Tag: Ben Thompson

Must-Read: Ben Thompson: Building Infrastructure

Posted on by Brad DeLong

Must-Read: Ben Thompson: Building Infrastructure: “I think the best way to think about physical retail going forward…

…is to start with what Bezos said about Amazon’s own initial foray:

The store is very different from any bookstore that you have gone into. It has a very small selection, very highly curated, only about 5,000 titles and they’re all face out on the shelves, and they’re picked based on the data that we have at Amazon from the website. If you come to the Amazon physical bookstore with a specific title in mind that you want to buy there’s a very good chance because we have such a curated selection that you’ll be disappointed. But why would we build a store that’s designed to — if you already know what book you want to buy we already have this thing called Amazon.com that’s very very good at satisfying that need, and so this is about satisfying a completely different need. It’s about browsing and discovery and having a really fun space to wander around in….

Because the design of the store starts with the assumption that Amazon.com exists, it can be totally optimized for, in Bezos’ words, ‘browsing and discovery and having a really fun space’ with little space wasted on holding inventory…. Physical retail has its benefits… the ones Bezos listed… demonstrating highly experiential and differentiated products. What will be critical, though, are business models and cost structures that start with the presumption of the Internet and its associated business models, and that is why Gap and the other merchants who built businesses around geographic limitations are (like newspapers before them) very much in trouble….

The other Bezos quote I promised you….

When I started Amazon all of the heavy lifting infrastructure to support Amazon was already in place. We did not have to invent a remote payment system. It was already there. It was called the credit card…. We did not have to invent transportation, local transportation, the last mile. There was this thing called U.S. Postal Service and UPS which was not invented for e-commerce but if we had had to deploy last mile transportation 20 years ago it would have cost hundreds of billions of dollars of capital. It would have been impossible for a company like Amazon to even conceive of doing that. Same thing deploying computer infrastructure…. And how did the Internet grow so fast? Even there the heavy lifting infrastructure had already been done for another purpose which was the long-distance phone network….

AWS and… Stripe… are building a new layer that enables entrepreneurism…. This new layer is about ongoing usage: AWS and Stripe’s value to entrepreneurs is less about reducing costs than it is controlling them on one side and enabling significantly more focus and specialization on the other…. The way organizations build, deploy and scale modern applications has fundamentally changed. Organizations must continuously bring new applications and features to market… rapid innovation…. freely experiment, quickly prototype and rapidly deploy new applications that are massively scalable…. Twilio, Stripe, and even AWS are bets on the idea that Software is Eating the World to the extent that mucking around with global communications networks is not worth whatever slight cost savings you might gain from forgoing Twilio’s margins — that your developers’ time is better spent building differentiation than it is redoing what Twilio has already done…

Must-read: Ben Thompson: “China Watching”

Posted on by Brad DeLong

Must-Read: Ben Thompson: China Watching: “I am often asked why I don’t write more about China…

…the reason, as I’ve explained in the past, is that the country, particularly anything having to do with the government–which by extension covers all big businesses, tech included–is basically unknowable to an outsider, and the more you learn about China, the more you realize this is the case. To that end, while I feel relatively confident about what I am going to write, given the Chinese angle I am unashamed to admit that I could be 100% wrong; frustratingly, we will probably never know for sure…

Must-Read: Ben Thompson: Apple in China

Posted on by Brad DeLong

Must-Read: Ben Thompson: Apple in China: “Apple… with its model of status-delivering hardware differentiated by software locked to its devices…

…has been uniquely successful in the world’s most populous country. [And] for many years Apple’s model freed them from the usual hoops that most Western tech companies have had to jump through to get a piece of the irresistible Chinese market. For example:

  • Microsoft spends $500 million a year in China, mostly at its Beijing R&D center (its largest outside of Redmond), and has promised to up that total after a recent antitrust investigation
  • Cisco pledged to invest $10 billion in China last year after being increasingly frozen out from Chinese purchases after the Edward Snowden revelations
    Qualcomm, after settling an antitrust case, formed a $280 million joint venture with a provincial government that included technology transfer
  • Intel has promised up to $5.5 billion to transform a chip plant that it originally said would be two generations behind to become cutting edge; a few months later the company formed a joint venture with two local firms in direct response to Chinese concern about reliance on foreign companies in the chip industry. That follows a previous $1.5 billion investment in two other chipmakers partially owned by the Chinese government
  • Dell adopted a new strategy last fall predicated on partnering in China to the tune of $125 billion over five years, forming a joint venture with the Chinese Academy of Sciences, and deep partnerships with Kingsoft Corporation for work in the cloud ‘fully supporting and embracing the China ‘Internet+’ national strategy.’

