Wednesday, September 26, 2012

How Should Facebook Make Money? (Short Take)

FaceBook Knows Everything!
FaceBook Knows Everything! (Photo credit: adamjackson1984)
First off, if you have the time please read this article on how Facebook has been getting it all wrong when it comes to monetizing their business. It's not that long and it contains some interesting information and points.

The very short summary of the above linked article is that #Facebook has been screwing up for the past several years because they have essentially been focusing their advertising efforts on the old model of identifying prospective customers for their advertisers by using demographic or "meta" information such as where people live and what their interests are. It turns out that there may be much more money to be made by knowing what people are doing now and in the recent past and targeting ads based on those recent actions.

Maybe I read the article wrong but Facebook's approach seemed to be "Do it the old way with much better/more information". So they were focusing on meta information primarily rather than contextual information. The thing is, they own the meta information, they don't own a lot of the contextual information. So the meta route provides them with a lot more control and thus all of the revenue. It's easy to see why that would be attractive.

In the new system they don't have that control so they won't be keeping all the money. That won't be a big deal if they end up making more by going the contextual route rather than their previous meta route. If all this is true Facebook's share price just might be very low right now relative to their future earnings. Time will tell.

I think Facebook's best bet is to take both approaches. Sure, short term sales are driven by context but long term relationships with brands and companies are driven in large part by all that meta data Facebook gathers. So really the different approaches have different applications/sweet spots. One may be more profitable than the other but nobody does meta better than Facebook and there clearly is money to be made there as well since Zuckerberg and company haven't exactly been living under a bridge the past several years.
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Monday, September 24, 2012

Apple, Still Revolutionary

iPhone 2g, iPhone 3GS, iPhone 4
iPhone 2g, iPhone 3GS, iPhone 4 (Photo credit: reticulating)
One of the common themes since the announcement of the iPhone 5 is that Apple is no longer a revolutionary company. It's far to say that the wow factor was a lot more subtle this time around but I think people are overlooking a very important feature of the new iPhone when they make this assertion.

The iPhone 4 is not just fast, it's "bet the living daylights out of the competition" fast.

Initial benchmarks show it to be one point five times as fast at Javascript execution and two times faster at graphics intensive tasks then the fastest Android phones. Keep in mind that the A6 processor core Apple is using on the iPhone 5 is running at 1GHz while the Samsung Galaxy S-III is running at a clock speed 50% faster than that and lagging badly in performance.

Apple's A6 is a custom piece of Silicon. I've seen conflicting reports on which version of the ARM reference designs the A6 is based off of but suffice it to say that whatever version Apple chose to use they've made some tweaks because this kind of performance advantage doesn't come easy or by accident.

Fast processing is nice for several reasons. Apple sells an image and an experience. Their products are supposed to be smooth, of high quality and reliable. Nothing says smooth like a large processing advantage over your competition, particularly when that performance advantage doesn't come at the cost of poor battery life.

Battery life is the other side of the equation. Better IPC (Instructions Per Clock, basically the amount of work a processor can get done in very small time period) means that everything else being equal you'll see longer times between the need to recharge on an iPhone 5 versus another smartphone doing the same task.  Early reports are that the iPhone 5 is holding up as well or better than the iPhone 4S in spite of having a larger display and LTE 4G technology.

Apple could have added a bit of bulk to the iPhone 5 and given it a larger capacity battery. They chose not to, most likely due to the additional costs that would have incurred. Going that route would have given them much better battery life than their competition. Oddly some people are actually complaining that the iPhone 5 isn't heavy enough so maybe Apple missed the boat a bit here.

The performance and power advantage that Apple now enjoys is not likely to be bridged by their competition in the next year or two.

It will be very interesting to see how the next version of the iPad performs with this processor technology or the next iteration of it.

The iPhone 5 is a very nice piece of hardware but the really exciting thing if you're a tech geek or somebody trying to figure out Apple's upper limit financially over the next few years is the processor technology. That is where they truly have an advantage and where they are going to be able to continue to differentiate themselves from their competition if they don't fumble the ball badly.   
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Monday, September 17, 2012

Initial iPhone 5 Sales Tepid? (Short Take)

Apple Inc. new headquarters
Apple Inc. new headquarters (Photo credit: MarkGregory007)
Keeping with my tradition of being late to the show here are a couple of thoughts about Apple's recently announced iPhone 5Before I begin though I'm going to post a disclaimer. I've only ever been a fan boy of one company and that was Commodore. They died a long time ago and watching their rise and fall along with the downfall of the Amiga cured me forever of the need to blindly support any company or product. I'm not going claim I'm totally objective. I'm human and its folly to claim I'm without bias. Keep all that in mind when reading the following.

I own all sorts of Apple products. I'll likely own more in the future. Over the past few years I've often written in praise of both Apple and their offerings. Those endorsements and purchases were based on my perception that Apple had the best product for a particular need or desire I had at the time.

