O'Reilly Radar » Mark Sigal

On co-creation, contests and crowdsourcing

Mark Sigal — Mon, 06 Aug 2012 13:00:31 +0000

I had decided to update the branding at one of my companies, and that meant re-thinking my logo.

Here’s the old logo:

The creative exercise started with a logo design contest posting at 99designs, an online marketplace for crowdsourced graphic design.

When it was all done, I had been enveloped by an epic wave of 200 designs from 38 different designers.

It was a flash mob, a virtual meetup constructed for the express purpose of creating a new logo. The system itself was relatively lean, providing just enough “framing” to facilitate rapid iteration, where lots of derivative ideas could be presented, shaped and then re-shaped again.

The bottom line is that based on the primary goal of designing a new logo, I can say without hesitation that the model works.

Not only did the end product manifest as I hoped it would (see below), but the goodness of real-time engagement was intensely stimulating and richly illuminating. At one point, I was maintaining 10 separate conversations with designers spread across the Americas, Asia and Europe. Talk about parallelizing the creative process.

In the end, the project yielded eight worthy logo designs and not one but two contest winners! It was the creative equivalent of a Chakra experience: cathartic, artistic and outcome-driven at the same time.

Co-creation, crowdsourcing and the Maker movement

Part of my draw to try out this crowdsourced model is that I consider myself a Maker and am a serious devotee of co-creation types of projects, where the line between creator, consumer, customer and service provider is inherently gray.

Why do I like this model? Because it facilitates a rich exchange of ideas and skill sets, and is highly collaborative. It’s part of the larger trend of melding of online, offline, events and exchanges into new types of value chains.

It’s a bucket that includes Kickstarter (funding platform for creative projects), Foo Camp (the wiki of conferences), Maker Faire (festival and celebration of the Maker movement) and X PRIZE (radical breakthroughs through contests), to name a few.

Plus, there’s an authenticity to that which is grass roots — that which opens a new economic domain for direct-to-consumer connections, a new modality for handcrafted, and customized offerings, even more so in a world that is tuned for mass-production.

One only has to scan the project listings at Kickstarter or the exhibitor lists at Maker Faire to see the catalytic role this wave is playing for robot makers, artisan bakers, knitted goods purveyors, sculptors, app makers, device builders and do-it-yourself kit creators. In times of stagnant economic growth, it is heartening to see how much leverage there is when you can integrate discovery, engagement, personalization and monetization, as this model does.

It’s the yin to the yang of homogenization, and as such, has promise to ignite real, durable growth across many different market segments in the years ahead.

The good, bad and ugly of crowdsourced design

With crowdsourced design, I experienced two primary pitfalls and one indirect one.

The two primary ones were:

You run the risk that a designer is modifying someone else’s design. In fact, one of the designers of the 38 who submitted designs got kicked out of the competition for just that reason (i.e., non-original work).
Since it’s an all-or-nothing outcome for the participants, some of the designers will diss each other, which led one designer to pull a design that I actually liked.

The indirect pitfall was the cost dynamic. Namely, given the low cost, a lot of the designers are outside the U.S., which means you could be losing out on senior, higher-dollar U.S. designers, unless you materially up the award that you want to commit to (99designs gives you tools so you can guarantee winners, increase award levels, etc.).

That stated, it’s the 80/20 rule in action: 80% of the designs that captivated me the most came from 20% of the designers. Because of the competitive nature of the format, the back-and-forth process was highly iterative.

Choosing a logo (or two …)

Meanwhile, as we got to the last hours of my logo design project, I faced a dilemma.

When I got down to the final 4-5 candidates, there were two designs that really got under my skin, each from a different designer.

Plus, as Middleband is my “umbrella” company through which a bunch of my different ventures get seeded (before being spun off as separate entities), I could see a scenario where having a second logo path in hand would be a great option to have.

Now, the cool thing about a model like 99designs is that I could affordably acquire two designs (the cost was an incremental $245 to award a second contest winner), and it was push-button easy for all parties.

So that’s what I did. Here are the two winners:

Related:

Apple's iTV and the implications of what Steve said

Mark Sigal — Mon, 13 Feb 2012 15:00:00 +0000

If I accept conventional wisdom, Apple is getting into the TV-making business because:

The living room is the last consumer segment that Apple has yet to completely remake in its image.
Apple creates new markets where none exist, and it isn’t satisfied with merely improving upon existing ones.
Steve Jobs allegedly said that he’d cracked the code for creating an integrated TV set.
If the iPad is really “just” a big iPod Touch, and has already sold 55 million units, then a TV that is “just” a big iPad could do gonzo business.
The business of making TVs is broken, and Apple has to fix it.
Cable and satellite providers are evil, and Apple has to liberate consumers.
Tim Cook “needs” a hit.

As I stated in my last post following Apple’s gaudy earnings numbers, I don’t accept conventional wisdom because conventional wisdom is dead! Apple killed it.

Most fundamentally, all assumptions about Apple seem to stem from a misunderstanding of how differently Apple thinks and operates from everyone else.

For starters, Apple doesn’t chase markets just because they’re there. Nor do they get sucked into market share battles just so they can say they sold the most units (see: iOS vs. Android).

Further, neither the aggrandizement of the CEO’s ego nor the altruistic care-taking of the consumer drive Apple’s product strategy.

Rather, Apple pursues markets purely and vigorously based upon a simple logic. Do they believe that their integrated hardware + software + service approach can be applied in a leveraged fashion to create a differentiated offering that delights consumers, appeals to the masses, and can be sold at high margins at a predictable run rate?

If the answer is “yes,” then game on. If the answer is “no,” then leave it as a hobby (such as the current Apple TV), or avoid the market altogether.

This is the backdrop for understanding the rumors about Apple building a new-fangled television set. Rumors and whispers notwithstanding, in the words of Dr. Hannibal Lecter, the obvious question is:

“Of each particular thing, ask: What is it in itself? What is its nature?”

Top layer = iOS devices; Middle layer = Core device functions; Bottom layer = Noteworthy hardware subsystems.

In the case of a serious living room play, if you check out the above graphic, what stands out most about the Apple TV in its current incarnation is its lack of apps, web, and communications support. These elements are the three biggest game changers that propelled the iPhone, iPod Touch and iPad beyond the impressive media foundation that marked the pre-iOS iPod.

What is also lacking is the mainstream television programming (HBO, ESPN, ABC) that the typical consumer demands. A ‘purdy’ new TV doesn’t remedy that problem, now does it?

But, remember, Apple is long removed from their anti-establishment days, whereby for the company to succeed the incumbent had to fail. Hence, the rebirth of the Mac was predicated on getting into bed with Microsoft; the rise of the iPod was predicated on getting into bed with the music industry; and the rise of the iPhone was predicated on getting into bed with mobile carriers.

When framed that way, who hasn’t Apple gotten into bed with yet that they need to get in bed with to succeed in a mainstream way?

You guessed it; the cable and satellite providers. Why? Because as noted venture capitalist Bill Gurley sagely pointed out, “When it Comes to Television Content, Affiliate Fees Make the World Go ‘Round.”

In other words, for an Apple TV to be free-flowing with first-tier TV content in the same way that an iPod flows with first-tier music, Apple will need DIRECTV and/or Comcast to bless it.

ESPN, after all, earns $4.69 per subscriber household in affiliate fees on each and every cable subscriber. Apple’s good friend, Disney, owns ESPN, ABC, Disney Channel and a slew of other channels. Disney simply isn’t going to throw billions of dollars away in affiliate fees just so they can help Apple. All of the major TV content players view the world similarly.

