Thursday, December 15, 2011

Google Set to Surpass Microsoft in Value; Facebook is Next

This post was also published on CNET.

Brace yourself for the next passing of the torch in the tech industry.

Google, the leader of the Internet era of computing through the aughts, now has a $200 billion market capitalization and is on the verge of passing Microsoft's market cap of $215 billion. Microsoft was the leader of the PC era of computing and continues to dominate the desktop, notebook and server software market for Intel-based x86 computers.

I've been closely watching the relative valuation of these two companies for almost four years--ever since I predicted that Google would exceed Microsoft's valuation. The recent stock moves must come as a high note for Google chairman Eric Schmidt, who competed with--and lost to--Microsoft at both Sun Microsystems, as its CTO, and Novell, as its CEO.

Google's market capitalization (orange line) is creeping up on that of Microsoft (blue line).
Source: YChart

IBM, which led the mainframe and minicomputer era of business computing and now provides software and services around such hardware, recently passed Microsoft's market capitalization as well and is now worth $221 billion.

Oracle, which led the client/server era of business computing is worth $146 billion, but early this year was near parity with IBM, Microsoft and Google. Apple, the leader of the post-PC era of smart phones and
tablets, is an exception with a market capitalization of $353 billion. However, Apple is currently at a peak level of accelerated growth and some Wall Street analysts are predicting that it will settle.

Facebook is reportedly planning a public offering next year at a valuation of $100 billion. Although many question this valuation as high, it is likely that the leader of the social era of computing will be worth as much as the companies that drove the mainframe, desktop, client/server and Internet eras.

Monday, December 12, 2011

Is Apple Vulnerable in 2012? You Bet

This post was also published on CNET and VentureBeat.

After Steve Jobs was fired in 1985, it took Microsoft 10 years to catch up--and exceed--the technical and user interface innovations of the
Mac OS that Jobs helped create. Now, Jobs is gone and Apple is once again in a position of clear market leadership with competitors gunning to match its products.

Apple's rivals aren't taking a decade, however. Far from it. Google, Amazon, and Microsoft, along with partners such as Intel, Samsung, HP, and Lenovo are all heading into 2012 with impressive products aimed squarely at Apple's hits--the
iPhone, the MacBook Air, and the

The iPhone alternatives

When you hold the Samsung Galaxy S II, the Galaxy Nexus, or other versions for the new generation of Android devices, it's clear why Samsung phones are now outselling the iPhone and why Apple is suing various Android handset manufacturers. These devices are a huge threat to the iPhone. The screens are bigger than the iPhone's. They weigh less and they're speedier.

The new version of Android, Ice Cream Sandwich, is almost at parity with the beauty and ease of use of iOS. Plus, the emergence of apps from Pandora and Spotify, both amazing music streaming services, make the iTunes library lock-in hardly a lock-in at all. In fact, more than 370,000 apps are now available for Android, including most of the ones that people want. Apple is adding great new features such as Siri, but let's not forget that Apple acquired Siri and the underlying voice recognition technology is provided by Nuance. Android already has similar apps and Microsoft's TellMe will not be far behind.

Conclusion: even before all these advances, Android was already outselling iOS. Apple's position in this war is weakening.

Up in the air

Here come the MacBook Air clones. Air-like notebooks based on Intel's next-generation Ultrabook components are going to be announced en masse at CES in January. I recently played with an Asus Zenbook, the Asus version of an Ultrabook. The Asus looked great and even had stylish metal keys that are far nicer than I had expected from the photos. It's not as if Apple has an exclusive on making computers lighter and batteries last longer. Apple was just the first to perfect it because it controls the entire system--the operating system and hardware right through to retail--and has the will and pricing power to push for what it wants among the component makers.

I use both Windows 7 and Mac OS on a daily basis and really can't tell the difference between the two anymore, mainly because I spend most of my time on Google's Chrome and Microsoft Office. Windows 7 actually has better desktop management--when I open or select a document it only brings that document to front, not every other document already opened by that particular app. Yes, the Mac OS is easy to use and stable, but stand next to the Genius Bar at a Mac store and you will see that many people have many problems, just like Windows 7.

Conclusion: most notebook computers will adopt the MacBook Air form factor, and Windows will not only maintain its tremendous market share, but possibly even retake Mac's recent gains.

King iPad is at risk

Tablets are a category that Apple completely dominates, with 80 percent market share. Android competitors have flailed, but Amazon's Android-based Kindle Fire is likely to outsell the iPad in 2012 due to its low price ($199). Amazon is focusing the Kindle as a cheap, content-consumption device rather than full-fledged tablet, and it's subsidizing the price in exchange for people subsequently purchasing movies, apps, and physical goods from Amazon.

While the Kindle Fire will nibble at the iPad from the low end, at the higher-end, $500-plus price range, full-fledged computers based on the ultrabook and Netbook form factors and Windows 8 Metro will begin to compete with the iPad, including hybrids with pivoting screens and detachable keyboards that effectively merge an ultra-lightweight notebook and tablet.

Conclusion: the iPad will dominate through 2012, but after that the iPad will be squeezed on the low end by the Kindle and on the high end by full-fledged touch-screen PCs.

Of course, Apple is not sitting idly by. It is rumored that Jobs left years of product plans behind and Apple is widely expected soon to enter the TV set business in order to further ensconce consumers in its vision of gadgetry. Apple's vast manufacturing volume enables it to get the next generation of components, such as screens and processors, before its competitors.

However, technology is accelerating faster than ever before and it doesn't take long for the competition to catch up. Apple's ultimate attribute, that of design and "taste," is almost like fashion. And as with fashion, being first doesn't mean you will rule the market; it just means that you are going to get copied. Remember, H&M sells a lot more Prada-like designs than Prada.

Monday, December 05, 2011

How the Touch Screen is Revolutionizing TV

This post was also published on CNET.

The recurring rumors about Apple entering the TV set business are at fever pitch, with no less than former Apple President Jean-Louis Gassée recently jumping into the fray and joining the it-will-likely-happen bandwagon.

Gassée and I have been arguing about the idea of an Apple TV since 2008, when I was among the first to blog about the idea. Gassée had taken the position that since TVs are upgraded every five years on average, and computers every two years on average, melding the two would not make sense. The computer would make the TV obsolete too early.

Now, Gassée is usually right about Apple predictions, so what's changed?

In short, the TV set is on its way to becoming little more than a monitor that simply displays what's on handheld devices. Think about it: to be interactive, a TV no longer needs a computer built into it.

People are finally recognizing that the long-held idea of how Interactive TV should work--you look up something on the TV screen and interact with related content through some control--has been crushed by the emergence of mobile and
tablet touch screens. Sure, people want to interact--just not with the TV itself.

Nielsen reports that 40 percent of viewers are pulling out their laptops, tablets, and phones while watching TV to peruse the Web, find related content, and make comments on social media. New technology keeps making this more inviting. One example is Yahoo's IntoNow, an
iPad app that recognizes what program you're watching and adds the interactive elements, such as relevant Tweets.

The reason for the transition from interactive TV to simple TV is very simple: a touch interface is intuitive and common, while a TV interface is klutzy. It's almost painful to watch someone navigate a TV screen app using remote control. Even the perennial favorite television "app" known as the onscreen guide has moved to the user's hands, with products such as Comcast's Xfinity iPad app (shown above). New voice-activated technologies like Siri and the TellMe technology, which is integrated into Windows Phone handsets, will let you to talk to your handheld device to control your TV.

And increasingly, people are streaming the content from their mobile devices to their TVs, using technologies like Apple's AirPlay and the industry standard DLNA. This could be paid on-demand programming from iTunes, paid apps with content, such as my company CBS' "60 Minutes" iPad App, or YouTube videos. Essentially, anything you can see on your phone or tablet will soon be instantly viewable on your TV, just as if it were a computer monitor.

At the last CES conference, Vizio demonstrated a technology that will transfer a video being viewed from an Android device to the TV, rather than rebroadcasting the video the way Apple's AirPlay works. So once you decide to watch something, the TV will take control and download the content itself, and you can go back to using your handheld device to do other things without having to bear the battery and bandwidth of getting the content from the Internet and re-streaming it to a TV.

