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The Critical Path #79: Make It Rain

This week we cover a bit of Facebook Home, a bit of YouTuber economics, the best analogy ever heard for Google’s business model, and we kick off Auto industry analysis with the “Five Whys”-the paradoxical questions that nobody seems to be asking about cars.

via 5by5 | The Critical Path #79: Make It Rain.

This was a good one.

  • nanana

    Horace,

    Where are you getting your rating numbers from?

    Traditionally, over-the-air (non-cable) shows in the United States have higher viewership than cable (due to better reach/better availability in all markets). Both The Colbert Report and The Daily Show are cable-only shows. Generally, a good network TV (non-cable) show in the U.S. has a viewership of over 10 million people when it’s first aired (i.e. American Idol). Also, sporting events (in particular football) have very good rating numbers. Please note that these ratings are for TV viewership only, so it does not include online watching and re-runs.

    Also, check out http://www.zap2it.com and http://www.nielsen.com/us/en/top10s.html

    • http://twitter.com/FrancoisPrigent François Prigent

      On that point, most EU countries have way better broadband and broadband/subscription fee than in the US. The best remaining in Japan, dual broadband for 5 years 100 Mbps up and down unmetered for around $45 USD. Here in Paris, some include unlimited free cell phones too.

  • obarthelemy

    Commenting as I listen:

    - I do find a bit sad the the whole internet is being cannibalized by FaceBook, but it seems that’s what a lot of users want.

    - How come there’s a whole skit on FaceBook’s lock and home screen, but nothing on Android’s general built-in ability to let users chose those ? Facebook’s is a very commercial offering, but there are hundreds of others. Is this Lock-and home screen modularity a meaningful feature in general ? Is Facebook’s approach destined to be emulated ? Isn’t there a risk that it will take off, and threaten iOS and other non-modular OSes ?

    - I love how you try and turn negative anything to do with Android. If Apple were offering the same FB integration, it would be deemed “magical”. Not “dangerous” and “boring”. If FB’s stuff takes off, is it not more of threat to iOS and WinPhone than to Android ?

    - How does the whole “the better place to be is the mobile because of persistence” argument not apply mainly to Android, not to just FB’s lock and home screen ? Don’t you think Google could sabotage FB in later versions if they so chose ?

    - Don’t worry so much about YouTube. Its usage conditions are a lot less onerous and monopolistic than Apple’s educational iBooks authoring tools for example. But I’m sure you’ll cover those in an upcoming podcast ?

    - Maybe production costs are lower, but productions values too… and above all, revenues ? It’s not just about (badly) counting viewers, what counts is dollars. How much does $50,000 spent producing a YouTube show earn, compared to a $5,000,000 TV show ?

    - I think you’re mixing up YouTube and “The Internet”. Stuff that ends up on YouTube is stuff that isn’t really trying hard to lock-in users. Colbert and Stewart have semi-pirate clips on YouTube, but their main Internet portals are dedicated websites, and I’m sure those monetize much better. Youtube is acting as a gateway/clearinghouse (the same way FB is), but it can also be short-circuited if content providers so choose: they can *not* post their content there, or just put teasers…

    - I’ll help you out: Google wants to be 1- the repository of everyone’s points of interest and relationships, and 2- the clearing house through which ads are targeted and distributed and queries handled . As a side business, Google are trying hard to maximize the time people spend on-line.

    - “you don’t give incentives to people who make rain” ? Who is that ? I think your analogy went out of hand not half-way through but 10% through. Dams are not bad as firewalls/censors/tech barriers are on the internet… etc, etc… Poor analogy.

