Well, that was disappointing.
Microsoft’s heavily-rumored mini-tablet (link) was a no-show at the Surface event this week. If this had been an Apple announcement, I’d just say the Internet got carried away with itself. But the source of the rumors was the very reliable Mary Jo Foley at ZDNet (link), who’s almost a house organ for Microsoft official leaks. So what happened?
It’s possible that Microsoft leaked the rumors deliberately in order to smoke out Foley’s sources, but I don’t think Microsoft would have put Qualcomm in the story if that were the case. Most likely the product was real, and the announcement was canceled just recently.
Bloomberg says Microsoft execs Stephen Elop and Satya Nadella lost confidence in the product and decided to pull it at the last minute (link). That would be a typical move for a new management team – you always look to kill a few of your predecessor’s projects to put your own stamp on the organization. The reasoning that Bloomberg gave didn’t make sense, though. The report says the mini-tablet was canceled because it didn’t have enough differentiation. A tablet optimized for note-taking and equipped with a stylus would have been heavily differentiated, so that doesn’t wash.
More believable would be if the company is leery of launching any new product that depends on Windows RT, the ARM-based version of Windows that can’t run normal Windows apps. RT has failed to achieve significant momentum in the market, and I could see Elop and Nadella being very cautious about risking another RT-based product flop. More prudent to pull it now, ship the Intel-based jumbo Surface tablet, and do a minitablet later, if at all, based on Windows Phone. The jumbo product won’t change the world, but at least it won’t embarrass Microsoft.
If that was the call, it’s a prudent decision that totally misreads the market for mobile devices. RT was a bad choice for full-sized Surface tablets because they are too close in price and size to notebooks. No Windows user wants a notebook that won’t run Windows apps. But a minitablet could have been sold as an information appliance, for which full Windows app compatibility is much less important.
This situation illustrates why the tech industry has so much trouble creating truly new device categories. Small startups have trouble scraping together the money necessary to do a really different product. Doing it right often takes on the order of $20 million, more than you can easily raise from VCs or Kickstarter. Big companies have that sort of money, but they’re usually risk averse and would rather stick to established categories of product. Which is what Microsoft just did.
Ah well, the net impact is that Microsoft has now whiffed twice on the minitablet market, once with the twin-screen Courier product and now Surface mini. I wonder if they’ll get a third chance.
I’ll also be interested to see what the last-minute cancellation costs Microsoft. If they were close to launching, there will be parts and manufacturing contracts with big cancellation fees. Presumably Nadella will be doing some sort of restructuring of the company in the near future – new CEOs always do – and the writedown, if any, can be buried in that.
Meanwhile, someone at Microsoft is probably sitting on a roomful of Surface Mini prototypes that are headed to a shredder. I have one humble request: Could you please slip one of them to me?
What Happened to the Surface Mini?
Is Microsoft About to Announce an Info Pad?
The reports leaking out of Redmond are intriguing. Tomorrow (May 20, 2014) Microsoft will reportedly announce a “Surface Mini” tablet, a touchscreen device in the same size class as an iPad Mini but equipped with a stylus and note-taking software (link).
Most of the press reports have focused on the chip vendor (link) and comparisons to the iPad Mini, but what most of them seem to miss is that this may be a new category of mobile device. The Surface Mini as described in the reports sounds very much like an info pad, a tablet optimized for managing business information and taking notes in meetings.
That product opportunity has been evident for at least ten years. It has a very distinct customer base that is more interested in business productivity than in playing games or listening to music. When I was at Palm, we studied the market closely, and later I tried to pull together a startup to build one (that evolved into Zekira, the software startup I’m working on now).
Although you can use an iPad for business functions, a device optimized for notes and business productivity could be far more compelling than an iPad for that particular usage and for those particular customers. But the price has to be right and a ton of little features have to be done correctly. And you have to market it properly, so it looks like the ultimate replacement for the paper notepad rather than a debased iPad. The right product is an appliance for business info, not an iPad that happens to have a stylus.
I’ve written about the info pad opportunity in the past. You can read about it here.
Is this the vision Microsoft’s shooting for? Will it get the details right? I’m more intrigued by this announcement than by anything else Microsoft’s done in years. Stay tuned.
The Uncomfortable Truth at the Heart of Mobile Gaming
I was at a developer conference earlier this year, and the discussion came around to a certain very popular pattern-matching game. I was surprised by how much hostility I heard. “That thing,” one developer fumed, “is just a slot machine.”
At the time I chalked it up as jealousy. Sure, many mobile games have random elements, but the best ones also require a lot of thought. That’s nothing like a slot machine.
But as I learn more about mobile gaming, I start to see the developer’s point. Most people outside the game industry don’t realize that free-to-play games, by far the most successful mobile game category, are often supported financially by a very small number of users who pay extravagantly for power-ups, extra lives, and in-game currency. The whole point of many successful free-to-play games is to identify these “whales” and extract as much money as possible from them.
