A short spot talking about whether Instagram really makes that much difference to Facebook's strategic poition.
Samsung had an investor day last week - the first for many years. It was extremely low on information about its mobile device business, but one figure did catch my eye - a target of 100m unit sales of combined Galaxy S and Note devices.
Something that people often don't realise, especially in the USA, where even high-end phones are free, is that high-end Android phones are not what are outselling the iPhone. It's the mid and low end that's making up all the volume. That 100m number is a good illustration - it makes up less than a third of the Android phones that Samsung will sell this year. The other two thirds are Android phones other than the S2, 3 & 4, that sell at much cheaper prices.
Vodafone's results are out today. One of the things that always surprises people from the tech industry is how much disclosure of operating metrics telcos typically give: Vodafone gives customers, minutes, data, smartphone penetration and a whole bunch of other stuff, broken out by market.
Amongst other things, this allows us to compare a bunch of markets for which national data is not always available (or available easily), on a more or less comparable basis. So, for example, one can look at the change in SMS use. This chart shows the change in messaging across the portfolio, on a messages per customer (and yes, that has caveats), indexed basis.
There's a wide range of different performance here, but the overall trend is pretty clear: SMS use is going down, with a few exceptions. The effects are strongest, unsurprisingly, in the Netherlands, Spain and Egypt, for varying reasons.
But the really interesting thing is to look at the absolutes.
There's very wide variation by country in how popular SMS is, and hence to where the effect is strongest. The places where SMS has collapsed most are in fact places where it was weak, relatively speaking, already.
This is partly about tariffs - different markets charge SMS very differently (in the UK most people get a big bundle of SMS included, for example, even on prepay). it's also about adoption cycles - Germany tends to be a late adopter in these sectors (or perhaps they just can't fit a sentence into 160 characters). And of course the profile of Vodafone portfolio customers is not completely uniform across markets. But it does give some explanation of why take-up of services such as WhatsApp and Line looks very different in different places, and has very variable operator reactions.
Instagram is looking like a great acquisition. It had 30m users when Facebook bought it in April 2012, and has now passed 150m, just 18m later.
(The change in colour signifies the acquisition.)
This reminds everyone, naturally, of YouTube - again, a product that has become far more popular since acquisition in late 2006 (this chart shows the only consistent data that seems to have been released).
There's a difference here, though. Youtube is the dominant online video sharing platform but Instagram is not, remotely, the dominant photo sharing platform on mobile.
Facebook's latest disclosure is that 55m photos are shared a day on Instagram, and another 350m on Facebook itself. But 350m a day are also shared on Snapchat, and 400m on Whatsapp. And we don't know the numbers for Line, or WeChat, or the next half-dozen services to be launched that we haven't seen yet. Meanwhile Instagram has 150m monthly active users but Whatsapp has 350m and there are close to a dozen others with more than Instagram.
So as it turns out, Facebook did not solve the unbundling problem by buying Instagram - even in photos. It bought just one of many mobile social products, and not even the biggest.
All of these new services are driven by the fact that smartphones have characteristics that remove most of the defensive barriers that Facebook has on the desktop:
- The smartphone address book is a ready-made social graph that all apps can tap into
- The photo library is open to all apps
- Push notifications remove the need to check multiple sites
- Home screen icons are easier to switch between than different websites
The fluidity with which you can move between these apps seems to be breeding very fluid use cases. The original analysis was that these were unbundling Facebook in a semi-coherent way - most obviously, Instagram was taking photos, a core Facebook use case, and moving them to a different, specialised app. But it doesn't seem to be as clearly defined as that.
People aren’t using Instagram for photos, WhatsApp for text, Line for stickers... they’re using everything for everything. Instagram to tell people you're running late, WhatsApp to share holiday photos, Snapchat to make plans for the evening and so on. WhatsApp and Instagram are not in different categories - they're direct competitors for time and attention. Instagram, Snapchat, Line and all of the others are all poking away at different social behaviours and different options in the same communication space.
This shouldn't really be a surprise: we already have three social apps on our phones - voice, SMS and email, and we don't stick to a rigid set of use cases for each one. These new apps just add more options into the spectrum. That, of course, points strongly against consolidation into a single winner.
So buying Instagram certainly looks like a good trade - it would be worth a lot more if it was selling today. But as a strategic move, it's looking increasingly irrelevant. Is FB going to buy Whatsapp, Snapchat, Line, Kakao and the next ten that emerge as well? Sure, some of those will disappear, but it doesn't look like FB will crush the competitors the way it did on the desktop. On mobile, FB will be just one of many.