    The car segment…
    - few companies make cars because barriers to entry and trade are high. Next !
    - creative destruction. Yep.
    - coopetition… back to the 90s it is.
    - you’re missing the central point that car makers have factories, Apple don’t. It doesn’t make any sense for them to resell … their suppliers’… capacity. Samsung have been reselling capacity to Apple, not the other way around, because Samsung have factories, Apple don’t. Apple could probably sell their designing chops, if they wanted to.
    - coopetition is about diluting fixed costs and no-competition zones, and barriers to entry. It makes sense for Renault to partner up with Nissan for example, because both firms barely step on each others’ toes, geographically.
    - Selling brands to competitors makes sense because if you’re getting out of a market, you might as well get a bit of money for your assets in that market, instead of just plain writing them off. You don’t care anyway: you’re leaving that market !
    - Yep, product cycles in the car industry are longer, thus electronics seem outdated.
    - Let me double-check, you spend the first half of the show wondering how dangerous it is for Google to have Android open, then at the end, you wish for carmakers to open up their cars’ APIs ? Even disregarding the safety concerns, you’ll have to explain why you come to the opposite conclusion for cars as you do for phones.
    - Top gear is about the devices, not the business. No wonder it doesn’t answer business questions. Also, it focuses on flashy stuff, there are plenty of light cars.

    • simon

      - Modular is mostly the feature for the OEMs, carriers and other companies who want to grab a piece of land but do not have their own OS, notably Amazon and now Facebook. It’s a nice feature for some consumers but most just use what’s given to them by the OEMs. Facebook could be an exception only because they have so much marketing power.

      - Open APIs do not equal open Android. Apple has open APIs too.

    • http://twitter.com/johnk77t John Knoerr

      does the global auto business suffer from overcapacity?
      are apple and others sometimes supply constrained, which is at least somewhat the opposite problem?
      i do not have recent data myself.

  • poke

    There was an example of badge engineering with Apple. They let HP sell HP branded iPods in exchange for HP bundling iTunes with its computers. It wasn’t successful.

    • Bruce_Mc

      Apple’s QuickTake 200 camera was a badge engineered version of Fuji’s DS-7 camera. I read that there was a Samsung version of this camera as well!

  • Matthew S

    you talked about Facebook Home encroaching on Googles home turf by trying to own more of the user experience and be front and center to everyone else, which would never be the intention of Google and Android. This makes sense, because if I’m Google/Android then Facebook Home is now stealing my advertising dollars.

    But what about Google and Facebook joining forces instead of going to war against each other? Together they can surely come up with something to pose a threat to iOS?

    • simon

      Why would Google and Facebook join forces? They are directly competing against each other much more so than against Apple.

    • Mark Jones

      Google’s primary customers today are advertisers. Facebook’s primary customers today are advertisers. Apple’s primary customers today are device purchasers. Unless Apple blocks both Google and Facebook from using its iOS platform, I don’t see why iOS would cause Google and Facebook to join forces, instead of competing for a presence on the iOS platform.

    • neutrino23

      I never thought it through till now but if you look at the long game you can see why they are fighting so hard. In the not too distant future they are expecting access to something like 4 to 6 billion people using smart phones of some sort. The ultimate prize is to have all those people using your device (app, phone whatever) as a portal to the world. This would be a fantastic treasure trove of demographics, activities and preferences. The winner will turn this into a steady revenue stream that lasts as long as they are on top.

      At this early stage I see little reason for anyone to share anything.

      It is beyond my understanding but I suppose alliances could be formed. If any one company looks to take the lions share then the others might form an alliance to take them down.

      This really seems like a multi-player chess game. The markets are so huge that the R&D costs are rather small. It is completely a matter of marshaling your forces and having a good business strategy and then executing it. MS spent a lot of money and they have a lot of talent but they don’t seem to be making good decisions.

      • Walt French

        No, actually, R&D costs are terribly significant.

        Facebook has fumbled around quite a while with its software efforts, putting out some really awkward apps. Let’s hope they’ve gotten the good designers, engineers and product people to find a smooth, appealing interface. As yet, Home looks to me like a 0.9 product, not available on the majority of Androids, when it ought to be possible to put it atop almost any modern phone.