So where does that get you when you connect the dots? I’ll tell you where it doesn’t get you … to a television-like device that:

Is priced 2-4X the cost of an iPad.
Has sales cycles of one device every 5-10 years.
Has bad margins.
Has a serviceable form factor that for many people is good enough. (Apple challenges industries where the baseline experience is terrible. Television hardware wouldn’t seem to qualify.)

Conversely, what if you could buy a set-top box that plugged into your modern, big-screen TV, and:

It just worked.
Had every channel you currently get on cable.
You could run those same channels as apps on your other iOS devices.
Your TV could be controlled by any of those same iOS devices.
You could upgrade to the newest version of the set-top box every 2-3 years (on a carrier-subsidized basis).

Who wouldn’t buy this device? And why wouldn’t the cable and satellite providers be all over this? After all, does anyone seriously like their set-top box?

As a sanity check, a carrier subsidy on a sub-$500 device is meaningful, whereas a carrier subsidy on a $1,500+ device like a TV set is nothing.

Wait! But, didn’t Steve Jobs say that he’d like to make an integrated TV set?

Even if he did say that, do you really think that in his final official act as Apple spokesman, Jobs would telegraph to the world his company’s grand intentions in the living room?

Related:

The magic adapter: Apple TV and the battle for the living room
It’s Time to ‘Think Different’ because Conventional Wisdom is Dead: Thoughts on Apple’s Q1 Earnings Call
Apple’s Segmentation Strategy (and the Folly of Conventional Wisdom)
Apple, TV and the Smart, Connected Living Room

The price of greatness: Three takeaways from the biography of Steve Jobs

Mark Sigal — Tue, 20 Dec 2011 17:30:00 +0000

As the first Christmas approaches without Apple founder Steve Jobs, it’s worth pausing for a moment to appreciate what he has left behind.

In addition to an astoundingly healthy business with $80 billion in the bank, recent analysis by Andy Zaky of Bullish Cross suggests that in the current holiday quarter, Apple will record its largest earnings blowout ever.

This is on top of unparalleled customer loyalty and brand recognition, not to mention a potent halo effect generated by Apple’s iPhone, iPad and Mac products.

Yet, according to analyst Zaky, Apple remains the most undervalued large cap stock in America. It’s almost as if Apple is saving “one more thing” for the holidays; this one, a stocking-stuffer for investors.

I bring this last point up because the notion of Apple still being undervalued (and under-appreciated), despite the accomplishments, accolades and attention, suggests something about the human condition; namely, that when faced with an exceedingly bright and brilliant light, our minds naturally filter it down a bit.

But true greatness, the kind realized by Jobs in his life, and by Edison, Disney and Ford before him, is best appreciated without filters, for it is something that is experienced perhaps only once in a generation.

With that in mind, I want to share three takeaways from Walter Isaacson’s biography of Jobs that spotlight both the greatness of the man and the price that greatness demands.

“The flu game”

In the annals of professional sports, there is perhaps no individual performance more emblematic of greatness in action, than “the flu game” in the 1997 NBA Finals, where a flu-ridden Michael Jordan overcame a stomach virus that had rendered him weak and dehydrated to score 38 points and lead his Chicago Bulls to a 90-88 victory over the Utah Jazz in Game 5. They won the series in six games.

That one man could overcome, no ignore, failing health to will his team to victory is both a defining example of the greatness of Michael Jordan as a basketball player, and no different than how Jordan approached every game that he played.

I thought about this a lot in reading Jobs’ bio, inasmuch as one of the key takeaways (for me) from the book was how Apple’s rise from the ashes was largely accomplished with its leader fighting not a flu, but cancer, and not for one game, but for eight years.

We all know about Jobs’ battles with cancer, his forced leaves of absence, and the fact that he was never quite physically restored to the cherub-like state that he embodied when he first returned to Apple in 1997.

But the book lays clear, painfully so, something that all of us grokked and groped from the shadows but could never truly “know” because it wasn’t public: from the moment he got sick in 2003 to when he died in October of this year, Jobs was never fully healthy again

Quite the opposite, in fact. He was literally fighting a continuous battle with his body, and a metastasizing cancer, yet still led his team to a series of triumphs that have no equal in the annals of business.

What Steve Jobs accomplished after cancer

iTunes Store ramp
iPhone
iOS + App Store
iPad

During this period, Apple stock surged more than 3,000%, and for Jobs personally, it was only his second greatest financial achievement; he would realize far greater personal wealth leading Pixar’s evolution from a failing tech provider for the film business into Disney 2.0.

Just as Jordan’s flu game is simultaneously emblematic and par for the course of his greatness, so too was Jobs’ leadership of Apple during his period of sickness.

The man known for reality distortion and an unwavering, uncompromising pursuit of the insanely great, ignored his own personal suffering, paying the ultimate price to achieve greatness. More so than any nugget from the Steve Jobs bio is this coarsely ground truth, something that should serve as a reminder the next time we wonder why there are so few great leaders, and even fewer great companies.

Yeah, but he was a jerk

Those who seek to dismiss or marginalize the accomplishments of Jobs tend to focus on one of three things.

Either they diminish his accomplishments as a modern-day Edison since Jobs wasn’t an engineer, or they give props to Jobs’ marketing savvy as a backhanded-way of diminishing the realness of what he built.

Or, they point out that he was a narcissistic jerk who took credit for the accomplishments of others, was controlling, belligerent, and probably not the prototypical role model of the family man (home for dinner, mowing the lawn on the weekends).

I’d like to focus on this last point, as it is simply irrelevant to the field of play that Jobs made his mark within.

Few of us know or care if Michael Jordan is a nice guy, whether Walt Disney remembered the names of his workers’ kids or if Thomas Edison pet his dog. Case in point, Henry Ford held anti-Semitic views, but that doesn’t mute the impact that Ford had on the field of play that is the automotive industry.

In Jobs’ case, we have already established how fully the man led by example; how unparalleled the financial results his company generates are; and the deep, emotional bond that Apple products engender with users. But, also know that Jobs built a corporate culture defined by longevity, loyalty, depth, purpose and intellectual honesty — but above all, peak performance.

In other words, in the field of play that is creating enduring companies that build products that “make a dent in the universe” (a Jobs axiom), whether the leader is warm, fuzzy and personally likable is mostly orthogonal to the outcomes that he manifests.

Sweating the details

So, we’ve established that Jobs led by example, making the ultimate sacrifice so that his vision, his purpose in life, could be realized.

And we’ve noted that whatever personal peculiarities adorned the man, they didn’t tarnish his accomplishments one iota.

In closing, I’d note how Jobs’ manifestation of these attributes translated into the type of leader who plugged himself into an entire category of granular decisions that on the one hand, most CEOs would delegate “on principal,” but on the other, it’s darn near impossible to imagine an un-Jobsian leader being able to yield the wealth of transformational products that Apple has created.

One such example explored in the book are the specific materials and production processes that Apple uses in building its products. Such is the story of Gorilla Glass, the exceptionally lightweight, damage-resistant glass that came to anchor the screen of the iPhone.

How Gorilla Glass came to be is classic Jobs.

Internally, the iPhone team was driven by a realization that the centerpiece of a touch-driven phone was the display, not a composite of screen, casing and keyboard.

Armed with this clarity, Jobs drove the Apple team to re-think the form of the device around its display centricity. But, of course, this begged the question of the integrity and durability of the display material being used.

While conventional wisdom initially drove the company toward plastic screens, as the iPod had used, Jobs focused on the elegance and substantive nature of glass.

