The reactions to the New York Times - Yahoo merger announcement this morning were predictably brutal. "The best corporate merger since AOL-TimeWarner," TechCrunch wrote. On the radio this morning, one of the commentators talked about "the blind leading the crippled," and joked that they should both merge with General Motors so we could "get all the deadwood together in one place." The impromptu picketing of Yahoo headquarters by angry Flickr users probably didn't help.
I have a different take on the deal, though. After years of failed "new media" ventures based more on hope than synergy, I think this one might actually make business sense. Here's why:
No more paid content fantasies. The Times had been headed down the road toward making its content paid-only for anyone reading more than a few articles a month. In my opinion, this was a huge roll of the dice that could have destroyed the company's long-term prospects. The Times online edition is the most popular newspaper site in the US, and has been very gradually closing the gap with CNN, the US online news leader. Moving to a paid model would have cut the Times audience very substantially, leaving some other news operation to seize the number one position. As we know from other areas of the web, there are very strong network effects online. Once the Times surrendered the online traffic lead, I think its role as the newspaper of record in the US would have gradually been lost.
No more Yahoo search fantasies. Yahoo has had a terrible time deciding what sort of company it wants to be. For a long time it was supposed to be a "new media" company, which apparently meant it had the business practices of a film studio without the cool movie premieres. Many people in Silicon Valley still think of Yahoo as the failed Google wannabe, which is kind of like criticizing Sweden for failing to be Germany.
Unfortunately, Yahoo has been feeding that comparison lately with radio ads touting the benefits of Yahoo search. One was a scenario about a woman who was able to use search to find where a movie was playing, but not the actual showing times of the movies. Let's do a reality check, gang. Have you ever looked up a movie online? Do you know how hard it is to confirm where a movie is playing without also finding the showtimes? The effect of the ad is to position Yahoo as the search engine for stupid people.
And besides, it put the focus back on search, where Yahoo is destined to be an also-ran forever. The company shouldn't drop that business (it generates a lot of cash), but it's not the future engine of Yahoo's growth.
So, what is Yahoo's future? I think its biggest strength, what we used to call in business school its "core competence," is its ability to pair brand ads with content. Yahoo is world class in its ability to work with major brand advertisers to match their online ads with words and pictures that attract the people they want to target. It's not as sexy a business as search advertising (because the revenues and growth rates are not as good), but it's a real business and Yahoo does it better than anyone else I know of.
Yahoo's challenge, in my opinion, has been that not all of its content is top quality, so some of its sites are not as attractive to advertisers as they should be. In places where Yahoo has great content, such as Yahoo Finance, the engine seems to work very nicely. In other areas, Yahoo's content is very me-too, and so are the results.
The synergy. The New York Times' challenge is that it has great content but can't make the online audience large enough to pay for its huge editorial staff (the Times currently reaches 1.25 percent of global Internet users each day, according to Alexa). Yahoo's challenge is that it has huge reach (27% daily reach of global Internet users) but inconsistent quality. Pair the Times' outstanding content with Yahoo's reach and advertising expertise, and maybe you could make the world's most powerful online publisher.
Anyway, that's what the merger's going to test.
Next steps: Clear the decks. To make the merger work, both companies are going to need to focus on what they do best, which means paring away the other businesses they've added in the past as diversification experiments. In the NYT's case, that means letting go of a lot of other media properties the company has picked up over the years. There's going to be just one national news leader, not three, and it doesn't make sense to keep on paying full editorial staffs at several different places, many of them duplicating each others' work.
And at Yahoo, that means stepping back from being an internet conglomerate. Search is important as an on-ramp to quickly get eyeballs to the content of the new Yahoo, but it's not the long-term goal in itself. A friend at Yahoo told me the other day that a third of the company would probably quit if Yahoo decided to focus on publishing. My thought: that might be better than gradually bleeding the best and the brightest throughout the company as they lose faith in Yahoo's overall direction.