        The other recent news showing the cost of R&D — that software is NOT good enough yet — is Google’s abrupt withdrawal from the Webkit project. Webkit is an open-source collaboration for a key ingredient of browsers; it’s underneath all Apple browsing, Google’s Chrome and Android browsers, BlackBerry’s, Nokia’s Symbian browser and many more. But Google’s needs were too different from Apple’s so they’re taking the current version and developing it independently.

        That’s a huge amount of community work they’re forgoing. The latest Webkit update shows, “WebKit saw 717 new revisions last week” and it seems fair to guess that to replace the part of the developer pool that they’ll need to, might cost them an incremental $10–20 million per year (caution: wild SWAG). For control of their own rendering engine, something that no customer will directly see, and which, by all accounts, is about as good as tech provides today.

        Maybe a couple of pennies per Android user doesn’t seem like much, but it could easily be a couple of percent of the per-user revenue that Google sees from mobile users — probably a majority of Android users contribute essentially nothing to revenues. And Facebook, Amazon, a world of others intend to make it more that way.

      • neutrino23

        My thought was that the prize down the road is so large that money is not the limit, wisdom and talent and the ability to execute are the limits. If Apple or MS thought they could win the prize by doubling or tripling R&D they have the resources to do that. It was interesting to me that MS invested a lot in Surface but didn’t do that well. The recent glitzy Samsung introduction was terrible. It is amazing to me that companies with lots of money and smart people don’t always execute well.

      • Bruce_Mc

        “The ultimate prize is to have all those people using your device … This would be a fantastic treasure trove of demographics.

        I think the ultimate prize is the information about the user, not the device. That’s what makes Facebook Home so clever; FB can get the user info without going through the time and expense of building the device or designing the OS.

      • neutrino23

        I agree. Sorry for not being clear. Whoever owns the portal tracks demographics, shopping, interests of all sorts. I was vague because I don’t know how this will pay out.

      • Herve

        I do not thing that it’s “apps, phones or whatever”. For google and Facebook its their services & apps. That’s where they make money while phone makers like Samsung make their money on phones. It seems that Apple sits on both sides.

  • neutrino23

    FB Home is an amazing land grab. Imagine someone builds a restaurant. It gets to be a popular destination. Along comes a food truck that parks in front, puts up big signs, awnings, chairs and tables on the sidewalk so that the original restaurant is obliterated. That restaurant will kick out the food truck or die trying.

    Of course Apple and MS will not allow this on their platforms. I’m sure that Google will fight back vigorously. Why would they go to the trouble of supporting Android only to let FB reap all the benefits? I’m sure Samsung will fight this as well for similar reasons. They want to be known as their own destination, not just as a supplier of FB devices.

    This is not settled, it is just the opening play. Get your popcorn and cold drinks and get ready to watch the show.

    • simon

      I still don’t see how else they could do it though. They obviously do not want to go all the way with the phone hardware or the OS at this moment, so this could go on for a while unless they could convince a big OEM to really integrate this.

      • Mark Jones

        As neutrino said, it is just the opening play.

        Google doesn’t advertise on the base Android OS today. It includes advertising through search, maps, mail, Play, and other included Google services. As of today, Facebook Home doesn’t block inclusion of or access to these Google services on Android phones.

        Theoretically, Facebook Home can lead to more sales of Android-phones-with-Google-services, which potentially exposes more people to Google services, if the customers venture beyond Facebook Home. But if Facebook Home, over time, replaces most or all of the Google services with Facebook services in Home, and customers thus don’t go beyond Home, then Google is screwed. So which will happen? And if it’s the latter, what is Google going to do to stop it?

      • http://twitter.com/causticmango Samuel Ford

        I find it hard to believe that either company will see this a virtuous cycle.

        In some sense Google has donated billions of dollars of development resources to Facebook so that it could make Google+, and to a lesser extent, Gmail, GoogleTalk, & Play, irrelevant on Google’s own platform.

        That’s got to sting.

      • obarthelemy

        if you think of what the alternative would have been, not so much.

