Search Results for: gatekeepers

Jeff Bezos explains why gatekeepers are a brake on innovation

Regular readers will no that I’m a long-time fan of Jeff Bezos and Amazon and also that I have a keen interest in the evolving roll of gatekeepers in the internet age (see here and here for two recent posts). For these reasons I was very interested to read the following quote from Jeff Bezos recent letter to his shareholders (reported on Techcrunch):

even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say “that will never work!” And guess what – many of those improbable ideas do work, and society is the beneficiary of that diversity

Whist Bezos is talking his own book here and I suspect the timing of this statement has a lot to do with the ongoing legal battle between Amazon’s self service book publishing platform and the traditional publishing industry, I think he is on the money here. The ‘gate’ that traditional gatekeepers are ‘keeping’ has always been distribution, in the case of book publishing that has been the ability to get books onto shop shelves, and in that environment there is little incentive to innovate. Staying with the book industry as an example – publishers and retailers want reliable sales, and as a result they lack the tolerance for failure that is a pre-requisite for innovation.

As Bezos says, in a self service world there is nobody stopping innovators from trying their experiments. In fact self service platform providers typically encourage experimentation as they benefit from the successful ones and don’t suffer with the failures.

It isn’t all happiness and light though. In this self service world there are new gatekeepers and they are the companies with large audiences – Apple, Amazon, Facebook and Google. For the reasons explained above I think these gatekeepers will be more pro-innovation than the businesses they seek to usurp, but they are still self interested companies who will seek to maximise the rent they extract. Worse, some of them may end up in quasi-monopoly positions.

Whither the open web

I’ve written a few posts now about the rise of new gatekeepers to the web – Google, Apple, Amazon, Facebook and how that changes the dynamics of innovation to the advantage of those companies and against the interests of both consumers and startups.

I the last couple of days Anil Dash and Alan Patrick have written in more detail about the changes that have happened:

  • photos have moved from Flickr where they were well tagged and easily accessed by third party services with clear commercial arrangements to Facebook and Instagram (now the same company) where metadata is poor and access requires a bespoke partnership agreement
  • identity is now owned by companies (Facebook, Google, Apple) whereas we used to think we would have our own websites and/or fully portable identities
  • you used to be able to link to almost anything, nowadays mobile apps and closed social networks make that impossible for large parts of the web

Dash argues that we have lost respect for the web itself, and don’t give it the care it deserves as a medium and which will enable it to succeed. He also says that Facebook, Twitter, Pinterest and LinkedIn are great sites, but are making mistakes in the pursuit of short term growth and profitability (which explains why they, and other entrepreneurs are not respecting the web as a medium). At heart he thinks they would be more sustainable and profitable as networks if they gave users more control and flexibility over how they used the services, even if that came at the expense of a more complicated user experience (and presumably slower growth).

Both Dash and Patrick are confident that open web standards will prevail in the end. In Dash’s case I think it’s because it is in the best interests of consumers and hence ultimately the companies that build the services they use. In Patrick’s case it is because he sees social media and smart phones as going through the same cycle that the PC industry went through, and many industries before – from small geeky open groups, through a closed standards phase (dominated by IBM) to an open standards phase (dominated by Windows and Intel).

I hope they are both right, but I don’t think it is possible to be sure at this stage. It could be that the pace of change is so fast these days that markets never slow down enough to mature into a horizontally stratified phase where open standards dominate, and it could well be that our four would be monopolists evolve to offer such great end to end services in content, services, and hardware that the consumer push for open standards never really gets momentum. Sitting here today I see both futures as very plausible.

Amazon’s gadget as a service strategy

As you’ve probably seen Amazon announced a slew of new devices yesterday, no smartphone, but their four new Kindles have been well received in the blogoshpere, particularly the Kindle Paperwhite and the new Kindle HD, both of which have got me excited.

Perhaps most interesting though is that once again Amazon is playing the price and volume game – they aim to win against Apple and Google by leveraging their scale to offer cheaper prices. The strategy to achieve this is to bundle hardware with content as a service. This slide from Bezos’ presentation says it all. (See ZDNet for more on this.)

Use our services

Also interesting is that Bezos announced a $50 4G data plan and chose to play up the total cost of owning a KindleFire HD with total cost of owning an iPad. The combined cost of data and hardware for the KindleFire HD comes in $410 cheaper in the first year than for the 32GB iPad.

This news evidences the continuation of a couple of big trends that we’ve talked about before:

  • Amazon, Google and Apple are converging on the same business model to compete across the consumer tech value chain from devices through services to content.
  • These same companies are increasingly control access to consumers. They are the new gatekeepers, and digital media startups will increasingly have to play nice with them. I don’t see this as good news.

Buy Harry Potter direct from JK Rowling on any ebook reader

Harry Potter fans scramble to get a copy of the latest Harry Potter bookThe news is out today that the seven Harry Potter titles have become available as ebooks for the first time. The interesting thing is that whilst the books can only be bought from Pottermore (JK Rowling’s publishing company) they will work on Amazon’s Kindle, Barnes & Noble’s Nook, Google Play and most other popular ebook readers.

