Two Thirds Done

Thoughts and experiences of an eighty one year old Wild Duck.

Avram Miller by the sea

587 posts since 2006

Tag: Amazon

10 Predictions for the Computer Industry for 2014

My dear friend, Bob Cringely is a very successful blogger amongst other accomplishments. You can read his blog here. He and I often speculate together about the future of technology. Every year around this time he makes predictions on what will happen in the new year in computer technology. Often he asks for my ideas, some of which he may incorporate with is own views and some of which he ignores. This year Bob had to deal with the illness of his mother so he asked his readers for their ideas. I decided that this year I would write up my own ten predictions which I will of course send to Bob. I should also say that as a technologist in my core, I often see things happening much earlier that they really happen. It is sort of the opposite of the sign on your cars side mirror which reads “objects may appear further away then they actually are”. Here they are in no particular order:

(1) Bitcoin becomes the MySpace of Crypto-Currency

I have to confess that I am a bit bewildered about Bitcoin. On the surface, it is easy enough to understand if you just think of it as just another form of currency like the Dollar, Euro or Yen. But unlike the Dollar, Euro or Yen, there is no country or countries backing and controlling it. To really understand Crypto-Currency, one has to have both a pretty good technical background and in particular an understanding of cryptographic, open source and distributed systems. But one also has to have a pretty deep understanding of economics and especially money systems. Frankly, understanding money is a lot harder than most people think. It kind of reminds me of quantum mechanics.

At first, I did not take Bitcoin seriously and that in retrospect was wrong. I actually have friends who have made small fortunes in Bitcoin (I hope none of them accomplished this by starting out with a big fortune).

I am wondering, like many, about how Bitcoin can become a real currency. I don’t think it is that yet. It is more like Gold although a lot easier to use and store. But until there is a whole supply chain that takes Bitcoin as its primary currency, I think those that that accept Bitcoin for payment must be changing their prices every day to match their preferred currency. Bitcoin is way too volatile to be used as a main currency. Because a lot of Bitcoin’s are held by speculators, there is incentive drive the value up creating a potential bubble. We all know what happens to bubbles. Debt is a very important aspect of a successful currency. It is hard to have debt when there is high inflation or volatility.

There is a lot of concern about the potential for Bitcoin to be manipulated. There is concern that it could be hacked. The mysterious start of Bitcoint by Satoshi Nakamoto (a person or collection of persons) who has since disappeared, causes some to wonder who is really behind Bitcoin. Now it appears that Marc Andreessen, the technical brains behind Netscape and now very successful venture capitalist, has sort of taken over the leadership of the Bitcoin movement. Anyway, I guess we should be glad its not George Soros.

Given the early success of Bitcoin, there are many other Crypto-Currencies being created. The Bitcoin people feel that they can maintain the lead because of their momentum and present dominance. History proves that this is not always the case.

(2) iWatch – just in time

This will be the year that Apple Introduces the iWatch. I wrote about the iWatch here. The features that I described are still the ones I expect, but I would place more emphasis on the use of the iWatch for transactions.

By the way, Apple may introduce a large iPhone and/or a larger iPad. I don’t think this a game changer so I am not mentioning it here.

(3) Microsoft – Breaking up is hard to do

Microsoft will finally get a CEO. The primary task of this person will be to breakup the company which will prove very difficult to do because this kind of thing is always difficult to do. In some cases, parts of the company will become independent companies and trade on the stock market. For instance, I expect that will be the case for the Xbox, while other parts, like Office might be sold to a company like Oracle. I think it will take about five years for all the work to be completed. Expect that Bill Gates will leave the board when the new CEO takes his/her place.

(4) Desktop and Notebooks fall into the black hole of mobile computing

There is a lot of computing power in smart phones. Take a look at the iPhone 5s as an example with its 64-bit CPU. The power of a mobile computer coupled with the move to Cloud Computing will change the partitioning of computing.

Look for Apple to bring out a new line of Cinema Displays that will have wireless connectivity with IOS devices. Imagine that you can walk up to any of these displays and your phone, iWatch or iPad will link to this display. Applications will be designed to make full use of the display’s real estate. Blue tooth keyboards and track pads/mice will interface with your IOS device. All of a sudden you have the full desktop experience that most users know. You will be able to use the full iWorks suite for instance. It will might be running in the cloud but it will feel, as it does now, that it is running on your “desktop.” This is an extremely important event. Maybe the most important event of 2014.

For instance, about two thirds of American have an iPhone. Of course, most of these are not iPhone 5s, but enough are to get things started. Not all these customers have Macs. In fact most do not. But most have desktops or notebooks that they will want to replace. Instead of replacing them, they only have to buy a new Cinema Display. They can then either use the free iWorks suite or or use the Microsoft Office Cloud service. Microsoft will have to make sure their apps work well in this environment because the Apple iWorks programs are awesome and are free. Google will have to do the same.
So the only customers buying desktops in the future might be those that are heavily involved in using computers to do serious computational work. Welcome to the Mac Pro and the unannounced Mac Pro Light or the Windows equivalent.

