Facebook, Google and their dominance of digital marketing

By | Advertising, Facebook, Google | No Comments

According to the IAB, US digital advertising revenues grew 19% from H1 2015 to H1 2016. That’s very healthy growth for what is now a $32.7bn market. However, when you look at the numbers in more detail it’s clear that this strong headline performance masks a tonne of turmoil underneath.

Display continues to crater and the growth areas are mobile and video, but the surprising thing to me is how much Facebook and Google are now dominating. As you can see in the embedded tweet below Jason Kint analysed Google and Facebook revenues in the context of this market and found that revenues for all the other digital ad players went down over the last year.

This bears out what we’re seeing in practice, which is that startup founders who want to pay to acquire customers on the internet do so on Facebook and Google. These are the channels that our partner companies have been using recently (in rough order of significance, results skewed towards the companies we know best):

  • Facebook – all properties
  • Google (paid)
  • Google (SEO)
  • Partnerships
  • Content
  • PR
  • Direct Mail
  • Flyering

There are a couple of obvious implications of all this. Firstly, evaluating whether a company can get off to a fast start means analysing whether these channels will work (especially the top two), and secondly startups with advertising based business models will increasingly need some super-special secret sauce.

Then there is the non-obvious implication which Benedict Evans of A16Z has been tweeting about recently, which is that as advertising becomes less effective (at least outside Facebook and Google), innovative companies will find new discovery models that reduce reliance on media spend. Amazon has pulled this trick off in a huge way for their core products and there will be big rewards for those that crack it in other areas.


Voice – the next big paradigm shift

By | Amazon, Google | One Comment

I just worked my way through 213 slides of Mary Meeker’s annual Internet Trends publication. If you’re at all into understanding how the tech world is evolving I recommend you find the time to read it yourself (embedded below). This time round the most thought provoking slides for me were slides 115-133 where she talks about voice as a computing input.

The way I see it, in the next five years voice will replace typing to become the dominant input method for quick commands and short passages of text. Here’s why:

  • Speaking is much quicker than typing – according to Mary Meeker it’s 3.75x, and the difference will be greater on mobile
  • Speech recognition is starting to work now – as evidenced by the success of Amazon’s Echo and the fact that 20% of Google Android app searches in the US are now voice
  • The keys to success are accuracy and latency, with both improving fast. Google, Baidu and Hound are reporting 90%+ accuracy rates and speculating that adoption will sky rocket when accuracy reaches 99%. Moore’s law is taking care of latency.

However, audio out sucks in comparison with text on screens, so I think we will see ‘voice in – text out’, most obviously on mobile phones where we have a great screen already. Amazon’s Echo and Google’s Home are interesting in this regard. At the moment they feel a bit uncomfortable to use because they don’t offer much feedback that shows whether they are understanding what you are saying and audio out isn’t great to confirm purchases or other actions. However, they are are designed to be operated at distances that preclude reading screens so the solutions are simple. A bar of LEDs on the side of the device  that light green when comprehension is high and red when it’s low would help solve the first problem.

‘Voice in – text out’ throws up some interesting design challenges, and big rewards will accrue to the companies that crack them first.

Additionally, for some time voice dictation will remain inferior to typing for longer form documents where the precise choice of words is important. I might be able to speak at 150 words per minute, but I can’t read and correct what I’m saying at that pace.

Amazon, Google and Apple are the ones pushing voice the hardest, and that’s perhaps not surprising as it will favour large companies and platform owners. Convenience is one of the big benefits of voice and following voice searches we will collectively choose default options much more often than we do today. I can imagine asking my Echo to buy flowers for my mum and simply saying ‘yes’ when I’m offered something similar in price and style to my last purchase. That gives Amazon amazing power to decide who gets my business, and that’s power they will leverage to take a bigger cut. That’s best for Amazon and second best for large existing brands. It’s bad news for startups who will struggle to get promoted due to a preference for recognisable brands and concerns over their ability to handle volume. (This effect will be less pronounced if Amazon do put a screen on the side of future versions of the Echo – then I’m more likely to browse through multiple options.)


Google is pushing towards a post app world

By | Google | One Comment

Apps take us away from the web and away from search, and as such are a big problem for Google. Worse still, Apple customers are searching direct from the OS using Spotlight, threatening Google’s monopoly on search.

No surprise then that Google announced to services at I/O that usher in a post-app world.

