Fred Wilson is one the smartest, most genuine people in the tech business. He has a huge fan club that he has earned by being radically transparent and consistently engaging in public debate. I have emailed with him a few times over the years, and actually met him and shook his hand a few weeks ago. I think Fred Wilson is awesome, and if I saw him on the street today I would walk up and shake his hand again. One great thing about people like Fred is that you can have respectful disagreements and debates with them, without it devolving into a non-constructive flamewar.
This word, platform, is a very important one. Companies like Facebook and Twitter have actively encouraged companies to think of their APIs as “platforms”. They want people to base their businesses on top of them. If you unpack that word, they are saying that you should think of the APIs they provide the same way you think of an operating system like Linux, or a hosting platform like Amazon Web Services, or a programming platform like Ruby on Rails.
Platforms are great because they enable you to get all sorts of benefits from the work done by others. I am convinced that Facebook and Twitter really are platforms in that sense of the word, because if you choose to use their APIs you can do amazing things that would be impractical if you attempted to build the entire service yourself from scratch. The concept of platforms is one of the key reasons that Web2.0 actually did meet its promise of widescale global adoption and technical innovation. Long live Web2.0.
However this “platform” word starts to get very troubling when talking about business models. Building on top of a platform is a foundational risk, and if your platform decided one day that it doesn't like what you are doing, or likes what you are doing so much they want to compete with you, it's Very Bad. Your platform partner can easily damage your quality of service, or simply shut you down. If that happens, your business is dead. Web2.0 built a lot of really cool, shiny things, but the foundational aspects of them are built on what I am arguing is a flawed premise. I am not simply criticizing, I am saying we can do better.
Fred Wilson makes some arguments about Pay TV. Great. Is he saying TV is a platform? Did HBO build its business and audience by providing an API for app developers to extend… and then systematically acquire or destroy the developers that basically drove their early success? My arguments are that platforms should not be ad-supported. I never said that “free” is the wrong business model for everyone. Of course it's the right business model in certain cases. How exactly did Fred refute what I actually said?
I would summarize many of his other points as “Dalton's idea will never work, we have seen people try this before, and it's a waste of time”. OK, great, we'll all find out, won't we? But the title of his post is “In defense of Free”, not “Dalton's proposal sucks so everyone please stop talking about it”. To mount an effective defense against an argument, it's usually a good idea to address the offensive argument… right?
@daltonc i never said developers shouldn't build on twitter. i said “be your own bitch”. that means building for everything, incl Twitter.
I find his response illuminating. He seems to be admitting that Twitter, Facebook and Google treat their platform partners as their “bitch”. In the Fred Wilson view of the world, life as a 3rd party developer is nasty, brutish and short. The best defense is to hedge the companies that will invariably make us their “bitch” by playing them against each other.
Fred, I want to live in a world where I am not anyone's “bitch”. I'm trying to build a platform where the core values and associated business model are set up to ensure no 3rd-party developer will need to hedge against the possibility that, one day, their platform partner will decide to make them their “bitch”.
I think my proposal is a whole lot better than yours, Fred.
The media business
I spent the majority of my 20s building an incredibly large and ultimately unsuccessful digital music business. Because of that experience, many consider me an “expert” on the digital music business. If you have the time to watch my post-mortem on that experience, you will hear that I walked away with the feeling that the human beings that work in the music business all seemed like essentially good people trying to do the right thing. The problem was, their control and scarcity-based business model was/is intractably flawed. The vast majority of innovations created by digital music startups will be crushed because the labels have a fundamental financial incentive to do so. This is the way that I feel about most “media” business models. Attempting to create a huge platform business that is at its core about controlling and monetizing “bits” is a fool's errand.
It seems very clear that Twitter (the company) is under the impression that the “content” in their system, ie the manifestation of tweets, social graph and “intention stream”, is their core asset. Once you take on that “let's control our content” state of mind, no matter how fundamentally good your employees, management team, or board members are, you are screwed. Twitter is already well into their harrowing journey down the slippery slope. It seems that most folks in the tech world, except the people still working at Twitter, know how this story is going to end.
Open vs Closed
Fred seems to be implying that a paid business model is more “closed” than the “open” ad-supported one. I think he is dead wrong. Media business models are predicated on control of content. The business model of the join.app.net proposal is predicated on providing a service to its users and developers. In my business model, trying to monetize in and around other people's “content” is not our reason for existence. The propagation of “content” through our pipes is just the side effect of providing an amazingly useful service. In other words, content is not king– it's just bits passing through our system, at the behest of our customers.
In my view of the world, digital “services” are valuable/easy to monetize, and digital “content” is not. If we think of Twitter and Facebook as communications platforms, rather than media/entertainment sites, it seems that their business models are on the wrong side of history.
The number one thing that I tell new founders before they launch their product is to remember that no one will care. I have launched several products, dozens of major announcements, and hundreds of incremental improvements. Without exception, the wider world's response to those launches was smaller than I expected.
