. Players must be led in a way they do not know they are being led. That is why Amazon and Apple would make great game designers. While the two companies pursued the same consumer, in the same manner, they attacked the market from completely different directions.

At its very core- no pun intended, - Apple is a hardware company and Amazon is a retailer. This is important because their decisions will be made to maximize revenue in their core businesses.
Some may say Apple is more than hardware, but the company, like Sony used to do and Nike does with shoes, makes its money on selling hardware at higher margins than any other computer company. Jobs always said the software hardware relationship was critical to making the best products, but, for the most part, the software, is not sold on its own and most software businesses within Apple are small relative to hardware sales. In laying the groundwork to launch media devices Apple successfully commoditized music, television, film and game content and gave it to the consumer, so the company could make its profits on the hardware. Jobs compared the company to BMW and if you look at the product lives and update cycles, they are not dissimilar. “I am going to sell you the greatest thing the world has ever seen, and then I am going to show you why it is inferior to my new greatest thing the world has ever seen.”

Amazon is a software company and it is slowly but surely turning its retail products into software. Unlike Apple, hardware only exists to facilitate the software transactions. The company built more software than any other retailer on the planet, but like Apple they don’t sell it. All of the coding goes into an invisible infrastructure with a public appearance that is charitably described as "dated" – but in the case of Amazon this is its strength, not a weakness. With many, if not most of the same content relationships as Apple, the company sells streams as well as downloads. However, Amazon makes its money on the content sales. The company looked to its first hardware device years ago as a lost leader to enable increased engagement with consumers, and higher margins on content sales. In determining what people want in a device, Apple found people did not always need the power of a computer. So it looked at computers, pared them down to the most common uses, put them on a tablet and sold them at a great margin. Amazon realized people did not need all of the expensive stuff built into an iPad, so it pared its tablet down to the most common uses, and priced it slightly below cost. In doing so, Amazon commoditized the tablet. Amazon did not steal the concept of selling digital media into their own hardware, and the first Kindle actually launched well before the iPad. But it did steal, the concept of content over hardware. Every other company was trying to make a better table than Apple, and some did. Amazon was the first to realize they could launch a worse tablet, so long as consumers were able to easily do the things they like most. Choices are limited, but they are limited to what people want. They want this stuff so much, they bought a million Kindle Fires a week. This story plays out like John Woo directed it. Apple is underpricing Amazon on the content, while Amazon is underpricing Apple on the hardware – unless you look just out of frame at the bigger gun Amazon is pointing at Google.

If you are reading these words, you just spent a whole bunch of time reading gaseous belch about why content and access to content are more important than hardware in the tablet world but nothing about Amazon fighting Google. This is where it all comes together. The consumer only cares about content and the providers and creators of content care about getting paid for content. Payment depends on the size of the installed based and the ability to settle a transaction. Because there is no single source of content and Google is still asking nicely for people to put their credit card data into a Google Wallet, no one really gets paid for selling content on Android. The only money made, even on apps like Angry Birds, is through advertising – and for obvious reasons, Google is just fine with that. But before a content provider decides to release an application for free and support it long enough to grow a base large enough to generate significant revenue, it has to run on Android. Therein lies the rub.

Unlike Apple with its single OS and device, Android has a variety of flavors and devices and they are not all the same. Deployment on Android reminds many of the bad old days of PC development because applications must be tested across many platforms and configurations. Kindle Fire to the rescue. By building the Kindle Fire on a customized layer of Android version 2.3, (Gingerbread) and then selling it to 14 million people, Amazon created the second largest homogenous base of users in the tablet world and by far the largest homogenous base of Android users and the only one with a built in payment method. This should be a big win for Google. Just like IBM carried Microsoft's OS to the world like a virulent, pestilent disease, the Kindle Fire is spreading Android over iOS and finally making it worthwhile for developers to invest time in apps. Right? Not really. Amazon is giving consumers a better reason to shun the higher functioning, newer, pricier Google Android devices in favor of the neutered, smaller tablet running a two generation old OS. All in all, this turns into a big plus for Apple. Apple will continue to make BMW's and Amazon will make Chevy's. The market needs both. A Chevy does what a BMW does - gets you from home to work and back again with the occasional trip to see a movie - and for its real world uses, performance is identical. But people buy BMWs for a few added bells and whistles and all those things they will never do with the car, but can. And of course the prestige associated with telling the world you paid more for your car than a comparable Chevy.

I could argue Amazon is killing Android, but it is not. Google is killing Android. Even though Google is touting the virtues of Android 4.0 (Ice Cream Sandwich), it continues down the same path as earlier versions. Specifically, it will not run on all prior hardware devices, it is will not be universally deployed, and it will be operating on a number disparate hardware platforms. No matter how much Google says it is the same, the hardware will cause variation in performance that impacts the applications. The decision for content providers looking at developing for a disparate base with no payment method vs developing for a large homogenous Kindle Fire base with a built in payment method and promotional channel is very easy.

Begging the question, without the quality applications, can Google grow 4.0 as quickly or successfully as Amazon grows the Kindle Fire? With Kindle serving as a gateway drug to iPad's and slowing Google's march, I have to think Steve Jobs is smiling somewhere.