The first was Android Instant Apps which allows you to use native apps almost instantaneously by clicking on a link from the browser. Apps are modularised into small components that can download and launch as fast as a web page and save the user the hassle of remembering whether they have an app installed or not, installing, and then maybe deleting. Despite being a superficially native experience Instant Apps are all about bringing users back to the browser, where Google makes its money.

It may just be that native apps were a point in time solution that will peak in the second half of this decade. To believe that you have to believe that as mobile networks get faster a non-downloaded modular app approach could offer a better user experience. That’s the way we increasingly work on the desktop where our networks are more stable, so it’s not impossible.

The second announcement was Google Home, their equivalent of the Amazon Echo, which takes us to a world where we interact with our services independent of device using voice, i.e. we just speak our wishes and they are picked up and acted upon. Most all the details about how that will work remain unclear, but given that it’s device independent native apps can only be less important.

What does all this mean for startups? I think three things:

  1. The distinction between the web and native apps will start to blur which will make building an app less of a big thing. That will be great for many startups thinking about mobile who currently face an ‘invest big or do nothing’ decision re mobile. Instant Apps will give them a way to experiment more cheaply.
  2. Multi-device voice operated services will require new user flows to work well and the startups who figure that out first will be able to get big quickly. One requirement will be little cues that give users feedback on how well the Google Home/Amazon Echo is understanding their requests or getting on with processing a task.
  3. Once these voice operated platforms are up and running with lots of services new startups will find it hard to get discovered. Nobody is going to listen to long lists of options so new companies will either have to be promoted by partners or sign up customers on a phone or computer first – both tough options.

The two places startups find customers online

By | Facebook, Google | No Comments

Facebook and Google are the two tech companies that are flying right now and the chart above explains why. Everyone else is watching their share price go south because they are struggling for growth but these two have nailed internet advertising, dominating and growing the market. It’s impressive and yesterday saw Alphabet (Google’s parent company) pass Apple as the world’s most valuable company – although I just checked and Apple has regained it’s crown this morning.

In other interesting news Alphabet yesterday reported separately on Google (search, display ads, YouTube, Android, cloud software) and ‘Other Bets’ (self-driving cars, Nest, Google Fibre, Project Loon, X, Verily). Google is unbelievably strong – good growth at massive scale and still highly profitable. 2015 revenues were $75bn, up 14% from 2014 with operating income of $23bn. They now have seven properties with over 1bn users (search, Gmail, Android, Youtube, Chrome, Maps, Google Play Store). Facebook has two (Facebook, Whatsapp).

Other Bets, meanwhile, is remarkable for the size of its loss – $3.6bn on revenues of $448m. Google’s projects have always looked audacious from the outside – self driving cars, project loon, life extension etc – but it wasn’t clear until now how brave they are from a financial perspective. It’s remarkable.

Returning to advertising, what we’ve seen at Forward Partners over the last year is that Google and Facebook are where startups have the most joy finding new customers, and increasingly it is Facebook rather than Google. That’s because Google is more mature and has bigger companies with larger budgets are more active, driving up CPCs and crowding out startups. Facebook is newer and the larger budgets haven’t made it there yet.

We’re excited about new channels, and we’re looking at doing something on Instagram right now, but that’s experimental. Generally speaking, if you’re going to get lots of new customers quickly you need to be where the volume is, and as the chart shows, the volume is all with the aforementioned giants.

A reminder that the “web isn’t dead”

By | Google | No Comments

Google announced yesterday that Chrome now has 800m active users on mobile. That’s up from 400m a year ago. They didn’t say how much of that is on Android and how much on iOS, but there must be a good amount of growth on the latter. That’s impressive given the power of defaults and a welcome news for fans of open systems like myself who have not had much to cheer about lately. As Google said “Not only is the web not dead, adoption of the web is growing dramatically, particularly on mobile and this is opening up huge opportunities”.

On a similar note Google search is now indexing the content of Android apps which don’t have matching content on the web and will stream the content to the device is the app isn’t installed. This has the potential to bring app discovery to the browser and end the app store mess. That would be a massive boon for startups who are largely crowded out of the app stores by larger companies – take a look at the chart.