Just maybe, Facebook might have been better off rethinking the core product instead of buying what turned out to be just one of a swarm of alternative services.
This, of course, prompts comparison with another (in)famous acquisition - Flickr's purchase by Yahoo. There was a period when AOL and Yahoo went around buying up lots of cool new web services as their portal model came under threat. They then generally mismanaged them, but that wasn't really the point. No matter how well they ran these acquisitions, they couldn't buy every great website that there was. Neither can Facebook.
(Update - I got the exact photo sharing numbers transposed when I wrote this - updated with links)
I did a 30 minute video chat with the Wall Street Journal on the moment of the Twitter IPO: thoughts on the product and the future.
I've been giving versions of this deck in London and San Francisco, and I though it worth sharing here. It's the basis of a (roughly) hour-long client presentation, with Q&A.
A version I gave in the summer got about 350k views - after 3 weeks this one has had 200k views - curious to see where it tops out.
There are lots of ways to look at the global handset industry, but the polarisation evident in this chart is pretty compelling. Not shown - the hundreds of 'other' manufacturers, mostly in China.
The CFO of Qualcomm recently described the industry as a barbell - Apple and Samsung at one end, then the smaller and mostly sub-scale players (though some, such as Sony, are showing signs of increased health, albeit from a low base), and then at the other end, invisible, the Chinese.
As an aside, this also illustrates the way that Apple has become so cyclical that it's really only the December quarter that gives a good directional steer.
Unlike most other industries, tech companies are often very secretive about their product plans. Apple is the obvious example, but rivals like Google or Amazon are often even more closed-mouthed. And in parallel, there is often somewhat frantic speculation about what they’ll announce next.
Yet at the same time, these are often fairly simple companies with pretty predictable strategies.
Apple sells devices - circuit boards in boxes at a 30-50% gross margin. It makes them with a certain kind of experience, where it can add significant value in the software and hardware integration. It wants to control as much of the experience as is possible. It will not sell devices below a certain quality of experience just to hit a price point.
Amazon is an ecommerce platform - a warehouse with a search engine. As every new category goes online - as buyers and sellers become willing to buy and sell that product online - Amazon is there with the best logistics and the best selling platform. Meanwhile, it continually reinvests profits in infrastructure and new businesses to drive further growth - taking profit now is just wasted investment.
Google is a search engine and an advertising business, powered by a a decade-old machine learning engine that it feeds with as much data as possible, and it needs reach, in every sense - to feed the machine with data and to deliver search results (and advertising).
One could certainly quibble about how I’ve phrased these, and perhaps add or subtract things. Nor is any of it especially insightful. But that’s the point. These companies do actually tell you what they’re trying do to. Apple and Amazon in particular are very public and explicit about their strategies: Tim Cook (and Steve Jobs before him) and Jeff Bezos say variations of these things over and over again.
Yet somehow, people don’t hear them, and come up with ideas about what these companies will do that are totally at odds with their actual strategies. For example, Google wants Motorola to be a rival to Samsung. Apple will build a global pay TV network or a mobile operator, or an MVNO. Apple will make a mind-blowing new product every six months. Amazon will never be profitable. And so on, and so on.
In truth, though, the best way to understand these companies is to listen to what they say.
Pretty much everyone has the same common experience when they first use Twitter: bafflement. You go, you sign up, you load the account and... what?
Of course, as we know from Nick Bilton's account of the early days of Twitter, this was pretty much how the people making it felt. They knew there was something here - probably - but what? Everyone had a different vision and the company twisted and turned for years (indeed, perhaps if it had been better managed it might not have worked).
As it turned out, the blank screen was really a blank canvas. You make your own Twitter. You can build a feed (and follower set) around fashion and makeup, or politics and journalism, or mobile tech (as I have). It's your mirror.
This means that that blank screen is perhaps better thought of as an empty development environment - Hypercard, perhaps, or (a metaphor that comes easier to me) an empty spreadsheet.
It can be lots of different things, but it's nothing until you start building.
The same, tangentially, applies to Twitter cards, which are of course potentially a very flexible canvas of their own. And of course many of the core functions of Twitter were invented by the users. Ironically, tonight's update of the Twitter mobile clients pushes buttons for retweet and @reply (features invented by users) to the front of the interface so that they're easier for new users to find.
This free-form character is quite different from other social networks. Very broadly, these divide into two categories: networks of people you know personally and networks of people interested in the same thing: Facebook or Yelp. Twitter is neither of these.