Now that TVs are becoming increasingly bound to mobile platforms, a successful product offering must be part of a tightly linked stack that includes mobile devices, apps, developers, and cloud services. These requirements leave us with just the three usual suspects: Apple, Google, and Microsoft.

  • Apple's Apple TV offering has been criticized as anemic, however it is the first to integrate handheld devices with the TV screen with the AirPlay feature that shows what you are watching on an iPad or iPhone. With its domination of the mobile and tablet market, and deep content relationships with iTunes, Apple is a strong position to deliver high-margin, stylish TVs that are fully controlled by handheld iOS devices that can transfer media to stream directly to the TV. These TVs would also include multi-user gaming, just like Apple's TV AirPlay currently supports multiple people with iOS devices concurrently playing the same game on one screen. As Steve Jobs biographer Walter Isaacson writes, TVs that will "be seamlessly synced with all of your devices and with iCloud."
  • Google has reset its Google TV platform after a disastrous foray into TV with Logitech. The new Google TV has a far better interface and also supports Android apps. Google is also starting to integrate Google TV directly into TV sets with partners such as Samsung, which is particularly interesting as Samsung is a leading Android handset manufacturer and could potentially provide integration between Google TV and Android handsets. In addition, the cable set top box Google acquired along with Motorola Mobility gives Google a nice inroad into consumer living rooms. Google is attempting to make YouTube a rich content experience by funding premium content and striking video on demand content deals. The next step for Google is to further integrate its mobile Android devices with Google TV so that they can easily transmit
    content from one to the other just as Apple's AirPlay does.
  • Microsoft actually has a strong lead in this market, with its pervasive Xbox 360 console in numerous living rooms and and recent deals that will stream television content. It is likely that the new Windows 8 Metro-style tablets will be able to control the Xbox 360 media player, just like Windows 7 can currently control the now-defunct Windows Media Center. Microsoft is applying is new Metro user interface to the Xbox, in addition to Windows 8 and Windows Phone 7, so that all of its screens look identical. While many write Microsoft off, it has a cohesive, integrated strategy and the money and will to pull it all off.

While Google, Amazon, and Microsoft have leading cross-device platforms, Sony and Amazon are the dark horses here. Sony CEO Howard Stringer has said that Sony is developing Apple-like television. Sony recently struck content streaming deals and it's trying to reclaim its mobile business from Ericsson Sony should consider bundling its PlayStation 3 into its televisions to get a leg up here rather than embedding yet another Linux-based content OS or Google TV.

Amazon has a large streaming business, a "rekindled" mobile strategy with its new Android-based Kindle, and relationships with TV video devices like Roku. Amazon could acquire Roku and tie it to the Kindle in order to have a competitive offering.

The upshot of all this? TV is becoming more relevant in the age of handheld computing -- and that's a plot twist no one had expected.

Tuesday, October 25, 2011

Has Content Become Advertising for Advertising?

This post was also published on CNET.

Since the advent of the Web, online publishers have had to create unique content to attract premium ad rates. Over the past few years, however, a flood of subpar content has seemingly taken over the Web, driven by high-growth sites such as Demand Media and the AOL-owned Huffington Post. These types of sites have enjoyed surging traffic by creating relatively simplistic content, repurposing and "aggregating" premium content, and gaming Google's search algorithm. But this strategy faces a growing backlash and as a result may have hit its natural ceiling, and that could create opportunities for new online-media models.

What makes subpar content subpar? Like pornography, you know it when you see it. Take, for instance, "news" articles that simply paraphrase and quote articles written by journalists, or simple "how to" guides that don't explain much and have no accompanying diagrams, videos or other edifying media.

The primary financial driver supporting subpar content is what's known as "personalized retargeting," where ads follow a users around the web. When you visit, for instance, the site places a cookie on your computer that tells an ad network you were just there. Zappos then pays a premium rate to "retarget"--to show you an ad inviting you to come back to long after you've moved onto another site.

If a publisher can get enough eyeballs looking at content, by hook or by crook and regardless of the quality of its offerings, it can sell retargeted ads against that undifferentiated audience. In this model, content has essentially become advertising for advertising--i.e., for retargeted ads. The price for a retargeted ad isn't even connected to the content of the site a user is visiting--all that matters is that the advertiser is reaching its targeted visitor again.
Understandably, performance marketers--those who get paid affiliate relationships, for instance--have jumped on retargeting. Top brand marketers, however, are much more sensitive to the context around their ad, which is why they are more likely to shun so-called content farms and embrace original content.

What's more, re-targeted ads are increasingly freaking people out. While many of us in the industry understand what's going on, others find it creepy to be tracked across the Web. A woman running a nonprofit showed me her Huffington Post home page and asked how HuffPo knew that she had shopped at the two e-commerce sites with ad units on the page.

When women running nonprofits are alarmed by ad targeting, politicians can't be far behind. "Do not track" legislation that will prevent third party cookies from following users around is starting to draw support in Congress. Germany's draconian cookie laws already prevent basic analytics--let alone retargeting--and similar European Union cookie laws are now becoming adopted.

It's important that U.S. privacy legislation not overreach, so that we can find a compromise between user privacy and how websites need to function. For instance, tracking a user across a family of sites--say from Google's homepage to YouTube--is not retargeting. There's value to users when a company can optimize how its family of sites works together.

Even without regulatory intervention, subpar content is starting to hit its maximum headroom. Consumers can only go to so many pages of drivel before they orient back to the good stuff.
In fact, there is a resurgence in premium content. The Huffington Post is hiring writers from the New York Times and the BBC and increasingly producing unique content. Demand Media, one of the leading purveyors of simplified content, recently announced that it was scaling back its content creation army of contract writers. YouTube is shifting from user submitted videos to premium produced videos.

In addition, Google has recently made a series of moves that make it increasingly difficult for subpar content to get Google traffic. The Google Panda 2.0 and 2.5 search algorithm updates have been optimized to return premium, non-repetitive content that users will value after they search, pushing subpar content further down in search results. Google News has introduced incentives for content sites to highlight unique content. Google also announced that it is no longer going to include the search terms that are used when it sends a user from a Google search page to a site, bringing a halt to the practice of tailoring content to match active searches employed by sites like HuffPo.

Just when retargeting is about to hit the precipice, premium advertising is on the verge of a revolution. Offline spend continues to pour into online. Ad targeting systems are starting to look at add social media behavior and a user's present and historical interaction with a site. Engagement ad units powered by companies like Flite and Aol's Project Devil are even integrating premium content into ad units.

The resurgence of advertising on premium content sites, in addition to the new and interesting ways for premium advertising to engage an audience is some of the reasons I recently joined CBS Interactive as CTO, so read what you like into my obvious bias. All in all, interesting and fun times are ahead in the world of premium content.

Monday, October 03, 2011

Face it: Steve Ballmer is Doing a Great Job

This post was also published in VentureBeat.

In the wake of the CEO ousters at HP, Yahoo and Nokia and the CEO implosions at Cisco, SAP, RIM and Dell, it’s surprising people are still picking on Steve Ballmer. Hedge funders are calling for his head. Employees are complaining.

I am by no means a big Microsoft fan — during my five-year tenure at Sun Microsystems, Microsoft was a vicious, scorched-earth competitor. But I have to give credit where credit is due: Ballmer has done a remarkable job, especially in contrast to the leaders of most technology companies. Ballmer’s problem is that everyone expects Microsoft to be as good as Apple at entering into new markets.

The reality is that Microsoft has never been a technology innovator. People are nostalgic about the days of Bill Gates, when Microsoft supposedly innovated. However, under Gates, Microsoft copied other products relentlessly, even from its very beginning. MS Basic copied Tiny Basic. MS DOS copied CPM-86. Windows copied the early Mac OS. Word copied WordPerfect. Excel copied Lotus 1-2-3. Access copied FoxPro. Windows Server copied Novell Netware. Exchange copied Lotus Notes. Internet Explorer copied Netscape Navigator. C# and .net copied Java. All Microsoft has ever done is enter markets late and invest and iterate until it wins. On top of that, Gates used monopoly position to force adoption of ensuing products, a luxury that Ballmer has not had.

