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Predictions 2012 #5: A Big Year for M&A

By - January 05, 2012

(image) One of the things that pops out of the “Big Five” chart I just posted, at least if you stare at it a bit, are the places where each company needs to get strong, quickly. Apple is weak in social and one dimensional in ad solutions. Microsoft needs to improve its device products, build out its entertainment distribution muscle, and keep improving search share. Google wants to get better in productivity software, social, and payments. Amazon needs help in devices, social, and OS. Facebook has work to do in many areas, including devices, search, payment, and voice.

When the five largest companies in our space have a lot of needs, they tend to pull out the wallet and go shopping. Sometimes they buy their way into partnerships, but often, they simply buy.

Hence my  fifth prediction for 2012: Expect Internet M&A to heat up, big time. It’s not just going to be the Big Five who drive this trend, it’ll be a whole mess of players looking to consolidate power and press into the double-digit growth market that is the Internet (and by Internet, I also mean mobile and enterprise, of course). Yahoo’s new CEO Scott Thompson knows how to buy companies and has a data focus, for example. That could mean competition to purchase marketing, ad tech, and data companies like Blue Kai, Quantcast, or MarketShare. MediaBank is on a tear and will be on the lookout for similar kinds of companies. IBM has a deep interest in the marketing tech world, expect Big Blue to make some big moves as well. And Twitter will certainly be flexing its muscles, now that it’s bulked up with nearly a billion in fresh capital.

If I had to name a few companies I expect to be in play amongst the Big Five, they would be:

Instagram. This searing hot proof-of-iPhone app is not only a strong social play, it’s a massive image and data goldmine to boot. I could imagine a bidding war for Instagram between Apple (which really needs a social win), Twitter (which could really use a strong photo play), Facebook (which might buy it to keep it out of Apple or Google’s hands), and Google (who would see it as a way to sex up Google+ and Picasa). Of course Yahoo would vie for Instagram as well, but I’m not sure it could win.

Pinterest. It’s social. It’s media. It’s data. Is it a mayfly? Perhaps, but I think it’ll be in play in 2012.

Square. Everyone loves small business, and everyone loves payments. Visa already owns a stake, but that won’t stop Dorsey from landing where he feels the fit is best. That might be Amazon.

Evernote. If any of the Big Five are looking to bolster their productivity suite, Evernote might pique their interest.

These are just off the top of my head, and I’m not a VC (or a daily tech reporter for that matter), so I’ll leave the rest to your imagination. Suffice to say, I predict 2012 is going to be a banner year for tech and Internet M&A. Who do you think will be swept up, and why?

Related:

Predictions 2012: #1 – On Twitter and Media

Predictions 2012: #2 – Twitter As Free Radical, Swiss Bank, Arms Merchant…And Google Five Years Ago

Predictions 2012 #3: The Facebook Ad Network

Predictions 2012 #4: Google’s Challenging Year

Predictions 2011

2011: How I Did

Predictions 2010

2010: How I Did

2009 Predictions

2009 How I Did

2008 Predictions

2008 How I Did

2007 Predictions

2007 How I Did

2006 Predictions

2006 How I Did

2005 Predictions

2005 How I Did

2004 Predictions

2004 How I Did

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The Internet Big Five By Product Strength

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As I have written in previous predictions, I’ve been focusing on the Internet Big Five lately, and expect that to continue this year, as the group, collectively, are something of a “character” in my upcoming book (as is Twitter, the “free radical”). Other characters include “The Government” and “Corporations,” so expect predictions about those players in the next few days. But today, I want to focus on the Big Five as a whole. I’ve been staring at these companies, trying to understand their strategic imperatives, which is why I found myself making yet another chart.

This one focuses on core product lines where all (or most) of these companies are playing. For me, these product lines, taken together, are the basis of what we might call “the operating system of our lives.” And since the book is about how we will be leveraging our lives over digital platforms in one generation, it struck me as important to assess where each of the Big Five is right now (what they have already built) and where they are weak (what they need to build to compete).

Here’s the chart:

As you can see, I’ve laid out the same five companies, listed top to bottom by market cap. From left to right are columns of various product lines or offerings that I’ve determined are crucial areas that any player in the “OS of our life” must address. I’ve keyed each company against each product line with one of four scores, from “Strong” – where a company already dominates – to “Weak” – where a company either does not play, or has an anemic offering. The terms “Developing” and “Improving” demonstrate that the company is making progress in that area, from either a weak position (“Developing”) or a middling position (“Improving”).