The discussion of this process at mobile conferences is sometimes uncomfortable. Non-paying players (the great majority of a game’s users) are often dismissed as meat to be fed to the whales. An intense amount of thought goes into not just identifying the whales, but determining their individual psychology and the best techniques to pull more money from that particular type of person. Players are tracked in as much detail as possible, including exactly which promotion they responded to, what their purchasing pattern is, and any other details the developer can glean from them. Every aspect of the game is crafted to maximize revenue extraction, including minute changes in graphics, button designs, and subtle changes in game play. Anything that creates even a small fraction of one percent change in a conversion rate can mean the difference between a successful and unsuccessful game, so the pressure to constantly refine everything is immense.
At its recent F8 developer conference, Facebook gave a great overview of this process. You can view it here.
At several recent conferences, I’ve heard developers say they’re starting to realize that there seems to be no upper limit on the amount of money you can extract from some users. Do you think offering a bundle of power-ups for $50 is outrageous? Create a bigger offer at $100 and you’ll make even more total revenue.
This process of systematically designing games to extract revenue, and targeting offers at the biggest whales, makes many game developers uncomfortable. In an excellent essay on Gamasutra, Mike Rose wrote, “Free-to-play games aren't after everyone for a few dollars -- they're after weak people in vulnerable states for hundreds, if not thousands.” (link)
Many game developers take issue with that statement. They point out that there’s nothing wrong with accepting money from people as long as they’re in control of their actions. Some people just plain like playing mobile games and are happy to spend money for a better gaming experience. What’s wrong with letting them pay? Besides, if a console gamer buys an Xbox for $300 and a bunch of games worth $700, we wouldn’t call the console industry exploitative. Why should mobile games be any different?
But the discussion at the conferences sometimes sounds a lot like gambling executives trying to talk their way around the problem of compulsive gambling. And sure enough, there are efforts to create an ethical code of conduct for free-to-play game developers, defining how far they can and cannot go to pull money out of a customer (link). You don’t usually get a code of ethics for an industry unless it has a potential ethics problem.
Meanwhile, what’s very clear is that successful free-to-play game development is much more about science than art. I think many game developers were drawn to the field for the art -- they want to create the most engrossing, glorious game experience they can; the game equivalent of a blockbuster movie. I think about the awesomeness that was Marathon and Myst on the Macintosh, or the surreal weirdness of Badland on iOS (link), and that’s the sort of pure mind-bending joy that I want from a mobile game. The idea of systematically altering that experience to extract another purchase from 0.5% of the users feels fundamentally wrong, and probably explains some of the developers’ complaints.
But rather than dismissing their complaints as frustrated idealism, I think it’s a good idea to listen and think about where the industry is going. I think the code of conduct is a very good idea; without it, we could easily end up with government regulation of free-to-play gaming, and I can’t imagine how that could be effective without destroying the category altogether. It would also be a very good idea to develop other new revenue streams to support mobile gaming. That’s why I’m always interested when someone like Facebook claims they can fix mobile advertising. You may not love the idea of mobile games becoming like commercial television, but I think we’d all be a lot more comfortable pushing an occasional ad at every user rather than trying to extract $1,000 from 0.5% of them.
It’s Time to Pay Attention to Facebook
Considering how big and successful Facebook is, it gets surprisingly little respect in Silicon Valley. Although everyone acknowledges the company’s size, it’s usually viewed either with hostility (among the small but intensely vocal group that cares deeply about privacy) or mild indifference (by everyone else). It’s not usually seen as a leader capable of changing markets, let alone driving the cutting edge of anything. The widespread dismay over Facebook’s purchase of 3D goggle maker Oculus VR was a great example of this attitude: the company’s not viewed as a good home for innovation.
So I was very interested when Facebook laid out a strategy for mobile last week that is not just adequate, but actually sounds quite smart, and could potentially make a big difference in the mobile industry. Of course the success of any strategy depends on how well it’s implemented; the history of the Valley is littered with cool-sounding strategies that failed or were never seriously tried (link). But if Facebook’s actions match its words I think it could change the competitive dynamic in the mobile industry, and in the process make life a lot better for independent app developers.
Facebook’s problem
The mobile tech world is dominated by proprietary platforms. Apple and Google both run controlled ecosystems in which they decide the key features and reserve the right to remove other companies from the field of play. Apple is a bit more controlling than Google, but they both manipulate their platforms to maximize their profits and prevent other companies from becoming too powerful.
This is nothing new in computing history. On personal computers, Windows and Macintosh are both proprietary platforms. In fact, one of the few recent examples of a huge open platform in tech is the web. No single entity controls the features of the web or who can play on it. This helped produce a host of big web companies, like Google and Facebook and Amazon, and a wide array of customer choice. The downside has been poorly coordinated user experiences, and platform innovation that moves at a glacial pace because it has to go through standards committees.