It is very rare to be sitting on an idea that manages to capture people's imagination. My understanding of just how rare having an inherently powerful idea is prompted me to pay a great deal of attention to the amount of discussion this blog post generated. I have never before worked on something that, through no real effort my own, got picked up and propagated in such a wide manner.
Sure enough, when we announced the join.app.net project, it got more attention and inspired more strong opinions than anything I have worked on in my career. For myself and the team, putting something out and immediately seeing the Internet jump all over it is exciting, humbling and scary. All at the same time.
How community, and trust, is built
I have thought a lot about the communities that I trust the most, and my belief is that trust is built through a constant, constructive, bi-directional flow of information.
We are painfully aware of the less-than-perfect launches of projects like Diaspora and WakeMate. Both of those projects seemed really interesting to me at first, and unfortunately didn't manage to win my long-term trust. We will do everything within our power to not repeat that same pattern.
We announced this project early, with the explicit goal of having a collaborative, open conversation with the external world. We expect to be having a constant conversation with the community, asking for feedback, figuring out who is interested in what we have to say. Listening. Learning.
How we will run our API development process
We are going to be running our API documentation and development process in a fairly public manner. We will be posting a draft of our developer API to Github this week. We will be accepting pull requests.
When you see our API documentation, it will be fairly straightforward. You won't see anything that will be totally unexpected, or anything so new and amazing that it will blow your mind. You may see things you don't like, or see mistakes that we made. But this is just another step in our two-way collaboration with the community.
I spent a few years in the early 2000s lurking on the Linux Kernel Mailing list. Having read a great number of the threads and flamewars, I am convinced the success of Linux is very much tied to Linus Torvald's approach. Overall, he comes across as a kind, deeply thoughtful and patient man. On some topics he is very open minded… he seems very willing to seriously consider deeply weird proposals, as long as the code attached to the patch is good. On the other hand, he does not suffer fools and is completely unwilling to engage with assholes. Linus is willing to defend his ideas and not just push people around by fiat because Linux is his baby. Most of the time, he trusts and delegates to his lieutenants in the community, but occasionally he will ignore everyone and do what he thinks is the Right Thing.
To be clear: App.net is not running a completely Open Source project, and I don't claim that myself or anyone on my team has 1/1000 of the talent and intelligence consistently displayed by Linus Torvalds. But I bring up his development approach as a model of what a wildly successful open development process looks like.
I deliver to you a promise that we will be constantly communicating what is going on. To listen to anyone that provides constructive criticism, and that wants to engage in providing advice and suggestions on systems they have built. However, please note: if you are an asshole, we will ignore you.
We will make mistakes
A lot of folks didn't like the way we implemented our Twitter username claiming process. Some helpful folks started directly telling us they didn't like it, and we had a public conversation about it. Within a couple of hours we rolled out some new code with their explicit suggestions, and haven't received a single complaint about it since. There were a few “Internet Celebrities” making fun of us for this, and that's understandable. But I would ask: doesn't our behavior of listening and fixing the issues raised by the community demonstrate that we are following our core values?
These kinds of mistakes will happen again. Maybe next time they will be harder to fix, or take more time. All I can say is that we are listening, and if folks want to constructively push back and suggest a better way to do things, we will do our best. There is no chance we will be able to make everyone happy, but I want to believe we will be able to convince folks that we are part of a two-way conversation. That's what I expect out of the companies I love, and so I want to hold my company to the same standard.
I want to hear from the Builders and Makers
In the past few days I have met with Ralph Meijer, who wrote the Jaiku side of the (unreleased) code that would have federated Jaiku and Twitter. He was very helpful and provided a great deal of context for me. I am going to be meeting up with Brett Slakin, the co-creator of PubSubhubbub in the next few days. I am going to be sitting down with Tim O'Reilly in the next week to get his thoughts and ideas. I have been talking to a few other people over email, but they have requested that I not make public that they are engaging with App.net at this time. Given the delicate political position they are in, I understand their concerns.
If you are a builder or maker that has suggestions or pushback for how App.net should work, I sincerely want to hear from you. I just ask that you are willing to do so in a constructive, concise and unemotional manner. If you are willing to hold up that end of the bargain, then I give you my word that I will listen to what you have to say, and do my best to integrate your thoughts into our vision of App.net.
If you like what we have to say, and want to ensure that this project gets to see the light of day, please back us here. If you remain skeptical and are still on the fence, I understand. All that I can humbly ask is that you follow our project updates, and keep enough of an open mind for us to potentially earn your trust in the future. Thanks.
The overwhelmingly positive response to my blogpost, What Twitter could have been has been inspiring. The post has generated 80K pageviews thus far. Without really meaning to, I touched a nerve.
The responses to my post largely fell into two camps. One group is of the belief that a non-commercial, open source, open standards federation of real-time protocols is the solution. The opposing group has pointed out that these decentralized efforts never work out, and the API-focused service I wish existed is the fevered dream of navel-gazing geeks. No, these people say, we must swallow our bitter ad-supported medicine… it's the only way.
I think there is another option.
