Platform duels (3)

Here is a continuation from thelast post (parts that I have marked in my copy of the book “Dogfight: How Apple and Google Went to War and Started a Revolution“ by Fred Vogelstein):

51. “More worrisome to Apple was that Rubin could succeed without having to convince many iPhone customers to switch. The number of people worldwide switching from cell phones to smartphones in the coming years was going to be so enormous that he just needed to focus on that group – not necessarily on iPhone customers – to get a dominant smartphone market share. It seemed unfathomable that Jobs would lose two battles the same way a generation apart. But with so many similarities between the two dogfights, it was hard not to think about it.”

52. “There have always been good reasons to believe that the Apple/Google fight might not play out like Apple versus Microsoft. Developers seem more capable of writing software for two platforms than they were in the 1980s. The platform-switching costs remain much smaller too. Back then PCs cost more than $3,000 and each software title cost more than $50. Now the costs are less than a tenth of those. A new phone with a carrier subsidy costs $200, and each app costs less than $3 and is often free. Also, third parties – the carriers – continue to have a vested interest in making sure consumers have as many ways to connect to their network, and pay them money, as possible.”

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53. “But what Google and Apple executives have always understood is that if the battle turns out that way – if somehow their mobile platforms can harmoniously coexist – it will be a historical aberration. Because of the press coverage surrounding the Microsoft antitrust trial fourteen years ago, a huge amount of analysis has been done on how Microsoft built its Windows monopoly in the PC business: if you get enough people using your technology platform, eventually it creates a vortex that forces almost everyone to use it. But these economic forces have not been unique to Microsoft. Every major technology company since then has tried to create the same kind of vortex for its business.”

54. “It was, of course, how Jobs had dominated the music-player business with the iPod. It was also how Google in 2004 started to embarrass and challenge Microsoft for dominance in high tech and pushed Yahoo! to the brink of implosion. Google’s top-quality search secured the most search traffic. That gave it the best data about user interests. That data made its search advertisements appearing alongside the search results the most effective. That virtuous circle encouraged more search traffic, more data, and even better search ads. No matter how much Microsoft and Yahoo! tried to attract traffic with lower ad rates and improved search results, Google was always able to offer a better deal.”

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Jon Rubinstein

55. “As the mobile platform wars go forward, Google’s and Apple’s ecosystems might be able to coexist long term and generate big profits and innovation for both companies. But given recent history, they will have to fight it out as if it won’t happen that way “It’s like the battle for the monopolies that the cable guys and the phone guys got thirty to forty years ago,” said Jon Rubinstein, the longtime top Apple executive and former CEO of Palm. “This is the next generation of it all. Everyone – Apple, Google, Amazon, and Microsoft – is trying to build their walled garden and control access to content and all that. It’s a really big deal.” In other words, it’s not the kind of thing Apple or Google can afford to be wrong about.”

56. “Only about 3 percent of all patent-infringement cases go to trial. And Apple is one of the most secretive, controlling companies in the world. Juries are unpredictable in any legal situation, and they tend to be particularly unpredictable about business and technology issues. The press coverage generated by courtroom disputes is typically not good for either company’s employee morale or focus. And taking a corporate dispute to trial costs tens of millions of dollars in legal fees.”

57. “We celebrate entrepreneurs in history textbooks, and that is a good thing. But the distillation necessary to make these tomes palatable – and to establish entrepreneurs as heroes – often leaves out the scheming, conniving, and hard work of getting this recognition. Virtually all of these entrepreneurs ended up in history books not just because they invented something but because they were able to defend it in court better than competitors.”

58. “But this was not an easy adjustment for Google’s and Android’s very engineering-driven culture. It wasn’t until Google released the Nexus S at the end of 2010 that it had a top- selling phone made this way. And it wasn’t until it released the Nexus 7 in 2012 that it had a

www.capitalideasonline.com Page - 3 Platform duels (3) top-selling tablet. Google didn’t have a meaningful competitor to the iTunes store until it released Google Play in 2012, which combined its Android app store with its own efforts at distributing movies, books, games, and TV shows.”

59. “You’d think that over the years Google would have developed some affinity for the sales and marketing skills necessary to make a dent in the media business. Virtually all its revenue came from advertising. It owned YouTube – arguably the biggest distributor of video in the world. But Google had succeeded because it rejected these social and business mores. It had used technology to take most of the sales and marketing out of advertising and distribution and turn them into giant number-crunching exercises.”