During Ballmer’s 10-year tenure, Microsoft has tripled revenue and doubled net income. Legacy products such as Office, Exchange and SharePoint have been transitioned to the cloud. Windows 7 is a huge hit with over 400 million licenses sold, and early looks at the upcoming Windows 8 are resulting in rave reviews. Windows Phone 7 is a very late entrant into the modern smartphone category, but it is already being declared the number three player, with its innovative user interface and upcoming distribution via Nokia. Some analysts even predict that it will outpace Android within a few years.

Even more importantly, Ballmer has shepherded Microsoft as a big player in two new and growing markets: console gaming and search. The Xbox now has 20% market share in the console market, with 45% year-over-year growth, and has led the way to motion-based gaming with its hit Kinect product.

According to Comscore, Microsoft’s Bing search now has 31% of the US search market due to its distribution deals with Yahoo and others. While some lament the amount of money Microsoft is losing on Internet services, the ad dollars will soon start to follow the eyeballs, as I personally experienced during my tenure at Webtrends where we provided search.

The scale of the losses has to be put into context with the scale of Microsoft. Yes, losing $2 billion a year on online services sounds really bad. Losing $2 billion per year to gain 30% of a $30 billion and growing market actually makes a lot of sense, especially when you are delivering $70 billion in revenue and $24 billion in profits. Microsoft lost billions on Xbox and is now in a leadership position in that market, and it will follow that same strategy with Bing search and Windows Phone.

The reality is that Apple and Microsoft are the only large technology companies that have been able to create new products. Cisco continually bought companies to grow their revenues until the party ended. Oracle and IBM have had the same strategy as Cisco and will both soon run out of legacy application and middleware vendors to acquire. Nothing new has come out of HP, SAP or Dell in a decade.

Although they both create new products from scratch, Apple and Microsoft have very different DNA. Apple creates new markets, and Microsoft eventually dominates them. Steve Ballmer is not going to be Steve Jobs, who is widely lauded as perhaps the greatest CEO of our time. Even Apple can’t get another Steve Jobs and now has a COO running the company.

Who do detractors think Microsoft should replace Steve Ballmer with? HP has gone through three CEOs in a year and ended up with Meg Whitman, a non-techie whose core eBay website to this day looks like it was designed in the mid-90s. The only viable candidates are IBM’s Steve Mills and VMware’s Paul Maritz, who likely would not change a thing strategically at Microsoft.

Microsoft shareholders should be grateful they have a CEO who has steadily grown both earnings and revenue, transitioned legacy products into the cloud, moved aggressively into new markets such as console gaming and Internet services, revived the mobile product, and is now transitioning the Windows product line towards a new generation of tablets and processors. Yes, Microsoft’s stock has been flat through the 2000s and the decade’s massive technology market transitions to cloud and smartphones. That’s a much better outcome than tanking like HP, Sun, Nokia, RIM and others, and Microsoft’s products are now very well positioned for the coming decade. Booyah, Ballmer!

Wednesday, September 21, 2011

Facebook is About to Feature Creep Itself into a Usage U-turn

This post was also published in VentureBeat.

People use Facebook a lot. They use it to share photos. They use it to invite people to events. They use it as an address book and messaging system. They use it as a games platform. The growth has been so staggering that Facebook is by far the most popular website and can’t even fill its existing ad display inventory.

When a company has achieved complete market domination, it usually hones in on its core features and makes every effort to keep things clean and simple. This is the reason Google’s homepage and search results barely changed for 10 years while Google’s revenue and profits skyrocketed.

Facebook, however, has different ideas. Despite the often rumored Facebook fatigue, Mark Zuckerberg thinks that sharing will double every year. Now that we can already Like everything on the web, what else can we possibly share?

Enter the rumored Read/Watch/Listen features that are expected to be launched on Thursday at the Facebook f8 conference. Now, your profile will automatically be updated with everything you are reading, watching, and listening to. On one hand, it’s a pretty cool way to share content and see what people are consuming. On the other, it’s a whole new barrage of sharing activity when people are already sick of sharing. Yes, it’s cool to know that you liked an episode of CSI. Maybe I’ll check it out. But if that indicator is lost amongst the sea of every other bit of media that you have ever consumed, it doesn’t really mean much.

People definitely like to decorate their profiles, and unfortunately Facebook profiles are quite spartan and rarely updated. In the early days of Facebook Platform, people could add apps to their profiles like “Where I’ve Been” and iLike to show off where they’ve travelled and what songs they were listening to. The iLike model worked really well and people were not creeped out by it.

Sites like that partnered with Facebook early on for instant personalization already incorporate a stream of what you’re watching, but they’re localized and do not syndicate everything back to profiles. Users have been very comfortable with this type of functionality and have embraced it since it helps them navigate the content on websites. However, Facebook has historically had huge headaches when automatically syndicating activity back to a profile from a website, such as the 2007 user revolt over Facebook Beacon. I fully appreciate an attempt to make profiles alive again, but perhaps there is a middle ground between adding apps and automatically populating your profile with everything you’re consuming from around the web.

The biggest issue Facebook faces in rolling out new features is that its 750 million users already have a very clear definition of Facebook: photos, events, address book and casual games. Essentially Flickr + Evite + Plaxo + Yahoo Games. Users are kind of open to brands being part of this mix because everything else they use has advertising. Trying to get them to do anything else is like pushing a rock up a hill.

The average Joe absolutely doesn’t understand the new “subscribe” feature. For some reason, Facebook thinks my 16-year-old would like to “subscribe” to Sheryl Sandberg and Tom Anderson. What for? On Twitter people are following celebrities and the asymmetrical relationship makes sense. On Facebook — which already has Facebook Pages for celebrities and brands — the subscribe feature makes no sense at all. Instead, Facebook should have considered letting individuals automatically populate a Facebook Page from their profiles and add a “Like” button for the Pages to their profiles.

The new double newsfeed is completely perplexing. The bigger layout in the middle makes sense and completely apes the polished Google+ look with larger photos and more spacing. But the layout to the upper right with a scrolling feed of news is confusing. One of them updates by clicking; the other updates automatically. One of them has large fonts and a lot of space; the other has small fonts and is tightly spaced. One of them requires you to click to see more; the other one has a hover feature to see more. One of them uses the browser scrollbar; the other has a mini scrollbar that appears on hover. It’s like two websites got mashed into one. I am getting text messages from anthropologists in San Diego asking me what happened to Facebook today. In previous iterations of Facebook I could always explain why the new version was better. This time, I frankly have no idea.

Historically, Facebook has always iterated very quickly and added features quite capriciously, even if it pissed users off. However, the features were well thought out and eventually people grew accustomed to them. This latest barrage of features is quite far from Facebook’s core usage patterns and just doesn’t make sense.

Steve Jobs has left a generation of techies who are constantly asking themselves, “What would Steve do?” Definitely not this. Facebook, you’ve already won, it’s time to chill out a bit! Bigger pictures = good. Two completely different newsfeeds on one page = bad.

Sunday, August 21, 2011

The Verticalized Enterprise Stack: Why HP Needs to Merge with SAP

This post was also published in VentureBeat.

HP has had to face tough realities this week. Fortunately, there is a way for it to survive: Embrace the inevitable trend favoring “vertical” companies.

In the first part of the 2000s, IBM and HP went in two vastly different directions: HP acquired Compaq to bolster a horizontally-integrated PC business, while IBM sold its PC division to Lenovo and focused on creating a vertical stack of enterprise products.

In the early 2010s, HP’s decision to attempt to dominate PCs has come back to haunt it. Even though HP is the number one PC seller, the low-margin business doesn’t pay, so the company is exiting both the desktop and mobile consumer computer business.

Now HP needs to act fast to remain competitive in the enterprise.

Rule of three

Earlier I described how the consumer computing business is consolidating based on the “rule of three” economic theory and that three big players would dominate the industry: Apple, Google and Microsoft. To play in this market requires a full vertical stack, offering customers everything they need from hardware to applications. Competitive companies will need the ability to extract efficiencies between and from each layer: mobile operating systems, mobile devices, desktop operating systems, personal computers, web browsers, productivity applications, content distribution and cloud services.