Comparing Google’s and Facebook’s grand strategies

By | Facebook, Google | No Comments

Facebook and Google are the second and twelfth most valuable companies in the US (accurate at 22/6/15 see here), they both rose to prominence extremely quickly setting records for rapid valuation growth on the way, and as a result they are both very aware that their shelf life could be limited. They’ve seen great companies like Yahoo and Microsoft lose relevance and they don’t want it to happen to them.

The lesson from those businesses is that developments in technology can quickly undermine a company’s core strength. The internet and mobile marginalised Microsoft’s dominance of the desktop and improvements in search took away the need for Yahoo’s portal of curated links.

As a result Page and Zuckerberg have both made bold moves to future proof their businesses.

Google has launched a range of bold and innovative projects including Android, self driving cars, a project to deliver internet connectivity to the developing world via orbiting balloons, and Google Glass. They even went as far as changing the name of the company to Alphabet, emphasising the point that the Google search business is just one part of what they do.

Facebook has mostly moved via bold acquisitions, starting with $1bn for Instagram six weeks before their IPO, moving the through $24bn for WhatsApp, before paying $2bn for Oculus. That said, they also have a track record of making radical changes to their product, often in the face of user protest. Introducing the Newsfeed and splitting Messenger out from the main Facebook platform are stand out as the two best examples where they did that successfully.

The obvious difference between Google’s bold moves and Facebook’s bold moves is that Google is venturing much further from its core business. At first look Facebook’s acquisition of Oculus might look like it’s a big step away from social media, but if you think of their business as mediating social interaction then it doesn’t seem that way.

I suspect Google is innovating further from its core because it’s a more mature business than Facebook. Android was one of Google’s early bold moves, and it’s easy to see how that was closer to the core because it helps maintain their strength in search. It was only as their search business began to face existential risks that they started making moves designed to open up whole new areas. It’s impressive is that they have started making these moves so early.

Facebook’s acquisitions of Instagram and Whatsapp and the separation of Messenger from the main Facebook app are clear moves to protect and extend their core social media business. These strategies have helped them continue to grow their audience and advertising revenues and whilst individual properties might whither, potentially including Facebook, there’s still no sign of an existential threat to social networking as a category. To put numbers on it, back in March they had 1.4bn MAUs on Facebook, 700m on Whatsapp, 600m on Messenger and 300m in Instagram. That’s four of the six largest social media properties on the planet, and they’re all still growing.

All of which has me thinking that Facebook might become more radical as its business matures.

Musings on Twitter, networks, and mission driven businesses

By | Google, Twitter | No Comments

I read a very interesting and typically well written post from Umair Haque over the weekend titled Why Twitter’s Dying (And What You Can Learn From It). Everyone seems to be writing about Twitter at the moment, but this piece doesn’t mention Jack Dorsey or Twitter’s product challenges per se.

Umair goes deeper.

As he sees it Twitter’s challenge is that low level abuse and snarkiness is undermining the experience for most users and they are walking away.

He put it like this:

…let me be clear what I mean by abuse. I don’t just mean the obvious: violent threats. I also mean the endless bickering, the predictable snark, the general atmosphere of little violences that permeate the social web…and the fact that the average person can’t do anything about it.

We once glorified Twitter as a great global town square, a shining agora where everyone could come together to converse. But I’ve never been to a town square where people can shove, push, taunt, bully, shout, harass, threaten, stalk, creep, and mob you…for eavesdropping on a conversation that they weren’t a part of…to alleviate their own existential rage…at their shattered dreams…and you can’t even call a cop. … Twitter could have been a town square. But now it’s more like a drunken, heaving mosh pit.

These are strong words, and I think they over-state the extent of unpleasantness that exists on Twitter, but there’s a basic truth in the observation.

But these problems are not unique to Twitter.

In fact they are faced by every growing community.

Let’s take a step back and think about what makes communities work. I wrote this back in 2007:

People hang out in communities (online and offline) because they are pleasant places to be. You choose the communities you like in large part because the other people there are polite and behave in the way that you like to behave. There are unwritten rules which determine what is acceptable and what isn’t and the community is policed by its members. Think rural village or social network – it is the same for both.

When these rules work well the community thrives, and if they stop working the community can fall apart.

The challenge for Twitter and others is that rules which work well when the company is one size stop working as it grows. New rules are needed, usually to cope with rising challenges of signal vs noise, spam, and abuse.

