The whole ‘tablets and PCs’ discussion today reminds me a great deal of similar conversations we used to have a decade ago about ‘laptop or desktop’.
That is, someone would ask a vaguely technical friend whether they should buy a laptop or a desktop. And the answer would be “well, how much money do you have and what do you want to do with it?” Laptops were portable but had smaller screens, less power and were more expensive. Which trade-off depended on how you planned to use it.
Over time that break point shifted: laptops got less expensive and much more powerful - today there are very few tasks that need the power a desktop can give, but the screen size point remains (though of course external screens are cheap). And so laptops grew to roughly half the PC market by volume. The desktop market didn’t go away - mostly for screen size or cost reasons (if you’re outfitting an office of 10k people, none of whom take their work out of the office, why buy laptops?)
Much the same analysis applies to tablets today - "what are you going to do with it?" Are you going to do sophisticated, complex, multi-app computing? Lots of keyboard work and detailed manipulation that a mouse is better for? Apps that are only ON a PC? Then get one (whether desktop or laptop). Mostly web, email, games, video, social networks and you’re walking around all the time? A tablet might suit you very well. You probably have a PC too - there’s very little actual substitution right now, but there is an impact on the PC replacement cycle (as well as expanding the pie massively, especially in emerging markets, which is another conversation).
And of course this break point will move as well, just as the laptop/desktop break point did - tablets will get faster and more sophisticated and capable of substituting more tasks. And so we should expect to see tablets taking a growing chunk out of the PC market.
(The other way to slice this is that the PC market is split very roughly half and half between consumer and corporate - corporate boxes will remain longer than consumer PCs, but there’ll be erosion in both.)
Another very important lens to look at this through, though, is Microsoft Office. Office is extremely good (tautologically) at the things it’s good at - there is no credible alternative to Excel for making large financial models and no credible alternative to Powerpoint for making 150-page pitch books, for example. Free alternatives nibble around the edges, and specialised use cases such as statistics have been carved out long ago, but the real threats come from use cases where you shouldn’t really be using Office at all.
This ‘shouldn’t use’ comes from both above and below. Someone said to me on Twitter (I now can’t find who) that their consulting business spent half its time telling people to stop using Excel and use a database and the other half telling people to to stop using a database and use Excel. That is, Excel is used as a business information system in a huge number of companies. It’s a powerful and flexible IDE on its own terms, and this is sometimes a good use, but it often isn’t, and specialized SAAS services will probably carve out an increasing number of these use cases. When I worked at Orange there was a multi-megabyte Excel file on the network drive called, I believe, ‘sum_of_x.xls’ containing complex macros and every major operating metric for the entire company, there for anyone who needed to analyze high-level data. That should probably not, really, be in Excel today.
The same applies to Powerpoint - it’s a very good tool for that 150 slide deck, but what if you’re making a 10-slide deck each week that consists entirely of operating metrics pulled out of a back-end system, manipulated in Excel and pasted into slides, plus commentary, that are emailed to 25 people? Shouldn’t that change from a 2 hour task to a SAAS dashboard and a 30-second task? And would it still need a mouse and keyboard?
(This point also bears on the future of email itself, but that's another topic.)
This carving out comes from below, too. One of these is the Google Docs story, about there can be much debate, but to me the interesting challenge is embodied by this screenshot - the ‘new file’ menu in Excel.
This is, of course, all about unbundling and specialisation. Office apps (generically) are very broad and deep and general purpose. Critics tend to focus on the depth and talk about how few people need all those features, but miss the breadth - of how many things a general purpose ‘table’ app or ‘make pages’ app can be used for (including what look to technical people like misuses - the classic example being the person who pastes a screenshot into a Word document and emails that). I'd suggest that a meaningful proportion of Excel use doesn't involve formulas, for example, just lists and tables and page layout - IDE as DTP. New routes to market and new interaction models provide new ways to challenge that hegemonic interaction model, just as smartphones allow the unbundling of Facebook's interaction models - SAAS changes Office and so do app stores.
This brings us back to the mouse and keyboard that you ‘need for real work’, as the phrase goes. Yes, you really do need them to make a financial model. And you need them to make an operating metrics summary - in Excel and Powerpoint. But is that, really, what you need to be doing to achieve the underlying business purpose? Very few people's job is literally 'make Excel files'. And what if you spend the other 90% of your time on the road meeting clients and replying to emails? Do you need a laptop, or a tablet? Do you need a tablet as well as a smartphone? Or a laptop, or phablet? Or both?
Well, what do you want do with it? it’s all just glass - the only real different is the size and the input mechanism that suits your task.
Thinking more about the acquisition of Whatsapp and Viber, it strikes me that there are three phases in the evolution of these kinds of products (so far).
The first phase was about price and the PSTN. The cost of roaming and the cost of international voice bore little connection to the underlying infrastructure cost, and a host of startups emerged to try to arbitrage between high list prices from mainstream telcos and the low underlying cost, using the data channel to go 'over the top' (OTT).