Having gotten wind from an old friend that Corning Glass was doing some amazing things with chemically-fortified glass, in typical Jobs fashion, he tracked down Corning’s CEO, who told him about a chemical process that had actually originated in the 1960s but had never found an appropriate commercial application.

Convinced that he had found the right answer, Jobs challenged Corning’s CEO to commit to both the capacity and timeline needed to achieve the scale Apple required to meet the iPhone launch deadline.

It was a game-changing solution for an unproven new device from an approach that had never been produced commercially prior to that point. And it worked!

There are similar stories in the book about the advent of multitouch, Apple’s embrace of intricate metal fabrication processes, mass-purchasing of pinpoint lasers and the internal prototyping culture that instructed what became the Apple Stores.

Beyond showcasing the many incredible qualities of Jobs, all of this serves to underscore that having a simple product line — in terms of having very few products — is very different than having a simple product strategy. With scarcity comes focus, and with focus comes precision.

A final thought

There are many of us who consider ourselves to be entrepreneurs, inventors, and startup guys and gals, but I think this quote from Jobs captures the essence that there are no shortcuts to greatness. Greatness is dedication. It’s a demand, and it’s a detail. Or, as Jobs said:

I hate it when people call themselves entrepreneurs when what they’re really trying to do is launch a startup and then sell or go public so they can cash in and move on. They’re unwilling to do the work it takes to build a real company, which is the hardest work in business.

Amen. Somewhere in the universe, there is a hole where the light of Steve Jobs still shines through.

Photo of Steve Jobs from Apple Press Info.

Related:

You say you want a revolution? It's called post-PC computing

Mark Sigal — Mon, 24 Oct 2011 13:00:00 +0000

“You say you want a revolution,
Well, you know,
We all want to change the world.” — The Beatles

I loved Google engineer Steve Yegge’s rant about: A) Google not grokking how to build and execute platforms; and B) How his ex-employer, Amazon, does.

First off, it bucks conventional wisdom. How could Google, the high priest of the cloud and the parent of Android, analytics and AdWords/AdSense, not be a standard-setter for platform creation?

Second, as Amazon’s strategy seems to be to embrace “open” Android and use it to make a platform that’s proprietary to Amazon, that’s a heck of a story to watch unfold in the months ahead. Even more so, knowing that Amazon has serious platform mojo.

But mostly, I loved the piece because it underscores the granular truth about just how hard it is to execute a coherent platform strategy in the real world.

Put another way, Yegge’s rant, and what it suggests about Google’s and Amazon’s platform readiness, provides the best insider’s point of reference for appreciating how Apple has played chess to everyone’s checkers in the post-PC platform wars.

Case in point, what company other than Apple could have executed something even remotely as rich and well-integrated as the simultaneous release of iOS 5, iCloud and iPhone 4S, the latter of which sold four million units in its first weekend of availability?

Let me answer that for you: No one.

Post-PC: Putting humans into the center of the computing equation

There is a truism that each wave of computing not only disrupts, but dwarfs its predecessor.

The mainframe was dwarfed by the PC, which in turn has been subordinated by the web. But now, a new kind of device is taking over. It’s mobile, lightweight, simple to use, connected, has a long battery life and is a digital machine for running native apps, web browsing, playing all kinds of media, enabling game playing, taking photos and communicating.

Given its multiplicity of capabilities, it’s not hard to imagine a future where post-PC devices dot every nook and cranny of the planet (an estimated 10 billion devices by 2020, according to Morgan Stanley).

But, an analysis of evolving computing models suggests a second, less obvious moral of the story. Namely, when you solve the right core problems central to enabling the emergent wave (as opposed to just bolting on more stuff), all sorts of lifecycle advantages come your way.

In the PC era, for example, the core problems were centered on creating homogeneity to get to scale and to give developers a singular platform to program around, something that the Wintel hardware-software duopoly addressed with bull’s-eye accuracy. As a result, Microsoft and Intel captured the lion’s share of the industry’s profits.

By contrast, the wonderful thing about the way that the web emerged is that HTML initially made it so simple to “write once, run anywhere” that any new idea — brilliant or otherwise — could rapidly go from napkin to launch to global presence. The revolution was completely decentralized, and suddenly, web-based applications were absorbing more and more of the PC’s reason for being.

Making all of this new content discoverable via search and monetizable (usually via advertising) thus became the core problem where the lion’s share of profits flowed, and Google became the icon of the web.

The downside of this is that because the premise of the web is about abstracting out hardware and OS specificity, browsers are prone to crashing, slowdowns and sub-optimal performance. Very little about the web screams out “great design” or “magical user experience.”

Enter Apple. It brought back a fundamental appreciation of the goodness of “native” experiences built around deeply integrated hardware, software and service platforms.

Equally important, Apple’s emphasis on outcomes over attributes led it to marry design, technology and liberal arts in ways that brought humans into the center of the computing equation, such that for many, an iPhone, iPod Touch or iPad is the most “personal” computer they have ever owned.

The success of Apple in this regard is best appreciated by how it took a touch-based interfacing model and made it seamless and invisible across different device types and interaction methods. Touch facilitated the emotional bond that users have with their iPhones, iPads and the like. Touch is one of the human senses, after all.

Thus, it’s little surprise that the lion’s share of profits in the post-PC computing space are flowing to the company that is delivering the best, most human-centric user experience: Apple.

Now, Apple is opening a second formal interface into iOS through Siri, a voice-based helper system that is enmeshed in the land of artificial intelligence and automated agents. This was noted by Daring Fireball’s John Gruber in an excellent analysis of the iPhone 4S:

… Siri is indicative of an AI-focused ambition that Apple hasn’t shown since before Steve Jobs returned to the company. Prior to Siri, iOS struck me being designed to make it easy for us to do things. Siri is designed to do things for us.

Once again, Apple is looking to one of the human senses — this time, sound — to provide a window for users into computing. While many look at Siri as a concept that’s bound to fail, if Apple gets Siri right, it could become even more transformational than touch — particularly as Siri’s dictionary, grammar and contextual understanding grow.

Taken together, a new picture of the evolution of computing starts to emerge. An industry that was once defined by the singular goal of achieving power (the mainframe era), morphed over time into the noble ambition of achieving ubiquity via the “PC on every desktop” era. It then evolved into the ideal of universality, vis-à-vis the universal access model of the web, which in turn was aided by lots of free, ad-supported sites and services. Now, human-centricity is emerging as the raison d’être for computing, and it seems clear that the inmates will never run the asylum again. That may quite possibly be the greatest legacy of Steve Jobs.

Do technology revolutions drive economic revolutions?

Sitting in these difficult economic times, it is perhaps fair to ask if the rise of post-PC computing is destined to be a catalyst for economic revival. After all, we’ve seen the Internet disrupt industry after industry with a brutal efficiency that has arguably wiped out more jobs than it has created.

Before answering that, though, let me note that while the seminal revolutions always appear in retrospect to occur in one magical moment, in truth, they play out as a series of compounding innovations, punctuated by a handful of catalytic, game-changing events.

For example, it may seem that the Industrial Revolution occurred spontaneously, but the truth is that for the revolution to realize its destiny, multiple concurrent innovations had to occur in manufacturing, energy utilization, information exchange and machine tools. And all of this was aided by significant public infrastructure development. It took continuous, measurable improvements in the products, markets, suppliers and sales channels participating in the embryonic wave before things sufficiently coalesced to transform society, launch new industries, create jobs, and rain serious material wealth on the economy.