The same kind of thing will happen with large flat panel displays. The Apple TV will become an HDMI dongle just like Chromecast. You will be able to easily connect your IOS device to the display just as you can with Airplay now. Apple will introduce a very powerful gaming environment for IOS that will take advantage of both the A8 64 bit processor in the iPhone but also the motion co-processor to connect with various gaming peripherals.

Look to 2014 being a very good year for Apple and in particular Apple stock (although I am negative on the stock long term). The capabilities I described will drive demand for new iPhone and iPad purchases.

(5) Cable TV becomes Cable Internet

When I first went around to all the cable company CEO’s in 1983 to introduce them to the concept of the cable modem, I told them that they should no longer think of themselves as being Cable Television Companies but rather Cable Communications Companies. Not all of them got what I meant, but fortunately, their greed and the fear of the telephone industry helped persuade them to experiment with the idea of using their “cable plant” to allow computers in homes to communicate with the nascent internet.

Now, the cable industry is experiencing a loss of TV subscribers as young people in particular “cut the cord” and watch TV via the internet. But they are not really cutting the cord all the way. In particular, if they are at their home they are most likely still connected to the cable company. Revenue from providing residential broadband has allowed the cable industry to grow in the face of a decline in TV subscribers. This year, Cable Companies will make more money from broadband than from TV. TV is just one attribute of Cable just as Word Processing is no longer a Device but just an Application.

However, the Cable Industry has kept a lot of bad habits (like bundling of channels) which make it difficult for new companies to provide Internet based TV. This is about to change. But to make it really happen, Cable Companies will want to get a bigger piece of the action. They will want to charge not only for speed but also for quality just as the wireless companies are now doing. Once this happens, everything will change. But since this will depend on government regulations, I can not predict exactly when and how this will happen. As part of this, providers of content can pay directly for the bandwidth. So if you use Netflix to stream a lot of Video, it will not effect your bill with your cable company. Netflix will pay them for the bandwidth you use when streaming.

Once the dam breaks, things will change very fast. This will have negative effects on the cable networks who have relied on having TV channels to be able to make deals for programing. Now if the Internet is used as a medium, there are unlimited “channels”. Once TV is on the internet, advertising can be done in a much different and more targeted way. This will also weaken the Networks that rely on advertising. As the Networks see major declines in their profits, they will be able to invest less and less, leading to a quickening of their demise.

We will continue to see changes in consumer viewing habits. Not only will consumers see what they want when they want but they will see it with the people they want no matter where in the world they will be. I hope to say more about this in a few weeks when a company I both advise and have invested in leaves stealth mode.

(6) Facebook – the AOL of Social Media

Facebook is a company I am negative on even thought I use it every day. Clearly it is the dominate company on the social media stage but I don’t think for long. There are a number of factors that will effect their standing. The first is demographic. Young people that first created the market for Facebook are either moving off the Facebook Platform or never getting on. They don’t want to be on a social media site that they share with their parents and grandparents. Also much of the growth of Facebook as been outside the USA and in developing countries.

I suspect that while these numbers add to Facebook’s population, they don’t do much for the bottom line.

Equally as important is that Facebook’s users don’t really like the company. They might like using Facebook because it connects them with their friends but they don’t like the confusing interface, constant changes in privacy and the sense that Facebook is exploiting them.

Young people are moving to social media sites that are more mobile oriented like Tango, Talk Plus, Line and WeChat. Then there is SnapChat the opposite of a “time line”.

Facebook has a market capitalization of $135 billion dollars but made less than a billion dollars on the sale of more than $5 billion dollars. It recently spent a billion dollars to by zero revenue buy acquiring Instagram. Facebook is trading at 90 times estimated earnings. For Facebook to justify its stock price it will be forced to find more ways to monetize its traffic and most of those ways will turn off their users. Actually, the only hope for Facebook will be discovering life on another planet.

(7) Amazon buys Netflix and finally has to pay California Sales Tax

Amazon intends to be one of the major media distribution companies in the “new order.” They are already following in Apple’s footsteps using Amazon Prime to distribute Media. Now they are imitating Netflix with original programming. Netflix has House of Cards which is a drama about a bunch of smart but corrupt politicians. Amazon has Alpha House which is a comedy about four moronic politicians living together in a house in Washington DC. Given that these guys are idiots, it might be better to describe it as a documentary. House of Cards was a major hit and won an Emmy. Alpha House is pretty much a dud. Netflix redefined viewing habits and created the concept of Binge Viewing while Amazon has had little impact on viewing habits of consumers.