Facebook is the best example of a company that has done a great job of evolving the rules to keep the company relevant. They constantly tinker with the algorithm which determines what shows up in the Newsfeed and offer users new features to filter stuff out and have managed to keep the balance right. Often they drive their users mad because they can’t understand the why’s and wherefore’s of what shows up, but they understand they need to disappoint some people in the short term to keep the company relevant in the long term.

Maybe Twitter’s problem is that they haven’t evolved their rules. They have done bits and pieces with lists, trends, recommended Tweets, and now Twitter Moments but for most people the experience is still looking at everything from all the people they follow in their main feed.

Towards the end of his post Umair notes that the history of revolutions is not great:

We dreamed that we created a revolution. But we did not heed the great lesson of revolution. Today’s revolutionary is tomorrow’s little tyrant. The French Revolution started as a glorious paean to people power. And it climaxed in a tidal wave of terror and bloodshed. So, too, goes every revolution too arrogant to history — including the digital revolution. Cross the line, and the inquisitors will come your way. Better then, to stay silent, than to dare the fury of the revolution itself.

Umair’s advice to Twitter, and indeed to the whole of web media, is to focus on the quality of social interaction. If the quality of social interaction is high, people will enjoy Twitter and come back to the network.

I think he’s right, but I think Twitter confused their end goal with the best way to get there.

This is Twitter’s mission statement:

Our mission: To give everyone the power to create and share ideas and information instantly, without barriers.

Independent of context this doesn’t say anything. There’s no ‘so what’. However, back in 2006 when the company was founded most people still didn’t have a voice and the idea of lowering the barriers to publish would bring more people into the conversation was hugely exciting.

But, and this is the key point, it was exciting because we all thought that with more voices the quality of the conversation would improve, democracy would improve and the world would be a better place.

I think that happened for a bit, but to Umair’s point the quality of the conversation has declined recently. If Twitter’s mission statement had been to ‘improve the quality of online conversation’ then they would have caught this early. However, because they see their role as making it easy for people to speak introducing rules to manage the quality of the conversation is somewhat awkward for them.

Extending this point to all businesses, companies with a durable mission at least stand a chance of enduring, but to be enduring the mission should talk to an enduring customer benefit. Google’s mission to “organise the world’s information and make it universally accessible and useful” is one that should stand the test of time – whether they can execute on it as the world’s information moves into silos they can’t access is a different question.

Companies without an enduring mission are in danger of being co-opted by shareholders or blindsided by technology change to the detriment of customers, and that only ends one way. Moreover, these days customers are so alive to this risk that they seek out businesses with durable and authentic missions from the get go.


Will device and OS proliferation break the app economy?

By | Apple, Google, Mobile | No Comments

Jerry Bowerman wrote an interesting article on Techcrunch yesterday arguing that device and OS proliferation is driving the cost of supporting apps up to unsustainable levels.

The evidence cited is that corporate departments spend $40bn per year on apps, more than twice consumer spend, and that they are reaching aggressively for “create once, run anywhere” solutions.

If apps aren’t the future, you might be wondering, what’s the alternative?

Jerry says:

a future where something like “on-demand apps,” as I call them, work on every device and can be centrally managed by the corporation without going through a proprietary app store


My issue with this argument is that the problem statement is much stronger than the solution. I see our companies struggling with the costs of maintaining Android and iOS apps, a problem made worse by the app store gatekeepers demanding platform specific functionality or design in return for featuring, so I buy into that. I also crave a world in which distribution is more meritocratic, as it was on the open web, so I would love to see Apple’s AppsStore and Google Play lose their duopoloy. Finally – app based shopping isn’t great, in general, for ecommerce and marketplace startups and a resurgence of the mobile web would help the startup ecosystem.

But identifying problems only gets us so far. The app economy is only going to break if there’s something better to replace it. Jeremy points to corporations using HTML5 and thin native app wrappers when they need direct access to a hardware sensor, but we’ve been talking about that for years and I see no sign of HTML5 apps making inroads into the consumer space. In fact I think the trend is the other way.

Perhaps where apps are going next, and this is certainly what Apple and Google hope, is to disappear into the OS. That’s what’s going on with Google Now On Tap and Apple’s swipe left from the home screen (see this post from Benedict Evans for more details). However, whilst these developments are exciting from a consumer convenience point of view I’m not sure that they will help app developers reduce their overheads or address the discover problems I list.

I remain hopeful that open standards will triumph in the end, but I’m no longer sure that they will.