The product lines I determined were worthy of inclusion mirrored many of the territories found in the Web 2 Summit Points of Control map, with some key additions. Starting from the left: If you’re going to be the “OS of life,” it helps if you have experience building operating systems. Next, it’s critical that you have the ability to distribute products and services, in particular entertainment, to folks on your platform. This means dealing with Hollywood, and the Big Five are in various states of disarray with regard to that issue. Third is Productivity Software, which some of the Big Five may well just punt on (Facebook and Amazon, perhaps). Fourth is Advertising Solutions – where all of the Big Five are either major players or developing solutions. Next are Tablets and Phones, which perhaps could also be called a distribution play but are far more than that. After that is Search, which kind of started this whole Web 2 thing back in the day – I gave Apple a “developing” here because of Siri, which I view as a search interface. Next up is Social, which is pretty self explanatory, Payment, a key point of control, and lastly Voice, which I believe (perhaps wrongly) as a critical aspect of user interface.

Why on earth did I go to the trouble of doing this? Well, because it helps me Think Out Loud about how these companies are going to play out over the next couple of years. If you buy that all of these companies need strategies in most of the areas I outline above, then looking for relative weaknesses and strengths of each is an interesting exercise. In fact, if you really squint, you may well see some patterns in future M&A (the subject of my next prediction post, in fact).

I could go on for pages about how I came to each score. For example, I gave Facebook a “developing” in OSes, even though the company really doesn’t have an OS like Windows or iOS. Why? Because I view Facebook as an OS layer on top of the Web, though of course not in the classic sense. And why did Amazon get a “developing” in Voice? Because it just bought a company in the space, just like Apple did with Siri in 2010. I’ll spare you the details of all the rest, but very much invite your comments on the chart. I labeled it “Draft 1″ for a reason. What categories of product did I miss? Were my scores fair? Comment away, please!

Update: I spaced on Xbox/Kinnect, and have updated the chart wrt to Ent/Dist for Microsoft, thanks for the input!

Predictions 2012 #4: Google’s Challenging Year

By - January 04, 2012

By some Mayan accounts, 2012 is not going to be a good year for any of us. But in this prediction, I’m going to focus on one company that will have a pretty crazy year: Google.

Now, I’m not predicting the company will lose revenue or profits in its core business of search, but rather that Larry Page’s first full year as CEO will be challenging, due in part to decisions made (or not made) back in 2011, and in part to the inherent complications of the businesses where Google now plants its flag.

I’ve got candidates for what those decisions were (Google+ real names’ policy, buying all of Motorola Mobility, not elegantly stewarding Android, muddying the search waters by favoring its own properties), but I think they all boil down to one core thing: Google has often brought products to market before they were fully ready, then played catch up with the competition against a roiling tide of conflicted partners, grandstanding policy makers, and confused consumers. It all adds up to a massive challenge that I think will come to a head in 2012.

Witness Android: the platform needs a strong and steady product-driven hand behind it, but seems at the mercy of handset makers and carriers. There’s hope in the Galaxy Nexus, but that phone is way ahead of the Android pack, and I’m not sure the ecosystem behind Android is going to follow Google’s lead here. Not to mention the goat rodeo that is the patent mess in mobile – an enervating and expensive battle that is always one court order away from throwing a wrench in Google’s plans. In short, Android is a wonderful counterpunch to Apple’s iOS, but it’s also a massive cat-herding challenge.

Or ChromeOS/Book/Apps: Google’s basically taking on the entire netbook marketplace here (Macbook Air and Windows in particular), but is the company really ready to play the game that its competitors have owned for decades? Sure, you can change the rules (Google’s really selling a cloud-based approach to work, rather than a PC-based one), but you can be right on theory and wrong in practice: hardware and the enterprise don’t move as fast as the web in terms of adoption. The company’s strategy of partnering (with leader Samsung, in this case) is elegant, but not at scale. At the same time, Google is taking on Microsoft in cloud software, and while it’s got some impressive wins under its belt, this is not a market native to Google’s strengths. In short, it will be a massive challenge to manage this business to scale and succcess in 2012.

Or Google+: Google is justifiably proud of how quickly this service has scaled (reportedly to more than 60mm unique users a month, in just six months), but questions remain as to the service’s staying power. If you are Google, and you integrate your new service into everything you own and operate (Android, Docs, Search, YouTube, Picasa, etc), it’s not going to be difficult to get a ton of folks to try the service out. I’m pretty sure that Googlers made their “social bonus” last year, given the good initial numbers, but again, it’s going to be a real challenge to turn those initial visits into long term active users who forsake Twitter and/or Facebook.