Netflix is, in a sense, the worlds largest “cable” operator. It reaches more people than HBO. Most devices and most modern TV’s can receive Netflix. Bezos is going to finally figure out that he can not catch up. And he will not want to see Netflix in the hands of some other company. Netflix was really cheap a year ago when it traded at about $90. It is now just a bit south of $350 dollars. Its total market cap is about $22 billion. While Amazon has done well going from $245 to $405 and has a market cap of $182 billion this is nothing compared to the movement in Netflix’s stock price. Netflix must now feel comfortable with their current price because they have recently removed a Poison Pill provision making it much easier for someone to accumulate large amounts of their stock. This will push the stock up even further so the sooner Amazon moves to acquire Netflix, the better. Of course, Bezos hates paying state sales tax which Netflix does. Maybe this is what is slowing him down.

(8) Internet of My Favorite Things

Everything is going to be connected to everything. It is going to be a wild ride. I already have light bulbs that are connected to the cloud. My car is connected to the cloud. I wear exercises devices that connect to the cloud. My piano is connected to the cloud. I could even jam with musicians. It will be like the wild west all over again.

But then again, I am waiting for the hackers to take over cars, cause washing machines to destroy clothes and of course stream videos of us in our pajamas. And then there are the personal Drones!

(9) Google Glass joins the other zero billion dollar business that Google has launched

If you read my blog often, you will know that I am not too fond of Google. I refer to Google as the Microsoft of 21st century. Of course they have done some amazing things but much of what they do is mediocre. For me, throwing a bunch of spaghetti against the wall and seeing what sticks is not a business strategy. I do understand that many of you will disagree with my point of view.

I know something about the ‘glass’ application. In fact, I know a great deal. I have been working in this area for over ten years. They company I have been involved with most recently is Innovega. We have the real deal but it takes both glasses and contact lenses to really work, so it’s not for everyone. But I know that Google Glass is probably for a lot fewer people.

I think it is a silly idea that has very limited long term prospects. Not because I do not believe in the concept. It is because I do not believe in the implementation. I joke (partly) that when Larry Page became CEO he tried to figure out how to get Sergy out of his hair. Sergy came to him with the idea of Google Glass – which may have started when Innovega paid a visit to Google. Larry said to Sergy “this is so important that you should spend all your time and energy on it.” It was probably worth spending a few billion dollars for Larry to no longer have to share an office with his co-founder.

(10) Foundry or Floundery

Finally I have to mention my former company, Intel, where I was Vice President of Business Development until I left in 1999. Intel has a great deal of excess semi conductor manufacturing capacity. It is perishable – if it is not used it just goes to waste. We used to say that when we designed a new factory, the first chip it produced cost a couple of billion dollars and the ones after that just a few dollars. Factories have very high fixed costs. They are like airplanes or hotels, you want to fill every seat and every bed.

Apple needs Intel to build its A processors. For obvious reasons, it no longer wants to have Samsung build its chips. So it probably has put a “gun to Intels head” and said that they will design out the Intel microprocessors in the Mac line if Intel does not start doing foundering work for Apple. And Google is threatening Intel with developing its own line of server processors if Intel does not start making chips for Google.

Intel will remain the top semi conductor company in the world, but that is like owning the best house in the worst neighborhood.

As most of you know, Intel missed the transition to mobile but frankly even if they had made the transition, there was no way the company could continue to have the margins they enjoyed during the PC phase of computing when Microsoft and Intel earned more than 120% of the profit of the industry (this was possible because so many other companies lost money.) It takes a long time to develop and build new factoriess to take advantage of new semi conductor manufacturing and design technology. Intel was used to growth and building out capacity to intersect that growth. In the 90s I was often quoted as saying that “Intel had to build factories to manufacture products that were not yet designed to serve markets that were not yet created.” That was true then and it is true now, but now the products will not be Intel’s.

Please feel free to comment and make your own predictions. And don’t forget to check Bob’s blog.

January 1, 2014
The First Bank of Apple or the end of the Credit Card as we know it.
I reported here about what I think are some of Amazons plans to continue to dominate the online market space. Of the four online giants that I follow, Google, Apple, Facebook and Amazon, my money is on Amazon for the long term. But I only follow Facebook just to figure out the timing for their melt down. I continue to think that Amazon’s strategy is not fully appreciated but in this post, I am going to speculate about another company, Apple, and its strategy for dominating the physical world of retail.

The Story begins with the iPhone 5s

Ever since the iPhone 5s came out, I have been wanting to post about the strategic significance of a number of its features. In this post I will cover how it is a significant harbinger of Apple’s strategy to dominate retail transactions.