For a long time I have thought this ‘artist sells direct to end user’ model is the most obvious and efficient way to structure the value chain for all content types in the internet era. Prior to the internet gatekeepers were required to manage the limited distribution platforms and provide working capital to various different players in the ecosystem. Those functions are now redundant and there is no longer a need for gatekeepers of any sort. The gatekeepers we have today exist because they have worked their way into being gatekeepers, rather than because the gatekeeper function is in itself important. Many of today’s gatekeepers have been gatekeepers for years and these businesses have simply managed to protect their existing positions, although they are all getting weaker. Good examples are TV companies like ITV, Sky and Comcast, record labels like Universal and EMI, newspapers like The Guardian and The Daily Mail, and publishers like Penguin and Random House. Some of todays gatekeepers are new, and they have leveraged innovations and control of adjacent markets to become gatekeepers. Good examples are Amazon with the Kindle, Apple with the App Store, Google with Play, and maybe Facebook in the future.

JK Rowling was able to leverage her popularity as an artist and force Amazon, Barnes & Noble, and others to relinquish control over their ebook reader platforms and let her sell direct. This is analogous to decisions by Madonna and other popular music stars to bypass record labels and organise their own concerts and music distribution. My hope is that competition between different distribution platforms will increase across movies, books, TV and music, and that more and less powerful artists will be able to sell direct. The gatekeepers are taking more money out of the ecosystem than they deserve and the more they are bypassed the more money artists will make and the more our creative industries will flourish.

Note that most artists will still need the help with marketing and distribution that the gatekeepers have typically provided. The difference is that they will get it from agency style talent management businesses who get paid according to how much they help instead of demanding exorbitant fees simply to open the gate. LiveNation, Simon Cowell’s Syco, and Simon Fuller’s 19 are all talent management businesses in this mould.

The biggest obstacles to this vision are rights management and financing of production. The former is solvable through technology and there are a multitude of potential solutions to the latter, not least crowdfunding so I’m hopeful we will get there. It will take a while though.

Over the top TV – plus ça change, plus c’est la même chose

Netflix, Hulu, Youtube and Amazon, companies at the forefront of web delivered TV are increasingly resembling the traditional TV companies they seek to displace. They are now all complementing aggressive licensing strategies with large budgets for developing original content in recognition of the age old truism of TV – content drives subscribers. This leaves us in a situation where, like the old guard of TV, the new guard controls both content and distribution, but unlike the old guard they don’t bundle access (i.e. cable or satellite) in with the package. The access element is now commoditised and adds nothing to the package.

This emerging world is a far cry from the early hopes of web enthusiasts that content owners would have direct access to consumers and wouldn’t have to go through gatekeepers. That vision has been realised in the sense that content owners can host shows on their own websites, market direct to consumers and make money either via charging directly or advertising, but it is increasingly clear that the best way to access a large audience online is to do a deal with one of the companies listed above. Netflix and Hulu et al are the new gatekeepers.

From a consumer perspective I don’t think this is good. I fear that we will be faced with choosing between rival subscription packages which offer only a fraction of the shows we would like to see (something we haven’t had to worry about too much in the UK). Worse still, I fear that as the battle between the pure online players and traditional companies like Sky and Comcast intensifies the market will get more fragmented and the total amount of content in any given subscription will shrink. In the short term I suspect this will also be bad news owners of anything other than A-grade content, including up and coming hopefuls, who will find it harder to get in front of large audiences. Owners of A-grade content and top stars should do well as the TV rivals battle each other for material that will help drive subscriber growth.

Live sport programming is the next frontier. We heard in December that the 2012 Super Bowl will be streamed live online by NBC, but it in the UK at least there is no legal live online access to big games. Once there is I will turn off my cable subscription, but probably not before.

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As Samsung starts to dominate is Android’s promise of ‘open’ under threat?

I recently read Tim Wu’s The Master Switch (read my review here) the central thesis of which is that tech revolutions start with the promise of freedom to operate, light regulation, plenty of scope for new entrants and a promise of an enduring new order, but always end with regulated monopolies and oligopolies. A discussion over the weekend with Jof Arnold has got me wondering is Android is about to suffer the same fate.

The following bullets sum up the most pertinent recent news on Android:

Looking at this, it is easy to see a future for Android where the lions share of sales are with two vendors, one of whom (Amazon) has already forked Android and has a ‘closed’ mentality, and one (Samsung) that has a history of proprietary OS development (remember Bada). For a while Jof has been saying that he can see Samsung making its own fork of Android, and if that happens the smartphone market would be dominated by two companies with roughly equivalent proprietary OS-hardware combinations – Apple and Samsung.  The tablet market could end up in a similar place with Apple and Amazon being the lead players, although Samsung may have something to say about that.