Friday, March 30, 2012

Orbis: It's the End of the World Again: Analysts are Shitheads Edition

I love this kind of story. Some anonymous source on a website told the world the next PlayStation will be called "Orbis" and that it will not play used games. As some random guy with a blog, I would expect me to write something about this - I did not - but why are all of these "professionals" weighing on speculation and being so very, very wrong in the speculation layered on top of speculation. While the only basis for validating the speculation is the memorialization of the thought in a series of letters comprising words on a page, the analysts feel the compulsion to comment. The very, very sad part is their commentary betrays them and shows why they are so often so very, very wrong. They see the wall, they see the train tracks, but the do not realize they are sitting on an airplane. Michael Pachter of Wedbush, David Cole of DFC Intelligence and Lewis Ward of IDC all focus on a recent announcement suggesting PS4 - they say it is called Orbis but if Sony caught on to Microsoft's game in the last round they are giving different code names and feature sets to everyone so they know who leaks details - will not allow the play of used games. Their grasp to this nugget like rats to the flotsam of a sinking ship points them to impact on Gamestop. This is a valid concern. One half of Gamestop's business is the resale of used games. The focus may be well placed, but the conclusion ignores even the speculative facts put out in the original post.
If you then decide to trade that disc in, the pre-owned customer picking it up will be limited in what they can do. While our sources were unclear on how exactly the pre-owned customer side of things would work, it's believed used games will be limited to a trial mode or some other form of content restriction, with consumers having to pay a fee to unlock/register the full game.
Used games are not blocked, they are limited. Fellas, this is not a whole lot different than what is going on today. There is a long list of the most popular games on the market that only allow full use to the first player. This article suggests the paywall - or repay wall - will simply be moved closer to the beginning of the game. Analyzing this point would also lead to a conclusion of potential benefit for Gamestop and the publishers. If the games are limited utility, the value, and therefore the price goes down. However, no one said they are useless. The games are still low cost demos and entry points for consumers. If there is enough value on this side of the repay wall, consumers may pay twenty dollars for the limited use disk. If they like the game, they pay another 20, or micro transactions, to the publisher, and everyone makes money.  Used revenue per disk will go down for Gamestop, but volume could increase significantly as it did when the price of home video was reduced from $99 to $59 to $20 and to $5. The only potential users are the console manufacturers who will not make the fee on the manufacture of the shiny disk, but this could be made up on transaction fees for the downloads.

The weird thing about the focus on the used games half of Gamestop's revenue is the failure to consider the much larger and much more significant threat. If these consoles go to direct downloads or cloud based gaming Gamestop will lose revenue from the sale of the shiny disks and lose the access to the inventory of used games. Seeing as Gamestop's entire business may in fact be built around consumer funding of their used game inventory, every download game is a double impact on Gamestop revenue. Gamestop's CEO, Paul Raines, is a very smart guy. He supports Gamestop's relevance by saying digital is further out than we think. Storage is simply not there to collect all of the games we want to play. Unfortunately, cloud computing and access may make storage irrelevant and console manufacturers would be short sighted to ignore the rest of the world and not take advantage of the technology - of course this would not be the first time. Paul knows this and is driving the company in the direction of digital. They do have a long, long way to go, but there is a world where a retailer offers stellar service, enhanced value and in exchange generates high revenue per square retail foot selling things that are all available on line and a transaction fee for downloads. Today we call it the Apple Store. Gamestop just has to figure out how to get there. The analysts have to figure out how to analyze.

Friday, March 23, 2012

Revenge of the EULA Reader: Meta Me in a Bubble Edition

This morning I read this great post from an artist who actually read the Pinterest EULA. I linked to her article in Scientific American because I want to make sure she gets credit for what she wrote by people reading from her page - or as she may say, the kind of thing she is afraid will not happen by virtue of the Pinterest EULA. I don't want to hold Pinterest as only the company in the world who sticks stuff like this in EULAs. In fact, I wrote about problems with other EULAs before my 23 and me post is by far the most popular post I ever wrote. I venture to say more people read my post about the 23 and me EULA then actually read the 23 and me EULA. EULAs, in the sense they are being used by the Pinterests, Facebooks, Googles and Linked ins of the world, are legal fiction granting the drafters the rights to use our data the way they want to use it today and how they may use it in the future. I saw legal fiction not just because there is not a single word in any of the multi thousand word agreements in the "signer's" favor, but because the companies providing the documents know no one reads them. Hence the beauty of the Scientific American post by an artist and not a lawyer. How the world will change if people start reading and perhaps even objecting to the agreements.

These sites and services argue our data is collected in consideration of services provided for free under the EULA. But does this argument really hold up? If the services are being provided in exchange for our data, the services are not free. The services cost our data. We are paying for services by providing our data. While we can be certain our data is appreciating in value with each click we make - Facebook has every single click I made since I signed up and keeps collecting them - and each advance in data mining, we cannot be certain of the services, or accountability for break down, in the services provided. Finally how do we know the value of the services is commensurate with the value of the data being provided? Time for the radical proposal. What would happen if I actually owned my data?

We are bordering on a sci fi concept here, but each one of us is creating value unique to us in the form of a "meta me" and we are not benefiting. There are things we do every single day that has value to ourselves, our community and even sponsors, and others are aggregating us into a pool and slicing and dicing us into the equivalent of securities derivatives for resale. We, the owners, the creators see no value. I should own not only my data, but the metadata that defines me. If I create a profile of myself - I am not saying virtual because the profile of my clicks and purchases is very real - that profile is no less mine than the compilation of the words in this post. The choices I make on line, coupled with my identity are a valuable creation. No stronger evidence exists than the payment Google receives by selling my data to sponsors. Even though my data is more valuable to certain sponsors than other people's data, we all get the same services. I appreciate Google telling me where I can find things on the web and Facebook letting me keep in touch with friends but when did I decide they should be able to keep all of the profits they make selling meta me? Wouldn't it be great if we could put a bubble around our data and make purchasing decisions on line the same way we make purchasing decisions in the real world.