    • http://twitter.com/FrancoisPrigent François Prigent

      Sure it’s an amazing land grab for the one able to grab it. Nothing to go against it.

      • Mark Jones

        Google Chrome, Google Docs, Gmail, etc were a land grab of the Windows/Mac PC. However, in that case, Microsoft already gets paid for the OS, and Apple already gets paid for the Mac, so neither is reliant (or as reliant) on monetizing one’s usage of the PC (as opposed to purchase), whereas Google doesn’t get paid for Android and relies on monetizing usage of the phone. (The Google services do compete against Office/iWork, which do generate revenue for MS/Apple.)

        Another difference is Facebook Home looks like it will go much further in its Android grab such as having an apps ecosystem built into Home, with apps that carry Facebook-supplied ads.

      • http://twitter.com/FrancoisPrigent François Prigent

        Bright analysis Mark, thanks for practical examples but we all know Windows lives around OEM model. I worked a lot for that model and it’s dying.
        But I can add one thing: a Facebook profile or App “pseudo” or Twitter does not necessarily show an intended interest.
        RTB and Retargeting sells it but it’s not for granted.
        At some point, a really qualified client file is needed, and that can’t be guessed according to browser/os. Or your last visit was Z website.
        Regards,

    • Walt French

      Perfect analogy. Facebook is squatting on what Google claims is public property.

      And one that is not settled between the two parties; the City Council makes the call as where the trucks park. But who is the City Council here?

    • LTMP

      I see FB Home as a parasite lodged in the intestines of the Android ecosystem.

      It will suck up all of the nutrients that would normally go to google.

      If you’ve invested in a prize horse, and it gets a parasite, you call the vet to get rid of it.

      I don’t think it will be long before Google tries to de-worm it’s ecosystem.

  • Guest

    As an emarketer but also a consumer like everyone, I would like to add my 2 cents:

    1) Facebook claims ownership on people likes:

    * I’m not pretending to invent hot water but, like value is needed in mobile/social/web/offline/whatever, client lifecycle value is a must. Whether it is Apple, Google, or my local store.

    2) About users willing Facebook and nothing else

    * No one proved me that fact. I don’t think anyone is striving for Facebook and by the way, even with mobile Facebook data stagnates these times. On that topic, the chinese Facebook and Google will obviously kill them on the long run, because they have no value on a given time-frame: rather, company strategy is not based upon the long-run for Samsung, while it is harshly for Apple now with a stock-made CEO.

    Please tell me if I’m wrong, flame, whatsoever,

    Regards,

    François
    francoisprigent.fr

  • http://twitter.com/FrancoisPrigent François Prigent

    As an emarketer but also a consumer like everyone, I would like to add my 2 cents:

    1) Facebook claims ownership on people likes:

    * I’m not pretending to invent hot water but, like value is needed in mobile/social/web/offline/whatever, client lifecycle value is a must. Whether it is Apple, Google, or my local store.

    2) About users willing Facebook and nothing else

    * No one proved me that fact. I don’t think anyone is striving for Facebook and by the way, even with mobile Facebook data stagnates these times.
    On that topic, the chinese Facebook and Google will obviously experience hard times on the long run,
    Because industries like Google and Apple owns a huge competitive advantage now, but who can tell Baidu and Samsung will not win the war?

    Frankly, I’m fond of your analytics Horace, but like someone once told me, hosting, and telco is a business of volume ABOVE all. Like all industries.

    Regards,

    François
    francoisprigent.fr

  • Greg Lomow

    With Facebook and Google I think we have an excellent opportunity to watch and compare similar strategies operating in parallel but with slightly different parameters. Here is what I mean – book Google and Facebook want your attention and info so they can sell ads. Both know mobile is vital to their continuing growth. Both have adopted similar strategies – that is, become ubiquitous across mobile platforms by porting all of their apps and services to Android and iOS (and to a lesser extent WP8, BB10, etc) so they can capture your eyeballs, attention and info which they want to turn into $$$

    Obviously Google has been doing this for quite some time by moving its apps and services to iOS and it is having some success since its apps and services are popular in iOS but no one would claim that Google has ‘taken over iOS’ because Apple imposes many limits on what vendors like Google can get away with on the platform. In effect, Google is trying to insert itself between iOS and the user.