The Internet+ strategy is a plan to integrate the Internet with traditional industries, but its introduction has gone hand-in-hand with an increasingly strong preference for Chinese technology from Chinese firms. Thus the partnerships, joint ventures, and investment. And yet, until now, the most successful American tech company in China has operated mostly without interference…

Must-read: Ben Thompson: “Antitrust and Aggregation”

Posted on by Brad DeLong

Must-Read: Ben Thompson: Antitrust and Aggregation: “What ultimately undid Microsoft…

…and why that $95 billion revenue figure was a peak; the current trailing twelve month number is $87 billion–was that even as Windows continued to have a monopoly on laptops and desktops the definition of a computer was dramatically expanded to include smartphones (and, to a lesser extent, tablets). And while many Microsoft partisans argue that the antitrust-related restrictions caused the company to miss mobile, the truth is Apple’s iPhone succeeded by being a very different product than Windows, and Android leveraged a very different business model; if anything Microsoft’s PC dominance meant their mobile failure was inevitable as the company was ill-equipped to think differently…

Must-read: Ben Thompson: “Obsoletive: Revolutionary Products in Tech Don’t Disrupt–They Obsolete”

Posted on by Brad DeLong

Must-Read: Ben Thompson (2013): Obsoletive: Revolutionary Products in Tech Don’t Disrupt–They Obsolete: “[Christiansenian] disruption is low-end…

…a disruptive product is worse than the incumbent technology on the vectors that the incumbent’s customers care about. But, it’s cheaper, and better on other vectors that different customers care about. And, eventually, as the new technology improves, it takes the incumbent’s market.

This is not what happened in cell phones. In 2006, the Nokia 1600 was the top-selling phone… the BlackBerry Pearl the best-selling smartphone. Both were only a year away from their doom, but that doom was not a cheaper, less-capable product, but in fact the exact opposite: a far more powerful, and fantastically more expensive product called the iPhone…. The problem for Nokia and BlackBerry was that their specialties–calling, messaging, and email–were simply apps: one function on a general-purpose computer. A dedicated device that only did calls, or messages, or email, was simply obsolete. An even cursory examination of tech history makes it clear that ‘obsoletion’–where a cheaper, single-purpose product is replaced by a more expensive, general purpose product–is just as common as ‘disruption’–even more so, in fact…. The Mac (and PC), iPod, and iPhone weren’t so much disruptive as they were obsoletive. They absorbed a wide range of specialized tools for a price far greater than any one of those tools cost on their own….

Christensen’s theory of disruption remains an incredibly elegant and insightful framework for understanding why some companies–like Microsoft, to name the best example–decline. But it’s dramatically over-applied in technology. Most new products are simply better… while the most revolutionary products… are obsoletive. They are more expensive, more capable, and change the way we live…

Must-read: Ben Thompson: “Antitrust and Aggregation”

Posted on by Brad DeLong

Must-Read: Ben Thompson: Antitrust and Aggregation: “With zero distribution costs and zero transaction costs…

…consumers are attracted to an aggregator through the delivery of a superior experience, which attracts modular suppliers, which improves the experience and thus attracts more consumers, and thus more suppliers in the aforementioned virtuous cycle. It is a phenomenon seen across industries including search (Google and web pages), feeds (Facebook and content), shopping (Amazon and retail goods), video (Netflix/YouTube and content creators), transportation (Uber/Didi and drivers), and lodging (Airbnb and rooms, Booking/Expedia and hotels)…. All things being equal the equilibrium state in a market covered by Aggregation Theory is monopoly: one aggregator that has captured all of the consumers and all of the suppliers.

This monopoly, though, is a lot different than the monopolies of yesteryear…. Consumers are self-selecting onto the Aggregator’s platform because it’s a better experience. This has completely neutered U.S. antitrust law, which is based on whether or not there has been clear harm to the consumer… it’s why the FTC has declined to sue Google for questionable search practices….

Once competitors die the aggregators become monopsonies — i.e. the only buyer for modularized suppliers. And this, by extension, turns the virtuous cycle on its head: instead of more consumers leading to more suppliers, a dominant hold over suppliers means that consumers can never leave, rendering a superior user experience less important than a monopoly that looks an awful lot like the ones our antitrust laws were designed to eliminate….

There was one remedy from the European Commission settlement with Microsoft that actually worked out quite well: Windows was required to document interoperability protocols for work group servers, which while designed for the benefit of established competitors like Sun, was actually more important for the open-source Samba project. Samba made it possible for non-Windows PCs and servers to be fully compatible with Windows-based networks, making it viable to use a Mac or Linux machine in corporate environments, or (more importantly) in corporate data centers, one of the first areas where the Windows monopoly started to come apart. Of course Windows remained dominant on the desktop thanks to its application lock-in…. Both of these approaches — interoperability and API disclosure — could be solutions when it comes to defusing the market power of aggregators…

Must-read: Ben Thompson: “Andy Grove and the iPhone SE”

Posted on by Brad DeLong

Must-Read: Invest like mad in your technology drivers–even if it looks as if they are not the most profitable. But, conversely, don’t keep pouring money into things that used to be technology drivers but are no longer. And keep your mind open and place many bets as to what your future true technology drivers will be:

Ben Thompson: Andy Grove and the iPhone SE: “While [Gordon] Moore is immortalized for having created ‘Moore’s Law’…

…the fact that the number of transistors in an integrated circuit doubles approximately every two years is the result of a choice made first and foremost by Intel to spend the amount of time and money necessary to make Moore’s Law a reality… and the person most responsible for making this choice was Grove…. Grove [also] created a culture predicated on a lack of hierarchy, vigorous debate, and buy-in to the cause (compensated with stock)…. Intel not only made future tech companies possible, it also provided the template for how they should be run….