When purchasing moved on line we disintermediated the middle men. Travel agents and insurance brokers fell. Next we ate the record executives and ad sales guys. The funny thing is the disintermediators like Google did such a good job of disintermediation that they grew into the intermediaries. Google's first argument to sponsors was TV and Radio are only thinking they are giving you and audience. We are accountable and can track clicks. Sure they try to stomp out click farms and other forms of fraud, but when I see the same ad for an elliptical coming up on every web page just because I clicked on a review page six months ago is it really an effective use of the advertisers' money? The advertiser would be much better off going directly to me, rather than buying my anonymized data as part of the derivative sold by Google. It is time for Google and Facebook to become the broker, rather than the owner.

If I put meta me in a bubble I would be able to determine the value of my data. Some opportunities are easy to imagine. I can opt into a network If I wanted to watch purchase a tv show in iTunes or watch a premium show on Hulu, a notification may pop up telling me to put away my wallet because Coke would like to buy my show for me. That would be nice. They would not even have to show me the commercial.
I would feel good about them already. Now to the tricky stuff. Why can't I opt into Facebook or Google services in exchange for a cut in the revenue? They have infrastructure costs to cover and there is value in the brokerage service of finding the best paying customer for may particular data, but what about the profit. They would not be in business if there was not a profit. I want some of that. I might not feel so bad about the use of my data I get a monthly statement, the same way an adsense or admob user does, indicating the value of my data to Google. I might also have the market information to know the value of my data and knowingly determine whether the services I receive, like gmail or google voice, are a valuable enough for me to let them leverage the value of meta me.

Sunday, February 19, 2012

Overthinking a Garage Door Opener: We Will Not all Make it Into the NBA Edition



Anyone who has spent more than ten minutes with me knows how highly I prize my Malcolm Gladwell Outliers-like developed grasp of the obvious.  But living in my very myopic, self centered, cloistered world it is hard to identify things that are obvious to the entire world and not me from those obvious only to me.   This weekend I installed an auto mated garage door opener and stumbled upon the value of doing things in the physical world.  After spending more hours than it should take and skinning more knuckles than reasonable, I achieved great satisfaction in pushing the remote and watching the door open and close.   In fact, I achieved so much satisfaction, one day later I am still pushing the button to admire the physical manifestation of a day's work. At the top of this post you see a video from Mike Rowe from a talk actually given at the E.G conference, not TED,  highlighting the value of the lost art of "real" work.  I deeply, deeply believe what he said and having wasted four years of college because I was filling out a check list rather than striving for a goal I proselytize his message on a regular basis - with words.  Now I did it with deeds.

It made me feel really good to invest a full day working with tools into a garage door that will go up and down with a push of various buttons, but I am not advocating garage opener installation training.   There is a whole physical world we ignore through our work and more importantly through our ascription of value.   When my grandfather was fourteen years old he was provided with a variety of options.   College was available, but pharmacy as a trade was presented as an equal viable option.   He chose pharmacy and entered a trade school in junior high.  As a parent of a sixteen year old boy staring to consider the college path I am hypercritical of where we, the big "we," ascribe value.   We, the imperial one, highly value those folks living in the rarified air how create the disruptive technologies that change our world.  The Zuckerbergs, Gates, Jobs, Brins and Pages who show up on the cover of Time Magazine and make billions.  However, as a parent I have to consider the percentage of these relative the rest of the world and realize the irresponsibility of supporting disruption over contribution.

In the pre rock concert days of the TED conference - when reporters were not allowed and speakers wrote their own presentations about their passions - Dean Kamen used to talk about the value of exercising your brain.  He started his talk by addressing the financial and social value we placed on athletics.   Athletes are adored by, and paid, millions.  But there are only three hundred and fifty places in the NBA and the realization of the dream to achieve one those places is reserved to relative few.   He further explained the limitations of advancing athletic skill relative to the infinite ability to expand our brain.   He put actions behind his words and created US First.  Within a few years he had high school children in schools across the country prizing engineering skills over athletics.  This is a wonderful thing but as a whole we still focus the lion's share of our attention on the breakouts rather than the contributors.   There is a reason the hourly rate of plumbers is climbing faster than the hourly rate of attorneys. It is simple supply and demand - and it is our fault.  We are minimizing the value of the careers that lubricate the friction of everyday life in favor of the extraordinary. By definition, the extraordinary is small in number.  As a society - and I a may be speaking very US centric here so excuse me if you are reading this outside the US and feel it does not apply - we are creating college as a goal rather than a means to a goal and prizing the financial rewards of the relatively few successful entrepreneurs over the passion which drove them to their product in the first place.

I am a very simple guy with a very limited world view.  But in my professional world view - the game one not the lawyer one - I see a myriad of opportunities which do not require college.   The perspective of the actual consumer is under represented and highly useful in the industry.  What would happen if one of these kids starts to hone their skills in their formative years.  They, like those of us who started in the eighties, start to use the tools available to them and learn to use Unity, or build an app.  Or maybe even being a tester.   They will find themselves developing marketable skills that may displace the current need for a liberal arts degree.   They may leave high school and join a developer or a publisher. They may be content for the rest of their lives.  Or maybe, one day, they will look over at a guy with more skills, who's walls go all the way to the ceiling and drives a Porsche and ask him how he got there.   The guy will explain he got a degree.  Now that kid will go to college with a purpose other than watching cartoons and smoking pot until they move back in with their parents.  Or, something may burn so strong in their belly they have to leave it all behind to pursue their idea.   A pursuit born of a compelling need to build it and get into the world, not the need to be a billionaire.

Don't get me wrong.  I am still riding my son' ass to go to college, because I am deeply afraid of him living in my home forever and he is not training a plumber's apprentice, but I hope I afford him the breathing room, understanding and support to allow him to determine his own goals provide the platform for him to achieve them - regardless of how much Mark Zuckerberg is worth after the IPO.





