Messaging and mobile platforms

One of the fundamental things that smartphones changed about the internet is that the smartphone itself is a social platform:

  • Every app can access your address book, getting an instant social graph. The phone number in particular acts as a unique social identifier
  • They can access the photo library and camera directly (and location), making sharing easy 
  • Push notifications mean you don’t need people to keep checking your site (or open emails).  
  • Every app is just two taps away on the home screen, which makes switching services easier, and also drives a trend for focused, single-purpose apps over apps that do everything - it's easier to find a feature as an icon on your home screen than as an option in a sub-menu of the Facebook app

So joining a new service from a different company is much easier than it was on the desktop and, crucially, using more than one at a time is also much easier. People can swap apps in and out for different behaviours or content types or social groups, on top of that underlying platform, and they do it all the time. And so there has been an explosion of apps trying to take advantage of this. Facebook bought two of the biggest, Instagram and WhatsApp, but it can't buy them all. 

Looking at all of these apps, I think there are three threads that we can pull out:

  • More or less plain vanilla person-to-person text messaging, with extras like group chat, pictures, stickers and voice clips etc added on. The big global winner so far has clearly been WhatsApp, which dominates outside the USA and East Asia (and is doing 50% more message volume than the entire global SMS system), but Facebook Messenger is doing pretty well too, mostly in the USA. I'd expect relatively little new innovation to happen here now, and most of it to be in the next two categories:
  • New pieces of psychology - new behaviors or attitudes that an app can enable or ride on. Sitting on that underlying social platform, an app that finds one of these can go viral. Examples include Instagram, Snapchat, Yo, Yik Yak, Secret or Meerkat. The challenge for these is to find a behavior that's different and compelling enough to create that growth, but not weird or specific enough to be a gimmick or a fad and flame out, or at least to evolve beyond that specificity once the growth is there, which one could argue Snapchat is doing
  • Platforms - messaging apps that aim to broaden the UX beyond pure person-to-person messaging into a development environment. WeChat is the big example here, with 500m users, almost all in China, while Line in Japan and Kik in the USA are also significant. 

The potential to turn messaging into a platform is the Trojan Horse that drives a lot of the excitement in the sector. It's one thing to sell stickers and quite another to sell users: can you use social to spread content and acquire users, and to solve the problem of app installation? Can it become the third runtime and the third channel on the phone, after the web and native apps?

The first big success here has been WeChat, which has 500m MAUs, almost all in China. WeChat has built a messaging client that's also a development environment, using web views and APIs so you can build services within the app that can access location, identity, payment and other tools from within the app. You can send money, order a cab, book a restaurant or track and manage an ecommerce order, all within one social app. So, like the web, you don't need to install new apps to access these services, but, unlike the web, they can also use push and messaging and social to spread. This is Facebook's old desktop platform, more or less, but on mobile. 

The common criticism of this approach is that this is 'just a portal', and that integrating lots of different services into one app is doomed in the same way that Yahoo on the desktop was doomed to be replaced by more powerful and focused single-purpose products. The more subtle version of this is that WeChat only works in China because the market structure is different - no vertical category killers (Google, Facebook, Amazon) and instead parallel, horizontal competition by large competing companies. WeChat is providing the 'primitives' that you can't get elsewhere. This may be true - but it may also be that WeChat (and similar products such as Baidu Maps, which also has deep service integration) show us what the rest of the world might look like if the big portals had executed better. That is, is this what Yahoo would have achieved if it hadn't gone to sleep for a decade? *

A lot of people thought that Facebook would clone this, but it's actually done something quite different. Rather than trying to turn Messenger itself into a development environment, it's opened it up to become a channel for anything else on your phone and the web. This means that it's addressing both the platform thread and the viral apps thread outlined above, and that rather than WeChat, it's going after the iOS and Android notifications panel. 

First, if you have an idea for a great type of content for messaging - a new piece of psychology that might go viral - your iPhone or Android app can now insert that directly into a thread inside the Messenger app, and your app can be invoked directly from within the Messenger app. Messenger has a list of featured apps (with links out to the App Store or Google Play) and, crucially, each piece of content posted into a message thread comes with a link to install the app - a viral hook. Facebook has made an API for the 'sticker button', and turned it into an acquisition channel for third party apps, and is now letting the entire internet compete for that slot, with itself as gatekeeper.