A relevant story
My first programming job was at a company which was then called VA Software, working on a product called SourceForge. At that time, If you wanted to launch, manage, collaborate on and distribute an Open Source project, you used SourceForge. The problem was, SourceForge was an ad-ridden, user-hostile piece of crap. Getting anything done required several extraneous pageviews & clicks. The site was designed to squeeze every last advertising penny out of you. I can't blame management for trying to generate more revenue…. two months into my job there, 25% of the company was laid off.
There was much public hand-wringing over the crappiness of the SourceForge user experience. There were two camps in these debates: those that wanted to build an open source, decentralized version of SourceForge (which someone did), and those that pointed out it was a free service, and how dare anyone complain about the user & developer-hostile aspects of the experience. Tolerating the bad behavior of SourceForge “is a necessary evil”, the apologists would say, “otherwise the service we all depend on might go away.” Does any of this sound familiar?
Years later a site called Github came out. It was good. They had no advertising, but charged money for certain features. They quickly became profitable because the service was so good and so important, people were willing to pay. Github has become a much-loved brand and service, and many would agree that it is a key piece of infrastructure in the technical renaissance we are currently experiencing. Github is apparently profitable, and it sounds like the people that work there spend their time trying to make the best service possible, as opposed to spending their time trying to extract additional pennies out of their users.
Advertising is not the Only Way
Github and SourceForge were both based on providing a hosting platform + collaborative services built upon Open Source tools and documented, open protocols. (Git & CVS respectively). Because they are open source, anyone is free to use CVS/Git without having to adopt the centralized services offered by for-profit companies. But I deeply believe having for-profit, centralized companies innovating and operating these services is a Very Good Thing. Additionally, I think it's clear that a paid, profitable organization as the steward of the service is far superior to its ad-supported counterpart.
It's also worth noting that Github succeeded not because the SourceForge team wasn't exceptionally smart and talented, and not because they didn't see or understand the user-hostile moves they were making. SourceForge's lousiness was not because venture capital, or centralization is inherently evil. No, I think the takeaway here is that the services provided by SourceForge/Github are too important to its users to be ad-supported.
Contemplate for a moment how scary a theoretical purely ad-supported Dropbox would be. I can easily imagine the overly-cheerful corporate blogpost explaining why placing ads in my personal documents, or selling the file-listing of my music collection to the music industry, or shutting down IFTTT API access is “important to the health and welfare of the community.” I happily pay to avoid that nightmare scenario, wouldn't you?
The advertising-supported monoculture
“The best minds of my generation are thinking about how to make people click ads. That sucks.” - Jeff Hammerbacher, fmr. Manager of Facebook Data Team, founder of Cloudera
As consumers, we are currently given the choice between Facebook, Twitter, or Google+. Oh, and there are also some startups with hand-wavy future advertising business models. All of these services are essentially in the same business: vying for the opportunity to sell you/your clickstream to advertisers.
Why isn't there an opportunity to pay money to get an ad-free feed from a company where the product is something you pay for, not, well, you. To be clear: I'm glad there are ad-supported options, but why does that seem like the only option? For example, I have the option of buying a Mac if I don't want to buy a crapware-infested PC, right? I have no interest in completely opting-out of the social web. But please, I want a real alternative to advertising hell… I would gladly pay for a service that treats me better.
The disappointment of Web 2.0
I was a part of the Web2.0 movement. I have attended Foo Camp. I attended Bar Camp. I attended Tag Camp. A full-page picture of me was included in a 2006 Newsweek cover story about Web2.0. One session at Foo Camp this year felt like a wake for Web2.0. We discussed the progression: a free service with a vague business model captures the hearts and minds of a large user base, and becomes vitally important. Because the hosting bills and payroll balloon as the service grows, founders are left with a very difficult decision to make. Sell the company? Cram the site full of ads? Keep raising money to delay having to deal with this issue as long as possible?
After imeem, I created a photosharing service called picplz, and made monetization a first-class focus. Fairly early on I gave up and spun that product off, one reason being that it became clear to me that the space was following the same old Web2.0 cycle. If I am honest with myself, I just don't have the will to ever play that particular game again. Running a service that is important to people with some sort of hand-wavy platitudes about someday launching a “new form of advertising” is not OK. It's not fair to users, it's not fair to employees, and we should all know better. This all boils down to a fundamental issue: if an online service doesn't have the trust of its users and developers, then what does it have?
What I have been building at App.net
I have been working on a service called App.net for the past year. App.net is a paid service for mobile application developers. In addition to the publicly available App.net developer tools, we have been spending the majority of our engineering resources the past 8 months building a “secret project”.
This “secret project” consists of a consumer-facing iOS app & service. During this development process, we have spent a great deal of time thinking about realtime feeds, developer APIs, and creating a service that we enjoy using. It's also worth mentioning that this iOS is the highest-quality piece of software my team has ever built. We have learned a lot of native app development lessons the hard way… but tough lessons ultimately yield fantastic software.
And now, my audacious proposal
I believe so deeply in the importance of having a financially sustainable realtime feed API & service that I am going to refocus App.net to become exactly that. I have the experience, vision, infrastructure and team to do it. Additionally, we already have much of this built: a polished native iOS app, a robust technical infrastructure currently capable of handing ~200MM API calls per day with no code changes, and a developer-facing API provisioning, documentation and analytics system. This isn't vaporware.