Facebook, Google and our Dwindling Privacy: Take My Data Please Edition




 I read this article about the trade off for privacy and this quote from Ron Conway really stood out "For that value tradeoff, they're willing to provide information." I completely agree with him and not just because his support of his iconic investments is legendary. But his statement is not really relevant to most of what is going on at companies giving rise to the concern. We really do not know and cannot imagine what is being done. The government is not allowed to access the same information without a warrant, but the fiction of "consent through EULA" finds permission buried deep inside what consumers call a "click through agreement" and the drafters call a license grant.

Rather than go into a whole new rant, I am just reposting something I wrote about a year and a half ago. Sadly, even though we are becoming more aware from great editorials like this one by Lori Andrews in the New York Times, other than attempts by the powers that be to reframe the argument, not much has been done. Have a look at the video at the top of the page for Mitchell Baker's simple and logical solution, but in the mean time you can read my post from June 2010 to see what set me off. . . .


 

Sure E3 is going on and you might click through to this post to read something I had to say about it. Do you really think there is anything left to say? It is back and the whole LA Convention center is full of unicorns shitting rainbows while puppies dance on their backs. If you cannot make it down there, you may be better off. You do not want to step in a rainbow pile. There is so much E3 news I went ahead and wrote about something that is bugging me. But if you would rather see E3 stuff, here to go ahead.

I purchase a bunch of random things through itunes and because there is no real correlation between the timing of the purchase and the timing of the confirmation receipt, I often do not even open the purchase confirmation emails. But last week I got a few emails in a row and opened them to find out I purchased:

ViKey - Bộ gõ tiếng Việt - TELEX, VNI, VIQR, v2.0, Seller: Dinh Ba Thanh,

MyFlickr, v1.0, Seller: Do Tuan Anh ,

VnExpress 2010, v3.1, Seller: Do Viet Tuy,

VietnamCar 2010, v1.0, Seller: Do Viet Tuy,

DTCK 2010, v1.0, Seller: Do Viet Tuy, and

CafeF (Special Edition), v1.0, Seller: Pham Cao Phuc.


Another email told me I purchased VietStock 2010, v1.0, Seller: Do Viet Tuy. Curiously, I did not remember buying any of these things. I went to call the iTunes store, but I could not, there is no number. I looked on line and I noticed hundreds of posts on the official Apple discussion boards and across the web about people who had their accounts hacked and found no assistance from Apple. They all said the only recourse was through the credit card company, so I called my credit card company and they without any questions, they voided out the charges. They said it happens all the time.

After hanging up I realized I could not upgrade my iPad apps. iPad apps and related upgrades are tied to the user account at the time of purchase. My cunning grasp of the obvious connected the two issues. I called iPad support and devoted the next hour of my life speaking with a series of very helpful and happy Apple cult members who were very sorry I was having issues. Apparently they can call iTunes help, but consumers may only reach it by email. While they were genuinely kind and helpful, was somewhat disheartened by their responses. Apple gathers a bunch of data and asks for permission to use it. They tell me their genius will suggests interesting songs and movies if I let it track what I buy. Apps will be better if they can track location and if I lose my device, they can even tell me where my iPhone or iPad is if I just give them permission. When my credit card numbers were stolen Amex was able to identify aberrant usage within one charge. I’ve used the card all over the world with multiple purchases in multiple cities in a week and they never asked a question, but one charge in one grocery store in Los Angeles, and they nailed it. They called and asked if I made the charge, I told them I did not, and I had a new card in my hands within twenty four hours. So again, applying my highly regarded grasp of the obvious right around minute 46 of our getting to know you call I asked the very kind Apple person

I’ve had the account for about four years. Wouldn’t the store identify a sudden burst of purchases in Vietnamese and at least ask if it was me?”

“Oh no Keith” we are on a first name basis now, they are nice, they are Apple and they care about me ”that would be an invasion of your privacy and we would not do that. We would never look at what you buy.”

“BULLSHIT” I wanted to yell, but I didn’t. This NPC is too far gone. Far be it for me to embark on the deprogramming.


Contrary to what my Applebot told me Apple does take our data. Even though we don’t read the scrolling EULA, which was handed down through generations of very clever, albeit wordy, legal monks in the purest pursuit of full disclosure, we see their recommendations. Unless we believe in the recommendation fairy, the continued improvements points to their watching us. They tell us so. They promise provision of better service by parsing, analyzing and searching for correlations. What we may not know - because no one really reads the EULA - is Apple’s interaction with you does not end with the purchase. The company better serves you by tracking what you are playing in your library, how often it is played and when you last played it. We would be pissed if a little sister did this to you, even worse if it was a parent, but we let Apple do this and use it. I am not coming down on Apple here, Amazon has been doing this for years, as has TiVo, your credit company and Google. When it comes to our privacy, this is just one of the many aspects we give up without thought. Probably because it is too hard to wrap our heads around the value and amount of meta data flowing from the real data we provide and we really do not think any will do anything with it. We could not be any more wrong.

In the old days if you told someone you bought an album or a book it did not mean anything. But our data no longer exists in a vacuum. Now, the cloud around that data seamlessly blends with other clouds of data, exponentially growing with each merger. The cloud grows as the amount of data grows. We only see the data pile, whole new branches of science are looking at the invisible cloud and this stuff, is being used against us.

The press is going nuts over Facebook privacy policies, but the discussion of access to, and spread of, data we never intended to share is much quieter - bordering on nonexistent. In addition to what we disseminate by putting something up on Facebook or purchasing through iTunes or Amazon, we build vast silos of data just by using a browser. We have a personal silo on Facebook full of pictures, thoughts and connections,
a web activity silo stored on our ISP, a financial silo held in credit reporting agencies and banks built through our purchases and credit requests, a personal interest silo when we click on an ad, and more we can not even conceive. It is hard enough to imagine what companies are doing with the data we provide – Facebook can predict future hookups between members with 33% accuracy – we cannot even begin to wrap our heads around what will happen once the silos connect and network effect kicks in.