A human resources executive at Apple once listened to employees complaining about a reorganization, and then said, "when the caravan starts moving, the dogs all bark." It was a heartless comment, but he had a point. In that spirit, the picketing by Flickr users is probably a sign of healthy change.
Or it would be if any of this post were true. But it's April 1, and I'm indulging in a little bit of tech industry fantasy. In this case, though, I'd call it a dream.
Memories of past April Firsts:
The tech industry bailout (link)
iPhones worn as body piercings (link)
Spitr: Twitter meets telepathy (link)
Sprint and Google, a match made in Kansas (link)
A dissenting view on the Yahoo - New York Times merger
Impact of Amazon Flexible Payments Service: Computing as a utility
The announcement of Amazon FPS made my whole week, on a lot of different levels. I'm excited about the service itself, I'm excited about what it means for the development of web applications, and I'm excited about what it'll eventually do for the mobile data world.
Okay, I'm just excited.
About FPS. Before I talk about what it means, I should give a quick overview of what it is. FPS is a web service, meaning it's a set of online APIs that the creator of a website or web application can use to perform tasks. What FPS does for you is billing -- you can use it to accept payments for something you sell online. Basically, you transmit the customer's info to Amazon, and they take care of the credit check, credit card processing, billing, and so on. They send you the money, less a percentage cut that they take.
That's not at all revolutionary. PayPal and Google Checkout offer the same thing already. Amazon's cut is about the same as PayPal -- about 2% to 3% of your revenue, depending on the amount of business you do, plus 30 cents per transaction. Google is a tad cheaper, plus you get AdSense credits for using it.
(For more information on FPS, there are good articles here and here).
What impressed me about FPS is its flexibility. Amazon says you can set different payment terms for every customer, set up subscriptions and multiple payment schedules, manage a store in which you pass payments from a customer to your suppliers, set up either pre- or post-payment systems, and most importantly you can manage micropayments down to a couple of pennies per transactions (link).
The competing systems either don't offer this at all, or do it badly. I think FPS is a really important change to the competitive situation in payment services. And, because the payment services are all available to any website, that means it's an important change to the whole web platform.
New forms of online business. So far, e-commerce online has been limited mostly to selling things that we could already get through regular stores -- books, clothing, software, etc. One of the main culprits for this was payments. The current credit card system, with its strong discouragement of small transactions, makes it very hard to sell anything priced below a few dollars online. I think the most interesting use of online commerce will be the creation of markets for things that we can't buy through stores today. Most of those things are intellectual property of various sorts, and the natural market for them is a buck or less a copy. So the payment system is a big barrier.
I won't recap my whole argument for minipayments; I wrote about it recently, and you can read it here. Minipayments have already changed the world in music, where Apple's proprietary minipayment system in iTunes has revived the market for music singles, something that was virtually dead in stores. Another example: iStockPhoto has created a market for low-cost stock photography. By creating an easy system of practical minipayments, Amazon FPS will help to enable the creation of lots of iTunes and iStockPhoto equivalents for other products and forms of intellectual property. Think short stories, art, games, and probably a lot of other things we haven't even thought of yet.
I know FPS isn't perfect -- for example, small payments have to be aggregated and then billed in a single larger transaction. But it advances the state of the art dramatically, and more importantly it challenges Google and PayPal to improve their own minipayment handling. That competitive dynamic should eventually result in a truly great minipayment mechanism online, no matter who makes it.
Amazon vs. Google: A contrast in strategies. I think Amazon's approach to web services makes Google look bad. Both companies are taking on PayPal, but Google's approach so far has been pure blunt force -- duplicate PayPal's features, underprice them a bit, and tie it to another Google product (you get AdSense credits for using Google Checkout). Let's see...you compete by duplicating someone else's features, underpricing, and tying back to your dominant product. Does that remind you of a certain company in Redmond?
In contrast, Amazon has been trying to find holes in the infrastructure that nobody has filled yet. Its storage and compute services provided very important infrastructure that helped accelerate the growth of Web 2.0 companies. Although its payment system is not as unique, the emphasis on minipayments is, and I think it too will play an important part in the online ecosystem.