Given the vertical integration required to play in the consumer computing business, it is no surprise that HP decided to exit. In order to compete, HP would need to build out cloud services, a desktop operating system, and more. Microsoft, with its domination of the desktop PC and productivity applications businesses, has already spent years and billions of dollars filling its gaps, and will continue to spend billions until it wins the number three spot. HP, and in particular its raucous shareholders, have neither the financial gumption nor a base of technology for an attempt to be the number three in the consumer market.

So it is a wise move for HP to exit the consumer computing business and focus on its enterprise business. However, HP is jumping out of the frying pan and into the fire, as IBM, Oracle and Microsoft have been aggressively building integrated enterprise stacks over the past decade. The rule of three is applying itself to the enterprise space as well, and HP is getting left behind.

Owning the stack

The importance of owning every piece of the stack is increasingly critical. When Oracle decided to end support for the Itanium processor, HP had no database of its own to fall back on and resorted to suing Oracle to support its platform. Both IBM and Oracle are optimizing their databases and middleware to run super efficiently on their respective operating systems, processors and storage. IBM started the verticalized enterprise trend in the early 2000s by widening the memory bus to its PowerPC machines in order to extract more performance out of its DB2 database, forcing Oracle to acquire Sun in order to match database performance.

IBM and Oracle verticalizing enterprise software and hardware is much like the consumer verticalization. Apple’s ability to create efficiencies by building its own iPhones and iPads is a big part of what forced Google to acquire Motorola Mobility. HP board member Marc Andreesen may be right that software is king in his new cloud investments like Facebook and Zynga, but in the hardscrabble world of enterprise and consumer computing, IBM and Apple have verticalized software and hardware and clobbered HP in both the enterprise and consumer markets.

So how will HP build a complete enterprise stack? HP’s acquisition of Autonomy is a great start and fills the gap in enterprise search to compete with IBM’s OmniSearch, Oracle’s Secure Enterprise Search and Microsoft’s FAST. However, HP still has huge gaps compared to its competitors, including collaboration software, business applications, analytics, middleware, and database.

HP’s gaps are perfectly filled by SAP. And SAP’s gaps in services, enterprise search, operating system, processor, storage and management are all filled by HP. A merger of SAP (valued at $60 billion) and HP (valued at $49 billion) would create a $109 billion behemoth capable of competing with IBM ($188 billion), Oracle ($125 billion) and Microsoft ($201 billion). Large mergers like this can be a disaster, but HP’s CEO Léo Apatheker used to be the CEO of SAP and worked there for twenty years, so there is one person who actually knows both organizations.

HP needs to move fast. HP should dump its printer business along with its other low margin hardware businesses, merge with SAP to get a full stack, and then go on a shopping spree to shore up the weaker parts of the combined HP-SAP stack such as EAServer, StreamWork and HP-UX.

We are about to see a scrum amongst all of the larger enterprise players to acquire companies at every layer, such as TIBCO, Teradata, Jive, Salesforce, Red Hat, and likely even my own company, analytics vendor Webtrends. Microsoft may even take another try at Intuit now that it is no longer a monopolist.

Otherwise both HP and SAP risk losing the third place in the rule of three to Microsoft. It should be noted that despite its detractors, Microsoft has actually had amazing execution over the past decade and is the only contender to hold its own in both the consumer and enterprise computing stacks.

HP and SAP need to stave off Microsoft as the small- and medium-sized business enterprise player, or they will both wind up being carved up and bought by IBM and Oracle.

Tuesday, August 16, 2011

Good Morning, Would You Like an Apple, Google or Microsoft?

This post was also published in VentureBeat.

While it comes as a big surprise that Google is buying Motorola Mobility, it is just as surprising that Apple launched a cloud service that will eventually fully compete with Google’s services and Microsoft essentially turned Nokia into its own private Foxconn and will compete with Apple’s devices.

All of these moves actually fit economic theory perfectly: Personal computing is now pervasive throughout our society, and the 30-year-old industry is maturing into a “rule of three” phase, where three large players will dominate the industry: Apple, Google and Microsoft are the GM, Ford and Chrysler of our era.

Each of these “big three” players needs to build a full vertical stack and extract efficiencies between and from each layer: mobile operating systems, mobile devices, desktop operating systems, personal computers, web browsers, productivity applications, content distribution and cloud services. Now we know why Apple needs Safari, iWork and AppleTV. Why Google needs the Chromebook, YouTube video rentals, and Motorola. And why Microsoft needs Bing and Nokia.

Each of these products on its own merits doesn’t really make sense, but from a full stack’s gaps perspective, they make a whole lot of sense. It doesn’t matter if each product isn’t best-of-breed, because of best-of-breed just doesn’t matter anymore. What matters is that each player has each product and, over time, can improve that product and better integrate the product into its overall, vertical solution. Apple’s iCloud offering is nowhere near as good as Google’s and Microsoft’s offerings. But it is good enough to keep the Apple fanboys around, and that’s all that matters.

Over the past few years we have seen the same type of “insane” moves in the enterprise space. Why did Oracle acquire Sun and replicate Red Hat’s version of Linux? Because Oracle wants to play in the consolidated big three of the enterprise and had to match IBM with its full suite of business apps, DB2 database, AIX operating system, and PowerPC hardware. There are still some crazy moves left in the enterprise space, such as HP and SAP merging so that they can match IBM and Oracle.

The “big three” computer players now all have massive patent portfolios, and they are not likely to sue each other as it will be mutually assured destruction. However, they will be more than happy to tax niche players into extinction, much like HTC is paying Microsoft for each Android handset it ships. Even IBM, with its patent trove and aggressive IP monetization arm, doesn’t want to play in this fight, and sold its mobility patents off to Google.

So what’s next?

We can expect Microsoft to pick up RIM and HTC much like it picked up Nokia, lock down computer hardware manufacturers with stringent guidelines and add stores to compete with Apple on service. Apple will aggressively build out its cloud infrastructure and beef up AppleTV to fend off the XBox. Google will continue to beef up its productivity apps and focus on consumer hardware. All three will compete on the next generation of answers-oriented, Siri-like search.

Even the carriers could be in play, with former Apple President (and my two time board member and longtime mentor) Jean-Louis Gassée predicting that Google will acquire TMobile. Sound crazy? C’mon Google needs stores to compete with Apple and Microsoft. And owning a carrier just raises the stakes for the other two even further. It’s no crazier than Google buying Motorola. Game on.

Tuesday, August 09, 2011

Why Time Warner Should Reacquire Aol

This post was also published in VentureBeat.

Aol released its earnings today a week after Time Warner, its former dot-com merger partner, announced earnings. The two businesses, once considered completely disparate and deemed one of the worst corporate mergers of all time, are now increasingly complementary as the industry shifts beyond delivery mechanism to content as the value differentiator.

Time Warner reported stellar earnings last week, with income up 14% year over year and strong 11% growth in television networks such as TNT and CNN, 18% growth for premium content such as HBO, and 13% growth for Warner Bros movies.

The one thorn in Time Warner’s side is Time, Inc. — the division grew a moribund 3%. The anemic growth at Time is coming primarily from online revenue, but it is a tough transition since Time does not sit on a premium editorial perch like the New York Times or Wall Street Journal. And although Time is currently profitable, the Time Warner CFO has warned that income will likely fall next quarter.

In the end, magazine content is just dull and is no match for the online content scrum. Time, with its weekly recaps of the news, has attempted to roll out tablet apps and implement a paywall, but there is no compelling reason to pay. Even worse for Time Inc., Americans are tiring of celebrity magazines like Time Inc.’s People magazine, which suffered a 10% decline in newsstand sales. Meanwhile, online pure plays like Sugar and Glam are growing in the category. So what can Time Warner do to accelerate the online growth of its magazine division?

Aol has significantly grown its content business over the two years since its divestiture from Time Warner. CEO Tim Armstrong has been incredibly aggressive, acquiring the Huffington Post, the leading online pure play for news, restructuring Aol’s various blog properties, and growing Aol video into the #2 video site according to Comscore.