On that note, the recent announcement by Apple that the iPhone 5 was exceeding all their expectations feels a little odd. Two million units shipped in the first day is great but last year they sold more than four million iPhone 4s handsets in the first three days.

 That launch encompassed seven countries

United States
United Kingdom

While the iPhone 5 was launched in two additional locations

Hong Kong &

Those two additional locations make an apples to apples (no pun intended) comparison difficult as do the differing time periods but its difficult for me to see two million units sold in 24 hours in nine markets as being significantly better than more than four million being sold in 72 hours in seven countries since the sales distribution is likely to be biased towards the earlier part of the initial availability window.

I'm going to go out on a limb here and say that iPhone 5 sales are going to exceed iPhone 4s sales but only modestly when put in context. If I'm right Apple may just be in a little trouble here.
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Monday, September 10, 2012

Thoughts on Amazon's New Offerings

SANTA MONICA, CA - SEPTEMBER 6: Amazon CEO Jeff Bezos holds up the new Kindle Fire HD reading device in two sizes during a press conference on September 6, 2012 in Santa Monica, California. Amazon unveiled the Kindle Fire HD in 7 and 8.9-inch sizes, with prices starting at $199. (Image credit: Getty Images via @daylife)
It's obvious I'm not a pro blogger. If I were I'd have made this post right after Jeff Bezos finished his talk last Thursday. I'm going to try to come up with a few new insights in spite of my tardiness. Let's see how I do.

First of all Bezos and his team did a great job putting this event together. The products are compelling and he told a coherent and interesting story.

Companies ignore their customers requests at their own peril. An example of why this is the case is the addition of profiles in Amazon's new Fire tablets. The ability to have multiple user profiles on iPad's has been a frequent request since the first iPad debuted nearly two and a half years ago. If Apple wasn't listening Amazon was. Parents will be able to set time limits on book reading, video and games. This seems like a very attractive value add and one I suspect Apple will emulate within the next twelve months if Google shows any sign of gaining market share.

The addition of a larger Fire tablet had been rumored for awhile. The lack of FCC approval probably explains why there were some last minute claims that Amazon wouldn't make the announcement. 8.9 inches isn't that much smaller than the iPad when you consider that it's actual screen size is actually 9.7 inches rather than the oft quoted 10 inches. That's makes the larger Kindle Fire about nine percent smaller than the iPad and the difference in pixel density is less than half of that. It's hard not to see the large Fire HD as a competitor to the iPad at this point. This is particularly true of the 4G models which offer a pretty compelling ROI argument when you take into account the $50 data plan which provides 250 meg of data a month. That isn't a lot but it's enough to check email occasionally and bridge between wireless hot spots in a pinch. The equivalent plan for the iPad is much more.

The interesting challenge for Apple is that their business model is built around charging premium prices for good but not spectacular hardware. All business models have upsides and downsides. The upside here is that Apple has excellent margins on their hardware which drives impressive profits. Not every company can do this. Apple can because they've built a fantastic brand over the past few decades. The downside of this business model is they may be vulnerable on price.

Amazon is the Walmart of the online world. They are not a premium brand but they do a very good job of delivering value to their customers by providing products at the lowest prices around. That is the kind of "service" a lot of people get excited about.

People who care about buying a premium brand are very unlikely to pick Amazon over Apple just as people who value getting the biggest bang for their buck are unlikely to choose Apple. One of the reasons Apple makes as much money as they do is that they deliver great value even at their premium price so Amazon's task isn't exactly easy. I tend to be a value buyer but I've bought plenty of Apple product over the past five or six years.

Apple also makes a nice chunk of change from selling media. This is where Amazon and Apple really intersect. Amazon makes money by selling stuff, and nothing is more profitable than selling digital bits that can be endlessly duplicated and delivered nearly instantly at very low cost.

It's safe to say that Apple is vulnerable on the hardware side if Amazon starts to see big gains in market share. That would threaten Apples profits at a time when tablets are becoming an increasingly important chunk of the personal computing pie. As tablets prosper laptops suffer much like desktop systems did before them. Up until now Apple has been cannibalizing sales both from themselves and PC vendors; Amazon would be stealing almost exclusively from Apple.

Apple isn't without resources in this fight though. They have their own media business in the form of the iTunes store. Rumors have been going around for awhile now that Apple wants to sell their own TV's as well and for that to work well they'll need to secure rights to even more media than they currently have. Apple could counter Amazon by offering their own media at even lower prices than Amazon. This should be doable since as noted Apple's bread and butter is hardware. The problem with this approach is that Apple probably can't undercut Amazon by much since Amazon is used to operating on very small margins. Selling media at cost would probably give Apple only a modest advantage cost wise.