The obvious winner was Skype, which unlocked vast demand for free voice and meaningful demand for actual paid international voice. Skype upended the calling card business, which did the same thing but on a smaller scale with a worse UX and a different route to market, but had very little impact on mainstream telcos, since international voice, though high margin, had never been a big part of their business - most people don't know anyone abroad. Skype was the big success but there were many other companies trying to do things in this space around roaming and international, few of which became meaningful businesses despite often doing some technically very clever things.
The second phase came with smartphones (Skype wasn't really mobile to begin with), and is partly also based around arbitrage, in this case between unmetered data plans and metered SMS. BBM (not entirely intentionally) was one of the first but a swarm of other companies (at least 50) offer free or near-free text messaging.
This is a challenge to telcos, who have found splitting out SMS and selling it separately a convenient marketing tactic (when I worked at Orange the pricing department was called 'Value Based Marketing'). Hence, mobile operators must now rebalance their tariffs, rolling data and SMS (and indeed voice) into a single monthly plan - this poses all sorts of transitional problems but the actual financial impact varies wildly by country - see here for a discussion.
Once the telcos have gone through this process, pitching an app on 'free SMS' is not much of a pitch. However, most of them do more than this, adding anything from group chat all the way up to the full-on content distribution platforms of Line or Wechat (discussed here). What they almost all have in common, though, is that they use the PSTN numbering system but never connect to the PSTN. That is, they look at your phone book and use your phone number to identify you and see which of your friends have it, but they don't actually make phone calls or deliver any SMS. So for these apps the PSTN is a social graph but not a piece of infrastructure. Add things like home-screen icons and push notifications and one sees that the smartphone is a social platform, in a way that the desktop web never was.
In other words, Skype's strategy was all about the PSTN but Line or Whatsapp effectively ignore it (though Line does do some bundling deals with MNOs in emerging markets).
I think, though, that there's also a third phase. Why is it that if I use a cab service app I can only talk to the driver by a PSTN voice call or SMS? Why does a restaurant booking app send me out to the phone dialer? Isn't it inevitable that at some point they'll bring that loop in-house? Shouldn't that, also, become part of the generic data layer rather than the telco's voice or messaging layer?
Moreover, why should it only be explicitly social apps that access the phone address book to find my friends? Why shouldn't a retailer's app tell me that I have 8 friends using it, and let me share products with them rather than emailing them dumb, untracked URLs or even, quite probably, screenshots of my smartphone with the app open?
In other words, WhatsApp, Instagram and a dozen others have unbundled Facebook, but at what point and in what ways does WhatsApp itself get unbundled?
There's a fairly obvious and straightforward way to think about Google - it's an ad company and a search company, and it cares about reach. The purpose of all its web projects is reach, and the purpose of Android and any other mobile projects is the same - more reach, more search, more advertising.
This is certainly true up to a point, but it doesn't seem to capture all of the things that Google does and all the plans it might have. Now, for example, is not really search or advertising (arguably it might become both, but it doesn't really need to). It seems to me that a better model is to see Google as a vast machine learning project, that's been fed with information for a decade or so. The text box that you enter a search into, that we're all familiar with, is really just an output (and of course input) for this underlying project, as is advertising. Now, Maps and Books are others, Glass and many future projects are others. It's all about ingesting the world's information and learning from it.
Hence, one could suggest that plain old web search is just the first expression of the Google vision in the same way that books were just the first expression of Jeff Bezos's vision for Amazon (which at one point he planned to call 'Relentless.com').
This may also be a good lens for looking at the countless abandoned Google projects. Some types of sharks apparently bite things to see if they're edible - they bite surfers to see if they're actually seals. If not, you get spat out (this may not be much comfort for the surfer). In the same way, Google tests segments to see if they fit the automation + machine learning implementation model. The dMarc acquisition is a good case study - once Google worked out that making local radio advertising work would require lots of local sales forces, and would change the character and operating model of Google, it got out out of the space.
Nest, though, is a puzzle. One could see it (and indeed self-driving cars) as a data collection story - reach, in other words. But there isn't really a very strong information story here. There's nothing here that you could eventually search for, or to help understand what a search might mean.
"The best comparison for Google seems to me not Microsoft in the 1980s but General Electric in the late 19th century – the age of electrification. Like GE, Google is a multifaceted industrial enterprise riding a wave of technology with an uncanny ability not only to invent far-reaching products but also to produce them commercially.
Hence, one could argue that Nest or self-driving cars (and the next big hardware move that Google does) are not really about understanding 'information' in any sense, and certainly not about advertising, but about finding ways to deploy being very good at machine learning and, say, connected systems, just as GE's business is to be very good at making big complicated precision-engineered pieces of capital equipment. In that sense, Tony Fadell's vision is very apt - to 'take unloved things' and connect them to the software revolution than my new boss Marc Andreessen talks about. If software is eating the world, then much of what is eaten is probably running software that's at least partly in the cloud (especially if it doesn't really have a screen), and that can benefit from machine intelligence and big data, and isn't that what Google does?