Or GoogleTV (and by some extension, YouTube): Probably the poster child for “not market ready,” GoogleTV now has very high expectations for 2012, thanks to Chairman Schmidt’s recent comments. But while the company can cut deals to integrate GTV into every new digital set on earth – and through its Motorola purchase, into every Motorola box to boot – it can’t force the kitty-with-a-ball-of-yarn ecosystem of cable companies and Hollywood to get out of the way of making a great consumer product (and Hollywood is still hoping to win its legal battles with YouTube). Again: A massive challenge, one that I doubt anyone (including Apple) will figure out to great success in 2012.

Or even Google core search: Google’s bread and butter is a massive profit and revenue engine, and I don’t expect that to change in 2012. However, it’s slowly losing share to new modes of discovery like Twitter and Facebook, and Google  has struggled with how to incorporate those signals into its search service. It can’t come to terms with either of the two major social services over data usage (and presumably money), meaning it’s losing ground in relevance, freshness, and depth. Then there’s the shift to mobile and apps: the world of apps is not easily crawled (and like Facebook, Apple is not eager to let Google do so), meaning an entire new digital frontier is lost to Google’s spiders (I lament this for other reasons as well, but more on that later). And then there’s the need to promote core Google properties, from Places to Google+ to Finance to YouTube to…well, you get the picture. Even though the company claims no bias in its results, the fact is that its partners aren’t buying it anymore (Yelp comes to mind). Lastly, there’s Bing, which isn’t going to stop trying to steal share. Back in the glory days of Web 2, the Web was the only game, and Google was everyone’s dashboard to it. Again, it will be a major challenge to keep Google’s core search business ahead of the game – because the major underlying rules are changing.

I could go on (I haven’t even delved into privacy, intellectual property, and international policy issues, or competition in the ad stack from Facebook and others), but I think I’ve made the point: Google has entered a phase in its corporate life where its future rests on bringing elegant products into markets that are goat rodeos on good days, and snake pits on bad ones. Telecom, entertainment, social, search, advertising? Yikes. “Challenging” seems like a euphemism.

On the other hand, if any company has the resources, the talent, and the willpower to execute in so many challenging markets at once, it’s got to be Google. But this is a prediction post, so let me end with one: Given all Google is trying to do, it will have a major fumble in 2012, one that beats anything the company has done in its long (and mostly fumble-free) history. But hey, every good team fumbles, it’s how you recover that matters.  If I had to chose a shortlist for the ball dropping, it’d include Motorola, GoogleTV, and yes, even Google+, which given its high expectations might be set up for disappointment. We’ll see if I’m right a year from now.

Related:

Predictions 2012: #1 – On Twitter and Media

Predictions 2012: #2 – Twitter As Free Radical, Swiss Bank, Arms Merchant…And Google Five Years Ago

Predictions 2012 #3: The Facebook Ad Network

Predictions 2011

2011: How I Did

Predictions 2010

2010: How I Did

2009 Predictions

2009 How I Did

2008 Predictions

2008 How I Did

2007 Predictions

2007 How I Did

2006 Predictions

2006 How I Did

2005 Predictions

2005 How I Did

2004 Predictions

2004 How I Did

Predictions 2012 #3: The Facebook Ad Network

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For my third prediction of the year, I’m going with one just a tad bit less obvious than “Facebook will go public.” There seems to be no doubt about that event occurring this year, though I’ve certainly heard intelligent folks argue that Facebook can and should figure out how to stay private. I’ve argued that Facebook ought to be a public company, if only to be held (somewhat) accountable given all the data it has on our lives.

But this prediction has to do with Facebook announcing and then launching a web-wide advertising network along the lines of Google’s AdSense. I’ve talked about this for years (short handing it as “FaceSense,”) and I’ve asked Mark Zuckerberg, Carolyn Everson, Bret Taylor, and Sheryl Sandberg about it on stage and off. The answer is always the same: We’re not interested in launching a web ad network at this time.

I predict that line will change in 2012. Here’s why:

- Once public, Facebook will need to keep demonstrating new lines of revenue and growth. Sure, the company already has the attention of 1/7th of all time spent “on the web.” But there’s a lot more attention out there on the Independent Web, and the default ad service for that other 6/7ths is Google’s AdSense, a multi-billion dollar business.

- Facebook already has its hooks into millions of websites with its Open Graph suite – all those Like, Recommend, Share, Connect, and Facebook Comment plugins. These buttons are pumping data about how the web is being used directly into Facebook’s servers. That data can then be combined with all the native Social Graph data Facebook already has, making for a powerful offering to marketers across the entire web. Think of it as “social retargeting” – marketers will be able to buy attention on Facebook.com, then know where folks are across the web, and amplify their messaging out there as well.