Bottom line: Google is often copying, Amazon innovating. I'd say that I'm disappointed in Google, but actually given their size they would crush everyone else if they were also innovative. So maybe we should be grateful.
What will Amazon do next? Their pattern is clear -- they're picking out things that they know how to do well (because of their retail operation) and turning them into services for other developers. A logical next step would be if they offered developers the infrastructure needed to set up an online store -- order tracking, support request tracking, inventory, displaying merchandise, etc. That would work with their other services, and would put them in a position to start draining business from eBay.
I'd also love to see them offer some sort of unified product and content discovery system. One of the things missing from the online ecosystem is an easy way to find goods and services that are for sale online, and comparison shop between them. You can use search for it, but it's not very well organized, and comparisons are difficult. eBay kind of does that, but you have to be registered as one of their sellers, and eBay does the billing. I'd love to see a looser directory than eBay that doesn't take the payments directly, but just points you to things you can buy.
That's what I thought Google Base would evolve into, but Google hasn't made the move yet, so there's still time for Amazon to seize that territory.
What it means for mobile. You can probably guess what I'm going to say here. The operators consistently charge up to about 50% of revenue for any songs, games, or other content sold through their networks. The mobile software stores like Motricity and Handango charge about the same. Amazon, Google, and PayPal each take about 2-3% of revenue, and that cost is likely to decline due to competition. As the wireless Internet takes hold, how many users will be willing to pay 50% extra just for the pleasure of having a game appear on their Sprint or Verizon bill rather than their Amazon bill?
If an operator bit the bullet now and priced competitively, they might be able to hold onto about 10% of revenue in exchange for the greater convenience of running content purchases through the mobile bill. But a 50% cut is like waving a red flag in front of a bull. There's no way Amazon and friends will be able to resist the temptation to target the mobile web. The question is not if, it's when.
The name of the game is infrastructure. In an open, decentralized computing environment like the Web, the best way for a software company to succeed is to create a control point -- to offer a piece of critical infrastructure that others need, and build a franchise around it.
Google understood that concept with search + advertising, and did well with maps, but has been remarkably inept at creating other strong points. I think that's because, to be blunt, engineering PhDs don't necessarily make the best business strategists. Google, if you want to go to the next level, ya got to hire business people who are as smart as your technical people. And you have to give them some authority.
Microsoft seems to get it, but is still trying to retrofit its applications into services rather than really thinking through what's needed in an online ecosystem. Apple seems to understand, but so far hasn't been interested in opening up its services to others (it could easily have turned iTunes into a content discovery and billing service, long before either Google or Amazon hit the market). Some other big Internet companies, like Yahoo, don't seem to really understand yet that this is the competitive battleground of their future.
Amazon is the one major web company that seems to both understand the situation, and be able to consistently come up with good new services. They already have two strong points (computing services and storage), and payments looks to be the third. If some of the other players don't wake up soon, Amazon's going to end up in an extremely powerful position online.
How to really piss off a college basketball fan
One of the stranger rituals of American sports is the country's affection for the annual college basketball championship tournament. Why this country is so obsessive about college basketball and football, when every other college sport is completely ignored, is a mystery that the nation's greatest sociologists and standup comedians have never been able to explain.
But there it is. If your alma mater's basketball team is participating in "March Madness," as we call it, it's mandatory to watch the games on TV. Unless, of course, you have to take your son to a futsal game.
Futsal is a separate story in itself, basically the bastard spawn of soccer (what the rest of the world calls football) and basketball. In the US it's about a million times more obscure than college basketball, but my son likes it and his team had a game scheduled for the exact same time as my college was playing in the tournament. So I did the dad thing and drove him to the game.
But I also did the Silicon Valley dad thing and took my notebook computer with me. The high school where the game was played has a fully open WiFi network, and I had registered to receive a live streaming video feed of the basketball tournament from the CBS television network. Finally, a practical use for Web video!