As an aside, whilst half of Jeremy’s post is about open standards on mobile, the other half is about what it takes to be a visionary. I love his comment on timing:

Both men [George Lucas and Ken Williams] are wicked smart and naturally curious, two characteristics often attributed to visionaries. What people often miss, however, is that they are both brilliant businessmen. They understand you can have too much vision, seeing a far-off future that won’t come true within the right time frame. As an entrepreneur, the challenge is funding from where you are today until enough customers agree with your vision that they pay for your expenses. You need to know where you are on the vision timeline.

Google is the new Microsoft – musing on the meme

By | Google, Uncategorized | 2 Comments

We have just learned that over half of Google searches are now on mobile which has got me reflecting on where the company is going.

Before I go any further I should say I’m a massive fan. Google has had an amazing run as a company, built many amazing products, is pursuing lots of super interesting and brave projects, and generally handles itself well. Moreover, I’m a very happy customer both professionally and personally and I have many friends who work there.

However, the world has turned decisively in directions that don’t favour them. The Apple driven smartphone revolution has taken attention from the open web where Google is strong to apps, the Facebook inspired social media revolution has taken traffic from the open web to closed ecosystems which Google can’t access, and they are haemorrhaging search volume to Amazon.

Microsoft’s monopoly on desktop software looked unassailable until the internet came and similarly Google’s monopoly on desktop internet looked unassailable until a couple of years ago. Microsoft invested big in the internet with Internet Explorer and their MSN portal (remember that?) and now Google is investing big in Google Maps and Android and has numerous failed attempts in social. In an interesting parallel, Microsoft’s internet products were free just as Google’s mobile products are free. Both wanted to protect their core business model.

In another interesting parallel both launched lots of new projects in an attempt to build new revenue streams. Prosaically they both moved into enterprise and more radically Microsoft achieved good success with Xbox whilst the jury is still out on Google’s self driving cars and other Alphabet projects.

Despite all these similarities the companies feel very different. In the 1990s Microsoft was an aggressive monopolist and few people liked them. In 2015 Google has a mix of supporters and detractors but to my mind at least the company has many endearing qualities, as I’ve said.

It’s unclear how much that will matter though. In the arena of business profits count, and whilst feelings might buy Google some loyalty from people like me that won’t be enough to save them from being the next Microsoft. In fact, as I write this it’s difficult to see what will.

I would love for their autonomous cars to become a serious business, or maybe project Loon, but if they do they will become Google’s equivalent to Microsoft’s Xbox, thus completing the parallel.

Finally – being the next Microsoft is far from a fate worse than death. As of June 30th they were still the world’s second most valuable company, and on top of that they are now enjoying a resurgence.

Will we persist with two mobile app ecosystems?

By | Apple, Google, Mobile, Uncategorized | 5 Comments

In the Apple App Store and the Google Play Store we currently have two vibrant mobile app ecosystems. Going back a few years the prevailing wisdom was that network effects would ultimately make this a winner takes all markets and that over time users and developers would eventually coalesce on a single platform. That was the lesson we all learned from Windows in the 1990s.

Then more recently people have been saying that both the ecosystems are large enough to be self-sustaining and that Google and Apple have both ‘won’.

That view made sense to me. Both ecosystems were growing and Apple’s dominance at the high end meant that developers mostly built for iOS first giving them sustainability in the face of Android’s faster growth. That’s part of the reason I ditched my long term allegiance to Android and bought an iPhone earlier this year.

Now new data from Apple and Google compiled by Benedict Evans is an early indication that the duopoly might not be stable after all (caveat: this analysis is based on a small number of datapoints and may be subject to large rounding errors).

IOS Growth Slow

The news is that iOS growth looks like it has stopped – Apple App Store revenue has flatlined at $10bn. Meanwhile Google Play Store revenues are continuing to grow fast. Extrapolating the trend lines for the last year suggests that Play Store revenues could overtake App Store Revenues this year.

There are many more Android devices out there and hence the revenue per device is significantly lower on Android, but there too the gap is closing.

For developers gross revenue on the platform and average revenue per device are key numbers and if/when the Play Store passes the App Store on these metrics I expect increasing numbers of developers will choose to go Android first, which will bring users across and further accelerate the growth of Play Store revenues. That in turn will encourage more developers to switch and we may see a repeat of the Windows movie from the 1990s when the winner takes all.

And I will have to switch back to Android.