Certainty

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In life the things that you do depend on the degree of certainty.

A few days back Salma mailed this image and asked me which company seems to have the best revenue split.

Revenue Split

The instinctive answer was to say – Microsoft. They seem to the most diversified. They are not dependent on any one stream of revenue for their survival. Facebook seems the most skewed; If anything was to disrupt advertising altogether, their business would be in turmoil.

Yesterday, I was reading Zero to One by Peter Theil and he made a very pertinent point in there. If you had the opportunity to do something that you knew would not fail, would you put all of your efforts behind it or would you diversify and pursue multiple opportunities. Most successes are a result of determined people acting with belief and putting all of their efforts behind it to make it a success.

He defined the category of people as:

  • Definitely Optimistic – Is certain of a great future and works towards it
  • Definitely Pessimistic – Is certain of failure waiting around the corner and is always bracing for it
  • Indefinitely Optimistic – Is unsure of the future but thinks it will all work out fine
  • Indefinitely Pessimistic – Is unsure of the future but thinks there is a surprise waiting around the corner

Now using this categorisation when you look at the above graphs, the one thing that becomes clear is Facebook is Definitely Optimistic – They are certain about their plans and they think they know what is about to come and are ready for it.

At the same time Microsoft is a clear example of confusion. Given that it is an American company I would say that they are Indefinitely Optimistic. The graph is a clear representation of the fact that they do not know which segment is going to be their cash cow. They are doing everything and  hoping something will go on to become big. At the same time they lack the conviction to say which one and focus more on it. If you make a graph for Microsoft of the early 2000’s, I am sure it would not resemble this. Windows and Office were the flag bearers for Microsoft and they put all of their efforts behind it.

Google and Amazon still have a high skew towards one of their revenue channels because they are Definite about it. Apple looks diversified but a large portion of their services revenue is all thanks to the iPhone that their users use every day. If you look at it from that perspective in all the three cases almost three quarters of their revenue comes from one thing that they do very well.

As a startup it is even more important not to diversify into too many revenue streams since it is very hard to be great at too many things. Be great at one thing and expand that revenue stream as rapidly as you can. You may undertake support activities but a majority of your income will come out of one or two things you do really well. This is also referred to as Pareto Principle – 80% of the effect comes from 20% of the cause. In business 80% of the income comes from 20% of the clients

Would you put all the wood behind one sharp arrow or many blunt ones?

Yahoo! – The Upside

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A lot of ink has been spilt on the many mistakes made by Yahoo. How the company refused to buy Google or Facebook when the opportunity existed. Yahoo might in fact be a story of many missed opportunities. But those misses did not really define the failure. Yahoo failed because of a series of poor decisions and a company culture that did not permit it to move forward.

The implicit assumption in all of the criticism is that Google would have certainly gone on to become the company that we know today. Yes, perhaps there would have been one less competitor to deal with.

Those of us who adopted and started using Google did so because its simplicity and precision. Do you really imagine that Yahoo! which was always a portal, would have purchased Google and retained a blank white page with a box?

Cultural Deceit

Yahoo failed because of the things that made it successful to begin with. It was launched as a directory service and then went on to adopt the portal model. For whatever it is worth, it worked very well for them in the late 90’s.

The linked post on stratechery which talks about the development of culture.

Culture does not beget success but it is the product of it

When a company does something and it works out for the company, it becomes a formula. The people who join the company hear the same stories and do the same things.

An employee who joins Marriott hears stories of awesome customer service which helped them retain customers, got someone promoted. The formula to get ahead becomes, providing awesome customer service.

Yahoo was a portal and wanted to continue to survive in that paradigm. It was just much easier to sell the idea to advertisers and generate revenues through multiple channels. Google went with income from ‘Search’ only. Honestly, the good boys at Google did not want to do even that! Eric Schmidt had to wrestled them into advertising.

Yahoo’s culture did not allow them to adjust to the changing nature of the web. Much like Google finds it hard to adjust ‘search’ to the demands of smartphones. Facebook by comparison found it extremely comfortable adapting to mobile.

Mergers and Acquisitions

Yahoo may not have bought Google or Facebook, but they bought often and bought a lot. Here is a list of all of the M&A that Yahoo has been engaged in over the years. You may notice that there are a list of 114 companies there. In the space of 18 years, that is an average of 6 per year; or one every alternate month! Number deceive in the absence of context; they made 23 off those in 2013 alone. An additional 19 were acquired in 2014.

Yahoo made big acquisitions in the 90’s that did not pay off. GeoCities, Broadcast.com (founded by Mark Cuban) and Overture Services were all multi-billion dollar acquisitions which went nowhere. Flickr still survives and could have easily been Instagram, but is not.

I am sure had they acquired Google and Facebook, they would have been equally lost in the quagmire that was Yahoo. Throwing everything into a portal and melding it into one was not what was needed, but Yahoo could not help but do that.