- Because Facebook is already integrated into millions of sites, it’ll be a relative snap for the company to start signing up publishers to offer their inventory to the social giant. It will be interesting to see what terms Facebook offers/requires – I’m assuming the company will match Google and others’ non-exclusivity (IE, you can use any ad network you want), but don’t assume this will be the case. Facebook may have an ace or two up their sleeve in how they go to market here.

- Lastly, let’s not forget that the team who built and ran AdSense is now at Facebook (that’d be Sheryl Sandberg and her ad ops chief David Fischer, oh, and one of the “fathers of AdSense,” Gokul Rajaram).

Critical to the success and rollout of Facebook’s web ads will be two key factors. One, the structural underpinning of the system: AdSense scans the content of a page and delivers relevant ads (though many other factors are now creeping into its system). This leverages Google’s core competence as a search engine (it’s already scanning the page for search.) Facebook’s core leverage is knowing who you are and what you’ve done inside the Facebook ecosystem, so the key structural construct for its web ad network will turn on how the company leverages that data. I imagine the new ad network might initially roll out just to sites that have Facebook Connect installed, so that visitors to those sites are already “inside” the Facebook network, so to speak.

The second issue is what may as well be called the “creepiness factor.”  Search display retargeting is still a gray area – a lot of folks don’t like being chased across the web by ads that know what sites you’ve recently visited or what terms you’ve searched for. Cultural acceptance of ads on third party sites that seem to know who your friends are, what you ate for dinner last night, or what movies you recently watched might provoke a societal immune response. But that’s not stopped Facebook to date. I don’t expect it will in this case either.

Related:

Predictions 2012: #1 – On Twitter and Media

Predictions 2012: #2 – Twitter As Free Radical, Swiss Bank, Arms Merchant…And Google Five Years Ago

Predictions 2011

2011: How I Did

Predictions 2010

2010: How I Did

2009 Predictions

2009 How I Did

2008 Predictions

2008 How I Did

2007 Predictions

2007 How I Did

2006 Predictions

2006 How I Did

2005 Predictions

2005 How I Did

2004 Predictions

2004 How I Did

Predictions 2012: #2 – Twitter As Free Radical, Swiss Bank, Arms Merchant…And Google Five Years Ago

By - January 03, 2012

My predictions this year will be pretty focused on the Internet Big Five (Google, Microsoft, Apple, Amazon, and Facebook) but the first two focus on Twitter. Why? Because Twitter is poised to become a critical “free radical” whose presence affects the actions of all the Big Five players. And 2012 will be the year this becomes readily apparent. In short: In 2012, every Big Five Internet company will need to have a clear Twitter strategy. At the moment, not all of them do.

What do I mean when I use the term “free radical”? Well, taken loosely from molecular chemistry and biology, free radicals are particles with open shells or unpaired electrons – they cause change in otherwise stable systems. I take the term with a bit more license, however – to me Twitter is the only Internet service at scale that has yet to ossify into a predictable platform with a massive revenue base to protect. This fact, plus the company’s liberal philosophical bent toward free speech, positions Twitter as something of a shape-shifting arms merchant in the ongoing battle between the Internet Big Five. Believe me, any one of the Five would kill to own Twitter, several of them have tried to buy the company over the past few years. It’s now clear that Twitter’s path is one of independence. To succeed, it must become the Swiss bank of social intent, providing its services in some kind of useful way to each and every one of the Big Five.

2011 has already set the table for how this year is going to play out. In short, Microsoft and Apple embraced Twitter, Google and Facebook rejected it, and Amazon stayed on the sidelines, for the most part.

Last year, Google allowed its search deal with Twitter to expire (not for lack of trying, I am sure), and then rolled out Google+, which is clearly a Twitter competitor (sure, it’s also a Facebook competitor, but let’s keep this post focused, shall we? Google+ replaced Twitter in Google’s search service. Enough said.). Microsoft, on the other hand, was happy to renew its deal. It’ll do more with Twitter in 2012, to be sure.

Last year was the year Facebook pretty much copied everything Twitter does, up to and including the “Subscribe” feature, which is pretty much a full copy of Twitter inside the Facebook walled garden. Meanwhile Apple embraced Twitter wholeheartedly, with a deal that clearly benefited from Facebook negotiations gone south. And as I said earlier, Amazon didn’t see much reason to work with Twitter, save adding a few new handles to its corporate identity.