 The WeChat model achieves some of this, avoiding the app installation problem itself by putting everything into web views within the WeChat app, but that puts a cap on how sophisticated you can get - it's hard to make video clips with web apps. Facebook is trying to square the circle - rich native code to make cool stuff, yet no need for an app installation for it to spread. 

This is a great jujitsu move, and very seductive. Facebook is trying to co-opt the next Snapchat. Yes, the smartphone is a social platform that makes it easy to use multiple social apps, but you still have to get someone over the hurdle of installing the app in the first place, and they have to get all of their friends to install it too so that they have someone to send to.  Facebook is trying to bypass that - you can drop your content straight into the existing Messenger install base (600m MAUs). Now just one person can get a cool app and send messages to their friends even if their friends don't have it, and if it's cool enough they can tap on the link and install it too.

So acquisition is much easier, but they're Facebook's users, and always will be. And since there will be dozens of apps fighting it out for that slot, Snapchat and any other new stand-alone network will be competing against all of those apps - against the whole app store. This means that Facebook is trying to reset some of the dynamics I described at that beginning of this piece - it's trying to avoid the 'whack-a-mole' problem of having to buy cool new messaging companies (Instagram, WhatsApp) by getting those communication forms to happen inside Messenger instead, using Facebook's own social graph instead of the phone's address book.  And as I said, this is seductive - Facebook removes a major barrier to growth, but owns your users and has a history of ruthlessness in dealing partners who build on its platforms. Join, get growth 'easily' and give Facebook control, or stay out and struggle for installs against Facebook and all its partners as well. 

The second part of the Messenger announcement is just as interesting - Facebook will also let websites send messages directly into Messenger, without having their own apps installed on your phone, if you logged into that website with Facebook when you placed the order. So you can order shoes and get a message in Messenger that they're out of stock and be offered an alternative. This is another attack on email (and Gmail) and another attempt to pull your communications and commerce into the Facebook data platform. And again, if you do this you get richer and more engaging communication with your users, and don't need them to install your app, but your access is entirely controlled by Facebook.  

If you take all of this together, it looks like Facebook is trying not to compete with other messaging apps but to relocate itself within the landscape of both messaging and the broader smartphone interaction model. Facebook Home tried to take over the home screen and lock screen - Messenger is trying to take over the notifications panel, by pulling those notifications inside its own app, and to co-opt large chunks of future communications developments on the phone.  

This makes perfect sense - notifications themselves are becoming that third runtime. That pull-down panel aggregates activity from everything on your phone, and Google and Apple have made notifications actionable and given them payloads. One can already look at an iPhone or Android phone's notification screen and ask - 'where's the algorithm filtering this?' And in a sense, the notification panel fills the 'cross platform compatibility' role that some people would like to see in messaging - all the notifications for all my messaging apps show up there. More and more, one's primary interaction with any app, social messaging or otherwise, is a little pop-up with a button or two. So shouldn't that get a native, messaging-focused UI? Instead of replacing stand-alone apps with light-weight versions built inside a messaging app, is it better for rich, actionable messages from native apps to be aggregated into a notification panel? Once you have that runtime, do you need an actual stand-alone app on the actual phone itself, or can you send those messages - really, little applets, down from the cloud? Do you turn apps into messages and notifications, or messages and notifications into apps?

Meanwhile, smart watches (to the extent that they take off) reinforce a model of atomic units of content with a handful of possible actions, and of glancing at a few key items rather than submerging yourself in a dedicated UI. So after unbundling sites from the web browser into apps, notifications take things further, unbundling each unit of content or action - each verb or noun - into a separate atom. So you can order a car with a flick of your wrist and a tap or two, instead of fishing your phone out of your pocket, unlocking it, loading an app and navigating the UI. 

This obviously leads one to ask what the platform owners themselves are doing. Should this be done by Facebook or the platform owners (the same question as for deep linking last year)? Do Apple or Google introduce an algorithmic filter to manage the flow in the system-wide notification panel, and does that compare to Facebook's lethal power over newsfeed partners? They're some of the way there. Both Apple and Google have perfectly solid mobile messaging apps that are not development platforms in their own right, and have done a lot of work on notifications in their smartphone OSs yet clearly have lots more to do. And Apple already lets websites send push notifications on OS X, while Google is clearly pushing Chrome hard as a development environment and so notifications from the web there would also make sense. 