To manifest this grand vision, we are officially launching a Kickstarter-esque campaign. We will only accept money for this financially sustainable, ad-free service if we hit what I believe is critical mass. I am defining minimum critical mass as $500,000, which is roughly equivalent to ~10,000 backers.
Are 10,000 backers really a critical mass? I think so. Although Paul Graham is specifically describing a hypothetical new search engine rather than a new realtime feed service/API in this inspiring blogpost, his assertions about the power of 10,000 committed users are highly relevant:
The way to win here is to build the search engine all the hackers use. A search engine whose users consisted of the top 10,000 hackers and no one else would be in a very powerful position despite its small size, just as Google was when it was that size.
Since anyone capable of starting this company is one of those 10,000 hackers, the route is straightforward: make the search engine you yourself want. Feel free to make it excessively hackerish. Anything that gets you those 10,000 users is ipso facto good.
Many people will criticize me, my proposal, my past failures, my motivations. Fair enough. But I care too much, and think this is too important to run the risk of not trying. I knowingly risk a huge public failure because I truly, sincerely believe in this project.
You, the people that read my blog, tweet my posts, and comment on Hacker News have fired me up so much about this proposed service that I have had trouble sleeping. Thank you for inspiring me. I know in my gut this proposal can and should succeed, but I need your help. Please help me manifest the service that we wish existed.
Concrete details about this proposal, and how to back it, are here.
I remember when you could go to Twitter.com and see the global firehose on the front page. They had no traffic. The global feed was mostly employees and their friends talking to each other.
When Twitter started to get traction, a year or two into their existence, I decided that Twitter was the Best Thing Ever. I realized that Twitter, because of their API, actually was a real-time protocol to connect various services in a novel way. I had debates with my other tech-nerd friends about whether Twitter could be one of the fundamental building blocks of the Internet via their powerful API. When reporters or investors asked me what I thought the most exciting company in the valley was, I would invariably answer “Twitter”.
As I understand, a hugely divisive internal debate occurred among Twitter employees around this time. One camp wanted to build the entire business around their realtime API. In this scenario, Twitter would have turned into something like a realtime cloud API company. The other camp looked at Google's advertising model for inspiration, and decided that building their own version of AdWords would be the right way to go.
As you likely already know, the advertising group won that battle, and many of the open API people left the company. While I can understand why the latter camp wanted to build an ad-based business, the futurist in me thinks this was a tragic mistake. If you are building an advertising/media business, it would then follow that you need to own all of the screen real-estate that users see. The next logical step would be to kill all 3rd-party clients, and lock down the data in the global firehose in order to control the “content”.
Perhaps you think that Twitter today is a really cool and powerful company. Well, it is. But that doesn't mean that it couldn't have been much, much more. I believe an API-centric Twitter could have enabled an ecosystem far more powerful than what Facebook is today. Perhaps you think that the API-centric model would have never worked, and that if the ad guys wouldn't have won, Twitter would not be alive today. Maybe. But is the service we think of as Twitter today really the Twitter from a few years ago living up to its full potential? Did all of the man-hours of brilliant engineers, product people and designers, and hundreds of millions of VC dollars really turn into, well, this?
Nowadays, every time I get a K-Mart ad in my feed, or see wonky behavior in the official clients, or see Twitter drop another bomb on their developer ecosystem, I think back and wish the pro-API guys won that internal battle.
UPDATE: Based on the widespread support of the points made in this post, I have announced a proposal here.
A dirty secret of “startup advice” blogposts is that, aside of the placebo effect, the advice is not terribly useful. Why? Well, if you tried to synthesize all of the available advice into a single coherent framework, you would quickly realize that the aggregate “advice framework” is deeply self-contradictory.
Self-contradictory advice is fascinating. If you aren't familiar with the cold-reading techniques that “mind-readers” use, I highly suggest taking the time to study them. One technique, known as “The Rainbow Ruse” is especially relevant to the discussion:
The rainbow ruse is a crafted statement which simultaneously awards the subject with a specific personality trait, as well as the opposite of that trait. With such a phrase, a cold reader can “cover all possibilities” and appear to have made an accurate deduction in the mind of the subject, despite the fact that a rainbow ruse statement is vague and contradictory. This technique is used since personality traits are not quantifiable, and also because nearly everybody has experienced both sides of a particular emotion at some time in their lives.
ie: “I would say that you are mostly shy and quiet, but when the mood strikes you, you can easily become the center of attention.”
Using these techniques I could easily make all sort of statements about entrepreneurship, hiring, fundraising, big companies, etc. and sound believable/sensible.
Let me be clear though, I don't think that anyone writing this sort of advice is intentionally using these techniques to manipulate the audience. Rather, I think that it uncovers one real truth of startups, and life in general: nothing is black-and-white, and in fact, much of succeeding in life consists of being comfortable sitting with contradictory information.