Apple wants to be the dominate platform for transaction performed in the physical world of retail just as Amazon wants to dominate the online world of retail. Google has a “do everything” strategy similar to Microsoft in the 90s which we Intel Executives use to refer to as the “Mile wide and inch deep” strategy.

While the iPhone 5s fingerprint scanner is a work in progress, I am convinced that we will be using fingerprints as a secure way to conduct transactions.That is why the introduction of the fingerprint reader in the iPhone 5s is so very important. As one who has lost their credit card in an airport only to find out that a few thousand dollars of transactions were made in a just few hours, I can really appreciate the day when, instead of carrying a credit card in my wallet, I can use my finger.

Low power Bluetooth 4.0 is very important in respect capabilities such as iBeacon which I will cover a bit later. This is not a new capability but I wanted to mention it here since it is very relevant to my point of view regarding Apple’s strategy.

Some have thought that the introduction of a 64 bit processor in a phone was just a marketing ploy. I don’t think so. I think there are couple of reasons why Apple went in this direction. The first is that this will allow them to upgrade the iPhone 5s with a new OS that will be available on future Apple Devices and the Mac desktop and notebook computers. The second is they will need the computing power to provide for a number of in store capabilities yet to be demonstrated.

iBeacon

iBeacons are small devices that can be spread around a physical environment such as a retail store or even a mall. They use Bluetooth 4.0. The protocols allow for a device such as an iPhone to establish communication without the use of Wifi or cellular capabilities. Apple has already started using this in their own stores. It will be possible to locate the device which means that directions can be given. Now I am not talking about how to get to the grocery store. I am talking about how to find the milk in that store. Offers can be made to consumers as they walk into stores or around stores. And it will be possible to pay for items by scanning the products’ bar code.

The evolution of Credit Cards

The history of the credit card is very interesting. It started in the 1920s by companies like Standard Oil who issued credit cards to allow drivers to purchase gas. Diner’s card was the first general card. American Express came along l ater. Then it was Visa and Master Card that really drove the mass adoption in the USA. The use of credit cards came later in Europe and Asia but are not routinely used. Most credit cards outside the USA are “smart card”, with embedded chips to provide more security. ATM cards came a long which do not provide the credit feature since they draw money directly from a consumers account but they do have the convenience of credit cards as well as the security attributes. The use of ATM cards do not cost the retailer anything. They pay no fee and they get the benefit of having the money deposited into their accounts immediately. Credit cards pay the retailer almost right way but since they charge a fee, it is almost as if they are lending the retailer money. The bank makes money by using the float. After all, I will have to have the cash just sitting my my account if it is going to be available for use by my ATM card. On the other hand, the credit card company provides me with a float meaning that I am not charged for up to 30 days for the use of their money. The average is 15 days. But then they are hoping their customers will not pay off the balance so they can charge them 18% or so a year on their unpaid balances. To complicate matters further, the notion of getting loyalty points, like airline millage, is also now linked to credit cards.

Now many people have a number of cards in their wallets. I have five myself and I never use the credit feature. For me it is all about the convenience of not having to carry cash, the tracking of my purchases. and to a lesser extent, the ability to dispute charges.

Remember coupons? I am sure some of you still use them. I bet most of you can not remember or ever knew about “stamps”. I think the use of coupons in the physical world is diminishing but I am not sure about that. But the use of virtual coupons has just started.

As we can see, the world of retail transactions has gotten very complex and this creates a major opportunity for guess who?

One Stop Payment the Apple Way

iTunes has made Apple one of the largest processors of transactions globally. Right now, iTunes uses a credit card that you supply to Apple. For every Apple ID there can be just one credit card. But I would much rather just use my phone. I could decide on what “card” to use and have the security of my finger print (which I think works very well on the iPhone).

About 2/3 of Americans carry iPhones. I would guess this represents over 90% of buying power in retail. No company is in a better position to make the phone the new payment device.

This capability can of course go beyond just retail stores. For instance, I am also looking forward to the day I can have my restaurant bill presented to my phone and paid with my finger print instead of waiting and waiting for for the bill to come.

Recently, I was in NYC and discovered that I could pay for most taxi rides using an app that communicated with the Taxi’s meter system. Finally, I have receipts for my taxi rides!

Recently, I was in NYC and discovered that I could pay for most taxi rides using an app that communicated with the Taxi’s meter system. Finally, I have receipts for my taxi rides!

Apples’ real objective?