So we can see some building blocks, but we can also see obstacles. The obvious one is that neither has the kind of desktop social presence that would make it easy for them to drive personalized push motivations for web to mobile - you're not logged into anything from Apple or Google (pace Plus) when you shop on the desktop web. On the other hand, you're always logged in on Android, and Apple has shown plenty of hints that it might see TouchID as a universal identity platform, and of course, they do have your address book. So Apple or Google could easily let an app send a push notification to a friend who doesn't have that app. Meanwhile as mobile devices zoom past half of time spent on commerce sites and a third of the transaction value, a web identity platform might matter less. There are other interesting possibilities too, if one thinks where Now or Passbook might fit. 

The core issue across all of this, I think, is how much is still totally unsettled. We spent 20 years in which the mainstream internet experience was a web browser, mouse and keyboard, and over a decade in which Google was the way you navigated. Smartphones ended all that, but we haven't settled on a new model, and the idea we'll all revert back to the comfortable, simple model of the web seems increasingly remote. Even within messaging, the  model is still in flux. I wrote above about the search for new psychologies, but there are deeper architectural questions than anonymity or filters, which you can see in SnapChat's disappearing messages or Meerkat and Periscope's use of live. What will the next blow-up model be -  synchronous or not? One to one or one to many? Feed based or thread-based? Algorithmic filter or endless stream? Rich client or rich message? Runtime or deep links? That may be the real problem for Facebook - the next messaging thing may not be messaging at all. 


* As an aside, it's challenging for anyone outside China to have a firm view on WeChat given that almost no-one has actually used it - the most interesting features only appear if you run the app with Chinese language settings. I don’t read Chinese myself, and I’m always reluctant to have a strong view on a product I’ve not used, though this is a minority position.

The next phase of smartphones

It’s now 7 years since the iPhone reset the phone business, and indeed the entire computing and internet businesses. But it was pretty clear at the time that the first iPhone was an MVP, and Google’s first Android… homage, the HTC G1, was even more so. It feels rather like the last 7 years have been spent adding all the things that really needed to be there to start with, both in hardware and software. For iOS and Android these have come in different orders, since their opening assumptions were very different, but they’ve ended up at much the same place in terms of the user experience and interaction model. There are small differences in how you interact, and there are always things that are on one platform before the other, but the basic user flows are very similar, and almost all the obvious gaps have been filled. 

Along these lines, my colleague Steven Sinofsky makes the point that for any new ‘thing' in computing, at the beginning everyone is doing roughly the same stuff because the stuff you need to add is pretty obvious and undifferentiated - you might deliver different things in different orders but you’ve got basically the same wish list. It’s once you’ve finished building out that stuff that things start to diverge. 

This, I think, is what we started to see at this year’s WWDC and Google IO - the end of the first 7 years and the start of a new phase, with the fundamental characters of Apple and Google asserting themselves. As Jean-Louis Gassée put it, iOS 8 is really iOS 2.0

Hence, WWDC was all about cloud as an enabler of rich native apps, while the most interesting parts of IO were about eroding the difference between apps and websites. In future versions of Android, Chrome tabs and apps appear together in the task list, search results can link directly to content within apps and Chromebooks can run Android apps - it seems that Google is trying to make ‘app versus web’ an irrelevant discussion - all content will act like part of the web, searchable and linkable by Google. Conversely for Apple, a lot of iOS 8 is about removing reasons to use the web at all, pulling more and more of the cloud into apps, while extensions create a bigger rather than smaller gap between what ‘apps’ and ‘web sites’ are, allowing apps to talk to each other and access each others’ cloud services without ever touching the web. 

Unlike the previous differences in philosophy between the platforms, which were mostly (to generalise massively) about method rather than outcome, these, especially as they evolve further over time, point to basic differences in how you do things on the two platforms, and in what it would even mean to do specific tasks on each.The user flows become different. The interaction models become different. I’ve said before that Apple’s approach is about a dumb cloud enabling rich apps while Google’s is about devices as dumb glass that are endpoints of cloud services. That’s going to lead to rather different experiences, and to ever more complex discussions within companies as to what sort of features they create across the two platforms and where they place their priorities. It also changes somewhat the character of the narrative that the generic shift of computing from local devices to the cloud is a structural problem for Apple, since what we mean, exactly, when we say ‘cloud’ on smartphones needs to be unpicked rather more. That's a subject for my next post. 