It’s often a painful, messy process going from infancy to maturation, and it may take still more time for this latest wave to play out in our society. But, I fully believe that we are approaching what VC John Doerr refers to as the “third wave” in technology:

We are at the beginning of a third wave in technology (the prior two were the commercialization of the microprocessor, followed 15 years later by the advent of the web), which is this convergence of mobile and social technologies made possible by the cloud. We will see the creation of multiple multi-billion-dollar businesses, and equally important, tens maybe hundreds of thousands of smaller companies.

For many folks, the revolution can’t come soon enough. But it is coming.

Quantifying the post-PC “standard bearers”

A couple years back, I wrote an article called “Built-to-Thrive — The Standard Bearers,” where I argued that Apple was the gold standard company (i.e., the measuring stick by which all others are judged), Google was the silver and Amazon was the bronze.

The only re-thinking I have with respect to that medal stand is that Amazon and Google have now flipped places.

Most fundamentally, this exemplifies:

How well Apple has succeeded in actually solving the core problems of its constituency base through an integrated, human-centered platform.
How Amazon has gained religion about the importance of platform practice.
How, as Yegge noted, Google doesn’t always “eat its own dog food.”

If you doubt this, check out the adjacent charts, which spotlight the relative stock performance of Apple, Amazon and Google after each company’s strategic foray into post-PC computing: namely, iPod, Kindle and Android, respectively.

This is one of those cases where the numbers may surprise, but they don’t lie.

Related:

Amazon's "Prime" challenger to the iPad

Mark Sigal — Mon, 26 Sep 2011 18:30:00 +0000

If you haven’t noticed, creating and executing mobile platform plays is really hard. Just ask HP, RIM, Nokia and Microsoft.

Even Google’s Android, which made it look easy to grab dominant market share in the smartphone market, is finding it much harder to secure a footprint in the tablet market, where, let’s face it, there’s iPad … and iPad.

Enter Amazon, whose forthcoming Kindle Tablet represents the clearest alternative to Apple’s iPad.

Securing the design win

I once co-founded a device management platform company in the embedded systems space (Rapid Logic) where we came to define three core precepts for succeeding in a platform-oriented business:

Secure the design win.
Grow the dollars associated with the runtime (via royalties or new product add-ons).
Get the customer to want to embed themselves more deeply.

Flash forward to the present and we see a post-PC device market emerging that has revealed some interesting attributes.

For one, we see how the carrier-dependent mobile phone segment logically bifurcates between the Apple approach (vertical integration) and the Android approach (horizontal, loose coupling).

Why is this so? For the simple reason that for a large portion of the market, carrier “push” via phone pricing — plus a subsidy combined with a retail presence — dictates buying patterns every bit as much as product positioning and differentiation.

Most fundamentally, this is because regardless of whether the end phone is an iPhone or an Android phone, A) the buyer is already a mobile phone subscriber, and B) either phone represents a step up from traditional feature phones.

However, when we move into tablet-style devices, ebook and media device players, where the alternative is non-consumption (i.e., buying no device), it becomes clear that the breadth and depth of ecosystem orchestration that is required goes up materially.

This is why Android has not yet found a foothold in the tablet market (see also: Android’s Missing Leg).

Cloud Street meets Main Street

Now, consider Amazon, the ecommerce company that many have officially anointed as this generation’s Walmart (see chart below: Walmart, Amazon, Google and Apple head-to-head over the past 10 years).

A comparison of Walmart, Amazon, Google and Apple from October, 2001 to August, 2011. See a larger version and read related analysis.

Amazon, in fact, just experienced its fastest revenue growth quarter in over a decade (up 51% versus the same period in 2010). It is unquestionably on a roll.

To establish the scale and market presence that Amazon has on “Cloud Street” in about one-third of the time it took for Walmart to dominate “Main Street” is nothing short of amazing.

Simply put, it’s emblematic of a company whose ability to marry a clear, disciplined strategy with a pragmatic focus on tactical execution knows few bounds.

Kindle as an entry point for a new tablet design

Amazon’s Kindle reading device has catapulted the company into a position where it’s now selling more digital books than print books, all at a time when the physical bookstore is on its last legs (Borders is gone, Barnes & Noble is for sale).

Now, having proven that it can execute a hardware-software-service play vis-à-vis the Kindle, Amazon is expected to announce its first iPad competitor in a matter of days.

Such a device will build upon several “unfair advantages” that Amazon has established in the marketplace:

Ecommerce and marketplace logistics.
Digital media content acquisition, publishing and distribution.
Cloud computing platform know-how and a nascent ecosystem.

Just as Apple has leveraged its iTunes as the wedge upon which it established a billing relationship with 160 million users, Amazon has built a differentiated position of its own called Amazon Prime.

Amazon’s “Prime Directive”

Returning to the start of the article, remember the success mantra that I told you about for my company? You can apply the same logic when looking at how Amazon matches up to Apple.

Apple’s initial innovation with iTunes was that it afforded consumers the ability to purchase music à la carte — one single at a time — when up until that point it could only be purchased in record or CD form. Coupled with a $0.99 per song pricing model and the unparalleled convenience of click-buy-play, this was a recipe to change the way that customers bought and experienced music.

Similarly, Amazon’s initial innovation with Amazon.com was that it enabled people to discover, purchase and transparently receive a seemingly bottomless wellspring of books, where formerly you pretty much only got what was on the shelves in the bookstore.

Like Apple, Amazon used a disruptive pricing and logistics model to entice customers to change their buying behavior.

That Apple has expanded iTunes into an App Store (and iBooks) and a family of devices bound by a common software platform, and Amazon has expanded its catalog to products and services of all stripes (analog and digital), makes perfect sense in this context.

From the initial “design win” of music buying and book buying, both companies have grown the categories and aggregate dollars of their bases in ways that have made consumers want to be more deeply embedded in their relationships with Apple and Amazon.

The Amazon Prime product has cultivated a base of an estimated five million subscribers (from the company’s aggregate base of 120 million customers) that, in exchange for an annual $79 fee, provides expedited shipping on many products.

Why is this a big deal? The friction-free model is enticing some customers to use Amazon for product purchases (e.g., bulk goods, toiletries) that historically have been the parlance of the local Walgreens or Costco.

So, if MG Siegler of TechCrunch is correct in his excellent scoop on Amazon’s Kindle Tablet, then Amazon will be bundling Amazon Prime with its forthcoming 7-inch tablet device and pricing the device at a disruptively low price point of $250 — about half the cost of an entry-level iPad.

If you create a superset between Kindle buyers and Prime subscribers, a logical early-adopter user base emerges for Amazon to target for its iPad alternative (in terms of price, footprint and aggregate value proposition).

Plus, from a strategic leverage perspective, it makes total sense. Amazon, after all, is first and foremost a great retailer.

Add on to this value proposition the fact that Amazon has surrounded its Prime offering with an ever-growing free library of bundled video content (i.e., a poor man’s Netflix streaming service), and the Kindle Tablet starts to feel like a lifestyle device that can succeed over the long haul.

After all, media is a big differentiator on this type of device. And in terms of sheer economics, there are a lot of people these days for whom a bundled video service with a pay-as-you-go library of premium music, books, video and app offerings feels right at $250.

No less, if we know anything about Amazon, it is that it, like Apple, has the fortitude, focus and sense of purpose to see big ideas through to long-term success.

Amazon, after all, wants to be the only shopping cart you’ll ever need, and this becomes another channel back to the consumer.

Plus, from an average revenue per user perspective (ARPU), you can probably subsidize the device a bit more with the Prime subscriber, knowing that Prime customers are already paying $79 a year and are faithful, dedicated, recurrent commerce customers.