Aol missed estimates today, and the market savaged the company with a 25% drop. However, there was actually some good news in Aol’s earnings announcement: Advertising revenue is now $319 million and growing 5%. The online content strategy is actually working — it is just bogged down by legacy dialup and longer-term initiatives like Patch.

Although on first blush it seems absurd, Time Warner could pick up Aol’s content division at a discount, shut down Patch, and divest the dialup business to Earthlink, just like it divested Time Warner Cable. Aol’s content business would accelerate Time Warner’s online growth, and technology such as Aol’s Editions iPad magazine viewer could help grease existing Time properties. And Time Warner, with its $31.84 billion market cap, can easily afford Aol’s current $1.2 billion price.

If you were betting on the future of news, would you pick Time or HuffPo? Time Warner is going to have to make a move here, and Aol just got a whole lot cheaper than Say Media or Glam.

Monday, August 01, 2011

Just like Google and Facebook, Twitter now Charges Brands to Reach their own Customers

This post was also published in VentureBeat.

You know a web service has reached massive scale when it can charge brands to reach their own customers. Google has been doing it for years, Facebook has been doing it for the past couple of years, and now Twitter has just entered this hallowed territory with its new promoted tweets feature, which lets brands keep their tweets alive in your stream only if you have already followed that brand. The irony here is that you are only seeing these promoted tweets if you already followed that brand – so the brand is paying to advertise to users that already like it.

Now if advertising is usually about getting new customers, why would brands pay to market to their existing customers?

Many years ago, Google had a stroke of genius: to put ads above the search results and then charge brands to own the top spot where the brand inevitably would have been the first result. So when people search for BMW, BMW does not want Mercedes getting the top spot, so it buys placement. Nowadays, it is part of most every brand’s AdWords buy to purchase their own name. MarkMonitor, the digital brand protection company, reported last week that in sectors like finance and travel, nearly half of the ad buys are on the competition’s keywords. Although Google technically does not allow the purchase of trademarked keywords, the practice has become so widespread that some brands such as American Airlines have sued Google.

Facebook then jumped into the fray with its brand pages. First, a brand has to get “Fans” by getting people to “Like” its page. This is accomplished by special ad units on Facebook called Page Ads. Other options include “Like-blocking” an app on a page so that a consumer has to Like the Facebook page in order to get access to exclusive content, sweepstakes or deals. Once a consumer has Liked a Facebook page, the brand can then purchase additional Facebook ads such as Sponsored Stories targeting users that have liked its page, as well as the friends of the user that have liked its page. In effect, the brand is paying to advertise to users that have already said they liked it.

Twitter is following the Facebook model. First it charges brands to be a Promoted Account, which puts a brand in the “Who to follow” box on the Twitter homepage. Then, a brand has to buy Promoted Tweets, so that its message doesn’t get lost in the endless stream of tweets. Again, paying to advertise to users that have already said they liked its brand.

Over the past four years I have run numerous social marketing campaigns for big brands as the general manager of the social marketing platform Webtrends Soicial. We see a 7x increase in clickthrough rates when brands target their own fans on Facebook. Comscore recently released a report showing a 10% friend drag along for brands such as Starbucks, Southwest and Bing. I imagine Twitter will soon add the ability for brands to advertise to people following its followers, just like Facebook lets you advertise to friends of fans.

As I wrote in VentureBeat a couple of months ago, sending advertising to your existing users is akin to email marketing. A Promoted Account is the same as an email opt-in, and a Promoted Tweet is the same as sending your customers an email. Just a lot more expensive.

Very few companies have achieved the scale to charge brands to reach their own customers, and Twitter is now one of them.

Friday, July 29, 2011

JavaScript: One Language to Rule Them All

This post was also published in VentureBeat.

The Internet is about to hit its fourth major shift in server architecture.

The early days were powered by simple Perl applications. As the dotcom hit, Java application servers running on highend UNIX machines powered the majority of the web and created a multibillion dollar per year industry. In the 2000s, scripting languages such as PHP and Ruby running on cloud based Linux infrastructure have spawned massive growth at companies like Rackspace and Amazon with its Amazon Web Services service. Each of these shifts in server architecture brought greater efficiencies and the ability to more cheaply deliver more sophisticated Internet services. We are now on the verge of hitting another inflection point with JavaScript running on the server.

JavaScript came onto the scene in 1995 as the browser language in Netscape’s Navigator browser and was primarily used to implement simple user interface elements such as menus. With the wave of Web 2.0 companies building out JavaScript libraries such as jQuery and various HTML5 extensions of late, JavaScript is becoming increasingly sophisticated and capable of delivering highly interactive web and mobile-optimized sites comparable to Flash sites. As websites become more and more interactive, an increasing amount of business logic and data processing is starting to happen in the browser with JavaScript rather than on the server.

The growing up of JavaScript is leading to a collision of sorts between the client and the server. Why use one scripting language on the client, and then a different scripting language on the server? PHP and Ruby programmers are constantly dynamically building DOMs, the document object model for a browser page that JavaScript innately understands. Programmers also have to transform data in and out of JSON (the JavaScript Object Notation) so that it can be understood by browsers. All of this work translating between languages causes errors and bugs, and forces unnecessary communication between front-end and back-end developers. Each language has it stakeholders claiming better frameworks and whathaveyou, but at some point the pain of translation outweighs these benefits. Especially when you consider that JavaScript programmers are widely available, and Ruby programmers are virtually impossible to find.

Imagine if you were building a house and the architects spoke only Japanese and the builders spoke only French. There is a lot of time and energy spent handling communication and fixing miscommunication between the two parties. The same problems happen when you use two different languages to build a web application.

Even worse, when code is written, programmers have to decide whether it is going to run on the browser or on the server. Things as simple as validating a phone number need to be decided before a programmer can start, and be assigned to either the front-end JavaScript programmers or the back-end PHP, Java or Ruby programmers. Once the code is written, if for whatever reason it needs to be moved from client to server or vice versa, it needs to be rewritten from scratch.

The fissure between client and server is even starting to hit large corporate websites that have barely budged toward scripting languages from Java. When you go to your bank’s website or favorite e-commerce website, chances are that it looks and works very much like it did 10 years ago. This is because most corporations perform all of the processing of a website on their servers. When you click on something on a webpage, it goes to the server, which creates a whole new webpage and sends it to your browser. While this is not the most efficient way to serve a website, it is definitely the most efficient way to create a website inside a corporation, since the programmers do not have to learn all the intricacies of the various browsers and can simply program in Java, the favored language for corporate websites.

The sudden preponderance of mobile and tablet devices has created a sudden rupture in the way that corporations serve their websites. It is very slow and cumbersome to completely refresh a web page every time a user does something on a phone with its relatively slow web browser and connection. Now corporate web applications need to be upgraded to HTML5 and be able to update themselves dynamically, just like the modern web applications offered by Google and all of the Web 2.0 startups.

There have been various attempts to productize JavaScript on the server over the years. Netscape acquired LiveWire’s JavaScript server and shipped it in 1996 but then quickly replaced it with the Java and C++ based Kiva Application Server in 1998. Aptana attempted to provide hosted JavaScript servers and ended up selling its development tools to Appcelerator.

Over the past couple of years, a new breed of JavaScript servers have taken hold and are starting to get significant traction. An open source JavaScript server called node.js is becoming increasingly popular especially for communication servers and getting a lot of geek and startup love. Last year, Sequoia invested in Sencha, a company focused on JavaScript client libraries that has also done work on node.js.

It all makes sense when you think about it. It took many years for scripting languages to be considered serious web languages and for significant client logic to be implemented on the browser. But now this is the normal way to create an Internet application. Why code in two different scripting languages, one on the client and one on the server? It’s time for one language to rule them all.

Monday, July 25, 2011

How the Carriers Screwed Themselves out of Mobile Payments

This post was also published in VentureBeat.