I am not quite sure what Apple’s real objective is but I can see at least four possible ones
- They could make money from every transaction. It would require a lot of heavy lifting byut Amazon for instance already has a credit card.
- Collecting information about our buying habits and selling that to business
- Making the iPhone even more indispensable to consumers.
- Introducing Apple Points just as I expect Amazon to do
What do you think?
December 29, 2013
The Next Wave of Computing is Rising

I wrote a series of posts awhile back which I called “The Resurrection of Wintel.” Here is the first and here is the second. I described a series of changes that affected the previous leadership of the computer industry by Intel and Microsoft. I explained that I did not believe that the current wave of computing, Cloud Computing, was stable and postulated that there was another wave coming and that it might be possible for Intel to play a major role. In reality, I do not see Microsoft doing much more than breaking itself up, but I do believe that Intel has a chance if they would only take it.

TIme-sharing becomes Personal Computing

In the mid 60s when I first started working with computers, Time-sharing was just starting up. Prior to that, computers used Batch Processing where one job was done at a time. Batch processing was great at utilizing the computer but not so good at utilizing peoples time. Time-sharing was the beginning of a movement away from maximizing the equipment to maximizing the time of the users. But Time-sharing had its issues too. It was particularly limited by bandwidth particularly for remote users., and was typically a closed system and users could not easily introduce new software applications.

Recently, one of the people that worked for me when I was at Intel, reminded me of a meeting in the early 90s that I had with a senior executive at Disney. I was telling that person and his staff about how I saw the personal computer becoming the driving force in computing, and the role it would play in the home especially once we got residential broadband deployed. That executive was a bit incredulous and said that it made no sense to have all these computers in homes, when most of the time they would just sit idle. We were in a big conference room that had the curtains closed. I went to the window and opened the curtain. I asked him to come over to the window and look out and tell me what he saw. The view was of a parking lot with more than a thousand autos sitting idle just waiting to take their owners home after work. I pointed out the busses were like Time-sharing and cars were like personal computers. Every laugh and got the message.

From One Computer and Many Users to One User and Many Computers

As computer technology came down in cost and increased in it’s performance, Moore’s law at work, we saw more and more computers in offices and homes. At first, homes would have one computer that would be shared between family members, but eventually homes had multiple computers and local area networks. Now we have computing devices in our pocket or purse. Soon we will be wearing computers as well.

The result of having multiple computers/devices has been a great increase in complexity. We may have a computer at the office and one at home and one in our pocket but we only want to have one list of contacts ,and one calendar. When we delete an email from one machine we don’t want to find it on another. This is one of the factors that has been pushing more and more computing into the cloud. Right now we have some applications that run on our device but sync with the cloud so that other devices can be updated to the same state. An example of that is the Apple Mail App and iCloud. But we have other applications that only run in the cloud and just use our device for display and input. An example of that is Facebook or Google Search. Different applications require different amounts of computing power. This creates a trade off in how much power to purchase. For developers of applications, there is a lot of complexity around how many configurations to support.

Amazon Leads the Next Generation of Computing

Amazon is probably the key driver for the next generation of computing. I don’t mean the book selling part. I am talking about Amazon Web Services (AWS). My dear friend, Bob Cringley, wrote about some of that here.

Some of you will remember when Larry Ellison, the CEO of Oracle made a big push for Thin Clients (basically a modern equivalent to a terminal) and Network Computing in the mid 90s. Like many of us, Larry was too early. This was after John Gage of Sun Computer had earlier in that decade declared that “The Network is the computer.” Too bad for Sun, as it would take more than 20 years for that statement to become true.

It is interesting to see the same phase used on the web site of this company.

A Rising Wave-Independence of Devices and People

Like most changes in the computer industry (and other industries as well), major changes come about because of the intersection of independent developments. Those that can see the intersection early and understand the implications can do extremely well, especially when they understand how these changes can result in addressing the needs of customers. As I am fond of saying, “if you want to surf, it is not enough to have a surfboard and go to a beach. Yo go to a beach and wait for a wave. You have to understand that you can not make a wave.”

I have been putting together a list of the waves that will come about in the next phase of computing and hope to write about them one at a time over the next month or so.

The first is what I call Independence. Right now, I have a computer and my wife has a computer, the hardware is basically identical. We have identical iPhones and iPads. But mine are mine and hers are hers because of the programs and data on the devices. If all the data and programs were running in the cloud, I could pick up her device and sign in (probably just with my fingerprint) and it would become my device for instance. I could go to the office and grab any computer and it would become my computer. I could use any smart phone and it would become my smart phone.

If this is how things will work in the future, the role of computers/devices will be primarily that of Input/Output. The device could become much cheaper, simpler and would not need to updated or replaced very often. And if you loose your phone, you have not lost your data. Devices will also play a very important role in security. All this is not good news for the makers of personal computers and devices.

Why Now

What will make this possible. There are two key factors. One is high speed and low latency bandwidth and the other is powerful graphics processors (GPUs). Human input is pretty slow. We click on a few things and gets alot displayed back. Today, it is our devices that generate the images we see and the sounds we hear directly from software running on the devices. But we also get streaming video which is decompressed and displayed on our screens. Video is much faster. But we are now all experiencing streaming video. This kind of video is buffered so that changes in latency of the network do not show up. But networks are becoming much faster and latency is improving.