Some final thoughts:

Just because Amazon has a logical path to finding a “wedge” in the tablet computing market doesn’t mean that it will. There are hard strategic decisions about how to fork Android and how that ties in with Amazon’s Appstore strategy, including approaches to competing services (e.g., will Amazon allow Nook or iBooks to be installed?).

Moreover, is Amazon prepared to develop and support a software developer’s kit (SDK) and get sucked into a developer tools arms race with Apple?

Similarly, how does Amazon Web Services and Amazon’s cloud platform fold into the equation?

Like I said at the start, mobile platforms are really hard to create and execute, but if anyone is in a position to do just that, it’s Amazon.

Related:

Ruminations on the legacy of Steve Jobs

Mark Sigal — Thu, 25 Aug 2011 14:00:00 +0000

“It’s better to die on your feet than to live on your knees.” — Neil Young

“That day has come.” Four simple words that signaled that Steve Jobs felt compelled to step down as CEO of Apple, the company he founded, then lost, then saw ridiculed and written off, only to lead its rebirth and rise to new heights.

It’s an incredible story of prevailing (read: dominating) over seemingly insurmountable odds. A story that has no peer in technology, or any other industry, for that matter.

That is why even though this moment was long anticipated, and while I know that Steve isn’t gone (and hopefully won’t be anytime soon), yesterday’s announcement nonetheless feels like a “Kennedy” or “Lennon” moment, where you’ll remember “where you were when …”

I say this having seen first-hand the genuine, profound sadness of multitudes of people, both online and on the street, most who (obviously) have never met the man.

Why is this? I think that we all recognize greatness, and appreciate the focus, care, creativity, and original vision that it takes to achieve it.

The realization that one man sits at the junction point of cataclysmic disruptions in personal computing (Apple II/Mac), music (iPod + iTunes), mobile computing (iPhone + iOS), movies (Pixar) and post-PC computing (iPad) is breath taking in its majesty. A legacy with no equal.

The intersection of technology and liberal arts

In an era where entrepreneurialism is too often defined by incrementalism and pursuit of the exit strategy, Jobs’ Apple was always defined by true husbandry of a vision, and the long, often thankless, pursuit of excellence and customer delight that goes with it.

Ironically, though, Jobs’ greatest innovation may actually be as basic as “bringing humanity back into the center of the ring,” to borrow a phrase from Joe Strummer of the seminal rock band, The Clash.

Consider Jobs’ own words at the launch of the iPad back in January, 2010:

The reason we’ve been able to create products like this is because we’ve tried to be at the intersection of technology and liberal arts. We make things that are easy to use, fun to use — they really fit the users.

If this seems intuitive, and it should be, consider the modus operandi that preceded it. Before Apple, the hard truth was that the “inmates ran the asylum,” in that products were typically designed by engineers to satisfy their own needs, as opposed to those of the actual consumers of the products.

Moreover, products were designed and marketed according to their “speeds and feeds,” checklists of attributes over well-chiseled, highly-crafted outcomes. And it didn’t really matter if at each step along the value chain the consumer was disrespected and disregarded.

Ponder for a moment the predecessor to the Apple Store, CompUSA, and what that experience was like versus the new bar for customer service being set by Apple.

Or, think about the constraints on enjoying music and other media before the iPod, or the pathetic state of mobile phones before the iPhone.

Skeptics and haters alike can credibly say that Apple did not create these categories, but recognize that it took a visionary like Steve Jobs to build a new technology value chain around the consumer and make it actually work. To give birth to an entirely new platform play. To free the user from the hard boundaries of WIMP computing. To bring design and user interaction models into the modern age. And to magically collapse the once-impenetrable boundaries between computing, communications, media, Internet, and gaming.

Even today, the legacy MP3 device category is utterly dominated by Apple’s iPod, despite every would-be competitor knowing exactly what Apple’s strategy is in this domain.

To do this in segment after segment, launch after launch, takes true conviction and a bit of chutzpah. But then again, Apple, under Jobs, has never been a company that embraced or felt beholden to conventional wisdom (see “Apple’s segmentation strategy, and the folly of conventional wisdom“).

iPad as the signature moment in a brilliant career

Time and again, investors, competitors and industry pundits have dismissed Apple, most recently when the company launched the iPad. Then, the conventional wisdom was that Apple “blew it” or that it was “just a big iPod Touch,” nothing landmark.

Truth be told, such dismissals are probably the barometer by which Steve Jobs knows that he’s played the winning hand.

I wrote in 2010, in anticipation of the iPad launch:

The best way to think about the iPad is as the device that inspired Steve Jobs to create the iPhone and the iPod Touch. It’s the vaunted 3.0 vision of a 1.0 deliverable that began its public life when the first generation of iPhone launched only two-and-a-half years ago … it is a product that is deeply personal to Steve Jobs, and I believe the final signature on an amazing career. I expect the product to deliver.

Well, it did deliver, and 30 million iPads later, the ascent of post-PC computing seems irrevocable as a result.

The moral of the story in considering the wonder and beauty of Steven P. Jobs, thus, is two-fold.

One is that most companies wouldn’t even have chanced cannibalizing a cash cow product like the iPod Touch (or the iPhone) to create a new product in an unproven category like tablet devices.

Not Apple, where sacred cows are ground up and served for lunch as standard operating procedure.

Two is that the mastery required to create a wholly new category of device that could be dismissed as “just a big iPod Touch” takes a very rare bird. Namely, one that pursues non-linear strategies requiring high leverage, deep integration and even higher orchestration.

Exactly the type of complexity that only Jobs and company could make look ridiculously, deceptively simple.

In his honor, may we all be willing to “Think Different” in the days, weeks and months ahead. That’s the best way to pay tribute to a legacy that will stand the test of time.

Apple Store and Steve Jobs photos from Apple Press Info.

Related:

Is the enterprise dead as a tablet strategy?

Mark Sigal — Tue, 12 Jul 2011 16:00:00 +0000

In “HP’s Tortured WebOS Positioning,” Jean-Louis Gassée makes the assertion that the consumerization of IT renders the “enterprise-only” pivot null and void.

I disagree, but first some clarity for those who aren’t familiar with the term “consumerization of IT.”

When the enterprise lost its mojo

Once upon a time, large enterprises (think: Fortune 2000 companies) were widely perceived to be the ideal customer, owing to their large size, well-defined and massive IT budgets, wide range of solution needs, and target-ability from a sales perspective.

All sorts of hardware, software, hosted services and consulting services companies — not to mention a significant chunk of the venture capital industry — fed off of this massive ecosystem, the impact of which meant that innovation began in the enterprise, and then trickled down to the consumer.

However, when the dotcom bubble blew up at the end of 2000, coinciding with the end of the over-hyped Y2K project “pig trough,” enterprises lost the impetus to spend aggressively on IT.

In parallel, they began to (rightly) question the return on investment for the many projects they had funded. In broad terms, this led to a reclassification of IT from being a strategic asset, and core differentiator, to being a liability, and a necessary evil.

Basically, the CFO trumped the CIO going forward.

The neutering of the enterprise from an IT perspective coincided almost perfectly with the second coming of a consumer-focused Apple (which frankly, has never grokked the enterprise).

Now suddenly innovation began originating in the consumer realm, and then trickling to the enterprise after it was proven to be a safe investment.

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Is the enterprise dead as a player in tablet devices?

Call me naive, but speaking from the perspective of an iOS developer (and someone who used to sell a bunch of hardware and software solutions to enterprises), I think an opportunity exists for some tablet maker to penetrate the enterprise.

Why? Apple’s model of controlling both the value-add hardware channel and the software distribution channel is a decided anathema to enterprises, which typically prefer working with and through VAR channels (i.e., Value-Added Resellers) and System Integrators (SI).