So I sat down in the gymnasium, started up my notebook, logged into the network, went to the CBS website, and selected my team's game. Excitement building, I clicked on "Watch now," waited a few seconds for the feed to buffer, and...
In case you can't read it, the message said I was "prevented from accessing this game due to local blackout restrictions."
Bastards!
Here is the deal, CBS. If I had access to a TV, do you think I'd be trying to watch your crummy, pixelated, low-res, business card sized video feed? The only people interested in watching online video of a sports event are those who have no access to a television. There is absolutely zero chance of cannibalization of the TV station's audience.
Besides, think about it for a minute. Who are the people most likely to want to watch that feed? People in the school's home town who can't get to a TV. But that's exactly where the game is certain to be blacked out. So CBS has created an incredibly elaborate system to systematically tease and frustrate its most enthusiastic customers. You can't see the game you really care about, but you're welcome to watch the games that are meaningless to you.
The word for this, folks, is "perverse."
I know why CBS did the blackout. Its contracts with local broadcast stations prohibit it from streaming games they're airing. CBS had the same problem with last year's tournament -- meaning they have had more than a year to fix this thing, and failed to do so. Instead, CBS and its local stations are once again missing a great chance to build customer loyalty and develop a nice online business.
I did try out an interesting feature that CBS allowed me to access, called a "glog" (I guess that stands for game blog). It's basically written commentary on the game, streamed live. Unfortunately, if you look closely at the first and last comments below, you'll see that the commentary got caught in a loop and repeated endlessly. I was confused when the teams started running the same plays over and over.
This mess is typical of the foolishness that often happens when old line companies try to deal with the Internet. They spend millions setting up an elaborate technological tour de force but neglect to take care of the basics, like letting fans actually watch the games they want to see, and making sure all the features work.
The lesson: The product you deliver through a website isn't a bunch of HTML and Java code, it's a solution to the problem of a user. Unless all of the elements of that solution line up properly, your product is a failure.
I know CBS's online coverage isn't a total waste; some people do get to some games they want. But if you'd like a taste of what CBS is doing to a lot of fans, check out this message board where fans of Georgetown University tried to figure out how to access the online feed. It's pitiful.
As for me, I was reduced to watching the scoreboard thing you see below, and waiting for it to refresh every 15 seconds or so.
A hundred and sixty years of telecommunication progress, and I'm reduced to watching a basketball game by telegraph.
PS: My son's team lost, although he did score a booming goal from beyond halfcourt. He's always wanted to do that.
The rise of the information ecosystem: How mobile devices, personal computing, media, and the Internet all fit together
Fair warning: This is going to be one of those philosophical posts on strategy. If you're looking for quick gratification, I recommend browsing the archives here.
Anyone still reading?
Okay. The other day I got a bit of flak for posting a note about Hollywood's view of the Web. "Your weblog's about mobility," the comments said. "Stay on topic."
I sincerely appreciate the feedback, but it was a surprise. As far as I was concerned, I was staying on topic. But then I realized that I've never actually explained what I'm trying to accomplish in this weblog, and so of course people might confused. I'd like to fix that right now.
I started this weblog to comment on the mobile industry, but as time went on and my work at Rubicon exposed me to a wider range of tech companies, I found that the boundaries of mobile were getting harder and harder to define. I'm now convinced that you can't understand the mobile world as a separate industry, because it's deeply interconnected with three other industries that deal with information: the Internet, personal computing, and the media (including video, print publications, games, and so on).
All four industries like to think of themselves as separate. But in reality, they depend on each other heavily, and the connections are deepening all the time. In each industry, it's commonplace for people to be blind-sided by unexpected changes, or for major initiatives to fail dismally. I think that's a symptom of the growing connections. Because we can't yet see all the connections, success and failure become more a matter of luck than skill.
The idea that those industries are merging has been around for years -- I remember a colleague making that argument at Apple back in the early 1990s. But I think "merging" or "convergence" isn't the right metaphor. What's emerging is more like a tropical jungle where a rare tree is the favorite roost of a bat that's fed on by a mosquito whose larvae are eaten by a fish that secretes the cure to cancer in its skin. Everything's connected in subtle ways that we don't understand.