There has been a huge scrum amongst the smartphone players to capture the market for phone-based purchases. In a very surprising move, the major US-based carriers just folded their mobile payments hand, and folded it hard. Isis, the mobile payment system sponsored by Verizon, AT&T and TMobile, announced that it had signed deals with Visa, MasterCard, American Express and Discover to its touch and go payment systems.

In the European and Asian markets, mobile carriers are payment providers, and people use their phones to pay for goods and services and then pay their carrier, and the carriers get a cut. So why are US carriers not going after this incredibly lucrative market?

There’s actually a very simple reason. Payment providers require trust, and the US carriers decidedly do not have their customers’ trust. When your Verizon bill shows up and you see that it is $50 over what you expect, your first reaction is that they are screwing you yet again, not that you bought dinner with your phone a couple of week ago. For years, the carriers have regularly gouged customers for text messages, talk overages and data roaming, to the point where “cell phone bill shock” is a well known problem, and the carriers are amongst the most hated companies in United States.

The carriers are renowned for byzantine statements more complicated than IRS forms, obtuse voice jail systems, and horrible customer service. Can you imagine calling your carrier to dispute a payment? These are the people that try to convince their customers that overage fees are a good thing, rather than simplifying their billing so that people can understand the cost when they use services.

With the ISIS move, the carriers now have to play nice with the credit card companies just like everyone else and no longer have an edge in the NFC scrum. Instead, there is a good chance that the carriers will be completely cut out by Google, Apple, and PayPal.

Google is aggressively going after mobile payments, testing NFC systems, acquiring Zetawire to accelerate its NFC technology, teaming up with Citi and MasterCard on NFC payments. Microsoft has also made NFC moves. Apple is one of the biggest payment processors with its iTunes store and is in a strong position to go after NFC payments. PayPal has been all over mobile payments and is doubling its forecast for mobile-based payments, and is making real world mobile transactions a huge initiative..

Now that the carriers have capitulated on carrier payments, startups such as Zong and Fortumo working on the bill-to-carrier infrastructure will likely have to focus on the “unbanked,” as BillToMobile has successfully done on the web and is starting to do on mobile.

One thing carriers could do to try to stay in this game is break out their billing so that the regular billing shows up in one area, and mobile payments are in a separate, clearly segregated area. Carrier billing providers like Payfone attempting to roll out mobile payments based on archaic roaming protocols are going to have to shift their strategy, as roaming charges are amongst the most obtuse parts of a mobile bill.

Hey, remember when you had to pay $250 because you used Google Maps in Europe, or $75 because you talked too much during a deal that required a lot of concalls? Don’t feel bad. The guys that charged you just lost out on a multibillion dollar opportunity that should have been a bird in the hand.

Thursday, June 30, 2011

Google+ Could Make Twitter the Next Myspace

This post was also published in VentureBeat.

There are numerous comparisons between Google’s new Google+ social offering and Facebook, but most of them miss the mark. Google knows the social train has left the station and there is a very slim chance of catching up with Facebook’s 750 million active users. However, Twitter’s position as a broadcast platform for 21 million active publishers is a much more achievable goal for Google to reach.

There are two different types of social networks, private and public — each defined by its default privacy setting. Facebook is by default private and meant to connect actual friends. Twitter by default is public and anyone can follow anyone else. Google+ is decidedly in the Twitter camp — meaning you can follow anyone, including Google CEO Larry Page. Google+ lets you see Page’s posts and “like” his photos of kite surfing in Alaska. When posting on Google+, it forces users to select specific social circles they are posting to, which includes “everyone” as an option that mimics a Twitter-style broadcast. If not for the lawsuits and FTC settlement about Google Buzz automatically broadcasting posts, it is likely that Google+’s default setting would be pubic posts.

Although Twitter is growing (having just hit 200 million tweets a day), Twitter has left itself open to be displaced with a slow pace of adding features. Even newly returned founder Jack Dorsey has said that it was too difficult for “normal” people to use Twitter.

So, how can Google go after the 21 million people who are actively publishing on Twitter, and, more importantly, the few thousands that own the majority of Twitter followers? These types of posters are generally publishers, and Google’s core competence is serving publishers. Publishers pay a lot of attention to Google, from search engine optimization to increase the ranking on Google searches, search engine marketing keyword ads to drive traffic, and on-site advertising solutions ranging from AdSense to DoubleClick.

Publishers are interested in increasing their search rankings and improving their reach. Posting content to Google+1 increases search rankings. The black toolbar across the top of Google services, which integrates both Google+ and Google+ notifications, definitely provides reach and is now in front of as many user minutes as Facebook commands. Users commenting or liking on items from publishers will show up in their friends’ toolbars. Even if they only have a few friends, the overall traffic bump will be significant. The Google+ bar has not yet been activated on YouTube, a key publisher and celebrity channel, and likely will broadcast YouTube likes, comments and shares.

While Facebook is not sweating about Google+, the threat to Twitter is significant. Google has the opportunity to displace Twitter if it gets publishers and celebrities to encourage Google+ follows on their websites as well as pushing posts to the legions of Google users while they are in Search, Gmail and YouTube. Google was turned down when it tried to buy Twitter for $10 billion, and now it is going to try to replicate it. With Google+, the company actually has a shot.

Why Microsoft’s Office 365 will Clobber Google Apps

This post was also published in VentureBeat.

Yes, Microsoft is a slow, lumbering giant. It has been working on cloud for years, with numerous iterations, that took so long cloud proponent Ray Ozzie got fed up and left. Microsoft had to work through cannibalizing reseller arrangements, reconciling how to reach consumers versus businesses and a host of other issues. With Office 365, Microsoft has finally delivered an end-to-end cloud platform for businesses that encompass not only its desktop Office software, but also its server software, such as Exchange and SharePoint.

Contrary to Google’s narrative, cloud based office software is still a wide open market. The three million businesses that have “Gone Google” — proclaimed on billboards in San Francisco airport’s new Terminal 2 — are for the most part Gmail users, who are still happily using Microsoft Office and even Microsoft Outlook. Gmail is a fast, cheap, spam-free and great solution for business email, especially relative to the expensive, lumbering email service providers. Google Apps has definitely found a niche for online collaboration, but generally for low-end project management types of spreadsheets and small documents. The presentation and drawing Google Apps are barely used.

Yes, there are definitely Google Apps wins, since it seems cheap. On implementation, businesses find that switching to Gmail is one thing, but switching their entire business infrastructure to Google Apps is a completely different animal that goes far beyond simply changing how employees are writing memos.

Imagine you are a 25-person law firm in Kansas City running Microsoft Office, Microsoft Exchange for email and calendaring, Windows Server for file sharing, SharePoint for wiki/collaboration, and have a custom billing application written in .Net and running on Microsoft SQL Server. Like the majority of small to medium-sized businesses, you are an all-Microsoft shop.

Google comes in and presents: Google Apps looks primitive and doesn’t have all the features of Word and especially Excel and PowerPoint. It also doesn’t work offline. Email and calendar is sort of the same, but you should really use a browser instead of Outlook to get full functionality. Plus, you have to manually move all of your SharePoint content over to Google Sites, the file server isn’t integrated with the Windows or Mac desktops, and you have to keep your .Net app the way it is or rewrite it into Google AppEngine.

Compare this experience to the Microsoft value prop: go home on Friday, and on Monday when you come back everything will look the same, except now we are hosting it all and you can lay off your IT staff. There’s no training required. Employees can run apps on the desktop or in the browser, whichever they like, and the browser version looks like the desktop version, only cheaper. For a regular business where technology really is just a pain and an expense item — not a mission in life — it’s really a no-brainer. In addition, Microsoft has historically been very smart about seeding nonprofits and educational institutions with copies of software that are virtually free, which it will likely also do with Office 365.

The thing about Microsoft Office 365 is that it looks really good, and looks and act just like the well-known native Office apps. The ribbon interface is intuitive and the apps are fast and responsive. Google Apps, conversely, looks like it was made by college students from a weekend project. I don’t understand how Marissa Mayer loves fashion like Oscar de la Renta at night, but goes to work during the day and insists on data-driven web sites that look like crap. Google hasn’t shipped a good user interface since Google Maps. The different between Office 365 and Google Apps is glaring.