In 2012, every Big Five player is going to have to reckon (again) with Twitter. And it’s my hope that Twitter’s approach to these Internet behemoths is to force them all to play by the same rules. In other words, no exclusive deals for any of them. If Google wants to integrate Twitter natively into Android (the way Apple has with iOS), why, great. Twitter won’t refuse to do so because Apple objects. Should Microsoft care to build Twitter natively into Xbox Live, again, no problem, but sorry Microsoft, Twitter keeps the right to allow Sony or Nintendo (or, gasp, Facebook proxy Zynga) the same option. When Amazon starts publicly acting like a full-blown media company (and not just a distribution or ecommerce player), it will cut a deal with Twitter for distribution and data, quite possibly in the advertising network space. Amazon’s competitors will have nothing to say about it. And if Facebook ever wakes up and realizes that Twitter might play a part  in its strategy in some important way, Twitter will be more than happy to figure out a deal, even if Google objects.

In short, the Internet Big Five need a neutral player they can all draw on for value and features that any one of them can’t (or won’t) do – for any number of reasons. This is the role Google played in the first five years of Web 2.o (but increasingly can’t play due to conflicts with owned and operated properties like YouTube, Android, Google+, Places, etc.). For now, Google and Facebook still think they can out-Twitter Twitter. Microsoft and Apple have already punted on competing directly. I’m predicting 2012 is the year Google and Facebook come around and work with Twitter in some new, significant way, as will Amazon.

This is a pretty risky prediction to make, to be sure. Sitting here in January of 2012, it’s quite easy to argue that the folks at Facebook and Google see absolutely no reason to work with Twitter. But there’s an important reason to work with Twitter that hasn’t become quite evident, yet. And that has to do with the concept of openness and the need for third party validation in the eyes of government and consumer scrutiny. More on that in a future prediction.

Related:

Predictions 2012: #1 – On Twitter and Media

Predictions 2011

2011: How I Did

Predictions 2010

2010: How I Did

2009 Predictions

2009 How I Did

2008 Predictions

2008 How I Did

2007 Predictions

2007 How I Did

2006 Predictions

2006 How I Did

2005 Predictions

2005 How I Did

2004 Predictions

2004 How I Did

TextPlus Adds Free Calling – Watch This Space

By - December 13, 2011

A couple of weeks ago I met with the CEO of TextPlus, and wrote up my experience here. I mentioned he has some news coming, and this is it: TextPlus, which is a popular free text messaging service, is launching free calling between TextPlus members today. Calling to regular lines is pretty cheap to boot (like 99 cents for 40 minutes).

Why am I writing this up? Because it makes me wonder….TextPlus is a fast growing service that is leveraged over the Apple iOS world I call AppWorld. It serves at the whim of a gatekeeper, in this case, Apple (you can also get it for Android, which is growing faster). Apple, in turn, must keep its carriers happy by selling tons of iPhones (and iPads) with plans that lock customers into paying a pretty penny for data and voice connectivity. And I am not sure those carriers are happy with the idea of a fast growing app that helps teenagers (TextPlus’ main constituency) bypass those profitable service plans. It’s like a built in way to teach the next generation of customers how to cut the cord.

Sure, there’s always Skype and Google Hangouts and such, so perhaps this isn’t such a big deal. But then again, maybe it is. With Wifi coverage growing quickly these days, TextPlus – perhaps the name now should be CommPlus – is one to watch, IMHO.

On This Whole “Web Is Dead” Meme

By - December 12, 2011

The Web is dead again, at least, according to a widely covered speech by Forrester Research’s George Colony.

Speaking at Le Web last week, Colony claimed that the HTML web is a poorly architected half step in the next, obvious progression of platforms: a hybrid between what we’ve come to know as the Web and the crippled chicletized place I’ve been calling AppWorld. In a stroke of nomenclature insight, Colony calls this new platform the App-Internet.

Colony argues that, unlike apps, the Web doesn’t leverage the processing and storage power of edge devices (like the iPad or a smartphone, for example. Or, say, an old school computer, like the one I’m using right now to write this post.)

In theory, I agree with Colony, but I’m not sure the real issues are elucidated in his speech, or in much of the coverage of it. If the next version of the “Web” loses that which makes the web special, it won’t be the web anymore. That’s when, for me anyway, the “web will be dead.” If the web keeps its core principles, well, then, we’ll keep calling it the web, I’d wager, even if it ends up looking like the “app-internet.”

Let me explain, if I can. I feel like I’ve written this many times before, but perhaps not so directly as now. What makes the web special is not the language(s) in which it is written  (HTML, javascript, and so on). To me, what makes the web special are the underlying assumptions about how it works. In no particular order, they include:

- No gatekeepers. The web is decentralized. Anyone can start a web site. No one has the authority (in a democracy, anyway) to stop you from putting up a shingle. Of course, we live in a society of law, so if that new site breaks a law, well, you might have to take that shingle down. That’s OK with me.