Call it the information ecosystem.
Some very bright people have used the term "information ecosystem" in the past to refer to the Internet or Web 2.0, but I think it encompasses all four industries.
That ecosystem is what I'm trying to map in this weblog, because that's where the opportunity is. I don't pretend to have all the connections mapped yet; nobody does. But what we can see so far suggests that we're still in the early stages of the new ecosystem. I think the big changes are still to come.
The new information ecosystem
Back in ancient times (around 1975), the old information ecosystem looked like the diagram below. Most information (and I'm using that word very broadly to include everything from written words to movies to photographs) was passed through a distribution hierarchy that filtered and distilled it down to the most marketable items. Delivery of information was generally through mass media -- bookstores, magazines, newspapers, television stations, etc. The prevailing metaphor was one-to-many, with information flowing from a relatively small elite of creators to the population as a whole. People also communicated directly between one-another, of course, but most of that communication was one-to-one or one-to-few via letters, meetings, and phone calls.
Even before the Internet, this old ecosystem had already started to erode. For example, computer-based desktop publishing in the 1980s made it much easier for small groups and individuals to create newsletters and magazines, giving them some of the power of mass media (although their creations still had to be printed and distributed through traditional mechanisms).
"Freedom of the Press is guaranteed only to those who own one." --AJ Liebling
"Let's give everybody a press." --Simultaneous thought of several million Internet users, sometime in the 1990s
The new information ecosystem. It was the rise of the Web that really challenged the old structure. Although we're still in a transitional period, I think it's clear that the new information ecosystem will look something like the diagram below. In the new system, the filtering role of the publishers and commentators is radically eroded. Any information that anyone wants to share can be fed directly into the Internet. Tools like the personal computer make it much easier for people to create information, and mobile devices are also starting to play a minor but important role in info creation as well (for example, at the end of 2006 a cellphone video of the execution of Saddam Hussein created worldwide news and intense political debate). The net effect should be that information flows faster, and between more sources, than ever before (by the way, that's an assumption I want to test in future posts; I'm not sure it's correct).
The diagram shows why mobile devices can no longer stand alone as a separate industry. As soon as they get any data capabilities, they're embedded in the larger ecosystem. Want to add apps to a mobile device? You need to understand the trends driving PC and Internet app development. Want to tie your customers to you more closely? Make sure you know how online communities form (and why most of them fail). Want to play content on a mobile? Don't link yourself too closely to a content company that was part of the old ecosystem -- you might be pulled down by the suction when it sinks.
What's the most important part of the ecosystem?
A lot of people would tell you that the center of the ecosystem is the Internet; that the other industries are just appendages. On the other hand, many mobile enthusiasts would tell you the dominant part will soon be the mobile phone, and I'm sure Microsoft and Apple would tell you that it's the personal computer. But I think they're all wrong. The most important part of the ecosystem isn't any technology, it's the ideas themselves: the articles and music and essays and videos and memes that we use to make decisions and entertain ourselves. The Internet and the servers that hang on it like Christmas ornaments are the storage and transport mechanism for those ideas. PCs and mobile devices are capture and playback systems, and the software programs we run on those devices are the tools that we use to create and work with the ideas.
Meanwhile, the publishers, producers, editors, and critics who used to control the idea factory are struggling to find relevant roles in the new world. I think some will succeed, and many will fail.
The real mobile opportunity
So I know it'll feel irrelevant to some people, but I'm going to be writing more about subjects like web apps and communities and Hollywood, because they're all part of the same system. I'll try to label the posts that focus on the broader ecosystem, so you can skip them if you want to. But if you're working in the mobile world I think you should tune in. You need to understand the whole ecosystem or chances are you'll be left twisting slowly in the breeze by a competitor who does get it.
The real mobile opportunity of the 21st century isn't mobilizing technology, it's mobilizing ideas.
That's what this weblog is all about.