Microsoft definitely has a few issues to work out. As Google pointed out, collaboration is not very simple, since you have to be a Microsoft Office 365 subscriber in order to collaborate. However, Microsoft already launched, a free Office offering with free collaboration. Microsoft will likely integrate Skype into Office 365, which will offer chat, audio and video conferencing, screen sharing and (probably) free document collaboration based on

Google’s claim that Office 365 doesn’t support many platforms is moot. It works fine on my Mac OS X with Chrome, and officially supports Internet Explorer, Safari and Firefox. Office definitely has numerous pricing tiers. The lowest tier is on par with Google Apps and the higher tiers include subscriptions to the desktop software, which help to transition Microsoft from feature-driven bloatware to subscriptions — a model that has worked for Adobe.

Google Apps will definitely have a place for new businesses and small businesses with younger employees that aren’t tied to the Office user interface. Google App Engine is a hidden jewel within Google Apps and its hands down the fastest solution for programmers to create and deploy a comprehensive web app. However, with Office 365, Microsoft is clearly on a trajectory to continue its Office hegemony. Microsoft is much more concerned about Apple than Google at this point, and insuring that it monetizes Apple devices like it used to make more per Mac than Apple did in the early 1990s. Conversely, Google should be much more concerned about Microsoft, which now has almost 30% marketshare in search.

Wednesday, June 08, 2011

Is Apple’s iCloud an Excuse to Overcharge for Storage?

This post was also published in VentureBeat.

After falling far behind in the shift to cloud computing, Apple’s much-anticipated iCloud offering fell far short of expectations. Rather than a cloud locker that could stream media to a variety of clients, iCloud turned out to be a glorified file synchronization service like Dropbox. iCloud will automatically sync all of your apps, settings, and files to all of your iOS devices.

Syncing all of your files is definitely a useful feature for consumers, but it is starkly different from the approach of other industry titans. Google and Amazon were so terrified of Apple streaming music that they both pushed shoddy beta-quality music lockers out the door in the past few weeks. Instead, Apple shipped the ability to recognize ripped or illegal music on a user’s hard drive and then automatically sync copies of songs at higher quality across devices. While recognizing that a user already has ripped a CD and skipping the upload does not seem like a killer feature, the music labels sued for that very feature over a decade ago, and Apple had to pay the labels a reported $100-$150 million to automatically sync the music that is already on a hard drive.

Google is staunchly in the cloud camp with its Google Apps, Google Music, and Google Drive offerings. Microsoft has launched its Office 365 cloud based Office, which enables businesses to offload their IT infrastructure such as email to the cloud, and announced that Windows 8 will automatically configure itself to a user's settings on login, so a user will be able to walk up to any Windows 8 machine and recreate their entire desktop experience. Amazon has always been a leading cloud vendor with its Amazon Web Services business offerings, and streams video rentals immediately for consumers in addition to its new Cloud Player streaming music locker service.

So what’s going on over at Apple? It’s quite simple, actually. Apple makes an enormous amount of money selling overpriced Flash storage, and it is therefore incented to sync every file to every device rather than stream media files on demand. Apple charges $6.25 per gigabyte of Flash storage on iOS devices. In comparison, retail pricing for generic Flash storage is $1.44 per gigabyte. That’s quite a margin for Apple; and of course you can’t add your own Flash upgrades to iOS devices unlike Android and Windows devices.

While a case can be made that, in the age of bandwidth caps, it is cheaper to copy everything to every device once, music is relatively low bandwidth to stream when compared to full duplex voice over IP or video calls. The age of ever-expanding Wifi networks also tilts in the favor of streaming. And ironically Apple owns the patent on the creative solution of storing the first few seconds of media on a device so it will play immediately when a user clicks play, which gives the music stream a chance to buffer and then take over playing.

Getting $100 for $16 gigabytes of storage is an excellent reason for Apple to dislike streaming. However, it is definitely a contrarian position to the overall market, and it risks that consumers will get wise the next time they upgrade a device and switch to Android or Microsoft.

Wednesday, May 25, 2011

How Twitter 2.0 Will Make Money

This post was also published in VentureBeat.

This is the second of two articles on likely changes to Twitter. The first article focused on consumer-facing changes to Twitter and this one focuses on monetization.

Twitter has experienced tremendous traffic growth, and more importantly has permeated into the collective consciousness with constant Twitter quotes by news organizations and entertainers. Twitter’s valuation has gone up as people expect it to monetize its traction with both consumers and brands. Here are a few of the features that would seriously inflect the Twitter revenue curve.

Bring on the banners

Twitter has struggled to scale advertising revenue, because like most social sites it tries to inflict strange ad units on both its users and advertisers. From the users’ perspective, things like promoted tweets or Facebook’s social ads are intrusive to their content experience. From the advertisers’ perspective, they can’t use their normal ad units and track results the normal way.

This is easily addressed by supporting normal ad units such as right rail skyscraper banners. As Myspace proved early in the social years, banner advertising works on social networks, especially social networks where a lot of people are following celebrities and media. In addition, to be frank, a lot of the former Myspace userbase is using Twitter to follow celebrities and sports figures, and these are the types of users that respond to banners. It will be a long time before Facebook chief operating officer Sheryl Sandberg can convince Mark Zuckerberg to go after banner ad buys less than a year-and-a-half after he pulled Microsoft’s static units from Facebook, so Twitter will have an advantage going after large-scale media spend.

Special care should be taken to ensure that when banners are introduced, they are placed similarly to other top sites. For example, the infamous “dickbar” mobile banner that caused user uproar was placed at the top of the Twitter app. Most mobile banners such as AdMob units are placed at the bottom of an app. Adding banners will always bring on complaints, but adding banners that look like everyone else’s banners will achieve begrudging acceptance and will make the complainers look like trolls.

To add a social flare, the units can include tweets relevant to the brand or whatever is being promoted. Put the social into the ad unit, not the ad unit into the social. Acquiring the self-service dynamic ad creator Flite, which lets advertisers create and deliver ad units similar to Aol’s Project Devil units, would make dynamic ad units that integrate tweets available to the as Flash units and mobile as HTML5 units.

Twitter should let Facebook experiment with social ad units, and focus on soaking up a bunch of brand banner ad spend.

Monetize (rather than cannibalize) third-party apps

Over the past few months Twitter has been going after third party Twitter apps by blocking some apps’ access to its API and arbitrarily changing authentication systems. Attempting to regain control of the on-ramp with which power users use Twitter is admirable, and the TweetDeck acquisition was a very smart move in this direction.

However, a rich developer ecosystem is a rare treasure and should be nurtured. Rather than go after rollups like UberMedia and smaller Twitter clients, it would be better to exchange volume API access in exchange for placement of the banner ads (you know, the ones I just described) with a revenue share. Pissing off developers is never smart, consider how quickly iOS developers jumped onto Android after all of Apple’s various shenanigans. This is especially important considering that Facebook is nurturing a rich ecosystem of third-party apps, ad, and analytics vendors. That said, it should be expected that Twitter will add obvious features like email notifications, and Twitter should notify developers of changes like this ahead of time to circumvent upset feelings.

Developers love Twitter, and Twitter should be helping them do fun stuff and make money, too. There are a bunch of small, self-serve ad networks that could be acquired to accomplish this, as well as open source implementations such as OpenX.

Check-ins are tiresome, but location deals are useful

Twitter is one of the most used mobile apps, and it could open a great revenue stream by enabling merchants to deliver real-time deals. Check-ins are increasingly lame, but people do want to know if there are deals around. A lot of mobile units have low conversion rates, but a built-in interstitial with a map view would lead to a lot of conversions. Options for this include doing a deal with Groupon Now like Loopt’s recent implementation and Foursquare’s rumored integration, or acquiring a small mobile deals company like BeThere Deals. Replace the #dickbar with the #dealbar!

