Category Archives: google

How ATT and Verizon turned mobile software into the new growth industry

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Yesterday, I had the misery of replacing of my phone.

When I originally bought my Nokia cell phone, I bought it with the expectation that I would get an early upgrade in about a year. Given that the phone was free – thanks to a bug in the OS – the theory was that in one year I would buy a better phone at a reasonably discounted price to replace my aging and dying Nokia E71…

Except ATT, and now Verizon, changed the rules of the game and the early discount no longer applied.

Which sucked for me… but it really sucks if you are hardware manufacturer…

In the hardware business, you really need to get people to upgrade to the next model to make money. If they don’t upgrade, then you make less money. It’s really that simple.

Storage as a hardware business is awesome because storage is like a consumable… as long as you are creating data you are buying more storage. Once you use storage it’s no longer re-usable for another purpose without deleting data and data never gets deleted.

But to upgrade to a new cell phone you need a compelling value proposition at a reasonable price.

With the early discount model the carriers had turned what could have been a two-year upgrade cycle into a one year upgrade cycle. And had allowed more share of wallet to go from software vendors to hardware vendors… Folks who could spend were spending more on hardware over two years than on software.

The carriers have now reversed that policy which means that the prices after one year have gone up.

This is really unfortunate for hardware manufacturers. To deal with the sudden increase in price, hardware vendors must either make the product more valuable through faster innovation, or figure out how to make the hardware cheaper or accept slower growth.

Changing the rate of innovation is hard. In fact, I would almost argue is impossible. Hardware rate of innovation is ultimately tied to Moore’s law. So you have to cut prices which is also sucks because it affects margins. Or you accept slower growth which isn’t so bad … other than the part where your shareholders ask you to do things like hand over your cash hoard and demand a dividend … and let’s not get into the employee retention thing.

All this means less profit for hardware vendors which means less innovation etc…

A slower hardware innovation adoption rate, however, is fantastic for software vendors. Unlike hardware, software vendors are able to continuously add value to devices without an upgrade cycle. In addition,for subscription services as long as the vendor adds incremental value the average sales price doesn’t have to drop …

So what does this mean?

If you consider the amount of money that the median first world person has as fixed or slightly declining over the next 10 years, then software vendors can capture a bigger share of the wallet.

Let’s be very specific:

Suppose a customer is will to spend 600$ very two years on a phone. In the old world, the customer could buy a 200$ one year, and a 400$ the next. With the new policies the customer spends 200$ and 600$ the next year because there is no discount. So the customer – unless he sees a compelling value proposition decides to not buy the 600$ phone which frees up 400$. That 400$ is available to spend on incremental software services on his phone. Although it’s certainly true that not all that money will go to software, but some of it will. And the really cool piece of news is that folks who were buying early upgrades have enough disposable income to actually want to buy more software services to extend the value of the device they already own.

If I was a software service vendor like Evernote or Google or Microsoft this is the best piece of news I have heard in a very long time… More money to spend on services.

If I was a hardware vendor this would suck. And the market agrees which explains the collapse of Apple shares.

And if I was Microsoft trying to grow my platform this would also suck because

  1. It means that growth of Windows Mobile will be slower as it takes longer for people to buy new phones.
  2. Given the investment consumers are making  in services, the stickiness of  incumbent platforms may increase over time.

My only hope if I am Microsoft is that they can somehow create faster software innovation that motivates people in the next upgrade cycle to switch … This is possible … in principle (bing is number #1 in search – right?) … 

And if I was blackberry, I would pray there were a lot of people who loved me…

And if I was anyone else trying to build a cell phone platform, I might be looking for a new strategy…

The day Google abandoned it’s original mission

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I am going to be a little bit critical of Google today. But, before I do, let me be clear that I admire Google more than any tech company out there. The scope of their vision, the breadth of their technology, the greatness of their talent, and the depth of their pockets is breath-taking.  They are, quite possibly, the greatest technology company ever.

Having said that…

When Google abandoned Google Reader, they were not just abandoning a few hundred thousand members of the technorati, they were also telling us that their mission to organize the world’s information had changed.

Their recent focus on other things like eye glasses, and phones and cars and desktop operating systems and … probably should have given us a clue that organizing information was no longer where it’s at.

The original central conceit of Google was that you could rely on them to be the best and most authoritative place for finding information. Other people, we’re looking at you bing, could try to be almost good enough, but when you needed to find something you looked on Google. If it wasn’t on Google it might as well not exist.