The discomfort caused by holding conflicting information about something has a name: Cognitive Dissonance. Some psychologists would argue that most personality disorders are essentially symptoms of the various strategies people take attempting to cope with Cognitive Dissonance. If you are a highly-functioning person, you likely don't have a personality disorder, rather you are trying to resolve your Cognitive Dissonance in a constructive way: acquiring knowledge and experience with the expectation that in a fair world you will be rewarded for your hard work. (Alternately, you could be a highly-functioning psychopath )
To resolve our anxiety in the most productive way we can, we stare at our glowing screens looking for Truth, for Meaning, for some sort of concrete resolution. We want to stamp out the gripping fear lurking in the back of our minds, the Fear that we aren't exactly sure what we are doing, and that things all seem shinier and easier when other people do them. We create linear narratives that make us feel comfortable knowing: 1) There is a reason things happened the way they did. 2) The reason things happened is both knowable and easily understandable. 3) We can digest all of those learnings from reading a 1000-word blogpost. The Success that we read about is easily attainable, you just need follow these 5 simple rules, or find a co-founder, or raise an angel round, and then everything will get way easier, right? Anxious people eat this stuff up… anything to cure the squishy uncertainty in the pit of their stomachs.
So how can we keep our “advice filter” in good operating condition? Beware of black-and-white thinkers. Beware of people that present very simple narratives as the explanation of incredibly complex events. Don't take anything you read too literally. Be comfortable with the fact that much of what you feel will be squishy and complicated. Realize that everyone feels this way, it's just that some work harder than others to cover it up.
There is a self-contracting mantra that I keep in the back of my mind. The goal is to remind myself of the shades of grey, of the inherent contradictions in any situation, and to smooth out the roller-coaster of emotions, emotions which are just as dangerous when things are going well as they are when things are going poorly. The mantra goes something like this:
Things are much worse than they seem, also, things are much better than they seem.
Now that it seems fairly certain that Nokia is dead, or at the very least, dead as a stand-alone company, it's easy to wonder what it was exactly they were up to over the past few years. How bad did things have to get for Nokia to flush every piece of software they have ever built down the toilet and adopt Windows Phone across the board?
There were many disastrous projects that Nokia embarked upon to counter the existential iPhone threat, but I would like to talk about one part of Nokia that I had constant exposure to: Comes With Music.
(Note: I should mention that I was running an ill-fated music startup when Comes With Music was rolled out, so I spent a fair amount of time trying to figure out what the competitive threat was, listening to music industry gossip, and having direct conversations with Nokia to see if there were ways we could work together. This experience provided my “insider” view of this stuff.)
In 2007 Nokia set up their “Nokia Comes With Music” service, in partnership with Universal Music Group International, Sony BMG, Warner Music Group, EMI, and hundreds of independent labels and music aggregators, to allow 12, 18, or 24 months of unlimited free-of-charge music downloads with the purchase of a Nokia Comes With Music edition phone. Files could be downloaded on mobile devices or personal computers, and kept permanently.
In January 2011 Nokia withdrew this program in 27 countries, due to its failure to gain traction with customers or mobile network operators; existing subscribers could continue to download until their contracts ended.
The last comment elicits snickers from every table. Ojanperä waits for the last chuckle to die. “You can laugh and say, 'What is the point? Nokia is a cell-phone company; it will never get into the entertainment business.' That's okay. Laugh. That's what people did when we said we were going to be the biggest cell-phone company in the world – back when we were making car tires and rubber boots.”
Before being named executive vice president for entertainment and communities in January — a job created specifically for him — Mr. Ojanpera held a number of senior management positions, including chief technology officer, chief strategy officer and head of the Nokia Research Center, where he and his colleagues studied consumer behavior and design.
But he does not perceive his lack of media experience as a hindrance. “This, to me, is about curiosity and the willingness to learn something new,” he said. “You can have really smart people, but things don’t necessarily change. The challenge is who can translate those ideas into practice.”
So why was Comes With Music the path to Nokia's salvation?
Picture this: Nokia was #1 and was by far the largest volume handset manufacturer. However, margins were being driven lower and lower by commodification. What could Nokia do to escape the race-to-zero in handset margins as time marches on? Their answer: stop worrying about hardware margins, and turn Nokia into a full-fledged media company.
Not only could Comes With Music be their answer to iTunes, it would be better. One Nokia executive explained to me how amazing it would be to buy a new Nokia phone that was stocked full of (DRM-crippled) music the moment you bought it, vs iPhones which have blank harddrives. They were able to do this because of their deep (aka expensive) relationships with the content industry. Sure, all of these tethered downloads evaporate after 18 months, forcing the user to pay out-of-pocket so that their music doesn't evaporate, but wow, FREE* MUSIC!
In addition to this, Nokia would be embarking towards a future business where they could directly produce, create and license content that would be exclusively available to Nokia customers. Want to hear the new Justin Bieber album, or see the new Tyler Perry movie? You better own a Nokia phone.
In this vision, Nokia hardware is simply a low-margin transmission of their new media company ambitions. Future Nokia would only need to worry about hardware and software as much as Comcast currently worries about the hardware and software comprising my cable box. Access to exclusive, high-quality content seemed like Nokia's perfect Deus Ex Machina.