Similarly to VARs and SIs, the Apple model heavily complicates the types of solutions that vendors can provide, the pricing that vendors can achieve, the ability to not broadcast key customers to competitors, and the like.

And don’t even get me started on Android as an alternative. Here, Google’s focus on free, loosely-coupled, “good enough” and ad-supported is a distinctly different set of sales and support assumptions than the enterprise, which is all about high-touch, custom and deeply integrated, has come to expect.

Thus, in the bigger picture the open questions are two-fold. One, is whether there exists a vendor in the tablet space other than Apple that is going to properly set and meet market expectations, as opposed to perennially over-promising, and under-delivering.

This, of course, requires an actual product discipline, inclusive of coherent evangelism, a clear roadmap and release strategy, and a culture of focused execution and iteration — especially on the software side of the equation.

Here, the litmus test is actually kind of easy. Until one of these manufacturers stops talking about Adobe’s Flash as a feature (versus a bug, until it works caveat-free); or touting Snapdragon processors and their clock speeds (customers buy outcomes, not attributes), Apple is going to remain the only credible player in tablets.

There is just too much of a halo effect working to Apple’s advantage, and the company has high execution credibility in this domain.

By contrast, RIM, the long-time enterprise leader of mobile devices, has clearly (so far) screwed the pooch with their confused PlayBook strategy. And Gassée’s piece covers HP’s early tablet missteps.

Attacking undefended hills

HP, IBM, Oracle and Microsoft all have logical entry points, from a solutions perspective, into the enterprise via tablet computing. But they must get focus and religion on attacking the “undefended hill” (to use an HP axiom) that is the enterprise tablet.

Simply put, no one is credibly focusing on this customer and its surrounding eco-channel.

Which brings me to the second question: Does there exist even one enterprise with sufficient vision to be “greedy” from an investment and innovation perspective while every one of their peers is acting scared (to use a Warren Buffett axiom)?

After all, it only take one serious proof point to ignite a market, and if HP, et al are really serious, proving out the enterprise should be a core focus.

Netting it out: It’s too early to proclaim game over when the stakes are measured in the billions of devices, the budgets are measured in the billions of dollars, and a sleeping gorilla lies naked, unfed and uncared for in the enterprise.

Related:

The Great Reset: Why tomorrow may not be better than today

Mark Sigal — Fri, 08 Jul 2011 14:00:00 +0000

Growing up in the waning days of the Carter administration, I remember a societal malaise that was pervasive to the point of toxicity. A common sentiment then was that our best days were behind us.

How did we get there? Most fundamentally, a paralyzing period of stagflation meant double-digit interest rates and no economic growth.

However, it was also fed by an energy crisis; the first signs of Islamic fundamentalism’s assent; and a lengthy political hangover that followed a scandal in the White House.

But as they say, it’s darkest before the dawn, and in a flash, the malaise was gone.

To be sure, the next 30 years brought with it booms, bubbles and bursts, but the general sense, and one’s expectation, was for a better tomorrow.

Today, however, I’d argue that our present no longer sits at such a simple, logical place where tomorrow is necessarily better than today.

Simply put, our society is undergoing a “great reset” where for many the future is a very scary place.

Understanding The Great Reset

Systemically speaking, these are confusing times. The recession is technically over, and you can tangibly see that fact from an economic growth perspective.

Yet, two-and-a-half years later, one has to ask, “Where are the jobs, and equally worrying, where are the drivers of job growth?”

Now I don’t have to tell you that a jobless recovery is an unacceptable indicator of systemic success when you consider the sheer size of the unemployed, not to mention, the under-employed.

Similarly, is there any question that a certain chunk of society is getting dis-proportionally squeezed by the system on numerous fronts?

Case in point, over the past couple of years I have heard a troubling number of stories from people that I know well. More often than not, these are highly educated, historically successful people that have gone from flush to crushed, simply because their geographic region or industry has lost its footing, or because they’ve hit a certain age where they are no longer desired as a named employee.

1099 is the new W-2

The uncomfortable truth, in fact, is that everyone is now an entrepreneur, whether they like it or not. 1099 is the new W-2, which says something when you see how even basic services like insurance become exponentially more expensive when written as an individual policy vs. a company policy.

What type of hit does that represent to our national health, both metaphorically speaking and literally, in the pocketbook?

Homeless children: do we really care?

Along these lines, I was drawn to tears watching a recent CBS “60 Minutes” report about the growing ranks of homeless children, and what that life is like for all parties involved.

It is gripping stuff in that it raises tough questions about what kind of society we want to build, and how much we feel pain when others needlessly suffer.

This all seems so abstract until you ponder its effect in broader terms. Case in point, in the book “Outliers” Malcolm Gladwell brilliantly shows how those coming of age during the depression never fully recovered; yet those coming of age in the boom times of a Post-WWII America flourished, making this a generational imperative.

Tough questions, weak answers

This is the Great Reset, and an entire generation’s outlook for a better tomorrow lies in the balance with it.

Remember the audacity of hope? It’s been replaced with cynical, political pragmatism where big corporations necessarily get stronger on the premise that trickle down and laissez-faire are universal absolute truths.

Equally troubling, there’s a sense of there being a protected class — seen in many forms across taxation, lobbying, generally accepted conflicts of interest, and low-touch regulation and enforcement.

Consider that it is no longer assumed to be fundamental that there be basic codicils protecting individuals from intentional harm, predatory behavior and malfeasance (read Matt Taibbi’s damning “The People vs. Goldman Sachs” for more fodder on this topic).

Nor do the penalties meet the crime when this class crosses the line. Why not commit the crime if you don’t fear doing any time?

As a result, the rest of us are getting the shaft. Health Insurance is more expensive and offensively priced than ever. It feels almost evil that we went through the Obama Care discussion, only to “win” universal coverage that results in insurance providers simply upping their premiums 40% or more, in some cases pushing 2-3 rate increases in a single year!

Want to really mess with people’s minds? Threaten the availability of their health care coverage, both for themselves and their families.

On a lighter note, at least we aren’t suffering from inflation in this recovery. Yes, I am being ironic.

So what’s changed this go around?

I remember when I started my first career in real estate back in 1988, and the savings and loan crisis was in full force (it was a much smaller version of our current banking imbroglio).

Then, three things came about in its aftermath:

Real structural change.
A functioning marketplace for getting rid of non-performing assets.
Readily identifiable perpetrators went to jail.

Not this time. Not only did the perpetrators not go to jail or even lose their jobs, but they got raises and got to keep their bonuses. This, even though the “profits” were disproportionately derived from a guaranteed arbitrage gifted by the U.S. government.

Even worse, most would agree that the reforms to the system were largely cosmetic, with the clean up of toxic assets occurring behind the public curtain with even more financial engineering.

Netting it out, we went through the worst financial crisis since the depression, and the only one who went to jail was Bernie Madoff — the guy who stole from the rich! That should tell you something.