In fact, part of the reason I restarted this blog was because after 5 years on FB, the lack of Google search meant that all of the content I ever created was, for all practical purposes, lost.

The decision to cancel Google Reader is shocking because it is  perceived to be central to the mission.

But Google’s cancelled other projects, right?

Google has cancelled other projects, that’s true. But nothing that felt as central to their mission.

Google Reader, and in particular it’s API, was central to how folks organized blogs.

When Google said “We’re done”,  they were also saying that their expansive original mission was over.

I suspect they have a new mission, but it does mean that someone else will have to take on the burden of organizing the world’s information. Here’s looking at you Microsoft.

Revisiting things 6 years later

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A friend of mine is in Barcelona. I remembered a great restaurant I went to and the review I wrote. While searching for the review I found something else I wrote 6 years ago;

Hype is like cancer that spreads until it obliterates all facts in their wake.

Currently the Google word processor is being hyped as the alternative to using MS Word.

About two years ago I tried to use Open Office. MS Word was going to cost me an arm and a leg and I had every incentive. A month of painful struggle and irritation at what was an inferior and ultimately unusable product as compared to MS Word, I shelled out the big bucks.

Google Docs is an impressive piece of web software, and certainly superior to wordpress’ text editor widget. However, I am pretty sure, that I prefer using MS Word if I ever have to write any document.

Nonetheless, this document was written using google doc.

My next task is to see if I can get MS Word to publish directly to my blog….

And for the record, Open Office was far more usable.

It’s 6 years later, and it’s painfully obvious that Google Docs is the alternative to MS Office products.

One of the interesting side effects of being disrupted is that you can stare at the disruption and it.

Google Doc’s was clearly a primitive version of MS Office, but it was good enough for some tasks and it was cheaper and simpler to manage than MS Office. Use Google Docs and you don’t need shared storage, license keys, a Microsoft deal etc.

What I didn’t understand 6 years ago was how computers and infrastructure were becoming free. As the cost per user declines, it becomes possible to offer a service for free for most people and charge a small number of people a small amount of money and still come out very much ahead.

Google Doc and SaaS is the destroyer of traditional IT and the vendors that support it. The process may take time, but it is a tidal wave of destruction that will leave new players in its wake.

The arrow of time moves forward and now I find myself practically never using MS Office because Google docs are free and easy to use. Sure I can’t write everything I want in them, but I don’t care.

tl;dr The latest laptop I bought does not have Office installed because I prefer to use Google Docs.

I hate search engines

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One of the more, most?, irritating aspects of today’s search engines is that for all of their bullshit about "content neutrality", they obviously prefer to redirect you to their sites.

So look for an image on Yahoo and you get a whole bunch of flickr pages.

Look for the same image on Google, and flickr doesn’t even exist.

Don’t believe me? Look at a search in yahoo images for Tony

image

And what happens when I look for Tony on Google images?

image

No flickr!

A pox on both of their houses!

What is Google?

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Google presents itself as a technology company. However, in reality they are an advertiser exchange board. Vendor A creates good or service. Customer B wishes to purchase good or service. Google makes it possible for Vendor A to be found by Customer B. Vendor A is willing to pay Google some money for that service.

The problem, and here’s the nut that needs to be understood, is to create that switchboard Google has to expend vast amounts of cash to maintain its vast server farms. In effect, Google’s server farms provide the medium through which Vendor A is found by Customer B.

Why is this important?

Google makes money from trades. They don’t manufacture the content. To be the preferred location for the trades they need to invest huge amounts of capital to create the best platform for making the trades. As long as the trading exceeds the capital cost things are going well. If the trading were to drop all of a sudden, the capital costs remain and things start getting very interesting.

Let me try this differently.

Once you bring a data center online, if the trading revenue does not match the cost of running the data center, the capital cost remains. Given that trading revenue can disappear overnight, the danger is that overnight the total revenue that Google has can collapse. In that case Google would have vast operational liabilities with no  revenue stream. The net effect would be complete collapse.

That of course is an absurdly negative belief, but it is interesting to observe that Google’s vast resources are being deployed into vast capital expenses,and that the vast resources are dependent on trading and that if the trading were to stop, then the capital expenses would remain creating all sorts of interesting pressure on their bottom line.