So imagine if the screen you are now looking at as you read this post was just a video stream. You can easily see that if you have a Mac or iPAD and AppleTV. You can Clone the display on your computer/device and then see it on your big screen flat panel display.

There are other technologies needed to make this happen are on the back end of the network. Amazon is driving a lot of this with its AWS service. They are taking away the complexity of the network from the application side by making it reliable and scaleable. This will enable new business models including paying by the minutes for the use of powerful applications such as Autodesk.

Back to Intel but not Back to the Future

The the mid 80s Intel lead by Gordon Moore and Andy Grove took a very courageous decision. They decided to leave the solid state memory business and bet the company on microprocessors. That did not mean that they stopped making memory chips but they no longer invested in their development. The business minds of the company from engineering to marketing focused on the microprocessor business. Soon Andy, who was CEO by that time, understood that it was really the PC business where the action would be. He coined the term “The PC is it” and Intel became the most valuable company in the world for a while.

Now it is time for the new management to realized that the PC is not it. They should have the courage that Jeff Bezos had when he set up the Kindle group and told them that their mission was to destroy the Amazon book business at a time when that was Amazon’s core business.

November 10, 2013
Apple following in Intel’s steps or better known as Plan C

This graph really says it all.

Why Apple will become Intel in five years

An old friend who has been involved with Intel from the mid 80s visited recently. We both have a love of tech, business and strategy. I am firmly planted in the Apple echo system while he is living in the Google/ Android world. It was fun to compare products and discuss the business strategies of these and other relevant companies.

But I was reminded of my days at Intel and the mixed blessing of being extremely profitable. At one point, Intel has the highest market capitalization in the world. Something that Apple experienced recently. Now many tech companies are worth much more than Intel. Intel would not take on new business ventures which on their own might have been excellent compared to most business opportunities but looked meager when compared to Intel’s microprocessor business.

Many successful companies have this problem. This is why I am so bullish on Amazon. Bezos does not believe in making a profit at least at this point in time. He would rather invest the money into growing the business. He is in the admiral position of just having to slow down to make a profit. He also understand that high profits come from high margins and the creates room for companies to compete with lower prices. He knows that over time it is harder and harder to add functionality to a product line to justify the higher price.

Plan C

So if a companies strategist goes to the CEO of a very profitable company and says, “things are going to change. If we take action now, our stock price will be $400 in five years. However, since our current stock price is $500 a share, the action I am recommending will cause it to drop by at least 40% first. That is plan A.

If we take no action, our stock price will stay up for a while. It might even increase but then it will slowly fall and we will find ourselves with a $100 share price in five years. Which plan shall we take dear CEO”?

And the CEO answer “Plan C. We will take Plan C. We will keep doing what we are doing and we will figure something out before we find ourselves on Plan B (or before another CEO takes over). Then he fires the strategist.

Long on Amazon and short on Apple anyone?

October 31, 2013
The First Bank of Amazon or the End of Advertising as we Know it.

Twenty years ago, I proclaimed that Advertising would be the Killer App of the Internet. Now I am pronouncing the end of Advertising. What will replace it as a source of revenue for media companies. It will be the First Bank of Amazon. Read more!

Old Farts using today’s technology to speculate about the future of technology

Jonathan Taplin, a long time friend and former early internet entrepreneur, now a professor at USC and director of the Anneberg Center for Innovation was intrigued my recent blog post about advertising. He asked to discuss it with me. Below you will find the ideas I shared with him. So we Skyped. John Seely Brown, the former director of the Xerox Parc and that company’s Chief Scientist and currently the Director of the Deloitte Center for Innovation, joined the conversation for the first few minutes. He and I served on the board of Maxis together before that company was sold to Electronic Arts and he wanted to say hello. John Seely Brown is also board member of Amazon. For that reason, I want to be clear that he and I have never discussed Amazon but I do hope he reads this post.

Taplin is a truly interesting man who started his professional life as the tour manager for Bob Dylan and The Band; produced Martin Scorsese’ first feature film, Mean Streets; acted as an investment advisor to the Bass Brothers; and he founded Intertainer, one of the first video on demand internet sites. Intel was an early investor. Taplin ended up Academia. He is one of the few people I’ve met professionally that has a crazier life story (or maybe not) than me. His book, Outlaw Blues is well worth reading.

Why advertise?

The primary purpose of advertising is to cause someone to purchase something. There is also advertising to get votes for candidates, support a concept, etc. But most advertising is about selling. In fact, the world of advertising created the consumer economy that we now experience. It resulted from a time when there was an over-production of goods. Producers of these products needed to find a way to get consumers to buy things they did not actually need and in some cases, things that are

not actually good for them. It may not be surprising to realize that the leader in advertising in the 1920s was the Tobacco Industry.