- An ethos of the commons. The web developed over time under an ethos of community development, and most of its core software and protocols are royalty free or open source (or both). There wasn’t early lockdown on what was and wasn’t allowed. This created chaos, shady operators, and plenty of dirt and dark alleys. But it also allowed extraordinary value to blossom in that roiling ecosystem. Over time, the good actors have come to agree on best practices which have allowed an extraordinary new resource to thrive. These practices include privacy policies, data use policies, and even some reasonable law (we’re still working out a lot of the law part, but it’s happening slowly and with consideration, as I believe it should). In short, we’re taking the time to codify the rules of the road on the web. We’ve not pushed it into early lockdown in terms of policy. The same is absolutely not true of AppWorld.

- No preset rules about how data is used. If one site collects information from or about a user of its site, that site has the right to do other things with that data, assuming, again, that it’s doing things that benefit all parties concerned. If it does stupid things, that site will be called out, and folks won’t visit it anymore. Yes, some people may get burned, but on balance, we’ve decided that it’s better to allow sites and their customers to determine the best use of data, rather than pre-determine data policy to the point where innovation is stifled. This is something of a corollary to my point above, but it bears explanation. Here’s one small example: When I watch a movie on Netflix using its website, Netflix stores information about how I watch that movie. If I stop watching and leave the site, Netflix remembers where I stopped, and gives me the option to resume the next time I go to the site. And if I fire up my iPad and launch the Netflix app, it also remembers where I was – because you can import data from the web into Apple’s AppWorld. But if I start watching a movie in AppWorld, then go to the open web to continue watching it, I can’t resume the movie. Netflix doesn’t remember what I’ve done on its iOS app. Why? Because in AppWorld, data can come in, but it can’t go out. This stifles innovation in so many ways I’m going to have to write another post to explain it.

- Neutrality. No one site on the web is any more or less accessible than any other site. If it’s on the web, you can find it and visit it. This is a corollary of “no gatekeepers,” but again, it bears elucidation. In current versions of AppWorld, finding anything is a challenge, and the winners are almost always those who get special treatment in a gatekeeper’s storefront.

- Interoperability. Sites on the web share common protocols and principles, and determine independently how to work with each other. There is no centralized authority which decides who can work with who, in what way. In AppWorld, the apps don’t talk to each other, and from what I can tell, you need permission from the gatekeeper if you’re going to work around that fact. Again, this stifles true innovation. Imagine if Google needed permission from some overlord to crawl the web back in 1998. It would never have gotten off the ground, and the second great Web boom may never have happened.

I’m sure I’ve missed a few key points, but I think you get the picture. If Colony’s “app-internet” sheds the crappy parts of AppWorld, and keeps the best parts of our current Web, I’m all for it. But if the reverse happens, I’m all in – against it. Long live the web!

The Internet Big Five

By - December 07, 2011

As I work on the book, I’ve come to use a shorthand for five companies that I’ve determined are critical drivers of what kind of society we’ll be living in one generation from now. At the moment I’m focused on just Internet companies, though I also plan on looking at other categories, such as energy, food, and health.

My terminology has evolved in the past week from “the Five Horsemen” to simply “The Big Five.” I’ve got a few reasons for this. First, the Horsemen analogy is a bit negative (given it evokes the Four Horsemen of Apocalypse). Second, there’s a rather fun reference for the “big five” that has to do with personality traits (see this research, or this, for example). One goal of my book, which I should probably explain at a later date, is to tease out the essential character and philosophy – perhaps you could call it the personality – of each of these key Internet players. If corporations are people (in the US, anyway), I wonder what kind of people these companies might be?

I don’t think you’ll be surprised by my choice of the Big Five, but I do hope you’ll find my reasoning for their selection worthy. As you can see from the chart, the five are: Apple, Microsoft, Google, Amazon and Facebook.

If you’re wondering if these companies are in some kind of order, the answer is yes. They are in order of current market cap (Facebook is a private market cap, the company is rumored to soon to be public at a valuation that would place it ahead of Amazon). But there’s more to the selection of this Big Five than just market cap. In fact, there are four main criteria for making it into the Big Five.

First, as I began to describe above, the companies must have financial heft, both in terms of large equity capitalizations, significant cash on hand, and a defensible core profit making machine. This gives them the ability to throw their weight around: they can make strategic acquisitions (like Google’s acquisition of Motorola), and they can leverage their profit centers and cash positions in any number of ways that offer them flexibility to play the corporate game at the very highest levels.

Second, the companies must have scale in terms of direct reach to consumers. By this I mean their brands are used as meaningful platforms by hundreds of millions of people on a frequent basis.