And the money kept rolling in…

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This is an interesting story about how Google’s AdSense program was perverted by folks who understood the nature of arbitrage.

http://www.financialpost.com/magazine/story.html?id=324817

The real gem of the story is the following:

In 2003, Google made another huge leap forward on the advertising side, with the launch of its AdSense program. Essentially, this application allowed people to put keyword-targeted ad links, served by Google, on their own websites, with them and Google splitting revenue tied to the volume of user click-throughs. As its popularity grew, a cottage industry began to develop called “search arbitrage.” Essentially, search arbitrage involves an individual or company buying Internet traffic through the acquisition of keywords from Google, then sending viewers who click on the ad links to a site (“landing page” in Google terminology) that appears to have content, but is actually just full of online advertising linked to the original search term. Anyone clicking an ad link there makes money for the keyword holder. For example, a company might bid for the Google rights to the phrase “small town car sales” and send traffic to a website it controls, filled with more car advertisements, called “Alltheautomotive.com.” The keyword cost only 20¢, while a click on the advertising on the website might yield $1.50 return. According to Niki Scevak, an analyst at Jupiter Research in New York, the majority of those initially involved in search arbitrage were small players. “These were guys running search arbitrage out of their basements, making maybe $20,000 a month,” he says.

Essentially you buy “cheap” words, and populate the web page with expensive words and make a killing on the difference!

And this is legal…

Eric Schmidt on the 20% time at Google

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One of the enduring mysteries is out of what budget does Google fund the 20% time it’s engineers are supposed to be working on their own special projects. A simple plain text reading of the statement would suggest that Google is overstaffed by 20% or said differently: they have 20% more people than they need for their current projects. A negative spin on this would be that in a down turn they could lay off 20% of the company to meet expenses without impacting current deliverables. If this was true, I was even more envious of the Google business model than I already am. But I was mistaken.

In an interview in Wired, Eric Schmidt explained:

How do people actually do 20 percent time? How do people actually figure out a way to actually get 20 percent of their time for that without working on weekends?

They work on weekends.

Do you compensate them in a way that encourages them to come up with these projects?

Yeah, but remember the kind of people who we hire are not here for the compensation, they’re here for the impact. And there’s essentially an internal draft system, that helps redistribute talent which is complicated and quite clever.

Do you actually have to declare what your 20 percent project is going to be?

People are encouraged to do so as part of the snippets.

Okay. That’s the incentive.

But it’s encouraged, not required. Again, there’s things you measure and require and there’s things that you encourage. The 20 percent is a cultural thing.

So you’re encouraged to come up with an independent project, and if you’re an engineer it’s part of being able to sit at the lunch table with your peers and be respected?

That’s right. Your peers all have one, so what’s yours?

At last the mystery explained: it comes out of the personal budget of the engineers.

Fasinating.

Updated: June 16 2007, fixed some errors in the HTML encoding. Foolishly assumed that the thin client POC that I was using worked as well as MS Word did.

Living in the bubble.

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One the endearing traits about Google employees that went to Google straight out of school is that they have a distorted idea of what the rest of the world is like.

Recently a friend of mine told the following tale:

Because of the solar panels in the main parking lot, a couple of days ago I had to park far away and took the shuttle to get to my building. While I was in the shuttle I overheard the following conversation:

Google Employee 1: Back when SGI  had these buildings there was a lot more parking space so you didn’t have to park so far out.

Google Employee 2: Wow, the valets must have been really bored.

Good Lord, what will these people do when they leave this bubble?

Geocities vs Google Pages

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After talking about how Google page creator was lame, I decided to try the grand-daddy of this technology: geocities.
Now I am even more disappointed.

Geocities is not half bad. They have a reasonable set of default templates, the ability to host your own domain, and a wizard set up that makes creating a simple web page very very easy.

Check out my geocities page. You’ll notice that there is substantially more content than the Google page. And I spent about the same amount of time on both.

Google pages….

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sarcasm/

I’ve become one of the blessed. I too can now create web pages using Google’s Web 2.0 Web Page Generator! And yes the product is the coolest, spiffiest, most innovative piece of technology out there! It breaks new exciting ground!

/sarcasm

I don’t actually intend to do much with that page other than to experiment with the technology. The Google folks sometimes have interesting UI ideas.

Google pages, however, at first blush is a disappointmnet.

Google Maps redefined what we expected from web based map products.

Google Pages is just another web page editor that is integrated with web publishing software. My blog software is as sophisticated and easy to use as the Google product.

We’ll see …