Meanwhile, this sort of divergence is why I’m a little skeptical about the other two big reveals in the last couple of months: the Fire Phone and Facebook’s mobile announcements at F8. Facebook is trying to build essential plumbing to connect the web and apps together, in particular with its deep linking project. But this is like building the plumbing for a building that’s still going up, and where you don’t know what it's going to look like. Making tools to connect apps and the web together when Apple and Google are shifting the definitions of those terms is going to be challenging. 

Amazon has a bigger problem. Most obviously, more and more of what it means to be ‘Android’ will come from the closed Google services that aren't part of AOSP and that it doesn’t have access to. If Amazon wants to free-ride on the Android app ecosystem, it will need to spend more and more time replicating the Google Android APIs that the apps it wants are using, or the apps just won’t work - presuming that Amazon even has the sorts of search-led assets to do that. But more fundamentally, AOSP is being pulled along by Google’s aims, and will change in radical and unexpected ways. This isn’t like building on Linux - it could be more like taking a fork of DOS just before Windows 3.1 came out. Are we quite sure (to speculate wildly for rhetorical effect) that we won’t be running Android apps in a sandbox on our ChromeOS phones in 5 years? Where would that leave Amazon’s fork? AOSP is not necessarily a neutral, transparent platform for Amazon to build on. 

Amazon and Android forks

The general reaction to Amazon's Fire Phone has been a puzzled shrug. It's a good but unexceptional device with entirely conventional high-end and high-margin pricing - a move as out of character for Amazon as the purchase of Beats was for Apple (and probably driven in part by the way the US pricing structure makes even $400 phones ’free’). There's an interesting quasi-3D UI feature and a big flashing BUY button, in line with Amazon's role as the Sears Roebuck of the 21st century, but little that really changes anything or couldn’t be done on any other smartphone anyway. And that leaves people wondering why Amazon bothered. The most productive line of thought, I think, is to look at Prime, Amazon's whale service, and the role that the Fire Phone plays in securing that relationship. 

To me, though, the interesting thing is less the phone than the platform and what it it represents - that is to say, the first real attempt to sell phone that forks Android outside China*.  

Android itself is open source, and anyone is free to take the code (AOSP) and build whatever they want. Android is the new Linux, in this sense. But AOSP doesn't give you Google's own smartphone apps and it doesn’t give you all the system services Google has built. So if you make an Android device without reference to Google, and change a bunch of things ('fork Android') your device won’t have the app store and the maps, and it won’t have the Google services APIs that lots of third-party apps need, most obviously push notifications, in-app payments, location and embedded maps. There are lots of other things Google makes as well, but those are both the important and the hard parts. 

Without this Google layer you really only have a featurephone, and to get Google's layer you need to submit to Google's control over what you make, which amongst other things means that you have to use Google's interface and you have to take the whole package - whatever Google wants on the phone goes on the phone. (The core mechanic here is that you have to pass the compatibility test). Hence, Google uses access to its apps and services as a lever to control Android. This is pretty similar to the way that Microsoft used Office and Windows: selling an Android phone without Google's services is like selling a Windows PC that doesn't have Office and can't run it. 

In China all of this works differently. Google services are either blocked or weak or both (the Chinese unaccountably didn't let Google send its mapping cars down every road in the country), while the Chinese internet giants Baidu, Alibaba and Tencent ('BAT') and scores of others have built lots of great Android services of their own. So the vast majority of Android phones sold in China (even from Samsung or Motorola) come with no Google apps and integrate these instead. 

Outside China, though, if you want to use Android as a platform but do something different, you need to build or buy those core functions yourself, and that’s what Amazon has tried to do. It has licensed Nokia’s HERE mapping platform, it has built an app store for Android, and it has built its own versions of the key enabling APIS - location, push notifications etc. 