Grove’s most famous decision…. Intel was founded as a memory company… the best employees and best manufacturing facilities were devoted to memory in adherence to Intel’s belief that memory was their ‘technology driver’…. The problem is that by the mid-1980s Japanese competitors were producing more reliable memory at lower costs (allegedly) backed by unlimited funding from the Japanese government…. Grove soon persuaded Moore, who was still CEO to get out of the memory business, and then proceeded on the even more difficult task of getting the rest of Intel on board; it would take nearly three years for the company to fully commit to the microprocessor….

Intel today is still a very profitable company…. [But] the company’s strategic position is much less secure than its financials indicate, thanks to Intel’s having missed mobile. The critical decision came in 2005…. Steve Jobs was interested in… the XScale ARM-based processor… [for] the iPhone. Then-CEO Paul Otellini….

We ended up not winning it or passing on it, depending on how you want to view it. And the world would have been a lot different if we’d done it…. You have to remember is that this was before the iPhone was introduced and no one knew what the iPhone would do…. At the end of the day, there was a chip that they were interested in that they wanted to pay a certain price for and not a nickel more and that price was below our forecasted cost. I couldn’t see it. It wasn’t one of these things you can make up on volume. And in hindsight, the forecasted cost was wrong and the volume was 100x what anyone thought.

It was the opposite of Grove’s memory-to-microprocessor decision: Otellini prioritized Intel’s current business (x86 processors) instead of moving to what was next (Intel would go on to sell XScale to Marvell in 2006), much to the company’s long-term detriment…

Must-Read: Ben Thompson: Digital Dopamine

Posted on by Brad DeLong

Must-Read: Ben Thompson: Digital Dopamine: “Consider the one app category that continues to succeed wildly on the App Store…

…free-to-play games like Candy Crush or Clash of Clans. Critics complain that they are manipulative, extracting money from culpable players in exchange for a worthless digital good that delivers little more than a sense of accomplishment to the buyer — a shot of dopamine, basically. But, if I may put on my contrarian hat, so what? Is said shot of dopamine any different than that obtained by any number of other means, many of which cost money? If differentiation is more about how something makes you feel and less about features then why the special bias simply because one particular something happens to be created in software? And, I’d add, digital dopamine results in a far more equitable business model for the developer: the more a user plays the more money a developer earns…

Must-Read: Ben Thompson: Google and the Shift From Web to Apps, Indexing App-Only Content, Streaming Apps

Posted on by Brad DeLong

Must-Read: The walled gardens of the pre-1995 .net strike back. I am left curious: why are browsers good enough on the desktop and the laptop to wipe the floor with walled gardens, but not so on smart phones?

Ben Thompson: Google and the Shift From Web to Apps, Indexing App-Only Content, Streaming Apps: “The core reality that drove Google’s dominance…

…the public availability of linked information… [is] at least weakening…. The first phase was the shift in usage from the web to apps… [where] the actual infrastructure and logic for displaying content is downloaded and installed when you get the app from the App Store. Then… the app simply downloads… content… and drops the content into the pre-existing templates. It’s super fast. This was certainly an annoyance for Google… [which] has focused on deep linking… to a mobile web site….

Now we are into the second phase in the shift from the web to apps: apps that don’t exist on the web at all…. “Up until now, Google has only been able to show information from apps that have matching web content. Because we recognize that there’s a lot of great content that lives only in apps, starting today, we’ll be able to show some ‘app-first’ content in Search as well….”

This is a far graver threat to Google than someone simply starting their search in a vertical app like Yelp or Trip Advisor: Google can win that fight by delivering a superior experience, and they’ve made great strides in that regard over the past few years…. There’s one big problem with Google’s new capability, though: how do you actually show said content to users? The app installation problem remains a significant one: there is simply too much friction in expecting a search user to download an app to see a result. Enter app streaming…

Must-Read: Ben Thompson: Selling Feelings

Posted on by Brad DeLong

Must-Read: So how do we build an information-age economy in which producers have incentives to learn as much as they can about consumers to successfully anticipate them without also giving them an even bigger incentive and capability to deceive them?

Ben Thompson: Selling Feelings: “The model is broadly applicable…

…I wrote two weeks ago about how the future of publishing will not be about monetizing pure words but rather about using words to gain fans that can be monetized through other harder-to-discover media. Time and attention remain precious commodities…. Earning trust in one area gives you the right to make money from it in another…. Software generally should be seen as a lever to solutions that are much more meaningful to customers…. Software is infinitely copyable: better to use that quality to your advantage than to base your business model on fighting gravity….

Business is difficult–it was difficult before the Internet, and it’s difficult now–but the nature of the difficulty has changed. Distribution used to be the hardest… but now… time and money… must instead be invested in getting even closer to customers and more finely attuned to exactly why they are spending their money on you…. Create the conditions where the need might manifest itself and then meet that need, and not only will your business succeed, it will, in all likelihood, succeed to an even greater extent than the physically-limited lowest common denominator winners from the ‘good old days.’