The music industry loved this ridiculous vision because they could publicly and privately vilify Apple as cheapskates that don't want to “innovate” in licensing and consumer music experiences.
Despite the obvious brain damage inherent in this strategy, Hollywood functioned as enablers for Nokia's pipe-dream. As long as the checks kept clearing, Hollywood was happy to provide A-list access to Nokia, publicly treat them like kings, and provide constant assurances that a transformation into a new-media empire combined with “deep relationships” with the content industry would undoubtedly unseat that cheapskate bully, Apple.
Apple won, and continues to win, because it has the best product. The entire Comes With Music disaster was Nokia spending precious money, time and effort building a cargo-cult version of Apple's content ecosystem. Apple has a vibrant content ecosystem because they have the best consumer product, not the other way around.
I originally wrote a draft of this post that pointed out the similarity of this Nokia strategy with MySpace's “but, but, we have content” competitive position vs Facebook, and Yahoo's “premium content” angle vs Google. But there is just too much to talk about here, I think each of those cases deserve thoughtful analysis.
The takeaway is this: if you are running a tech company that is successfully dominating a space, and then find yourself making defensive moves because your product is getting beaten in the marketplace, DON'T roll out a hot new strategy that entails dropping >$1B in Hollywood “to become a media company.” History would suggest this probably won't work.
If it's any consolation, however, your “media company” initiatives will ensure your executives will get to go to some really fun parties.
Not too long ago, I found myself sitting in the second row of a conference room, anxiously scribbling notes, at what is now known as the “RIP Good Times” presentation. The presentation has become a cultural touchstone of modern-era silicon valley. I am writing this post because I am of the opinion that some of the context of that particular event has been lost.
At that time I was the Founder/CEO of a Sequoia portfolio company. I remember getting an email from Sequoia asking for my personal presence (ie don't send a VP in your place) to some sort vaguely positioned mandatory meeting. The meeting was held at a conference center on Sand Hill Road, which I have been to many times since. There were roughly 60 people in the room. It was nicely catered.
You have probably seen the PowerPoint deck. I don't feel a need to discuss the content of it. At the meeting, I couldn't have imagined that the deck, or any of the content of the presentation, would be leaked. Rather, I felt that I was just briefed into proprietary knowledge.
Imagine for a second: the meeting took place October 9, 2008. On September 15, 2008, Lehman declared bankruptcy, and the US financial system was literally melting down. CNBC coverage was tantamount to a deathwatch… scared-looking, disoriented television pundits trying to figure out what the hell was going on, who was exposed to the financial fallout, who was going to fail. These failures, bailouts, and back-room deals were all happening in realtime, over the course of days. The factual details of the Lehman bankruptcy are fascinating, and even have served to make a very interesting movie.
Once the presentation was over I had a conversation with one of the most important people in the room, and he told me several things that were so scary that it made my head swim. For example, he mentioned that GE Capital might default. It is difficult for me to imagine what would have happened in the ensuing chain of events if GE Capital defaulted, but suffice it to say I don't think it would have been good.
The press read a lot of ulterior motives into the deck at the time. Some said that Sequoia was just trying to scare people, or drive down prices, or hurt their competition. That all sounds like bullshit to me. I was there, I looked in the partners' eyes, they weren't bluffing. They were trying to help us. Present day commentators like to mock that presentation as a “boy who cried wolf” moment that “ultimately did more harm than good.”
My perspective is that our financial system was in a Cuban Missile Crisis sort of moment. Most normal people were oblivious what was actually going on, but I think we were just minutes away from a financial disaster at least one, possibly two orders of magnitude worse than what actually happened. I don't see how Sequoia's efforts to communicate a (somewhat sanitized) version of the knowledge they had to their portfolio CEOs, and to provide actionable tactical instructions to us, could be perceived of as anything but good faith. That being said, I am glad that presentation ended up being wrong, just as I am glad the Cuban Missile Crisis did not turn into a full-blown nuclear war.
After the presentation was over I vividly remember walking to my car, closing the door, and sitting there in silence for ten minutes, trying to catch my breath.
A few years ago I went through an incredibly difficult period in my life. During this difficult time, I had a newborn son, which made everything both easier and harder. As a parent, I spend a great deal of time reading my son various books, but during this dark time, there was one specific book that came to hold more and more meaning to me as I read it. That book was Dr. Seuss' “Oh, the Places You'll Go”.
As I regularly read the book to my pre-lingual son, I began to take notice that it captured Truth about life. To be completely honest, during this difficult period, I got to the point where I had trouble reading the whole book to him without choking up. Sure, laugh if you want.
Oh, the places you'll go! There is fun to be done!
There are points to be scored. There are games to be won.
And the magical things you can do with that ball
will make you the winningest winner of all.
Fame! You'll be famous as famous can be,
with the whole wide world watching you win on TV.
Except when they don't.
Because, sometimes, they won't.
I'm afraid that some times
you'll play lonely games too.
Games you can't win
'cause you'll play against you.