Overall it seems like Apple is more vulnerable here but they have arguably the most powerful brand ever. Maybe Sears and Roebuck back in the late 19th century was as dominant but that was a US only thing while Apple is global. My feeling is that Apple would have to mess up consistently and spectacularly for a year or two to seriously damage the good will they currently enjoy.

Amazon also introduced new e-readers. I'm not going to talk a lot about these but need want to note that they made Barnes & Noble's life a little more difficult. I put in a pre-order on the Paperwhite 3G model. My Kindle 3 has been rebuilt once already and the thought of not having to deal with an external light was to good to pass up. I should get mine the first day they become available. One quibble though, everyone including Amazon quotes eight weeks of reading time. If you read the fine print you'll see that number is based on thirty minutes of reading per day. Lets to the math.

8 weeks * 7 days = 56 days
56 days * 30 minutes = 28 hours

Twenty eight hours of reading with the light on isn't bad at all but it's a whole lot less than most people are thinking when they hear "eight weeks on one charge". This number is also based on the wireless being off.

There has been some press about Microsoft's Bing being the default search in the Kindle Fire browser. I'm not a fan of Bing but so long as I have the option of choosing my own default I don't really care what a browser ships with. Google probably isn't feeling as mellow about this choice though.

I love competition. It's good for consumers and its generally good for the companies that are competing as well. Apple has been getting a wee bit too dominant so the possibility of Amazon emerging as a legitimate competitor in the Tablet arena makes me happy. Google has a vested interest in this battle as well and might want to think about mending fences with Apple if they can because I'm not convinced they can compete any other way.

Finally, while it's insulting to both Steve Jobs and Bezos to refer to Bezos as Jobs heir apparent its still the case that if you're looking for an individual in the tech industry to follow obsessively you could do a whole lot worse than Bezos. He's a good showman and clearly knows what he's trying to accomplish with his company and how he plans to get there. That kind of confident and focused vision is rarer than it should be.
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Monday, September 3, 2012

Kindle Fire, The Sequel?

Kindle Fire and Coffee
Kindle Fire and Coffee (Photo credit: arellis49)
In a few short days we'll likely know what the next Kindle tablet will look like and how it will be priced. I ordered my first generation Kindle Fire as soon as they became available for pre order and have been generally happy with it. I almost always skip a generation or two before upgrading though so I don't see myself ordering the new Fire.

There is as a lot of speculation as to what the successor will look like and what it's specs will be. Price is the most important factor so far as this device is concerned so I'm not expecting to see a top of the line device when it comes to performance. Given the role of the Kindle Fire in the Amazon ecosystem there is no reason for it to be anything more than pedestrian when it comes to things like screen resolution and processor power.

The biggest deficiency of the first generation Fire was in the area of storage. Eight Gig is just not enough if Amazon wants to maximize their ability to sell digital content. This seems like an important thing since selling digital content is the whole point of the Fire. I gave up on buying video when I discovered I couldn't even keep one or two episodes of a half hour show around if I wanted a decent selection of songs and and applications. WiFi is common now but far from universal and I if I don't want to blast through my five gig MiFi cap I can't be downloading video via my cell plan either. All of which points to the need for more storage so content can be loaded when I'm on my relatively inexpensive home broad band service.

There are three ways Amazon can address the storage deficiency.
  1. Add more built in storage
  2. Add some sort of storage card slot
  3. Add a Fire model with cheap or free 3G wireless
Option one is probably the most likely. I'll be surprised if the new Fire doesn't come with 16gig standard but frankly even that isn't enough. The problem with adding an SD card slot is it adds cost to the manufacturing of the device and a bit of complexity to the user experience so I can see Amazon shying away from that. 

It seems unlikely that Amazon would be able to find partners willing to offer inexpensive or "free" 3G coverage but not impossible. Consider for a moment that 3G networks are starting to become a thing of the past. Apple's next iPhone will almost certainly be an LTE enabled device which will mean the last major maker of exclusively 3G phones will have finally made the leap. Phone company 3G networks should be seeing declines in usage over the next few years and the chance to make a few bucks off of legacy infrastructure by way of devices like a Kindle Fire might be attractive. The speeds on a 3G network aren't bad either even for streaming video.

The next biggest deficiency of the current Fire is a bit harder to address. The screen size is great for reading books and fine for watching video but it leaves a lot to be desired when you're trying to read magazine or other large format content. I suspect this is why Apple's rumored mini iPad is said to have a nearly eight inch screen. I'm not sure that is large enough but it's certainly a step in the right direction. The tricky bit of course is that the screen size of the Fire is also an asset as it is very easy to carry around compared to the iPad or other full sized tablets.

I don't see Amazon having a significant impact on Apples sales. Amazon might in fact have a bit of trouble replicating the success of the first generation Fire since the often rumored iPad Mini appears to be imminant. The two companies have different business models for the most part but there is some overlap both in the customer base and the way each plans on making money off of their tablet ventures.
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