Third, the companies must have deep engagement with those consumers, the kind of engagement that builds brand and creates massive stores of useful data. The relationship between the brand and its customer has to be meaningful and consistent (therefore creating permission to extract a premium and offer new products and services). It takes an ongoing service relationship for such engagement to occur – Microsoft with Xbox or Windows, for example, or Facebook with its core service. On the chart, I’ve ranked engagement and data on a scale of one to ten, based in part on my work on the Web 2 map earlier this year, and partly on my own experiences. (As with other parts of this chart, I ask for your help in codifying this metric, should you be so inclined.)

Fourth, the companies must have significant experience building platform operating systems that are defensible and supported by a vibrant developer community.

The Big Five play in each of these four categories, but there are significant differences between them all, as the chart illustrates. Let’s look at each in turn:

Apple has the strongest financial position of any of the Big Five, quite a feat when you consider the company was essentially bankrupt just 14 years ago. It’s one of the top three companies in the world by market cap, and has the largest cash position of any technology company, period. Its core profit driver is its device business, which may be under attack (from Android and others), but appears defensible. Through its Macintosh and iOS platforms, it reaches hundreds of millions of consumers on a daily basis, not to mention the millions who circulate through its retail stores and various software applications. Apple has a deeply engaged set of core users, but I’ve given the company a score of 6 because a lot of the engagement which occurs with Apple’s brand and products is indirect – I’m using a Macintosh to prepare this post, but I’m not directly engaged with Apple’s products as I do it. I’m using services that layer on top of them. I’d argue this is less true with iTunes, the iPad and the iPhone, and I’d wager that’s how Apple wants it – they want to deepen engagement with their customers, and iOS is how they are going about doing that. What data Apple collects is not easy to find  - but it certainly has to be deep. And Apple has long term and ongoing experience creating OS platforms, so I’ve scored the company highly there, though not as high as Microsoft, which has more reach.

Microsoft  is the second strongest of the Big Five in terms of financials. While it’s certainly not been a growth stock in the past decade or so, it’s a profit machine, and its revenues are massive. Windows and Office have been consistent defensible profit centers, allowing the company to pursue search, online publishing, and gaming, among other key businesses. For the same reasons as Apple, I’ve given Microsoft a middling engagement score – its massive Windows base is not very engaged at a brand level, but the twenty-odd million folks on the Xbox Live platform certainly are. As a data powerhouse, Microsoft is a wildcard – it has not leveraged the data created by our interactions with Windows and Office – at least not in ways I can divine. It does have tons of data around Xbox, Bing, and its move to the cloud should make it a key player here soon. And when it comes to experience creating and driving developer ecosystems in the OS space, Microsoft has the deepest experience of any of the Big Five. (And no, I am not going to get into arguments of whether those OSes are better or worse than one another – for now anyway).

Google ranks third in financial heft, but its reach across the web is unmatched by any of its cohorts in the Big Five. Its search business profit center is a monster, though the company faces threats from Bing on one side, and Facebook’s social web on the other. I’ve scored Google equal to Apple in engagement – it’s clearly far stronger as an engaged brand on the Internet, but less strong in its Android business, despite Android’s larger base. And of course, Google was built from the ground up as a data machine. As for experience in operating systems and developer ecosystems, Google is still in early stages. Android and Chrome are both relatively new and not fully baked.

Amazon has never been a major hoarder of cash, but the company has been on a roll of late, and is building both its reserves and its market cap. However, its profit center – ecommerce – is arguably not as defensible as others in the Big Five (though one could reasonably argue Amazon has locked in its consumers with extremely smart services such as its recommendation engine and Prime shipping programs). The company’s reach into consumers is smaller than any of its peers in the Big Five, and it has just begun to play its device engagement hand via the Kindle platform. Of course, nearly 150mm of us are already deeply hooked into Amazon’s commerce engine, and that’s a significant data advantage. As for operating system and developer experience, let’s not forget Amazon Web Services – the compute and storage layers of what might be called the web OS. Amazon has an enviable position in these critical areas of the emerging cloud ecosystem, though they are, in the main, indirect – for now. But those services must give Amazon a view into data that is the envy of its fellow Big Five companies.

Facebook is the youngest of the Big Five, and has pretty much no publicly available financial information. It’s fair to assume it’s the weakest of the Big Five financially, but that is set to change in the next year. It already boasts a massive valuation in the private markets, and once it goes public, it could have upwards of $10billion or more to play with. It has massive reach and deep engagement – nearly 1 billion of us use the service, half of us use it daily. Facebook’s data trove is enviable, and its moves into nearly every aspect of our lives – from payment to media, will create even more of it. The company also has created a huge base of developers for its platform, but the ecosystem is incomplete compared to vertically integrated OSes like iOS, Mac or Windows. Given its youth, I’d argue Facebook has the most to prove, but certainly has earned its place in the Big Five.