The problem is that the maps and the app store are not commodities. Adding them is not just a matter of spending the money. Google's Maps platform is very good and HERE, at least in western markets, is not as good. As with Apple Maps, it works, mostly, but the gap is clear and there is no roadmap that points to that gap closing. For apps, though an app store itself is perhaps a commodity, Amazon has only persuaded a minority of Android developers to load their apps into its store, partly since this means they have to swap out Google’s APIs (for maps etc) for Amazon’s, and that is not necessarily trivial. Amazon has done just about as good a job as one could expect anyone to do at this stage, and there are very few other companies that could get this far - perhaps only Microsoft. But it hasn’t, remotely, reached parity with Google. 

And so Amazon is testing the proposition that you have to have Play (or iTunes) and Google Maps to sell a smartphone outside China - or, rather, it is testing just how good the app store and maps have to be. How many of the latest cutting-edge apps do you have to have, if you cover the basics? How close do you have to get to Google Maps’ coverage? We know Windows Phone does not have enough apps, but can the Amazon store get there?

These same questions apply to any Android OEM that might be thinking of asserting greater independence from Google (such as Samsung), with a further complication. Google’s agreements with OEMs have been leaked several times, and they include clauses that prevent you from having a foot in both camps: you cannot sell a forked device and carry on selling official Google Android devices. So you can’t experiment on the margins (Samsung can't sell a phone running Amazon's Fire software) - you have to walk away from Google entirely, or not at all. That's really no choice at all at the moment. 

All of this takes us to the elemental question - why, exactly, are you forking Android? What important problem do you solve that’s worth reinventing the wheel, while taking on the risk of building on someone else’s platform, open-source or not? Why are you asking people to buy a phone with second-rate maps and a second-rate app store? Are you offering them something you couldn’t otherwise do in return, or just addressing your own strategic concerns? Are you solving a user problem or your own problem?

Both Xiaomi and Cyanogenmod (an a16z portfolio company) have built their own very custom versions of Android that do none the less pass the compatibility test. And though Xiaomi differentiates on software, Xiaomi phones outside of China ship with Google Apps. Hugo Barra called it 'a compatible fork'. After all, it’s not as though you’re not allowed to change Android at all. Google describes the compatibility test as follows: 

"Enable device manufacturers to differentiate while being compatible. The Android compatibility program focuses on the aspects of Android relevant to running third-party applications, which allows device manufacturers the flexibility to create unique devices that are nonetheless compatible."

Generally, Android OEMs have been no better at differentiating on software than were PC OEMs, even though Google allows you to change more than Microsoft did. But it doesn’t follow that you can’t make Android visibly better without forking it if you bring the right skills and culture - Xiaomi and Cyanogenmod (and a number of other Chinese companies) show that. 

Hence, it seems to me that the forking question really flows not from a specific feature that you want to implement but the fundamental principle of controlling your destiny - you want a platform that’s 'yours'. 

That is, a central strategic problem for both Amazon and Facebook, amongst others, is that their businesses have moved from the essentially neutral platform of the web browser, where there has been no real change in the user interaction model in 20 years, to the much messier, mediated and fast-changing platform of smartphones, where the web is just one icon and platform owners are continually adding new ways for users to discover and engage with content, such as iBeacon or Google Now. They didn’t need to make browsers because browsers had become transparent commodities, but smartphones aren’t. This of course is why Google itself made (or rather bought) Android - to make sure that it would not be shut out in this new environment. Making an entire new OS is not an sensible option for Amazon or Facebook at this stage, but building on top of a free, open-source one is worth at least thinking about. But, again, in doing that you need to solve the users' problems, not just your own. 

Facebook is also poking away at this issue (such as with the abortive Home), but as Mark Zuckerberg pointed out, even a really successful Facebook Phone would only be used by 5% or 10% of Facebook’s users, so would really just be a distraction. Instead, faced with a very different set of competitive dynamics on mobile, Facebook is exploring the unbundling of its product with a 'constellation' of different apps. That is, Facebook is embracing this new and more complex environment. With the Fire Phone Amazon is going the other way - greater bundling rather than less.

I do wonder what might appear if Facebook's strategy was applied to Amazon's product - if there were half-a-dozen different interesting and useful Amazon apps for finding and buying products. But Amazon has never been a user experience company in that sense - it thinks about user experience the way Fedex does, as something to focus on ruthlessly, but not as a playground for new experiences. That means it's going to be very interesting to see how it can enchant and delight people who buy its phone. 