Marissa Mayer kept deflecting criticism by acquiring one company after another. She closed 5 deals in Jan 2014 alone. When Steve Jobs went back to Apple he figured out the soul of the company and let go of everything else. Marisa Mayer did exactly the reverse in the case of Yahoo, kept everything and added more garbage.

So what is the upside?

For starters thank Yahoo that they did not acquire Google for $1 Million, you would probably be using bing today! Also, you might have been using Google+ had they ended up acquiring Facebook.

Yahoo redistributed 10’s of Billions of dollars to many startup founders through acquisitions. These founders went on to invest in other startups and created the startup eco-system that exists today. This is by far the most critical contribution that Yahoo made. This alone contributed significantly towards changing the trajectory of investments in startups.

Yahoo by itself might not have been a hugely successful business. A combination of cultural undercurrent and poor leadership ran the company into the ground. Having said that, Yahoo has made contributions that are valuable.

Not buying Google and Facebook are one amongst them.

What would our grand children consider classics?

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It is safe to say that; content is in a state of 911.

I find very few sources where I can get content, where a great deal of though and analysis has been put in. Interestingly, I find many more sources where I can get cat videos and snarky two liners. Truth be told, not too many people are reading thoughtfully written stuff.

Why?

Quantity is opposed to Quality

The advent of digital mediums has meant that it is possible for everyone to create content. If you wanted to write a piece like the one I am writing and distribute it in 1900, you needed a newspaper editor to feel that your article was going to be interesting to the readers. With blogs, today pretty much anyone is able to put out their thought for public consumption. But the problem is much worse that anyone being able to write a blog.

This is statistics that the IBM Watson team put out; In 1900 the content available to mankind was doubling roughly every 100 years. By 2020 it will double every 11 hours. This is insane. The amount of content that would be at our disposal is being estimated at 44 Zetabytes. All of us have limited time available to us and the amount of content at our disposal is fast accelerating.

The consequence of limited time at our disposal is limited attention span. We want content that can be consumed quickly and without extending too much effort. Reading a well thought out piece forces us to think and understand; this is not primed for fast consumption.

How many of us have read the Iliad or Plato? How many of us have seen the latest trending video?

When you think of content that can be consumed without much effort, video ends up on top of the charts. Youtube is making money hand over fist, not by accident. Over the next 20 years, ‘text’ is going to move to the lowest rungs as far as content format go. Video is already moving up and this trend will gather pace in the coming years with formats such as Vine finding more and more traction.

Read the responses to this one… People know.

 

Advertising – A Boon or a Bane?

The other thing that is simultaneously destroying content is the fact that most of the income for content comes out of advertising. This implies – firstly, you need to make sure people arrive at the content (click-bait headline); secondly, you need to make the content super easy to consume (so they keep coming back and/or spend the next century clicking though the rest of the stuff). The more time they spend on the site, higher are the odds that they will click on an ad, at least by mistake. Most of what qualifies for this in entertainment and not analysis.

Given a choice between an 8000 word essay on a subject which would take 20 minutes to consumer; and a sequence of 15 videos of guys getting hit in their nuts; which would garner me more clicks and therefore more advertising revenue? The choice for the content creators is clear.

Advertising as a business model has done everything to destroy the quality of content. Thanks Google. Thanks Facebook.

 

Thanks to all this Music has gone to dogs

Songs have been a means though which emotions and stories were communicated. What makes a song beautiful is the poetry and the metaphors, which make several interpretations possible. It automatically implies that you must give it time to grow on you, for the interpretations to set in and for the songs to get internalised.

With the lack of time and attention, musicians are forced to produce music that is catchy and will hook you up soon. This also means that most songs do not have a soul. Most songs use a particular word repeatedly to get you to like the song.

Count the number of time the word ‘Hello’ is used by Adele in her song ‘Hello’.

Taylor Swift is popular not because a lot of college girls sit around listening to her, although that may be true. She is popular because she makes an attempt to tell a story. At the end of the day a song will stay with you if it connects with your soul. The issue with most of the songs written today is that they have no shelf-life, they are meant to grab attention.

Often I go back and listen to some of the songs I had been listening to a couple of years back because of their popularity and I am genuinely ashamed that I had considered them good. If you do not understand what I am talking about, check this link.

The low shelf life means nobody wants to own any music. Hence Streaming.

Take a great song from 20 years ago, you can still enjoy it. Not the same with a song which is 3 years old.

 

Everything is about Entertainment

The proliferation of content and the ad economy has resulted in what can be best described as the attention economy. In fact this article beautifully lays out, how scarcity has evolved from food, to land, to labor, to information, and now to attention.

Consequentially, the only thing anybody is vying for is attention. News reporting is going down the drain. The world has a lot of real problems to deal with, inequality, poverty, terrorism, climate change, etc. but all the news is about things that will be entertaining.

Why?

Ads.