There are of course other credible future scenarios for Android, including a resurgence of Motorola under Google’s ownership, but I think it is becoming clear that even if Android does win out against iOS it doesn’t necessarily follow that we will have an open, startup friendly, mobile ecosystem.  It may just be that we have a new set of gatekeepers.

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Enterprise software companies poised to grow more quickly than ever before

Happy New Year everyone!  I blog every day that I work, and this is my first day back in the office. It is good to be back. I’m optimistic that we can all do some good stuff in 2012 – there were a lot of pockets of growth in tech last year and I don’t think the worsening economic climate will change that (although a booming economy would make life easier).

This is a time of year when people take stock, look at trends and make predictions for 2012 and I’ve been reading a lot of what has been written. Figuring out what is going to be big in the next 2-3 years is, after all, my business.

One piece in particular caught my eye, and that was Five Myths of The Enterprise Startup by Aaron Levie, CEO and co-founder of Box.net (a DFJ portfolio company). His overall point is that the enterprise software industry is now being shaped by new forces which are altering the balance of power in favour of startups, and that 2012 will be a great year for new companies in this category.

Perhaps the most exciting thing about these changes is that they enable much faster growth than has historically been possible for enterprise software companies. This in turn sets the stage for much faster value creation, higher valuations and increased interest in the sector from VCs.

The most important change is, perhaps unsurprisingly, the cloud, which has enabled a new business models and go-to-market strategies which get round many of the barriers that previously inhibited growth:

  • Freemium business models
  • Viral distribution
  • Social media
  • Products with implementation cycles that can be measured in minutes

This in turn allows enterprises to buy in a totally new way.  Largely because implementation is easy the costs of discovering and trying out software are in many cases now pretty close to $0.  This means that end users can choose products themselves and IT departments no longer needs to act as gatekeepers, at least not to the same extent.  Sales cycles to end users are typically much shorter and require fewer expensive salespeople and it is this which creates the potential for rapid revenue growth and value creation.

This potential is translating into real excitement about some of the leading enterprise software startups – most notably at box.net and Dropbox, both of which raised very large rounds at (rumoured) huge valuations last year (see here for news on box.net and here for news on Dropbox).

None of this is new at a theoretical level – I first blogged about ‘Edge in adoption’ back in 2007 – but it is only recently that software startups have figured out how to combine all these enablers to good effect and that enterprises are starting to relax their previously rigid procurement processes.  Perhaps the biggest change from software companies is to focus on building great products with great user experiences, especially for new users, as that is the key to unlocking all four of the enablers listed above.

The other exciting thing from a startup perspective is that these developments nullify the advantages that traditional software vendors like Microsoft and Oracle have enjoyed for years.  Relationships with the CIO and account control count for little when the end user is in control and the traditional practice of seeing off startups by promising product developments down the road is much less effective when end users can get up and running with the startup quickly and cheaply.

 

 

 

 

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The web may not prevail

Regular readers will know that I’m a strong believer in open standards.  I think they provide the best platform for innovation and are the best protection against monopolists.  Hence I would love it if the open web prevailed, and the rising power of gatekeepers like Apple, Amazon, Facebook and even Google annoys me as a consumer and worries me as an investor.

The future of the web has been the topic of much debate since Forrester CEO George Colony predicted the end of the web and an era of the ‘app internet’ in his talk at Le Web earlier this month.  Fred Wilson, Mark Suster and others came out in defence of the web, but it seems to me that the commentary has been largely one sided.  Perhaps that is unsurprising given that as VCs and bloggers most of us have benefited hugely in the past from the open web and stand to continue to benefit into the future.

However, even though the open web is better, it won’t necessarily prevail.  In a great post last September Joe Hewitt set out why.

Firstly, at the most basic level the web is just a collection of protocols and languages.  It has no unique characteristics that assure it a permanent place in our information architectures:

The HTML, CSS, and JavaScript triumvirate are just another platform, like Windows and Android and iOS

Secondly, there are plausible non-web visions of the future:

I can easily see a world in which Web usage falls to insignificant levels compared to Android, iOS, and Windows …. The Web will be just another app that you use when you want to find some information, like Wikipedia, but it will no longer be your primary window. The Web will no longer be the place for social networks, games, forums, photo sharing, music players, video players, word processors, calendaring, or anything interactive. Newspapers and blogs will be replaced by Facebook and Twitter and you will access them only through native apps. HTTP will live on as the data backbone used by native applications, but it will no longer serve those applications through HTML.

An alternative non-open web vision of the future is one in which access to services is controlled by an oligopoly consisting of Apple, Amazon, Google and Facebook.

I don’t come with any solutions, but rather with a request that we all remain open to a full consideration of the strengths and weaknesses of the open web, and of alternative models – there can be no sacred cows.  That way we will have a better chance of preserving what is really important – and that is open and even access to content and distribution for consumers, and by extension for startups.

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