The Financial Silo.

Almost all of us are comfortable using credit cards. Aside from the risk of the waiter or store clerk stealing your number, we really don’t think about the individual purchase. Some people even feel comfortable enough to register with Blippy.com, making a game of broadcasting everything they buy. Why should we be concerned about individual purchases? Who could possibly care about your buying a 12 pack of Diet Coke and a game at Wal Mart? No one ever thinks these purchases speak to who we are, but credit card companies and banks build psychological profiles based on what we purchase and where we buy it.

The exploration into cardholders’ minds hit a breakthrough in 2002, when J. P. Martin, a math-loving executive at Canadian Tire, decided to analyze almost every piece of information his company had collected from credit-card transactions the previous year. Canadian Tire’s stores sold electronics, sporting equipment, kitchen supplies and automotive goods and issued a credit card that could be used almost anywhere. Martin could often see precisely what cardholders were purchasing, and he discovered that the brands we buy are the windows into our souls — or at least into our willingness to make good on our debts. His data indicated, for instance, that people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.
Martin’s measurements were so precise that he could tell you the “riskiest” drinking establishment in Canada — Sharx Pool Bar in Montreal, where 47 percent of the patrons who used their Canadian Tire card missed four payments over 12 months. He could also tell you the “safest” products — premium birdseed and a device called a “snow roof rake” that homeowners use to remove high-up snowdrifts so they don’t fall on pedestrians.

These profiles are then used by credit card companies and banks to determine when to offer home loans, lower existing credit lines, or deny new credit, Without even thinking about it, we are building a profile of ourselves which is available to all who review our credit. With the passage of the new federal banking bill, the US Government will also have access to these records.

Web Surfing Silo

While credit card companies, and the US Government are building profiles of us, we are building profiles of ourselves. Our surfing habits create a unique “Clickprint” that can empower those reviewing the data to anticipate our behavior. Reams and reams of data are gathered and despite the statements contained in privacy policies, distributed. In 2006, AOL fired its CTO over the releases of stored and anonymized search data. AOL found the supposed anonymous data could be used to identify individuals making the searches. Balaji Pdmanabhan and Catherine Yang of Wharton and UC Davis, respectively, identified the reason for the concern in their paper “Clickprints on the Web: Are There Signatures in Web Browsing Data?” They found retailers can distinguish between different users in as little as three sessions and behavior can be identified in anywhere from 3 to 16 sessions. Imagine the profile we build when all of our surfing habits are taken into account. Four years later the situation is even worse.

In a more recent paper, Balachander Krishnamurthy and Craig Wills of AT&T Labs and Worcester Polytechnic Institute showed how advertisers can identify users by simply looking to the referral page for the click through.

A key question that has not been examined to our knowledge is whether Personally Identifiable Information (“PII”) belonging to any user is being leaked to third party servers via Online Social Networks (“OSN”). Such leakage would imply that third parties would not just know the viewing habits of some user but would be able to associate these viewing habits with a specific person.

In this work we have found such leakage to occur and show how it happens via a combination of HTTP header information and cookies being sent to third-party aggregators. We show that most users on OSNs are vulnerable to having their OSN identify information linked with tracking cookies. Unless an OSN user I aware of this leakage and has taken preventive measures, it is currently trivial to access the OSN page using the ID information. The two immediate consequences of such leakage: First, since tracking cookies have been gathered for several years from non-OSN sites as well, it is not possible for third party aggregators to associate identify with those past accesses. Second, since users on OSNs will continue to visit OSN and non-OSN sites, such actions in the future are also liable to be linked with their OSN identify.

Tracking cookies are often opaque strings with hidden semantics known only to the party setting the cookie. As we also discovered, they may include visible identity information and if the same cookie is sent to aggregator, it would constitute another vector of leakage. Due to the longer life-time tracking of cookies, if the identity of the person is established even once, then aggregators could internally associate the cookie with the identity. As the same tracking cookie is sent form different Websites to the aggregator, the user’s movements around the Internet can now be tracked not just as an IP address, but as associated with the unique identifier used to store information about users on an OSN. This OSN identifier is a pointer to PII about the user.


The leakage through sale of data was not only found on Facebook, but Myspace, LiveJournal, Hi5, Xanga and Digg as well as Google through DoubleClick and Yahoo through Right Media. While this may cause us to shake, there is more to be concerned with than teh leaks we can identify and stop. Facebook and Linkedin have actually created data science teams to analyze data and look for behavioral correlations to clickprints. According to a book critical of Facebook, Mark Zuckerberg used to play with the data to entertain himself.

As the service's engineers built more and more tools that could uncover such insights, Zuckerberg sometimes amused himself by conducting experiments. For instance, he concluded that by examining friend relationships and communications patterns he could determine with about 33 percent accuracy who a user was going to be in a relationship with a week from now. To deduce this he studied who was looking which profiles, who your friends were friends with, and who was newly single, among other indicators.