I bring this up because it's so clear to me that this humble children's book is Great, and I want to discuss the creative process that creates Greatness. I am not sure if Dr. Seuss realized that this particular book would hold deep significance to anyone, or that generations of young people would be given this book as a graduation present. But that is exactly what happened.
Understanding the backstory of how a person creates something that is Great is a topic that I am obsessed with. Whether it is music, books, art, software, athletics, you name it, how and why is it that a work that is an order of magnitude Greater than what would be predicted pops into existence? What does it feel like to be them in their Great moment of creation?
During my tenure in the music industry, my favorite part was getting to meet people that created truly Great music. The same goes with having the privilege of knowing many of the most interesting people in the technology business. (I am going out of my way not to namedrop here, so please take my word for it.)
What is fascinating to me is that Great creation stories all sound surprisingly similar. Something along the lines of “yeah we went in the studio and put down some tracks, and they sounded pretty good, and we had to redo a couple of things, and then when put out the album.” Disappointing, right?
David Foster Wallace wrote an essay that touched on the topic of why locker room interviews with athletes are always so terrible and uninsightful. DFW's thesis was that the athletes are in fact 100% accurate at communicating what they were thinking and experiencing while taking the game winning shot. For example, when an athlete is interviewed and says things like “well, we just went out there to play today, and we got some good momentum and powered through the other team,” it's not that the athlete is a moron lacking the cognitive capacity to accurately explain to us what happened out on the field that day. Rather, it's that these interviews really, truly are an accurate description of what was going on in their head during the game. It's our fault for expecting a compelling narrative. Our expectation of divining some deep insight into their creative process is fundamentally flawed. They were just out there doing their thing, just like they always do, and it worked.
The main takeaway that I have been able to synthesize from all of this data is this: Greatness always comes from someone with a finely honed craft, a craft honed to the point of muscle memory. In baseball, you can't be thinking about which hand goes where on the bat, and how wide your stance is, and where your feet are placed if you want to hit a fastball. All of those decisions have to be muscle memory, and you must have a clear head that is simply thinking about “showing up to play.”
Similarly, in software, you can't be thinking about which programming language you are using, and whether you are using MongoDB or MySQL, or whether photogrid layouts are the hot new thing or not. You will never hit the proverbial fastball if that is the sort of junk filling your head. Rather, creating and shipping products needs to be muscle memory. You just need to have clear eyes, a full heart, and be ready to show up and play.
One of the key takeaways from the book was the extent that bad real estate deals made the company unfixable. Even though they had a great brand and it would seem there could have been some form in which the company could have lived, bankruptcy was the unfortunate outcome.
What's interesting to me is how many times the behind-the-scenes details of what killed succesful companies boils down to terrible real estate deals.
In fact, I would argue that one of the clear dividing lines between who lived and died in the dotcom shakeout was who could most effectively wind down their real estate deals. Companies like WebVan, Kozmo, and Garden.com were all stuck with massive physical distribution infrastructure.
A real estate broker once explained to me that one publicly traded dotcom leased two or three complete buildings in San Francisco… with nowhere near the number of employees to fill them. The broker explained to me that they did this to demonstrate growth in amount of square footage they leased as a leading indicator of revenue and headcount growth. These real estate leases were “proof” that they would hit their earnings projections. Think about this for a minute.
On the other hand, Google leased a bunch of cheap/crappy real estate next to the freeway in Mountain View, and eventually moved into some nice digs originally built by once high-flying SGI(Note for my younger readers: SGI was a company that made really expensive purple servers that ran some brain-damaged Linux clone called “Irix”).
Similarly, Facebook was once spread across a bunch of small offices in downtown Palo Alto, and is now in the former headquarters of Sun Microsystems. (Note for my younger readers: Sun Microsystems was a company that made really expensive purple servers that ran some brain-damaged Linux clone called “Solaris”. They also made Java, and put the dot in dot-com.)
I have several more anecdotes along these lines, but frankly the stories are all the same. It all boils down to this: when the sht hits the fan, there are several levers you can pull to manage your cash burn, but significant long-term real estate obligations are a one-way ticket to bankruptcy court.
So why does this mortal sin get committed time and time again?
One dotcom CEO I got to know characterized the phenomenon of hot companies building/buying huge buildings and decking them with expensive furnishings and signage as “the edifice complex”.
Like a lot of silicon valley aphorisms I have heard over the years, “the edifice complex” is a glib thing to say in conversation, but therein lies some biting truth.
Most new announcements by Apple are digested and understood by the tech press instantaneously. Great products are great products, and it doesn't take much time to realize how exciting things like the iPad or Retina displays are. But some moves can take years to completely understand.
So, I now bring you, my two favorite tactical moves by Apple, which I have only recently come to fully appreciate.
Move #1: Windows Compatible iPods
I remember it like it was yesterday. The summer of 2002.
I had a summer internship as a programmer. I was excited about using my new salary to purchase an mp3 player so that I could listen to music at work. At that point in time, I predominantly used Linux on the desktop.