60. “The iPad, on the other hand, with a screen nearly the size of some magazines, offered all manner of possibilities. Could publishers offer digital subscriptions that consumers would actually pay for and wean them off the expectation that their content would always be free? Could publishers sell advertising at the same price as in their printed publications? Could Hollywood change the way it charged cable and satellite distributors for its content by making it more mobile and offering new interactive features?”

61. “The answer to most of these questions turned out to be yes. By the time Jobs died, in October 2011, users could read or watch virtually anything on an iPad. Fueled with books, magazines, newspapers, movies, and TV shows from iTunes and the app store, live TV from cable, plus content from other online services such as Amazon, Netflix, Hulu, and HBO the iPad had become the most important new media-consumption device since television. Subscriptions to hundreds of magazines were available through iTunes. More than 1 million e- books were available for instant download through Amazon’s Kindle app or the iTunes bookstore. Almost any movie or TV show you could think of could be found on one of the

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62. “Media executives negotiations with Apple and one another were bumpy at first. Newspaper and magazine publishers were worried that selling their content through iTunes would give Apple ownership of their subscriber lists, perhaps their most critical asset. Television studios such as Viacom and News Corp. worried that the cable companies would use the iPad to massively expand their audience and ad revenues but not pay them a cent.”

63. “Once media companies were freed of their initial worries about the iPad, most of them embraced it. Indeed, it sparked a wave of new, innovative, and popular approaches to consuming news and entertainment that few had seen out of the media industry in decades. Book publishers rushed to make all their titles available in downloadable formats. Newspapers and magazines scrambled to develop well-designed iPad editions. Cable companies such as Comcast and Time Warner Cable developed the watch-TV-anywhere software mentioned above. By the middle of 2011 one of the hottest new iPad apps was HBO GO, from the RBO division of stodgy Time Warner.”

64. “The convergence of so much media into one device, the iPad, happened so fast that even if media executives had wanted to resist, it would have been futile. One of the truisms of American media is that it follows its customers eyeballs, and by 2012 an enormous number of them were staring at iPads. By 2012, 16 percent of Americans had one. For thirty years the media had been dreaming and scheming about how to take advantage of the inevitable collision of digitized content with the integrated circuit – the silicon chip that powers everything from servers to the smallest iPod. But their bets about how it was going to happen had failed so often and so catastrophically that most had given up on the idea. Now they were scrambling to digitize anything they could to keep up with all the content

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65. “Amazon has an app store that is just as good. Microsoft has a search engine that is just as good. There are half a dozen good mapping applications. “Google needs Samsung as much as Samsung needs Google now. Without Google apps on Samsung phones -which are now half of all Android sales – half of Google’s mobile advertising base disappears.”

Marc Andreessen

66. “Investor Marc Andreessen says that smartphones and tablets nave not just exponentially expanded the number of people in the world who can consume media, they have also exponentially increased the number of times and places throughout each day that those people can watch. “You’ve got your phone and you can watch TV or movies anytime you want. The same with tablets. With a TV you have to be at home-to be sitting still – to watch it.”

67. “But cable broadband is now so fast that it has allowed competing content providers to grow up on top of it. The cable industry was been built on the assumption that consumers had a theoretical choice whether to pay for TV or get it free over the air. But practically, it wasn’t a choice. Watching Internet video on a tablet, smartphone, or even on the television

www.capitalideasonline.com Page - 6 Platform duels (3) via a game console or other electronics, such as the Apple TV or those made by Roku, is a real alternative. It’s getting more attractive every day. It’s hard to miss the irony. Sure, more and more of the content we consume at home is on a mobile device. But those devices are connected to Wi-Fi networks that are connected typically to cable broadband. Cable is being forced to rethink its business because of Netflix, YouTube, Apple’s iTunes, Amazon movies and music, and Facebook. But its bandwidth is what has enabled all of them to exist.”

68. “The difference between what is available to watch on the Internet and what is available to watch through cable TV remains vast. But while it is narrowing, the difference in the price of a monthly cable subscription (typically in excess of $100 for a family) versus, say, one from Netflix (less than $10) is not. Baby boomers may talk about the importance of watching TV as a family. Millennials think that’s just a rationalization for not having what everyone really wants: TV without programming compromises. So-called cord cutting, when households drop their cable TV subscription and only get broadband, has been overblown. But cable TV subscriptions are no longer growing, and new households – those started by adults right out of college – are subscribing to cable in smaller numbers than ever before. This group even has a name in the industry: cable nevers.”

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