Transactional and Brand Advertising

We can divide advertising into the kind that encourages a consumer to directly take an action that results in a purchase and those that build desire and comfort with a product that will re-enforce a purchase decision at some later time. I will call the first kind Transactional Advertising and the second kind, Brand Advertising. My focus in this blog post will be on the first kind.

Different media (print, radio, TV etc.) are better at one or the other. Digital Media is particularly suited for Transactional Advertising. It is far easier to click on a link than to have to call a phone number or drive to a store. The devastating effects this has had on traditional media can be witnessed by watching the decline of the Newspaper Industry.

In 1993, I gave a key note speech at the National Association of Broadcasting in Los Vegas. During my talk, I declared that the the Killer App for the Internet was Advertising. The founders of Google were just 20 years old at that time and it would be several more years before the founding of Google. Now, I am declaring that this phase is over.

The closer to a purchase the more valuable the Ad

Obviously, the more an Ad results in a purchase, the more valuable it is. But it is difficult to know if a specific Ad has that effect. Digital Media provides the ability to Narrow Cast advertising; that is to target advertising that might be more effective for particular consumers. If I know that someone plays golf and is a male, an Ad about golf clubs might be more effective than an Ad about feminine hygiene products. This makes the Digital Medium superior to traditional linear medium for advertising. While it might be possible for the traditional cable industry and their content partners to Narrow-Cast advertising, they lack of vision and technical skills has handicapped them in this regard.

The power of interactive digital media is that an Ad can result in a purchase just a few minutes later.The downside for the site hosting the Ad is that it often results in the consumer leaving their site in order to make the purchase.

Enough Ads already

We are saturated in ads. We are exposed to hundreds of Ads per day. Consumers are finding ways to reduce the onslaught of advertising. In linear media such as TV, we are using DVRs to time shift and skip ads. We listen to music on sites like Spotify and are willing to pay a few bucks to avoid ads just as many of us are willing to pay for HBO or Netflix. The pay on demand or subscription model is clearly an alternative to the advertising model. Sometimes there is a combination which has to be one of the stupid ideas of all time. Hulu Plus does this, which I find combines the worst of two worlds (Ads and Subscription).

Web browsers like Chrome and Firefox offer Ad blockers. I am pretty good at removing the Ad from the sites I visit. Of course, I understand that these sites have to make money but I am not willing to pay for content with my attention.

The less effective Ads are, the more Ads are presented. It is kind of like conversation in a noisy restaurant where everyone keeps talking louder in order to be heard. I personally avoid these restaurants.

The Substitute for Transactional Advertising: The First Bank of Amazon

Sometime in the next five years we will see the collapse of advertising supported media. Here is how it might play out with respect to the TV industry.

Chromecast, the Trojan Horse that Will Invade TV Manufacturers

Google recently created an amazing product, Chromecast (I don’t think I have ever used the word “amazing product” and Google in the same sentence before). It is a $35 device that plugs easily into a modern flat panel TV via an HDMI port. It connects to the internet over wifi to the home’s local area network. It is controlled right now by an iPhone or Android product or any computer running Chrome. There is limited programing but that will change. Eventually all television programing will move to such devices. Cable companies will cut the cord with Network programers. They already make more money from Broadband than they do from TV programing (you can thank me cable industry, for that). HBO and Showtime and the like, will unbundle their programing from the Cable and Satellite packages (by the way DirecTV and Echostar are totally screwed and I will write about that in the future).

Netflix with ‘House of Cards’ and ‘Orange is the New Black’ has proven that traditional Hollywood does not have a lock on content. Google and Amazon are not far behind. Eventually, individual shows like Mad Man will go ala-cart.

Google will establish Chromecast as a viable way of getting TV programing. But they are stuck with the idea of traditional advertising. They will offer their technology to TV manufacturer for no cost and offer to share revenue with them. This gets the TV manufacturer out of the business of trying to keep up with Internet technology and provides a valuable revenue stream. Once one or two manufactures go, all the others will be forced to follow.

Apple Forced to offer a TV

Apple, is in a bit of a bind. They do not like to license their technology. That is why they want to build a TV directly but they have to wait until the content is available. Consumes will not upgrade their TV’s very quickly so this approach will be very limiting for Apple.

While Google has an ad centric business model much as do the Network TV companies, Apple will push for “pay per view” and subscription models like they now offer on their current AppleTV product via the iTunes Store.