The threat is not ephemeral. Just to make sure, the FBI wants your ISP to keep all of your data for two years

Merging The Data

Ok, so the banking and credit side of the world knows about financial situation and the retail side of the world may know about our interests and peccadillos, but I am just being overly sensitive. Relative Loss of privacy is simply a cost of living in a faster, more fluid world. Right? Not really. What happens when the silos merge? Banks, credit card companies retailers and others can all merge the silos. Each has access to both silos by virtue of advertising programs and voluntarily provided data. We opt into the financial solo, but no one realizes a click through
on a credit card or refinance offer potentially merges silos. But if I am not doing anything wrong, there is nothing to worry about. Sure, you are not doing anything wrong in the present, but how does it look through behavioral prediction – a science, by the practitioners own admission is inaccurate at best. In a Minority Report kind of way and erring on the side of caution, companies wanting to protect investment will reduce your credit , and the TSA may put you on the no fly list on the basis of information taken completely out of context. Analysis of these vast data and metadata libraries is done by computers, not humans. Computers, sifting through reams and reams of data, spitting out tinier but still vast reams of data for application of algorithms for conversion into measures within a “acceptable” margin of error. Anyone whose credit rating has been dinged by a mistaken attribution knows the hell of being caught in a “guilty until proven innocent” cycle after falling within the margin of error. Imagine what happens when it gets into the hands of the government.

It gets even scarier when we consider Google not only has the search data, but Google desktop, creates metatags for every file on a computer, gmail indexes every email and its content, the proposed Google health service will provide access to medical data, and android phone provide communication and location data, google voice transcribes and indexes all voice mails and frequently called numbers, and the facial recognition could give access to comings and goings in public places. Google, and many others, will know everything about us, because we told them.

In the old days, when they were not being investigated, these companies would stand up for us. Google actually stood up to the US government and refused to offer certain services in China to avoid the risk of having to disclose data. Pre 9/11 the US Government did not have access to the data, post 9/11 through the Patriot Act and the new rules contained in the recently passed Federal Banking Bill, they get access to both silos. Even Google is not protecting data. The data accidentally gathered while mapping streets in Europe was recently handed over to authorities in Germany, France and Spain. Google admitted the collected data was in error, but they are handing over data which the governments may or may be actually be entitled to collect. The data ties IP addresses to the sites accessed.

In the even older days, we could live without footprints. When you wanted to see someone you would send a calling card. You could not get into someone’s house unless you were invited. No one knew where you went unless you told them. If a company wanted information about you, it asked for it. If the government was interested
in what you were doing, they investigated through formal requests to the courts and subpoenas were issued after a showing of cause. Today, in the interest of “helping companies to help us Each one of us has a Great Pacific Garbage Patch of data we never knew we built. It is time to clean up our garbage patches. Each data set we provide, wittingly and unwittingly, is part of a network, each connections grows the network, and therefore computing power, exponentially, until something much more powerful than us, is mixing, matching, dissecting, connecting, analyzing and organizing every piece of data about us. And the thing doing it, really doesn't care. The danger lies in what we do not know. The loss of privacy is increasing on an exponential rather than a linear course and when the last glimmer is extinguished, it will leave with a whimper, not with a shout.

Thursday, January 26, 2012

The Brave New World of Advertising: Back to DLD Edition

I once again had the honor of being invited to the DLD conference. I guess no one read my post from last year. In case you are curious, my hotel was better. . . well, better is a complicated concept. There is no weather pattern over my bed, but of course there would not be as heat rises and tends to collect in the attic - or as they call it here, room 504. It may not really be the attic. I only call it that because the elevator stops on the fourth floor and I had to exit the warm portion of the building and walk up the wooden staircase to the fifth floor to get into a room with a slanted ceiling and a dormer window. My client picked the hotel and did warn me it was not the caliber of the one I stayed in last year. But with the frostbite wound earned in my five star hotel room last year still visible on the little toe of my left foot, I figured it could not be worse. The VC's behind this startup are certainly very proud of the selection, it reinforced my belief that I am too old to be a startup. It was not until I was here that I learned the English translation of the name of the hotel's street is probably "Street where women take their clothes off and dance on tables for money" or perhaps "place where people can display their ability to make arabic signs and hang them in between sex shops." This a stark contrast from last year which looked like it was designed by the level designers from Wolfenstein.
Like many other European hotels and gas station bathrooms along Route 66 in the United States, the room key has a very large attachment to remind me to leave it at the desk before I leave. Unlike other European hotels, the front door of the hotel is locked at 9 in the evening and because the key for the side door is also attached the brass and fringed fixture so I was instructed to carry the apparatus which was roughly the size of a small child, with me all day. So to answer those who were thinking it but afraid to ask, I was indeed excited to see you, but it was actually a key to room 504 at the Hotel Deutsches Theater in my pocket.

The conference itself is great. It is very much like going to TED or EG, if half of the people spoke a different language. The interesting part is that it is not always the same part. A healthy slice of Americans are thrown in for flavor with a smattering of Indians and people from other parts of the world, the conference is predominantly German and Isreali. So at any one time, a good chunk of the people milling about during the break choose to speak either German or Hebrew. As a patriotic American, I chose to speak neither. The language differences afford a very effective brush off ability. Rather than the usual "Hey, I'll be here all three days, let's catch up later." Someone who does not want to talk to me can just give me a blank look with raised palms in an "I don't speak English" kind of way. Fortunately, the panels remain entirely in English and most of them do not sound like an episode of Sprockets. Once again, there were big names and big ideas. There is not another place on earth where Jack Dorsey, Freeman Dyson and Yoko Ono would be on the same schedule. I am not going to go into it because you can read better coverage at sites like Wired, the WSJ, All Things D or by doing whatever it is you do with the hashtag DLD, or see it streaming by searching DLD 2012. But one panel stood out in my mind not for what was discussed, but for the elephant sitting in the room that was not discussed.