*Note: when I wrote this on a Sunday evening the fact that Nokia (and hence now Microsoft) has been selling a forked Android phone for the last 6 months passed completely out of my mind, even though I played with one at MWC and rather liked it. It's done rather well in emerging markets, apparently, and is on sale in parts of  Europe) but isn't even for sale in the USA. The main driver is that Windows Phone doesn't fit well into the hardware required of that price. The points in the blog post all remain, though. 

Unfair but relevant

A while ago I wrote a post talking about how sometimes, the best and most important comparisons are those that are unfair, but relevant. 

This is a pretty good example of an unfair but relevant comparison: Facebook's active users of Android and IOS by region. 

People who buy $600 phones (Apple's ASP) and people who buy phones for $250 (Android's ASP)  or less tend to be different types of people. 

Of course, whether everyone in Greenwich who will ever get one already has an iPhone, and hence whether there's any more growth to be had, is another equally relevant question. 

iPads and tablet growth

Apple's revenue has pretty much stopped growing. This chart shows the quarterly revenue the company has reported - a series of ever larger spikes upward around new product launches, but with a flattening trajectory. 

If you look at this on a a trailing 12 months basis, to smooth out the spikes and see the underlying trend, you see a very clear 'S' curve. 

And the US revenue is pretty much flat, though China is certainly growing. 

Apple has three main buckets of revenue - iPhone, iPad and  everything else. If you split these out, you can see that the really dramatic slowdown is actually in the iPad business, not iPhone. 

This is something of a change - a year ago the general narrative was around the rather obvious ceiling on iPhone sales and the possibly huge but unknowable potential of the iPad. Now things have turned around. 

Part of this slowdown in revenue is due to a decline in ASP as Apple rolled out cheaper iPad models...

But if you look at unit sales you see pretty much the same trend: flat for the last year. 

Screen Shot 2014-04-25 at 2.33.18 PM.png

Shifting back to the raw quarterly numbers, you can see the same trend.

When asked about this on the conference call earlier this week, Tim Cook talked a bit about changes in inventory. But actually, that isn't the point - the underlying trend looks the same whether you look at sell-in or sell-through.

(Note, incidentally, that no other mobile device company provides anything like this much this data) 

So iPad sales are slowing. Why? Is it competitive pressure from Android? Not really. 

This chart, and dozens of others from every possible source, makes it very clear that the iPad dominates tablet web traffic in a way that it does not dominate smartphone web traffic. This particular chart shows the USA, but I hear the same story from companies everywhere from the UK to China. The same is seen for app use. People are not substituting iPad use for Android use, not at anything like the scale needed to explain the slowdown. And Android tablets that try to offer the same 'post-PC vision' as the iPad are not selling especially well - the real global volume is in the generic black plastic devices at much lower prices - and they don't even show up in usage stats. 

The classic negative view on iPads was that they couldn't compete with PCs because they lacked multitasking, keyboards, Office (until now) etc, etc. But that' s an incomplete response, because PC sales are suddenly weak too (and only part of that is Windows 8). 

So what IS going on? Perhaps one answer is in this chart. 

Screen Shot 2014-04-25 at 3.15.26 PM.png

On one hand, as I wrote here and Steven Sinofsky discussed in this podcast, moving to new devices and form factors involves new software experiences, and new software also often both creates and requires new business processes. It's hard to spend a day creating a 20-slide sales report on an iPad, even now that MS Office is available for iPad. But actually, that sales report should be a SAAS dashboard that takes 10 minutes to annotate. It will take time for those business processes to shift to enable more corporate tablet use. 

On the other hand, the smartphone explosion is putting the internet into the hands of far more people than ever before, and it's alway there. If you're watching TV and want to know about an actor or a product, do you go upstairs and turn on your PC, walk across the room to pick up a tablet, or just pull a smartphone out of your pocket? The declining relative utility of the PC is reflected in a slowing replacement cycle (you don't replace the one you have) - the tablet has yet to make the sale in the first place, outside the initial wave of adopters. 

Compounding this, the smartphone explosion is accompanied by an apps explosion. There are thousands of amazing apps on iPad (and very few on Android tablets, which is why the balance of use between the two is so skewed), but the smartphone opportunity is so much bigger that it attracts much more attention: there are more of these devices, some use cases make much more sense on them (such as Instagram) and some only make sense on them (such as Uber, Hailo or Lyft). So the smartphone experience now is very rich. 