Sentiment analytics and service tools for brands

I work at Webtrends, which sells social, mobile and web analytics solutions to enterprises, and am continually amazed at the voracious appetite marketers have for analytics, and for the new breed of analytics around social interactions. No CMO on the planet is going to question a marketing budget item labeled Twitter Analytics. A lot of sentiment analysis tools such as CoTweet, ScoutLabs and Radian 6 have already been acquired. However a new breed of more powerful tools such as Crimson Hexagon are ripe for Twitter to acquire to enable social media teams to see, route and respond to Twitter conversations about their brand. Much like Facebook Pages include support for broadcasting to Twitter, it is critical to also include support for Facebook and blog conversations so that brands can have a single, Twitter driven view of what is going on with their brand.

Twitter should continue to sell access to its firehose of data, but delay access for a few hours to external entities other than a few premium partners in order to increase the value of its own offerings.

Sell lucrative sharing, trending, and tipping data

Companies like ClearSpring and RadiumOne are mining what content is being shared by consumers and selling the data at a huge premium to advertisers who want to know what topics are trending and how to better target users. Twitter has one of the best views of this type of data and should sign lucrative deals with publishers and ad networks to help them better optimize their businesses. More importantly, as I wrote back in March, Twitter’s data provides a very unique viewpoint as to how content goes viral and what types of posts, influencer retweets, and incremental advertising could tip a campaign towards a viral spread. Social scoring companies like Klout have very limited algorithms, but this type of infrastructure could be an offshoot of acquisitions such as Topsy and BackType in addition to the more immediate benefits described above. Mining the Twitter data will only become increasingly valuable as marketing campaigns become increasingly automated.

Adding enterprise features to Twitter will be much easier than consumer facing features. Enterprise features have far fewer users, can have structured release programs such as limited early access releases, and generally have a pretty forgiving audience in terms of time to add features and the occasional downtime. There is huge opportunity in for Twitter to sell to businesses; Twitter’s voluminous consumer traction, brand mindshare, and treasure trove of data offer significant monetization opportunities in the advertising and analytics segments. Acquiring companies like those described above would accelerate Twitter into every brand’s media spend.

Tuesday, May 24, 2011

Here Comes Twitter 2.0

This post was also published in VentureBeat.

This is the first of two articles on likely changes to Twitter. This article focuses on changes to Twitter’s consumer-facing side and the second article focuses on Twitter monetization.

Twitter reportedly acquired TweetDeck today, and that’s likely to be the first of many changes. There is a broad consensus that Twitter had stalled out in terms of product innovation, , which even creator Jack Dorsey noted upon his return to Twitter as head of product. With Dorsey’s return, we should expect more changes, and very quickly.

BusinessInsider recently suggested that Twitter only has 21 million active users, and a lot more people who read of those users’ tweets. While at first blush this number may look really bad, it is actually an indicator that Twitter has matured. Twitter is a microblogging platform, and has followed the same trajectory as blogs. At first, everyone blogged. Now only a few blogs really matter.

Consumers want Twitter to be their source of information. Lady Gaga on Facebook has 35 million fans, and on Twitter she has 10 million followers. The numbers don’t tell the whole story: The 10 million Twitter followers actually care what Lady Gaga has to say every day, while a large portion of the Lady Gaga Facebook fans simply added Lady Gaga to their profile as one of their musical preferences, which Facebook later automagically turned into becoming a fan of the Lady Gaga Facebook Page.

As Twitter becomes the go-to source of information for news, celebrities and more, it’s differentiated from Facebook, which is very focused on what your friends are posting. With this shift in mind, below are some features Twitter could quickly add via targeted acquisitions that could bring back the company’s mojo, scale users, and add multiple revenue streams.

Add a news view

Twitter’s home page should become a news style view of what is going on. As LinkedIn’s recent news site showed, there is ravenous appetite for socially filtered news presented in a news format that includes pictures and descriptions. I myself have experimented with PostPost, the real-time Facebook news site, to rapid uptake.

Twitter has become the central avenue for news organizations and celebrities to distribute news. In addition, it is the prime hub for curators and users to retweet the news, essentially adding a vote for the interest level in the news story. Facebook is still primarily a site to interconnect with friends rather than disseminate news. However, Twitter needs to act fast since Facebook is currently driving more traffic to news organizations that Twitter. It’s time for Twitter to double down and dominate its core category.

With a Twitter news view, newbies and infrequent users would start with a broad view of what is currently interesting in the news, and as they follow sources and curators they would be able to personalize their experience and drastically increase Twitter usage. Adding a news feature could be accelerated by acquiring Twitter newspaper makers such as or TweetedTimes, with a blend of TweetMeme to rank the articles.

Offer news streams for events and locations

Last month I was at the Coachella music festival. On the first day, there was one person on Color, 66 Foursquare check-ins, and thousands of #Coachella tweets that included linked photos and videos. Twitter has a fantastic opportunity to offer a dynamic, visual view of what is going on around events and places, ranging from music festivals to political upheavals. Facebook is the go-to site to find out what’s going on with your friends, and Twitter should be the go-to site to find out what’s going on around you and in the world. Since news organizations are always quoting tweets, people are now predisposed to Twitter as a leading source of information. Acquiring companies like Memolane or Storify that have spent time on how to present posts in a structured manner could be helpful. In addition, acquiring What the Trend would add the ability to show trends of tightly focused geographic and demographic slices.

Show photos, videos and other media inline

The Twitter user interface has been stalled almost since its inception. Although users can now click to fetch linked media, it is not an ideal experience, especially since users are now accustomed to seeing photos and videos inline with the Facebook newsfeed. Photos, videos, documents and such should be presented inline directly below a tweet. Twitter should announce support for Facebook’s OpenGraph protocol and support open graph tags for web pages that return metadata such as titles, descriptions, and thumbnails. This feature could be accelerated by acquiring, a site that returns metadata such as thumbnails for arbitrary URLs.

Inline comment threads

Following a conversation stream in Twitter is maddening. Although there is a new feature to see a tweet in context, it only shows a few surrounding tweets that are not necessarily relevant. This is a critical feature that needs to be fixed, and can’t be fixed via an acquisition. Every tweet that is a response to another tweet needs to be linked to its parent tweet, and every tweet needs to be able to find its child tweets.

Facebook addresses this issue by simply grouping all comments under the original post. Twitter should also focus on solving this simple problem first, and then going after the more complicated nested commenting problem. So if I reply to a tweet, and then you reply to my tweet, both tweets are filed under the original source tweet as one long stream. A huge step forward from how it works right now, and the nesting of comments can be addressed later.

Improve search

Although Twitter acquired Summize in 2008 to power its search engine, the search results could use a lot of improvement. Twitter search doesn’t dereference URLs, so you can’t search for references to a particular article. In addition, it doesn’t offer expected features for people accustomed to Google search such as spelling corrections (“did you mean…”). Building fast and effective search is extremely challenging. Options should include partnering with Google like Facebook partners with Bing. Google would be overjoyed to get some social juice, and Twitter would benefit by being able to offload search. Another option is to acquire Topsy, the leading Twitter search engine which is fast, realtime, and effective.

More Twitter widgets for websites

Facebook is blanketing the web with its social plugins ranging from Likes to Comments, and Twitter needs to stake its claim on websites, especially news sites. An equivalent of Facebook’s recommendations plugin that shows what content on a site is actively being tweeted would be relatively easy to create. In addition, context about what people are saying about an article could be added by acquiring BackType, which offers a widget that shows all of the tweets and comments about a particular URL.

With the service’s notorious downtime, the Twitter engineering team has struggled just to keep the lights on and it will be awhile until they can transition to innovating rapidly. Although acquisition integrations are hard, they will be the best way for Twitter to innovate quickly. If the acquired companies are not compatible with existing infrastructure it is critical to incent them to do a quick rewrite as part of the acquisition. In addition, Twitter should be comfortable shipping stuff that people will complain about – Facebook does it all the time. One idea is to start throwing features over the transom under a “TwitterLabs” moniker.

Good thing that Twitter recently hired Mike Brown, Facebook’s former acquisitions guy, and didn’t buy into TechCrunch’s accusations that he committed insider trading. Brown is super tied into the startup community and is well-respected. Looking at the laundry list above, he is going to be a pretty busy guy. (Editor’s note: Brown is also an investor in VentureBeat.)

Tomorrow, I’ll dive into Twitter’s monetization opportunities.