Amazon enters and everything changes

Enter Amazon and the game changes. Amazon will also have a devices similar to Google’s Chromecast with both an HDMI add-on and embedded technology for TV manufacturers. TV manufacturers may not have to choose sides but offer Macro Networks from Google, Apple and Amazon. Amazon’s business model will be different. There will be no Ads. Instead, Amazon customers (which is pretty much all of us) will get “points” for buying things on Amazon. These “points” will be deposited in the First Bank of Amazon and can be used to pay for programing including on line newspapers, social networks etc. Imagine Facebook or a Facebook competitor without stupid Ads. As long as you buy enough from Amazon, you can consume media without ads. Periodically, Amazon will let you know if you need to add to your “account”.

There will be many ways to do this but one will be the Amazon Shopping Network. Think of Home Shopping on steroids. It will be an informercial channel which is tailored for the individual. The informercials will be made and supplied by the companies offering the products. With today’s technologies even small companies can create compelling video Ads. Take Kickstarter as an example. Check out this Ad for the Menurkey which was designed by the nine year old son of one of my friends to celebrate the unusual event of having Thanksgiving and Hanukkah on the same day (OMG did I just make an AD?). In addition to knowing the price for every product, there will be an indication of the number of “points”. And of course, you can always make a direct deposit into the First Bank of Amazon. Amazon will be paying the content providers something less than you pay them (after all they are a Bank).

Google and Apple get left in the dust

Assuming the content is unbundled and available to anyone for distribution at a price, Google and Apple will have a very difficult time duplicating the Amazon strategy. As I indicated, Amazon Points can be used to purchase content from any medium, even Newspapers like the Washington Post who coincidently just got a new owner. Jeff Bezos.

First Bank of Amazon is a great investment

My money is on Amazon (literally.) Jeff Bezos is one of the few founders of major tech companies left. He has a vision and the ability to implement his vision an is fortunate to be the King of Transaction.

August 25, 2013
These are the good old days for Apple and not just because Jobs has passed

Companies like products, have life cycles. Apple is very unusual because it was able to reinvent itself.    In particular, Apple went from being a niche PC player with a relatively small market share to the leader in revolutionizing music (iPod), the cell phone (iPhone) and creating and leading the tablet market (iPad).    But each of these product categories has its life cycle. We can see that now with the decline of iPod sales. The iPhone is on its 4th generation (the iPhone 4S is just a mid life kicker for the iPhone 4). We expect to see an iPhone 5 sometime next year. How will this product be different? It can’t really change much in size so it can’t change much in terms of the display now that we have a so called retina display (where individual pixels can not be seen). The camera can get better but how much better? Siri can get better but it does its processing in the cloud so it has not much to do with the phone. Of course, we can get 4G but is that really so important on a phone? Anyway, I suspect that the iPhone 5 will be a great success? But then what? Eventually there is not that much to add that is meaningful. So you either have to reduce price to expand the market our you just have a replacement market. I left out adding more memory? I am a pretty heavy user of technology. I have a 64gig iPad but I only really use 32gigs. I have a 64gig iPhone but I use even less on my iPhone because I do not watch movies on my phone (much). 4G would be helpful to those that us the cellular system for the their iPads. But most people only us Wifi on the iPad. I think the iPad has one or two major product cycles and then what. Back to cutting prices or having just a replacement market. And what of the Mac’s. Apple is doing a good job of increasing the MAC share of desktops and notebooks with innovative and well designed products like the Macbook Air. There is more head room in traditional personal computers. But we are still up against limitations. I have a 27 inch screen that I am looking at right now. I would not want the screen to be much bigger. I will of course want more computer memory in the future (I use SSD) and because I am part of the Apple Eco System, I will keep buying macs ever few years. So here is my point. Apple became the most valuable company in the world (or close to it) because of the iPod, iPhone and iPad. I believe that these products will reach limits that will either force price cuts to explained their markets or slower or declining unit growth.

The guys at Apple are pretty smart and certainly Jobs was. So what are they thinking? Well they want to go after the TV industry. Obviously, home audio visual equipment and the way that media has been delivered by the cable and satiliet companies can be greatly improved on. But there are many vested interests in particular with respect to the delivery of content. I don’t see how Apple will be successful in this space but I guess we will have a chance to find out next year.   If they do succeed they will have to do this at a pace that will allow growth even with the decline in the i devices that I predict. And that means they would have to accomplish this on a world wide basis.

So lets end by looking at a different company and device: The Amazon Kindle Fire.   It is a two hundred dollar product that does not compare favorably with the iPad but is a lot cheaper. It does a great job on books, is ok on video and email etc. But there is nothing stopping Amazon from staying at the 200 dollar spot and adding functionality and capabilities as the cost of technology declines. Their plan is to make money on the content. They have to lock their customers into their own eco system. It will be harder for them but they have a lot going for them including relationships with so many potential customers for the Fire.

November 27, 2011