(A complicating factor, of course, is that these categories can't be neatly divided - phablets blur the boundary between phones and tablets and 'convertibles' blur the laptop/tablet boundary. But sales of both these are relatively small for now - even phablets)

A good illustration of this shift from the PC to mobile was Facebook's results this week: it now has more mobile-only than desktop-only MAUs and 79% of MAUs are mobile. 

So, looking at tablets and smartphones as mobile devices in a new category that competes with PCs may be the wrong comparison - in fact, it may be better to think of tablets, laptops and desktops as one 'big screen' segment, all of which compete with smartphones, and for which the opportunity is just smaller than that for smartphones. And so tablets will over time eat away at laptop and desktop sales just as laptops ate away at desktop sales, but the truly transformative new category is the smartphone. Maybe. 

Facebook, identity and throwing sheep

Way back in the dark mists of time, when Facebook first launched its platform on the desktop, one of the first hit apps was something called 'Superpoke'. Superpoke did quite a few things but the one that got all the attention was throwing sheep at people. That is, they'd open their Facebook news feed and it would say 'Benedict threw a sheep at you'. 

Of course, a website that did that would never work - you'd never get a critical mass of people to open an account on a new site just for that. But Superpoke could plug into the Facebook platform so you could do this fun little social thing right away with almost no friction. 

A lot of the social apps bubbling up now remind me of this. As I've written several times, by plugging into the smartphone address book, camera, photo library, notifications etc the frictional barriers to doing a new social app fade away: the smartphone is a social platform in the same way that Facebook is. The obvious expression of this is WhatsApp and similar things that directly address the core Facebook use cases. But it seems to me that there's at least as much potential in doing things that use the platform without trying to take over a core use case - things like throwing sheep. That is, the smartphone social platform enables a lot of experimentation with new ideas and behaviors that don't need to be your core comms channel and that would never have worked on the web, and (for a bunch of reasons) might not have been possible on the desktop Facebook platform.

Snapchat is arguably one of the biggest of these, and Secret is another. Firechat is also an interesting example - it leverages the wireless autodiscovery features in iOS7 to do hyperlocal chat. Of course this isn't quite as easy as Superpoke - you still need to install an app from the app store (for now, though that may well change) but the friction is still pretty low. With apps like Line, WeChat and Kik you can see people trying to pull this experimentation back up the stack and put it inside a social app again - that might be the right model for some things, but of course you're trading friction for flexibility. Making your own smartphone app needs that initial install but has much more power. 

I also think that (as I suggested here) retailers should be thinking about how they can leverage the social platform aspects of smartphones - shouldn't the Zappos app show you which of your friends have it and let you share shoes directly? Again, doing that well on the desktop would be really hard, but on a smartphone it's just a tap or two away. 

This takes us around to Facebook again. Perhaps the problem is not that people use WhatsApp instead of Facebook Messenger - rather it might be that they use Sephora instead of Facebook Messenger. This is partly about unbundling WhatsApp, just as WhatsApp unbundled Facebook, but it's also that the fads and gimmicks and silly little things (otherwise known as 'fun') don't happen within Facebook. The time sinks don't have to happen within Facebook. And maybe the commerce apps don't need to connect to it. 

The question implicit in all of this, of course, is identity. It's the machine-readable identify that allows all of this low-friction social experimentation. But what is the irreducible common denominator for connecting to your friends? Is it your Facebook identity? How much does it matter to Facebook if it isn't, if it still happens in something Facebook owns? Is it your PSTN phone number (which Facebook will actually let you use to find friends with the smartphone app)? Or do you change that from time to time without caring? The broader phone address book? Your email address? BBM Pin (cough)? Location? Would Apple try something within iOS (with the fingerprint scanner)? Where in the stack does the identify sit - the network, OS platform or something further up? Actually, I suspect there isn't any single common point that any company can own. 

Whatsapp and $19bn

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)

Who buys the iPhone 5C?

Facebook's ad platform gives a wide range of targeting information, including gender, country and, as it happens, device type. So you can see what Facebook thinks the audience for your ad would be if you aimed it at British women with iPhone 5Cs. And, as it turns out, that's an interesting answer. 

So, this chart shows FB's numbers on this basis for the 5S and 5C for the USA and UK, both markets where both iPhone and Facebook have good sample sizes. 