This leads to rather different dynamics for a new user - the 'on-boarding experience'. If you log into Facebook for the first time you don't have to create anything - your friends are already there. You just have to add them. Even more, on mobile social platforms such Whatsapp even this barrier isn't there: the app uses the phone address book to add people automatically, the photo library is shared, push notifications let you know when there's new stuff, and so all of the friction of a desktop social network falls away. The experience comes to you.
Equally, on a network of strangers such as Yelp, there's already lots of content from those strangers (restaurants, hotels or whatever), so again, there's no intimidating blank canvas.
On Twitter, though, you do need actually to go out and build something. Hence the stories about abandonment rates: people hear about it, create an account, write a few baffled tweets and get no further. What am I supposed to do with this?
However, once you're over that hump, Twitter might be much stickier than conventional social networks for actual friends (the Yelp model is rather different). There's not much to keep you on Whatsapp over Kik beyond the nightclub effect - that's where your friends are. But once you've build up a twitter feed around your interests, and a global network of people you've never actually met that you talk to, that's hard to replicate elsewhere.
This varies by use case, of course - if you only follow companies and celebrities that's easier to replicate elsewhere than if you've hunted out interesting and low-profile tech execs or makeup artists or experimental musicians, and of course are followed by the same.
One of the key challenges for Twitter to carry on growing, and become a truly mass-market platform, is to create things that help people over this hump - which also means mitigating an essential characteristic of the product. The contradiction is that the more that Twitter solves the on-boarding problem, the less sticky it may be. The less manual it is, the easier it is to make something similar.
Filters for twitter
The interesting superset of this 'freeform' question, to me, is what else can be done with all of this data. You made the spreadsheet, so to speak, and 200m people filled it up, and now what do you do? There are two things that occur to me.
First, there's the concept behind Twitter Music, which appears to have failed to gain traction but I think remains valuable. A app that acts as a filter to Twitter, pulling in all of a certain type of content, with structured data and content-specific tools. Music was one idea but any structured content might apply. The underlying problem, perhaps, is that before the death of RSS I was pretty sure that I was following 90% of the blogs that I would be interested in - but I'm equally sure I'm only following 10% at most of the people I would be interested in on Twitter. How can you manage the flow? I can't read everything, but a transient feed of tweets from people I find by hand (or even with a recommendation engine) is only one solution. Music? Video? What other forms can be systematised in this way? (There are already third parties trying to do 'buzz analytics'.)
The second is the contrast with LinkedIn. It seems to me that LinkedIn has (obviously) very rich data about each individual, but very poor data about the links between them. I'm connected to that person, yes, but do I really know them? If I want an introduction, does the intermediate contact know either me or the person I want an intro to, or is it a weak-weak connection? Products like Endorsements and Intro are clearly attempts to change this by gathering better, non-binary data about relationships between individuals, but it's not clear how well they'll work.
Conversely, Twitter has very strong data about connections between people, but very weak information about who they are. My Twitter bio is fairly informative, but many aren't, and all lack the richness of a LinkedIn profile. In fact, the only really properly structured data in Twitter is the character of relationships.
Hence, LinkedIn can tell me if X works at Yco and what they do there, and that someone I vaguely know has an indeterminate connection to them. Twitter knows that I'm followed by X, and he clicks all my links and retweets half what I say - but there's no way for me to see that and Twitter doesn't necessarily know he's at Yco at all. How to solve that?
One of the odd things about the explosion of mobile, smartphones and tablets that's currently underway is the shortage of good public equity investments in it. There are really very few stocks that give clear exposure - whose investment thesis is mostly based on it. Obviously Amazon, Facebook, Google etc should benefit, but they're not pure mobile plays. Apple looked like one for a while, but as long as it camps out at the high-end of the market (and as long as the future rate of growth is unclear) its appeal is limited. The operators certainly aren't going to grow 10x on the back of smartphones. None of the Android OEMs, expect possibly Samsung, are safe growth stories, and after that you're into the realms of semiconductors, where you need some very specific expertise to make investment calls, or back-end software, where the same applies.
This has led to the spectacle of stocks that suddenly look 'mobile' shooting up. We saw this with both Facebook and Google this year, when mobile numbers suddenly looked good. We also saw it with Yelp, and a few others. It may be a factor in the Twitter IPO, and of course is certainly at play in the rumoured Line IPO.
It's a long time since I've made stock recommendations, but the sudden surges into these companies reminds me a little of this clip. Try substituting 'Jehovah' with 'Mobile!' and rocks with money.
For extra points, try substituting 'women' with 'retail investors'.