Facebook just bought WhatsApp, paying $16bn in cash and stock ($4bn cash, $12bn stock at current prices) and $3bn in RSUs. WhatsApp has 450m active users, of which 72% are active every day. It has just 32 engineers. And its users share 500m photos a day, which is almost certainly more than Facebook.
This is interesting in all sorts of ways - it illustrates most of the key trends in consumer tech today in one deal.
First, it shows the continued determination of Facebook to be the 'next' Facebook. It's striking to compare the aggressive reaction to disruption shown by Google, Facebook and other leading web companies today with how some of their predecessors a decade ago stumbled and lost their way.
Second, the winner-takes-all dynamics of social on the desktop web do not appear to apply on mobile, and if there are winner-takes-all dynamics for mobile social it's not yet clear what they are. There are four main aspects to this:
- Smartphone apps can access your address book, bypassing the need to rebuild your social graph on a new service
- They can access your photo library, where uploading photos to different websites is a pain
- They can use push notifications instead of relying on emails and on people bothering to check multiple websites
- Crucially, they all get an icon on the home screen.
Any smartphone app is just two taps away - a desktop site can crush a new competitor by adding it as a feature with a new menubar icon but on mobile there isn't room to do that. Mobile tends to favor single-purpose, specialized apps.
This has led to an explosion of mobile social apps - last summer I counted over 50 with more than 1m downloads on Google Play. Some sort of consolidation is clearly inevitable but it's much less clear whether we will revert to one or two. The smartphone itself is the social platform and all sorts of different ideas can leverage that, where on the desktop web they'd have needed to leverage Facebook.
So It's quite possible mobile social will have lots of services indefinitely. This creates opportunities, but also a pretty basic challenge to Facebook. Partly in response, it paid first 1% of its market value for Instagram and now close to 10% for WhatsApp, taking not dominance but at the least two of the commanding heights of mobile social. That's the right way to think about value, I think - not 'OMG $16bn!", but "is this worth 10% of Facebook?' The deal values WhatsApp users at $35 each (very close to what Google paid for YouTube, incidentally), but the current market cap of Facebook values its MAUs at $140 or so.
Third, the sheer scale of the numbers involved is a good illustration of what the shift to mobile means. I produced a presentation here to try to drive home this point: mobile is the next computing platform and it is several times larger than the desktop internet. There are now roughly the same number of smartphones and PCs on earth - those PCs are mostly shared and immobile or locked-down corporate boxes, while the smartphones are mobile and personal. Meanwhile, the widely-discussed collapse in the cost of creating a startup in the last decade combines with both the much larger scale of mobile and the routes to market and virality offered by mobile platforms to mean that if you're very good (and lucky) you can get to astonishing scale in a short time. This scale is at the heart of the valuations we're starting to see - WhatsApp is probably now sending more messages than the entire global SMS system.
Finally, mobile social apps are not, really, about free SMS. Mobile discovery and acquisition is a mess - it's in a 'pre-pagerank' phase where we lack the right tools and paths to find and discover content and services efficiently. Social apps may well be a major part of this, as I discussed in detail here. These apps have the opportunity to be a third channel in parallel to Google and Facebook.
Also, note this tweet from the co-founder.
(Note: my boss at a16z, Marc Andreessen, is on the board of Facebook - the posts linked were all written before I joined)
A symbolic moment, this: in Q4 2013 the number of computers* sold by Apple was larger than the number of Windows PC sold globally. If you add Windows Phone to the mix they're more or less exactly equal.
This is a pretty good illustration of the scale of mobile: Apple limits itself only to the high end of the mobile market but still sells more units than the whole PC industry.
(*Macs, iPhones, iPod Touches and iPads)
For even great clarity, this shows just Windows PCs and iOS devices - Microsoft's old business and Apple's new one. Obviously, Apple's business is more seasonal and the iOS number will probably be lower next quarter - hence my opening line: a symbolic moment.
The comments to this post were passionate but not all that productive. It's a pretty simply point: mobile is the next computing platform and it's a lot bigger than PCs in unit sales, so even the smaller player can overtake the total PC business. It really didn't occur to me that anyone would disagree with this. I've closed comments.
I've written several times about Amazon and its profits, which tend to be the topic of a polarized debate. Either it's a brilliant company investing every penny of cash in building the future, or it's a Ponzi scheme doomed to collapse. The great thing about this chart is that you can use it to support either view. It's the Rorschach Blot of charts. One thing is easy to agree on, though: competing directly with a company like this is very hard.
(If you look very closely, you can see that in 2010 the company accidentally made a profit. )
All the usual caveats about Google Trends data apply, but there's clear symbolism in the fact that WhatsApp passed Skype in Google Trends in the last month or so. Mobile beats the old.