Screen Shot 2013-12-08 at 12.54.40 am.png

There are two obvious things in this chart: the 5S is selling better than the 5C (which we pretty much knew), but the 5C has far from flopped, and women like the 5C much more than men. You can see this more clearly if we switch to percentages and compare with the broader base. 

Screen Shot 2013-12-08 at 12.54.51 am.png

Women are a (very) slight majority in Facebook MAUs overall (which is probably within the margin of error). But they're a little more likely than men to buy iPhones, particularly in the USA, and much more likely to buy the iPhone 5C.

What's going on here? There are a couple of dynamics: 

  • All iPhones are more expensive relative to the competition in the UK than they are in the USA, where the pricing structure tends to mask the price of phones. 
  • The iPhone 5S is sold a little more on technology than the 5C and is also more expensive  (again, especially in the UK)
  • The 5C is offered in a wide range of colours

So, is this gender disparity because women are more practical and buy a cheaper phone? Or because the colours of the 5C are more appealing than they are to men? Or something else?

(All this is presuming, of course, that the Facebook data is reliable, but these gaps should be large enough to rise above sample error). 

Mobile interaction models

The interaction model for the desktop internet was pretty much settled 15 years ago. It turned out that the answer was a web browser. Stand-alone apps such as Pointcast were a mostly blind alley, and while apps persisted for email and IM, and for very specific things like music, the words ‘web’ and ‘internet’ became effectively synonymous to anyone non-technical. Over time we added Ajax and better search and better social, but everything really happened inside the browser.

In mobile this is quite different: nothing is settled. We have the web and apps and of course app stores, and then we have many complications - voice, in-app payments, web apps, hybrid apps, widgets, push notifications, social messaging apps, Google Now and Siri. Then there’s the hardware layer - images, barcodes, NFC, bluetooth, location, motion sensors etc. Innovative and disruptive new interaction models can very often find a route to market, far more easily than they could on the desktop internet. Sometimes, they scale to a hundred million users in a year to two. And we have more and more waves of innovation coming, with things like local wireless from Apple and deep linking to within apps from Android, and a very fast-evolving social messaging space, and more things in 2014 and beyond.

So, we can actually have a pretty limited idea of what the dominant interaction models will be in 5 years. 

(There is a dream, of course, that all these nasty choices and options will go away and we can go back to the nice, simple, limited web, but that doesn’t seem very likely just yet.) 

One of the big changes here is the removal of monopolies. If the web is not the only interaction model then web search loses power as a discovery and acquisition channel. And in parallel Facebook’s desktop monopoly on social has not transferred to mobile and it seemly unlikely that it ever will (I wrote about the reasons for this here). So both of the key channels on the desktop are smaller and less crucial, and also work significantly differently, and are pretty poor at driving some key types of engagement, now that you’re not just looking for a click on a link. This changes lots of things, and creates lots of new opportunities.  

The puzzle for Google is how it brings its vast, decade-old machine learning project to bear on this new complexity of data and behaviour. The obvious problem is that data and behaviour within apps are effectively dark matter that it can’t track (hence the deep-linking initiative in Android). But this is balanced by much richer data collection. Your Android phone feeds it with data all the time - where you are, what you look at, where you go after you search and what you did the day before. The challenge is finding the right ways to collate and present that data - Google Now is one example but probably not the only one. The search box and the page of results is just one possible interface to that machine-learning project - what does Google look like after the search box?

Social faces a different set of challenges. It seems to me that on mobile Facebook will never have the near monopoly that it briefly enjoyed on the desktop - smartphones remove most of the frictional barriers that keep you on one social network. But mobile social more broadly is a vast opportunity. With web search no longer the dominant channel, social, on a far more social device than the PC, has an open door to push at. Tencent announced that the first 5 games that it launched with Wechat integration, starting in August, have had 576m registered users. Mobile social is an engagement, interaction and distribution channel, and it appears to be much richer, and probably much bigger, than social was on the desktop. 

If this is the end to near-monopolies in acquisition and discovery, it’s also interesting to think about it as the end to monocultures. If the interaction model shifts away from web search, that change makes different models and different types of behaviour possible. In turn, one might ask - what models and companies and behaviours were precluded by Google on the web? What good ideas didn’t work because of the way Google did search and the way Facebook did social? How did that monoculture shape things, and how does that change now?