As a devoted Slashdot reader, I was up to speed on the newest mp3 players on the market, and given my massive, Napster-provided music collection, I opted to buy a “Creative Nomad”. The problem was the mp3 syncing software required Windows… oh and it was terrible. The software was so terrible that I quickly returned it to the Palo Alto Fry's. (If you have ever shopped at Fry's you would know that my returned product most likely got a white sticker put on & was placed right back on the shelves). I had read that the Archos mp3 player software was even worse, so I instead opted to buy an iPod. Apple had just released Windows compatibility for the iPod, and I had read the software was great. Well… the software wasn't great, but it was great by comparison.
The announcement that Apple was going to sell Windows-compatible iPods was surprising to me, and even now it seems like a non-obvious move. Taking their beautiful hardware and subjecting it to Windows users must have been controversial inside of the company. It just didn't seem like something Jobs would do.
But that iPod was the first Apple device I had ever purchased. It was the first Apple device for a lot of people. This seemingly un-Apple move became a defining Apple move. By casually co-opting the Windows userbase, Apple made Windows desktop marketshare irrelevant in the mobile-centric world that would soon come into being.
Suddenly, everyone had an iPod… and whether or not you used Windows or Mac was completely irrelevant. This trend has continues: what OS do you think runs on the legacy desktops of folks buying iPads? Do Windows consumers even consider buying an iPhone or iPad “switching”? I am not sure anyone (outside of Apple?) truly understood the brilliance of this move at the time. But Windows-compatible iPods paved the way for the iPhone. For iOS. For the iPad.
Move #2: Market segmentation by Moore's law
If you are in the business of selling gizmos and gadgets, you live and die by the product cycle. Part of a product rollout is the quiet dumping of the previous model. This isn't just electronics, ie car dealers have closeout sales to clear out last years model. New product rollouts are part of a constant replacement cycle, and that's what keeps everyone in business.
From a manufacturing perspective, before the product is released, new manufacturing capacity must be spun up to create sufficient inventory at launch. It can take quite a bit of time to spin up a new device and get it in a place with high reliability and yield. Manufacturing competency is both impossibly hard and vitally important, so it's easy to see why expertise in this area is one reason Tim Cook earned the CEO role.
At my previous company I had some interaction with the [manufacturer redacted] Android team. I found it very strange that there were several mobile teams at [manufacturer redacted], each building Android devices as part of different market segments. They had one team working on a phone for the low-end of the market, another working on a phone for business users, and so on. Product managers inside of [manufacturer redacted] were responsible for creating product requirements for each handset, then delivering it within a certain budget. There were separate marketing and rollout schedules for each device. The one detail that blew me away was that these different devices were going to ship with different versions of Android. I seem to recall the low end phone was still on 1.5, and the others were 1.6. Holy sh\t*.
In contrast, when a new iPhone model is released Apple doesn't shut down the line and liquidate inventory. Rather, Apple keeps some percentage of manufacturing capacity devoted to this legacy model. Manufacturing the old device is easy by this point; it's a fully debugged process with increasingly cheaper components. I remember when the implications of this completely sunk in: Apple is doing market segmentation off of a single product line!
Let's drill down into the full implications of this: in the Apple org chart, the iPhone is a single product. This single product is built by a single product team, a single software team, and a single marketing team. They put all of their energy into building the single greatest product they can. Without expending any effort, they simply let Moore's law transform today's great product into tomorrow's entry-level device. No need to re-tool, no need to pollute your own channel, no duplicative corporate ass-hattery.
To demonstrate how powerful price and market segmentation can be, lets take a moment to recall the great Palm WebOS tablet liquidation of 2011. One day, out of nowhere, all tablets in the channel were unceremoniously liquidated after HP announced WebOS was going away. Lo and behold, the product that they couldn't sell to save their lives flew off the shelves at the $99 price point.
Getting back to Apple, right now you can go out and “buy” the flagship iPhone that was originally released 3 years ago for $0 (or the one released 2 years ago for $99) -OR- you can get an entry-level Phantek Astroglide which inexplicably runs Android 2.2, looks like a Hummer, & has 3 hours of battery life.
Why hasn't Dell or Samsung or HP implemented their own version of the “Moore's law market segmentation” strategy? Nothing about this strategy would seem to require it to happen at only Apple (or is specific to mobile devices). I am sure there are a lot of reasons, and there is a very good chance I simply don't understand the hardware supply chain complexity.
However, if I had to take a single guess, I would guess corporate inertia. If [manufacturer redacted] wanted to take this approach, the sheer number of executives, mid-managers, and regular employees that would need to be moved/demoted/fired out of their respective fiefdoms is mind-boggling. If there was only one flagship phone, there could only be one person in charge, and one head marketing person to report to that person, and one head of engineering etc etc etc. And it would require killing massive, existing (profitable) revenue lines. How would you explain this to your public company investors? Doing something this radical inside a company as large as [manufacturer redacted] would have overwhelming odds of unleashing a disaster of the Yahoo (or RIM) order.
I still wonder, though, how much of this brilliant strategy was fully understood by Apple when it was being implemented, and how much of it was just smart people doing the incremental right thing at thousands of micro-decision points. Probably both.