Quick Thoughts: Our Own Private Internet
Steven Paul Jobs – 1955-2011 R.I.P.
“What Facebook Really Wants” Nicholas Thompson – the New Yorker News Desk Blog
I’m posting a link to a recent blog post by The New Yorker’s Nicholas Thompson, where he succinctly defines Facebook’s longtime goal as building its own separate internet, providing further citations back to interviews with Mark Zuckerberg and Sheryl Sandberg to make his point. The Facebook internet is a place where the vast resources of the internet are curated by you and your friends, with the help of Facebook’s encyclopedic knowledge of its users’ tastes. True believers will use Facebook as their primary source of content, whether on a smartphone, tablet, desktop or living room TV. Along the way, Facebook can make money by advertising to you, selling you things, providing you on-line services, streaming you media content, and taking transaction fees. When you consider that the addressable market for this vision is the $1.5T global advertising market plus the $150B retail payments market, plus a meaty portion of the $8T global non-food retailing market, it is an auspicious goal indeed.
It is also the exact same goal that we believe Apple, Google, Amazon and Microsoft are pursuing, albeit from very different starting points. Apple’s iCloud, iOS5 and SIRI introductions are cases in point. By moving content storage off of the Mac and onto the cloud, by accelerating the access to web content and social media, and by weaning iPhone users off of Google, Apple is asserting greater control of its loyal fan base and its use of the Internet. Apple’s heavy hand in managing user access to 3rd party apps, published content and streaming media, along with the stiff fees for content sold in its popular iTunes, App Store and Newsstand, also reveal Apple’s ambitions to move its growth focus from device hardware sales to the internet. The obvious next step will be to lever iTunes dominance of music downloads into a similar stranglehold on streaming media, both music and video, on both portable and television platforms. This is a sharp right turn from Apple’s historic desktop and download bias and evidence of the company’s (and its founder’s) unusual ability to play both iconoclast and pragmatist.
The biggest apparent roadblock to Apple’s manifest destiny is Google and its Android army. Google recognized the power of the platform early, determining to drive penetration of its OS as fast as possible with free licensing and make its money by advertising to the assembling crowd. Given recent ComScore reports showing Android’s August share of US smartphone subscribers up to 43.7% vs. Apple’s 27.3%, the drive seems to be working. All of these devices – and many more in global markets – have tightly integrated Google’s advertising driven search service, its Maps application with direct links to a growing roster of location based services, its fledgling Google+ social network, and the increasingly ubiquitous YouTube. Another key, but often unnoticed, element of Google’s private internet strategy is its matchless distributed data processing network. It has more servers, in more locations, closer to more users than anyone else, all connected by its own fiber network, allowing Google’s cloud based services to be blazingly fast – a superior private physical Internet that will be difficult and expensive for rivals to match.
Google and Apple’s dominant share of smart portable devices – currently 71% and growing – is rapidly becoming a barrier for would-be rivals for leadership in the next generation of private internets. Amazon recognizes its disadvantage, the fuel for its aggressive move with its recently announced tablet offering, Fire. While its scale advantages in on-line shopping for physical merchandise assure that Amazon will remain relevant, even within the platform environments maintained by Apple and Google, the company aspires to a greater level of customer engagement and a broader range of revenue generating services. Although Fire is built on the base of Google’s Android, Amazon has erased most of the integrated linkages to Google’s private internet applications and inserted a customized interface that ties its users to its own on-line environment. Amazon has priced Fire and its new Kindle e-readers at aggressive price points that are sure to find an enthusiastic holiday audience, particularly given the wild popularity of Amazon’s e-commerce business. Selling the expected millions of units should make Fire a viable third mobile platform and a conduit to another private internet. To this end, Amazon is looking to leverage its own physical data processing centers by introducing a new browsing architecture that offloads many functions to the Amazon cloud, speeding downloads and, in the process, favoring those sites hosted on its popular Amazon Web Services platform.
Microsoft is the last platform player to gain private internet religion, but it has an interesting collection of assets to make a play. Much of the strategy will depend on the expected success of its critically approved Windows Phone platform refresh, with a slate of new products due for Christmas from partners Samsung, HTC and Nokia. Behind the device OS is a slate of now loosely related assets – Office 365, Skype, Bing, Hotmail, Azure cloud services, desktop virtualization, enterprise applications, distributed data centers, etc. – that make the bones of a potentially viable “private internet” platform, but first, Microsoft must establish the platform. I think the odds are with Redmond – the software platform is well conceived and differentiated, carriers and manufacturers are anxious to support a third smartphone platform alternative, and Microsoft has an enviable patent position vs. Android and Apple.
Looking into the next decade, we expect that these five companies – Amazon, Apple, Facebook, Google and Microsoft, in alphabetical order – will dominate our electronic experiences, with most people forging a primary relationship with one of them to organize our consumption of on-line services over their own private internet. Yes, these private internets will be connected – Apple fanboys will jump off of Apple net to shop at Amazon, Amazon loyalists will still have Facebook accounts, Facebook addicts will occasionally use Google Maps, Googlers may have a Microsoft window on their device for when they work at home, and Windows users may still get their music from Apple. Nonetheless, each will work very hard to make your off-net infidelities a rare occasion.
Handicapping the race, I see Google as the most advantaged, although the vulnerability of the ecosystem to IPR infringement suits and royalty demands is its possible Achilles heel. Apple appears destined to maintain a profitable and loyal minority stake as a luxury brand for years to come, with the best designed and most seamlessly integrated cross device platform. Longer term, the company’s go-it-alone strategy and lack of its own distributed data processing infrastructure are distinct vulnerabilities. Amazon’s ability to establish Kindle Fire as a viable platform, distinct from Android, is critical to its aspirations to be more than an on-line goods merchant and a considerable risk. Facebook needs to find its own way to its customer base, without relying on Google, Apple or Amazon to provide the platform. Microsoft has a great platform without users and Facebook has a huge user base and no platform. Perhaps a chocolate and peanut butter mix would suit both of their needs.