The panel was called "New Studios" and was made up of Danny Zapin of Maker Studios, Jesse Draper of The Valley Girl Show, Yoel Flan of The Shine Group , and Mark Read of WPP. It was a mixup of old school money with new school content. Maker Studios built tens of millions of subscriptions on the web and Jesse Draper built a syndication network across the web and physical locations that reaches several million. The role of the industrialist was played by Yoel Flann who is aggregating shows and Mark Read played the role of status quo proponent. Mr. Read pointed out, quite correctly, that television is not going away. In fact the markets are growing dramatically in BRIC countries. He explained how CES was dominated by screens. Big screens, small screens, in between screens. My favorite line was in response to my question when he channeled Dr. Seuss with "in the future we will see four screens maybe more screens." What Mr. Read failed to address is how the content is going to get to the screens. Even though all those screens look the same from the front, they are very, very different from the back. They are all IP addressable. This means people who already use DVRs to allow them to care very little about which network is broadcasting a show, will soon care very little about whether there show is being broadcast by a network, cable operator or website. Great news for everybody sitting to the left of Mr. Read, but in a Darwinian way, not so good for him. According to WPP's last publicly available annual report the revenue for all of the advertising agencies within the group was right around one half the revenue of the media management group. The profit of the agency is driven by the high margin media buying business. A cynic would also point to the reduced accountability of buying a Super Bowl ad with Neilson reported numbers relative to seeing actual click through from a web campaign. Mr. Read cannot buy up inventory from the others on the stage because it is simply too expensive. The cheaper the ad buy the more expensive the dollar being spent. So what happens moving forward?


From the consumer side we know we will see one screen, and depending who you listen to, we will talk, gesture, dance or sing to find the show we want to see. From a personal perspective I can tell you my son really does not care whether the latest episode of Top Gear comes in from BBCA on our cable system or through the mac mini plugged into the television. The only thing he knows is he sees it six months sooner streaming on the web. But from a sponsor perspective things become very convoluted. Today, on buy goes into one box. If I want television I use television metrics and I buy from one party via one set of rules. Prices vary between network and basic cable (with some basic cable shows drawing more than network there is no logic, but it still works this way) but it is all basically the same. If I buy web I use a completely different set of metrics and a completely different rule set. But what will it look like when I have the choice between 1.5 million eyeballs I think are watching the Daily Show on Comedy Central at 11 p.m. and a guaranty of delivery 1.5 million eyeballs to my product in the same time period through the very same screen? Especially when the latter is significantly cheaper than the former. The decision becomes easy and the argument that "network will always be network" becomes even weaker than it is today relative to cable. The decision becomes easy and the argument that "network will always be network" becomes even weaker than it is today relative to cable.  There is an old line attributed to everyone from Henry Ford to John Wannamaker that half of all advertising dollars are wasted, but we don't know which half.   Well, now we do. The only question becomes "what happens to those companies who make the lion's share of their profit from selling both halves?"

Monday, January 2, 2012

Amazon's Special Gift to Steve Jobs: Android's Success is the Biggest Threat to Android's Future Edition


By now I am sure Walter Isaacson's report of Steve Jobs feelings about Android is news to no one. At one point during the interviews leading up to the greatest retelling of the monomyth since Luke Skywalker, Jobs said:

I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40bn in the bank, to right this wrong," . . . . I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this.

The timing of that last breath relative to the life of Android is also news to no one. What I have not seen is the realization that Google may have stolen the frame, but Amazon stole the art. And while the media continues to report on the Amazon vs. Apple battle for the bedtime and reclining market, the real battle is Amazon vs. Google. The success of Amazon’s Android running Kindle Fire and focus on the Apple battle masks Amazon’s role as the new standard bearer in Steve Jobs’ war against Google which may well have cause Google to be hoist with its own petard.

Apple never hid its focus on what products can do, rather than providing tech specs. In fact, from the day he returned to Apple, Jobs talked about it to anyone who would listen. The message was clear in the first iMac commercial telling people they were two steps away from getting on the Internet,



At the same time, Dell, the world's largest computer maker, Dell, was running a commercial showing an astronaut floating in space. Twelve years later, Palm still didn’t get it when they launched an iPhone competitor by showing people dancing in a field,



and Motorola was no better with their iPhone killer introduction looking more like a teaser for a Michael Bay film than a phone.



Jobs vision for Apple was not at all curious, but it was certainly curious that no other technology company copied him - until now - and Amazon copied it all.
Apple did a ton of things right to make the iPad work, but the most important was ensuring the quality of the user experience by building and guarding its own ecosystem. Unlike Google, Apple makes sure there was only one type of hardware, running one flavor OS. Then it built a wall around its beautiful garden.



Ensuring the user experience is so important, Apple takes great steps to protect its garden from the detritus left by foreign bodies. It entered into license agreements for distribution of broad swaths of content and committed to review and approve every single piece of software introduced into the garden and even acquired an ad service to make sure the commercials inside the products accepted into the garden would be up to Apple standards. The result, is the single largest homogenous technology base in the industry. Oh yeah - one more thing – Apple has everyone's credit card number.

Amazon was hitting its stride at the time Steve Jobs returned to Apple, and Jeff Bezos also knew success depends on customer service. The company started to provide customer service when it was easy. It only had to deliver the right product on time, and have a customer support phone number. Just like Apple’s simply providing a computer that worked, Bezos simply gave customers what they ordered. At the time, both concepts were revolutionary. Like Steve Jobs, Jeff Bezos did not stop after the easy parts. Just as Jobs famously made sure the parts of the products on the inside are as beautiful as the outside, Bezos invested vast amounts into building unseen technology to magically enhance the user experience – even in ways the consumer never noticed. By doing so, he built a massive user base into a massive company. Oh yeah- one more thing- Amazon has everyone’s credit card number.