    Now Facebook is using the same strategy but it is employing it against Google with Facebook Home. Anything that Facebook can do to control your eyeballs when you look at an Android phone is a net positive for Facebook and its ads, and a net negative for Google.

    Yes Facebook Home might sell some more Android phones, but someone who is that attached to the Facebook ecosystem is going to be of no value to Google. Every Facebook Home user is more $$$ for Facebook. Every Facebook Home user is potentially one more user for Facebook (instead of Google+), one more user for Facebook Search (instead of Google Search), etc.

    I guess the experiment is to follow the successes and failures of these nearly identical strategies and see how well each one contributes to the revenue and profits Google and Facebook. We might discover that Google’s ‘open strategy’ with Android is going to be a net positive for users that like Facebook but a net negative to Google because it means they lose control of the 10 sq in of glass that we all now spend some much time engaging with (ie our mobile phones).

  • obarthelemy

    I don’t have all the details on the FaceBook lock and home screen, but my guess is that adding to it other sources of communications (email, texts, twitter, RSS, instagram, tumblr…) would be of more value to a lot more people.
    So I’m guessing the first step for Google if they dislike FB’s move, is to offer that more inclusive equivalent, I’m sure no-one will mind if they add Google+ to the mix (sthough no-one will use *that* feed either ^^). In most probability, someone has already done it, or will do it soon.
    I’d probably use it on my phone. Its homepage is already mainly widgets displaying Calendar RSS emails and texts, I could use a unified, oversize widget for all this and more. Seems very similar the RIM’s BB10 hub (or whatever they call it)

    It’s interesting compare Google’s and FB’s moves. Google big grab for eyeballs is Google Now, which supplies up to date, localized, custom “news” updates (weather, traffic, subjects of interest, sales…) with a voice assistant. FB’s is a message feed from their social network.

    I’m not using either personally. My feeling is that GNow is a bit too complicated/feature-rich for most users.

  • Bruce_Mc

    I like the rain and watershed analogy for Google’s strategy. Note that Sun Microsystems tried a bit of rainmaking in their day with OpenOffice.org and Open Solaris.

  • http://feltpresence.com Ryan Singer

    Horace suggested Facebook knows its users better than Google, and therefore it will be more attractive to advertisers.

    It seems like Facebook knows a lot, but they don’t know what you’re trying to find. People hire Google search to find something. Google knows what you demand and connects you with the supply via an ad. Can Facebook get that knowledge?

    I’m skeptical that Facebook has the same knowledge about a user’s demand based on their visits to photos, wall posts, and so on.

    Curious to hear if I’m missing something here.

  • dmx

    I could almost feel that Jeff Bezos is pounding on the table and about to fire the whole kindle software team since they failed to do an Amazon Home.

  • Stefan Popescu

    How come nobody bothers to mention that the home in itself is a major annoyance at the very basic level?

    When I look at my phone I expect to see emails, call notifications or some app notifications at most. I do this several times a day and in I find that each one of these notifications require a bit of brain power to process the information and more brain power to react to them – e.g. I need to respond to this email right now, that call was important now I have to call them back, etc. In an ideal world, I would not have missed calls and emails would arrive only when I’m opening the email app. Or I can disable all the notifications. In other words I accept to have all this unpredictable information flow on my screen in order to increase my ability to react but with the price of getting my attention hijacked whenever I’m checking the time on my phone since I wear no watch anymore.

    The last thing I want on my home screen is more random information that I need to filter visually and mentally.

    Unless you live totally isolated and nobody emails, texts you or calls you – why would you want advertising on the home screen?

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