Looked at holistically, it raises some troubling questions:

Is “Too Big to Fail” just a black hole that sucks our economy dry? You can certainly see the ripple effect at the level of state and local governments.
Does it matter if we have a middle class? Do we really care? Are our national priorities right?
What happens to all of the places in America that don’t find real industry on the other side of The Great Reset?
What if it turns out that the Google Economy is a better destroyer of wealth and jobs than a creator of the same? Apocryphal, sure, but it’s a fair question, given the number of industries that have been wiped out over the past decade.
Do we miss the video store, record store, book store, consumer electronics, newspaper, yellow pages and whatever intangibles they brought? What do we lose as a society when any brick and mortar business whose product or service can be digitized or improved by logistics (ease and convenience of access), or sold less expensively online simply goes away?
Is this the end of serious politics (real solutions, real compromise), and is the wall between government and private industry gone forever? Check out “Inside Job” and “Food, Inc.” to see how two different industries have been re-shaped by this dynamic.
In the bigger picture, can we “afford” cheap Walmart goods, or does the race to the bottom actually destabilize our way of life by destroying domestic industries and permanently funneling those jobs overseas?
Would the Earth stop spinning if the Amazon sales tax exemption was lifted, putting local retail on closer footing with Amazon? Wouldn’t this seem to lead to more local sales?
What “upside surprises” might occur from a prolonged period of creative destruction in terms of our consumption patterns, happiness index and/or new industry growth?

Some of this raises uncomfortable truths about the values of a society, how that society holds its leaders accountable, whether opportunity is expanding or contracting, and whether the value that our economic base is creating is sustainable or illusory.

Similarly, it begs the question: what is the proper role of government? For example, is it possible that in the same way that the government provided the funding that led to the Internet and, before that, our national highway infrastructure, that our leaders could seed new types of infrastructure investment in transportation, energy, health and education?

A sobering thought. Take a moment and watch this chunk of Eisenhower’s farewell speech where he warns about the rise of the military industrial complex, and the threat that it represents to society and our way of life (while acknowledging it’s essential inevitable).

Now, replace “military industrial” with “Wall Street” and “mega corporations” and ask yourself if history is repeating. It’s kind of disturbing.

Like any diagnosis, the patient (and its guardians) has a say in the treatment. But ignoring the fact that The Great Reset is upon us in the hopes of not upsetting the apple cart of a strong stock market (the Skinner Box of our age) is akin to letting cancer metastasize to avoid the pain that treatment might bring.

Photo: Reset switch by renaissancechambara, on Flickr

Related:

The iPhone, the Angry Bird and the Pink Elephant

Mark Sigal — Mon, 20 Jun 2011 13:30:00 +0000

I am firm believer that he who wins the hearts and minds of developers wins the platform game.

Case in point, in today’s mobile/Post-PC universe, we see clearly how major companies like Microsoft, HP, Dell, RIM and Nokia are struggling to remain relevant in the face of developer apathy.

Meanwhile, Apple and Google have left the competition in the dust by virtue of their tremendous success in courting application developers.

But, there is a “pink elephant” in the room that no one is really discussing, and it gets to the nut of what investing time and energy in a software platform is all about. More on that in a minute.

First, some table setting. As an apps developer, I care about three things. First and foremost, is having a great platform to develop on top of.

After all, great software is a by-product of: A) Enabling your target audience to achieve a well-defined set of outcomes; B) Solving the right problem, technically speaking; and C) Delivering an engaging user experience.

Simply put, if you are working on the wrong canvas, or using an inferior palette, accomplishing these tasks is hard to do. The good news here is that whether you’re a devotee of Apple’s iOS, Google’s Android, third-party frameworks like Ansca’s Corona, or open web approaches like HTML5, the getting’s actually pretty good in this realm.

The second requirement is having a readily addressable, targetable base of users. All things being equal, this is preferably a large base of users, but ultimately, the metric of audience size is less integral than factoring the lifecycle value (in dollars) that you can reasonably hope to capture from the base of your users that you actually do monetize. Again, 200 million iOS devices, and 100 million Android devices is a very large footprint for targeting purposes, so no complaints there either.

This brings me to my third requirement. As a developer, while I am of course very passionate about what I build, I am not doing this for the dark joys of being a starving artist.

Rather, I am in it to make money; namely, to build upon my profession, and if all goes well, sing and dance all the way to the bank. Here’s where the circumstances are cloudy at best, and deeply troubling at worst.

Thinking about success: What’s past is prologue

When I close my eyes and think back to the days of old PC, I can recall legions of very large, breakout successes that emanated from the PC model (i.e., $100M+ revenue companies).

The high profile names include companies like Intuit, Lotus, Adobe, Symantec, Borland, CheckPoint, McAfee, Siebel and Sybase. But trust me, the landscape was dotted with successes across a dizzying array of application categories and vertical segments, and serviced by a wide range of solution providers.

Similarly, when I think about the dotcom phase of the web, companies like Amazon, eBay, Yahoo, Google and PayPal come easily to mind.

Even the post-dotcom phase of the web is spotlighted by monster successes like Salesforce.com, Facebook and LinkedIn, with Facebook being doubly noteworthy for having already spawned a true cash-generating machine goliath off of its platform, in Zynga, which is expected to reach $1.8 billion in revenue, and $630 million in profits in 2011.

Now, contrast these companies with their “breakout success” counterparts on iOS and Android, and you are left with the chirping sounds of crickets.

Shockingly, lost in the stunning growth of iPhone, iPad, iPod Touch and Android-derived devices — 300 million devices sold combined and counting, 600,000-plus apps built, and more than 18 billion app downloads — is the disconcerting truth that no one is talking about. Namely, that the closest story of financial success that we have to Facebook, Amazon or Intuit is … Angry Birds!

What the frak? Angry Birds is ridiculously addictive, it’s cute and it’s brilliantly executed, but it is perhaps a $15-25 million business.

Is this the best that we can do in painting a picture of software success in an industry that is projected to grow to 10 billion devices worldwide?

Cry me a river: Why should Apple or Google care?

I trust that Apple CEO Steve Jobs felt tremendous pride when he announced at WWDC that Apple had paid app developers more than $2.5 billion in revenue share from sales of their applications.

He should be proud. Apple has created an amazing platform that seemingly overnight, but actually a decade in the making, has achieved the disruption trifecta: first re-jiggering the music business, then mobile, and now, the PC industry.

But, I’d like to submit an uncomfortable truth that should give the chess players at Apple (and to a lesser extent, Google) some cause for pause.

As Amazon first began to prove out back in the mid-’90s, creating a discovery engine, distribution platform and marketplace optimized for long tail-oriented product offerings can create great financial rewards for the platform creator, and no doubt Apple has innovated upon this model incredibly well vis-á-vis iTunes and the App Store.

However, whereas Amazon’s model did not completely re-write the economics of selling electronics, toys and books, such that what once sold for $25 is now $0.99, the App Store is fundamentally different. Its sole purpose seems designed to create surplus, so as to commoditize software, and since the incremental cost of each piece of software is effectively zero, the race to the bottom is almost assured in this environment.

This is ironic because Apple’s own highly disciplined business strategy is geared toward maximizing profit margins, without leaving pricing overhang for the competition to attack them from the low-end (which is what happened to Apple during the PC era).

Yet strangely, for all of the brilliant creation, orchestration and curation efforts that Apple has made on behalf of developers, little attention seems to have been made to ensuring that app makers can actually build profitable, scalable businesses.

Thus, it’s noteworthy that in Amazon’s nascent Android App Store, the company is exerting a measure of pricing control over app developers, presumably to avoid this race to the bottom.

Why is this? Perhaps, unlike Apple and Google, Amazon is in the business of making the lion’s share of its money selling other people’s stuff. Silly as it sounds, Amazon actually needs its vendors to be fiscally healthy enough so Amazon can sell lots of their products. By contrast, Apple just needs a steady supply of “there’s an app for that” chum to keep the platform fresh and exciting.

Lest one wax poetic about Google saving the day, remember that their real customer is the carrier and device OEM, and the lion’s share of their dollars are derived from search advertising, so they merely need the “optics” of app diversity to remain relevant.