I’d love your input on the Big Five. I plan to use this post as a milestone of sorts, as I begin the journey of writing about their impact on our culture in the coming generation.

Facebook and the FTC Announce A Deal, For Now

By - November 29, 2011

The Federal Trade Commission and Facebook have come to terms on consumer privacy, an issue the FTC formally raised in an eight-count complaint earlier this year. Both sides have announced the pact in their own particular way.

On Facebook’s blog, CEO Mark Zuckerberg strikes a diplomatic tone with a dash of mea culpa.

“Overall, I think we have a good history of providing transparency and control over who can see your information,” he writes. “That said, I’m the first to admit that we’ve made a bunch of mistakes. In particular, I think that a small number of high profile mistakes…have often overshadowed much of the good work we’ve done.”

Over at the FTC website, FTC Chair Jon Leibowitz and his press team are a bit more, well, strident. In reviewing the original complaint, the FTC nearly crows:

“The social networking service Facebook has agreed to settle Federal Trade Commission charges that it deceived consumers by telling them they could keep their information on Facebook private, and then repeatedly allowing it to be shared and made public.”

The release goes on to categorize the issues at hand in a pretty prosecutorial fashion:

“The FTC complaint lists a number of instances in which Facebook allegedly made promises that it did not keep:

  • In December 2009, Facebook changed its website so certain information that users may have designated as private – such as their Friends List – was made public. They didn’t warn users that this change was coming, or get their approval in advance.
  • Facebook represented that third-party apps that users’ installed would have access only to user information that they needed to operate. In fact, the apps could access nearly all of users’ personal data – data the apps didn’t need.
  • Facebook told users they could restrict sharing of data to limited audiences – for example with “Friends Only.” In fact, selecting “Friends Only” did not prevent their information from being shared with third-party applications their friends used.
  • Facebook had a “Verified Apps” program & claimed it certified the security of participating apps. It didn’t.
  • Facebook promised users that it would not share their personal information with advertisers. It did.
  • Facebook claimed that when users deactivated or deleted their accounts, their photos and videos would be inaccessible. But Facebook allowed access to the content, even after users had deactivated or deleted their accounts.
  • Facebook claimed that it complied with the U.S.- EU Safe Harbor Framework that governs data transfer between the U.S. and the European Union. It didn’t.

The proposed settlement bars Facebook from making any further deceptive privacy claims, requires that the company get consumers’ approval before it changes the way it shares their data, and requires that it obtain periodic assessments of its privacy practices by independent, third-party auditors for the next 20 years.”

Zuckerberg makes the point that Facebook hasn’t exactly been sitting on its hands when it comes to these issues.

“For Facebook, this means we’re making a clear and formal long-term commitment to do the things we’ve always tried to do and planned to keep doing — giving you tools to control who can see your information and then making sure only those people you intend can see it….In the last 18 months alone, we’ve announced more than 20 new tools and resources designed to give you more control over your Facebook experience….

…privacy is so deeply embedded in all of the development we do that every day tens of thousands of servers worth of computational resources are consumed checking to make sure that on any webpage we serve, that you have access to see each of the sometimes hundreds or even thousands of individual pieces of information that come together to form a Facebook page. This includes everything from every post on a page to every tag in those posts to every mutual friend shown when you hover over a person’s name. We do privacy access checks literally tens of billions of times each day to ensure we’re enforcing that only the people you want see your content. These privacy principles are written very deeply into our code.”

I think this kind of back and forth between the institutions we entrust with our data – like Facebook – and those we entrust to oversee the common good – our government – is healthy and good for society. The bigger question, to my mind, is what kind of culture we are becoming as we decide to share all this information, regardless of whether we truly understand or even consider the implications of doing so.

The settlement will enter a period of public comment for the next month, then, presumably, it will be finalized.

A copy of the settlement can be found here.

 

Help Us Shape The Signal Conferences in 2012

By - November 22, 2011

I’ve spent the better part of a few days thinking through the theme(s) of FM’s Signal series of conferences for the upcoming year. I’ve got a ton of thoughts scrawled across my whiteboards, but then a thought woke me up in the middle of the night – why don’t I ask all of you what you think are the most important trends for digital marketing in 2012? (This crowdsourcing thing, it might just take off…).

So I signed up for PollDaddy and created my first ever Searchblog poll. You can pick three of the choices below, and/or add your own topic at the bottom. So help a brother out, and let me know what you think!