The news has been a part of the entertainment industry for a fairly long time now. Look at what praying at the alter of entertainment has brought us – Donald Trump might be nominated to fight for presidency.

 

If this trend were to persist, and I have no reason to believe it would not, 100 years from now the classics that our great grand children will be reading would be some shit Kim Kardashian wrote (Or worse shot in her bedroom)!

Is Google Doomed?

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As much as market share loving analysts might want to make Google look like the star of the future, Google’s actual position for mobile is very poor. Market Share lovers would point to the prevalence of Android and the vast number of apps available on the platform and the number of manufacturers supporting Android.

The only reason manufacturers support Android is because it is free, and available to all. This also means that Google in all reality does not make any money through the prevalence of the platform alone. Yes they make money from the play store, cloud services and so on but as demonstrated by Amazon, its not the only way to go with Android. Unlike iOS, Android can be forked away from Google.

If market share is an important metric, that metric reflect very poorly on Google. The mobile revenue for Google is pegged between 15% and 20% (different sources give different figures) of their revenue. Given the massive market share, this only shows that Google has done a horrible job of monetising mobile.

So what is keeping so many manufacturers tied to Android apart from the fact that it is free? In my opinion there is only one killer app that is trapping the likes of Samsung, who would love to move the Android platform as far away from Google as possible; Google Maps. None of the manufacturers have a competing mapping solution that can be at par. In reality, none of the companies competing with Google have a mapping platform which is at par with Google Maps. Apple Maps is beginning to make its move up after a disastrous launch. ‘Nokia Here’ is there and it is quite good but lost in echo of the Microsoft-Nokia deal, nobody knows when they would get their heads together and start pushing the app in earnest. There are a bunch of other solutions, but none that I see being able to compete with Google in terms of depth of coverage, availability of platform and availability of financial resources.

Every time Samsung has tried to move the Android platform away from Google in terms of design and so on, Google has thrown the Maps License on the table and strong armed them back to falling in line with Google. This has caused Samsung to pursue Tizen, which is rearing its head now. Samsung recently launched Galaxy Gear 2 with Tizen. There should be a great deal of soul searching happening at Mountain View, Samsung is the ONLY mobile manufacturer that is making profits apart from Apple, if they move to Tizen, what does that mean for Android?

In reality if you think of it, in a mobile world, all of the search of the future would be channeled through apps. In such a scenario, if I was Google, I would want to own all of the top apps used for searching restaurants, travel, locations, books, movies etc. But in reality Maps is the only mobile app that they have which is a gold standard. In all other regards the company has failed to produce a top app.

People do not really care who provides them the information on mobile as long as they get it consistently and the delivery is done in the best possible manner (Optimised for the requirement, good design, etc.).

I care two hoots if the search that I run through Siri is giving information through Wolfram Alpha or Bing or Whoever. As long as I get the relevant result, I am happy.

With apps specialising in the search, be it Zomato, Yelp, Cleartrip, Wikipedia, Fandango, Bookmyshow, etc.; these are the sources that people trust to get their information. Fewer and fewer people turn to a one size fits all kind of a solution which is what search engines are.

In this paradigm Google is not in a position of strength, far from it, they are at a place where they are not even going to be able to derive great search traffic from even Android.

The analysts in the meantime are overly optimistic about market share. If the market does not see the real picture and put Google on a correction course, would Google end up the Yahoo way?

Advertising and Cultural Context

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Apple released an ad called Misunderstood, to make their final push for this holiday season.

I was just reading up Apple blogs as I normally do and found references to the fact that the ad was really touching. I was left confused because I did not find the advertisement touching. For those who know me, I defend Apple even when they are wrong, so when I say this, you can be certain it did not impress upon me in the manner in which the bloggers seemed to think. 

Google had posted a very India specific ad a few months back, which played on the partition of India and friends who lost touch with one another. While I really do not think you would find things the way Google seems to project, the advertisement struck a chord with me. It may not amount to anything if I showed it to someone who was, say from USA. But to someone who belongs to the Indian sub-continent, it would create an instant connect. 

I realised, how important context is to the effectiveness of an ad. In the absence of it, even a masterpiece would seem dull; and in the presence of it, the communication can become extremely effective. Understanding the context of the viewer is tremendously important before setting out to put together any communication.

Frenemies

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I wonder how frenemies live?

I am an entrepreneur and I have several business relationships. With the people that I work with, I either get along or I do not get along. There has never ever been a case of getting along while not getting along. What baffles me is when I see companies like Apple and Google doing precisely that. On the one hand they go about filing cases against each other in every court available on planet earth, while on the other hand they tend to develop applications together, buy patents as a consortium and so on.

How does somebody be at war and peace at the same time? How do you not get to a position of resolving one issue while being able to forge partnerships on another? How do you decide? It just baffles me.

I would imagine before every decision, these companies would engage in several complex calculation using game theory in order to arrive at what to do!