(Sidebar: If you watch Apple’s TV commercials for iPhone/iPad and mobile carriers’ ads for Android phones, this qualitative distinction becomes clear.)

Netting it out, the current state of affairs raises the following questions:

How is a large software industry going to grow around this type of model, and what happens if it doesn’t?
From an economic viability perspective, what would the ideal platform approach look like for developers?
How might another platform, such as Amazon’s, or Facebook’s rumored Project Spartan, outflank Apple and Google by building a better mousetrap for developers to make money?

A final thought: Once upon a time, the notion that people would even pay for software was scoffed at. But Microsoft, acting purely out of enlightened self-interest, helped catalyze a packaged software industry that would grow to more than $200 billion in annual revenues.

The moral of the story? What’s past is prologue in distinguishing between mere survival and breakout success. How do I know this? A little birdy told me.

Related:

Four core takeaways from Apple's WWDC keynote

Mark Sigal — Wed, 08 Jun 2011 17:00:00 +0000

The Worldwide Developers Conference (WWDC) keynote by Apple CEO Steve Jobs was pure “shock and awe,” a showcase of the overwhelming power that has been assembled and orchestrated by Apple, the industry’s emerging Post-PC gorilla.

Most impressively, the event and the specifics presented (iOS 5, iCloud, OS X Lion) during it were clearly staged to deliver an inspiring but chilling message: Whether you’re a prospective customer, developer, channel partner, or competitor, “resistance is futile.”

What follows are my four core takeaways from the keynote.

No. 1: The halo effect

Three years ago, I wrote that Apple had made, and was brilliantly executing on, a handful of trend bets that left it uniquely positioned within the marketplace.

These bets included:

Making the mobile Internet caveat-free.
Harnessing rich media as the “my stuff” bucket that matters.
Treating everything in their arsenal as an integrated platform (from PC to device to online service).
Leveraging and deriving core technologies from one product family to cross-pollinate another.

At the WWDC keynote, Jobs and company repeatedly asserted that “it just works” (the ultimate caveat-free mantra) when presenting this feature or that. They noted that no one else can assemble all of these pieces to deliver this type of solution.

Similarly, a heavy emphasis was placed on extending the utility, reach, and integration of:

Personal media: Via camera enhancements, which use Apple’s Core Image camera technology, and a new Photo Stream service, which will run on iPhone, iPod Touch, iPad, Mac and the Apple TV.
Personal documents: iWork now runs on everything from the iPhone and iPod Touch to the iPad and the Mac, and it’ll soon be cloud-enabled via Documents in the Cloud.
Messaging/scheduling/contacts: Via the new iCloud service, which revamps and subsumes the company’s disappointing MobileMe service. The new iMessage offering is poised to disrupt the SMS business.
Professional media: Via iTunes in the cloud and a new iTunes Match service; a new magazine and newspaper subscription service called Newsstand, which complements its iBookstore; and unique to Apple, liberal rights to use the same media now and into the future on multiple iOS devices.

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No. 2: A coherent Post-PC vision

John Gruber has a great analog for how Apple approaches markets, strategies and tactics that he calls, “Measure Twice, Cut Once.” The basic premise is that while most companies have a tendency to fire, then aim, Apple is diligent in assessing all of the moving parts of a strategy, and ensuring they have extreme confidence in both the viability of the path and their ability to execute on that path.

Hence, while many mocked Apple’s slow path to copy and paste in iOS, their handling of Antennagate, and their seeming lack of urgency in responding to Google’s cloud ambitions, the truth is that Apple begins with a 3.0 vision that guides 1.0 execution.

This “begin with the end in mind” sensibility and patience has repeatedly rewarded the company and its constituency. This week’s announcements were no different.

In announcing both iOS 5 and iCloud, Apple for the first time gave users clear workflows that don’t force false dichotomies between the PC as proxy, and the cloud as the hard drive in the sky. You can cut the cord or not. Software updating and iTunes and App library syncing don’t demand a host PC. Nor does photo or video editing. Nor does creation of calendars, mailboxes, documents or the like.

At the same time, they have delineated the cloud as The Truth, relegating rather forcefully the PC (and the Mac) as just another device from a backup, syncing and service perspective.

Categorically, this puts them in a real sweet spot between the lowest common denominator web tilt of Google, the PC legacy catholicism of Microsoft, the device-agnosticism of Facebook, and the digital disruptor that is Amazon.

No. 3: Amazon beware

Two storylines always seemed obvious when Apple began its assault on becoming the digital hub. One was that long-time friends, Apple and Google, were destined to become frienemies. The second was that the only company positioned to fight Apple in terms of both style and substance was (and is) Amazon.

Why? Amazon, like Apple, is singularly focused on how to sell stuff. Both companies are somewhat agnostic to rigid categorical definitions of the types of products that they can sell and the lines of business that they can play within.

Equally important, like Apple, Amazon has a relentless focus on customer satisfaction, not to mention, the all-important billing relationship.

Plus, like Apple, Jeff Bezos and company know how to execute on platform strategy, are adept at pioneering cloud services, have their own device and integrated app store strategy (via Kindle and their Android app store) and have secured the all-important media relationships across music, books and movies.

With Apple moving aggressively into PC software sales, ebooks (the WWDC keynote touted 130 million downloads from iBookstore) and magazine subscriptions, and an Android-derived Amazon Kindle tablet rumored, Amazon seems to represent a potential fly in the ointment of Apple’s ambitions.

Whether Apple represents a serious threat to Amazon, however, remains to be seen. This will be my favorite industry storyline to watch unfold in the year ahead.

No. 4: The cannibal

Two tweets that I saw stood out in the waning moments of the keynote, both speaking to Apple’s willingness to kill stuff. The first, by the New York Times’ John Markoff, underscores the admirable quality of Jobs to see beyond long-held conventions and thus to kill sacred cows (even his own in the case of MobileMe).

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Steve’s great strength? He kills things … Floppy , hard disk, etc. Next up? The file system..less than a minute ago via Twitter for iPhone Favorite Retweet ReplyJohn Markoff
markoff

More chilling, however, is Apple’s ready willingness to cannibalize its partners. While inherent in any platform play is the risk that the platform provider will see your sandbox as strategic and co-opt it for themselves, the news wires were legion with stories about the “body count” from Apple’s announcements.

Apple’s announcement about their new feature that enables the iPhone’s volume control to activate the camera shutter led to this sarcastic tweet by Chirag Mehta:

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Step 1: Reject an innovative app. Step 2.:Copy that functionality in the core OS Step 3: Claim Innovation. #WWDC #Camera #TapTapTapless than a minute ago via TweetDeck Favorite Retweet ReplyChirag Mehta
chirag_mehta

In case you don’t know, this is a direct dig at the fact that iOS developer Tap Tap Tap, makers of the popular Camera+ app, innovated this very same feature several months back, but Apple blocked the app’s release until the feature was removed. Now, however, Apple has added it to iOS as their own feature.

To be clear, as platform maker Apple is both within their rights and responsibility to decide which features are best left for third-parties to extend, and which are core and thus should be universal within the platform. But I suspect that it speaks to the growing unease that an all-powerful Apple may not be so great for third-party developers, especially given Apple’s past track record of co-option during the PC wars.

Such is the paradox of astounding success. One moment, you are being celebrated as a revolutionary, and bringer of a golden age. The next, you’re being taken to task. Apple’s relationship with its developers and corresponding role in their success (or failure) is a topic certainly worth further exploration. But that is a post for another day.

Related

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Apple’s Segmentation Strategy (and the Folly of Conventional Wisdom)

Understanding Apple’s iPad

Five reasons iPhone vs Android isn’t Mac vs Windows