Lots of tablets launched last year, but Amazon and Apple were the only ones to launch tablets with clear paths to doing things – and they are the only successful players in the market. It is also no coincidence both tablets are neutered relative to most of the others on the market. Techies think everyone wants to customize and program their shiny little noisemakers, but Apple was the first to identify that just like in video games, the perception of freedom is much more important than freedom itself. Steve Wozniak said it best when I asked him whether he thought the iPhone was a modern version of the Newton (little known bit of trivia – Jonathon Ive designed the Newton 110) and he said
No, the Newton learned you, you learn the iPhone.

Any game designer will tell you that giving a player too much freedom will make them bored. Players must be led in a way they do not know they are being led. That is why Amazon and Apple would make great game designers. While the two companies pursued the same consumer, in the same manner, they attacked the market from completely different directions.

At its very core- no pun intended, - Apple is a hardware company and Amazon is a retailer. This is important because their decisions will be made to maximize revenue in their core businesses.
Some may say Apple is more than hardware, but the company, like Sony used to do and Nike does with shoes, makes its money on selling hardware at higher margins than any other computer company. Jobs always said the software hardware relationship was critical to making the best products, but, for the most part, the software, is not sold on its own and most software businesses within Apple are small relative to hardware sales. In laying the groundwork to launch media devices Apple successfully commoditized music, television, film and game content and gave it to the consumer, so the company could make its profits on the hardware. Jobs compared the company to BMW and if you look at the product lives and update cycles, they are not dissimilar. “I am going to sell you the greatest thing the world has ever seen, and then I am going to show you why it is inferior to my new greatest thing the world has ever seen.”

Amazon is a software company and it is slowly but surely turning its retail products into software. Unlike Apple, hardware only exists to facilitate the software transactions. The company built more software than any other retailer on the planet, but like Apple they don’t sell it. All of the coding goes into an invisible infrastructure with a public appearance that is charitably described as "dated" – but in the case of Amazon this is its strength, not a weakness. With many, if not most of the same content relationships as Apple, the company sells streams as well as downloads. However, Amazon makes its money on the content sales. The company looked to its first hardware device years ago as a lost leader to enable increased engagement with consumers, and higher margins on content sales. In determining what people want in a device, Apple found people did not always need the power of a computer. So it looked at computers, pared them down to the most common uses, put them on a tablet and sold them at a great margin. Amazon realized people did not need all of the expensive stuff built into an iPad, so it pared its tablet down to the most common uses, and priced it slightly below cost. In doing so, Amazon commoditized the tablet. Amazon did not steal the concept of selling digital media into their own hardware, and the first Kindle actually launched well before the iPad. But it did steal, the concept of content over hardware. Every other company was trying to make a better table than Apple, and some did. Amazon was the first to realize they could launch a worse tablet, so long as consumers were able to easily do the things they like most. Choices are limited, but they are limited to what people want. They want this stuff so much, they bought a million Kindle Fires a week. This story plays out like John Woo directed it. Apple is underpricing Amazon on the content, while Amazon is underpricing Apple on the hardware – unless you look just out of frame at the bigger gun Amazon is pointing at Google.

If you are reading these words, you just spent a whole bunch of time reading gaseous belch about why content and access to content are more important than hardware in the tablet world but nothing about Amazon fighting Google. This is where it all comes together. The consumer only cares about content and the providers and creators of content care about getting paid for content. Payment depends on the size of the installed based and the ability to settle a transaction. Because there is no single source of content and Google is still asking nicely for people to put their credit card data into a Google Wallet, no one really gets paid for selling content on Android. The only money made, even on apps like Angry Birds, is through advertising – and for obvious reasons, Google is just fine with that. But before a content provider decides to release an application for free and support it long enough to grow a base large enough to generate significant revenue, it has to run on Android. Therein lies the rub.

Unlike Apple with its single OS and device, Android has a variety of flavors and devices and they are not all the same. Deployment on Android reminds many of the bad old days of PC development because applications must be tested across many platforms and configurations. Kindle Fire to the rescue. By building the Kindle Fire on a customized layer of Android version 2.3, (Gingerbread) and then selling it to 14 million people, Amazon created the second largest homogenous base of users in the tablet world and by far the largest homogenous base of Android users and the only one with a built in payment method. This should be a big win for Google. Just like IBM carried Microsoft's OS to the world like a virulent, pestilent disease, the Kindle Fire is spreading Android over iOS and finally making it worthwhile for developers to invest time in apps. Right? Not really. Amazon is giving consumers a better reason to shun the higher functioning, newer, pricier Google Android devices in favor of the neutered, smaller tablet running a two generation old OS. All in all, this turns into a big plus for Apple. Apple will continue to make BMW's and Amazon will make Chevy's. The market needs both. A Chevy does what a BMW does - gets you from home to work and back again with the occasional trip to see a movie - and for its real world uses, performance is identical. But people buy BMWs for a few added bells and whistles and all those things they will never do with the car, but can. And of course the prestige associated with telling the world you paid more for your car than a comparable Chevy.

I could argue Amazon is killing Android, but it is not. Google is killing Android. Even though Google is touting the virtues of Android 4.0 (Ice Cream Sandwich), it continues down the same path as earlier versions. Specifically, it will not run on all prior hardware devices, it is will not be universally deployed, and it will be operating on a number disparate hardware platforms. No matter how much Google says it is the same, the hardware will cause variation in performance that impacts the applications. The decision for content providers looking at developing for a disparate base with no payment method vs developing for a large homogenous Kindle Fire base with a built in payment method and promotional channel is very easy.

Begging the question, without the quality applications, can Google grow 4.0 as quickly or successfully as Amazon grows the Kindle Fire? With Kindle serving as a gateway drug to iPad's and slowing Google's march, I have to think Steve Jobs is smiling somewhere.