The proprietary mobile platforms have been great for users and developers in many ways. Apple and Google push each other to add new features and device categories, and the app stores on both platforms have led to an explosion of third party software. However, there’s a downside, especially for developers. They have to spend heavily to adapt their products to iOS and Android. Their apps are commoditized by the structure of the app stores. Apple and Google both take an excessive cut of the revenue the apps do get. And if an app category starts to become too popular, there’s a very good chance that Apple or Google will build it into the platform and crush the third parties.
As a result, the app economy in mobile is far smaller and weaker than the web economy on the desktop. To a big web company like Facebook, that’s very threatening. Facebook’s business on the web depends on it being the hub of your social interaction, which it analyzes to target advertising customized for your interests. On mobile, Google is working hard to build its own social features into Android, and the whole idea of a single social hub is threatened as social features are built into a wide range of mobile apps. Although Facebook’s latest apps on mobile have been far more successful than its first efforts, it’s still at risk of being walled off by the platform vendors on one side while it is nibbled to death by a hoard of developers on the other side.
So the question for Facebook is what its fundamental role will be in mobile. Can it find new ways to capture social information for use in ads? Can it create standards that give it a stable power base against the platform companies? And can it find a way to leverage the swarming strength of the little app companies?
The Facebook Platform
At the F8 developer conference last week, the company announced a series of new services and APIs for mobile developers that could give it a much deeper role in the mobile app ecosystem. The announcements included:
–The Audience Network, an ad network that’s supposed to let developers tap into Facebook’s mobile advertising revenue stream. App developers are hungry for revenue, so this could be very important if it works. I’ll come back to this below.
–An API called AppLinks that makes it easy for mobile apps to pass commands and data between each other, and to and from web servers. I’m still learning all the API can do, but I think it has the potential to let mobile apps work together in a variety of creative ways. As some others have pointed out, it also lets Facebook’s mobile apps integrate more seamlessly with other social sharing apps, potentially positioning Facebook as a hub for mobile social activity (link).
–A mobile Like button that developers can easily integrate into their apps. This will help developers publicize their apps, but it also gives Facebook data on what sort of apps you use. That can be mined to target advertising (are you seeing a pattern here?).
–Hosted developer services, under the brand name Parse, that help developers store data, compute, and process notifications in the cloud. Parse offered those services before, but the free tier has been expanded, in some cases by as much as 70x. It would be great for developers if Facebook set off a wave of price competition among back-end service companies.
–A promise of API stability, which would make developers more willing to invest in Facebook technologies.
–Expanded user controls over the information that is shared when someone uses Facebook Login. This may reduce the number one fear that users have of Facebook Login: fear that the app will post unwanted messages on your behalf.
–A big, no-obligations offer of free services for small developers, with free ad credits and other services from Facebook plus other services from several third party companies. (Full disclosure: one of those free offers is from UserTesting, where I am the mobile strategy guy.) If you’re a small developer I think you’d be foolish not to take advantage of it. To learn more, go here.
The overall message was developer love from Facebook. As Mark Zuckerberg put it, “my goal for our culture over the next ten years is to build a culture of loving the people we serve....We want to build a platform that's reliable for you.” (link)
Will it work?
Taken as a whole, the announcements are a coordinated effort to make mobile developers more successful, and at the same time give Facebook a much more central role in mobile computing. But that’s just a story at this point. I’ve seen many great tech strategies fail utterly in implementation. What matters is the details of how Facebook will pursue its plans, and how hard it will try to make them work. Here are four key issues to watch:
How well will the Audience Network work? Facebook claims that its mobile advertising is double the effectiveness of other mobile advertising. Basically, Facebook knows you better than anyone else, so it can target ads more precisely, making advertisers pay more money for them. The new Audience Network will let third party developers place those targeted ads in their own applications. So if a Facebook member uses an app that’s in the Audience Network, he or she will see Facebook-selected ads in that app. Developers can also customize the look of ads to match their applications, making the ads less jarring for their users.
In the desktop world, many websites and web apps succeeded because there was enough advertising money available to support software and content companies. That hasn’t generally been the case for mobile, because the payments per mobile ad are low and because overall spending on mobile advertising has been depressed. If Facebook can change that dynamic – a huge if – it might change the economics of mobile apps fundamentally.
I cannot overstate how important that would be for mobile developers. Today they struggle with commoditization in the app store, and freemium pricing policies that too often feel like bait-and-switch schemes. A stable, substantial advertising revenue base could change everything. But it depends on many unknowns: Can Facebook convince advertisers to pour more of their ad budgets into mobile? Will the targeting work? And most importantly, how much of that ad revenue will Facebook share with developers? Facebook wouldn’t answer that question at F8, so I can’t tell if the Audience Network is a potential breakthrough or a tease.
Will Facebook stay committed? Facebook’s execs said all the right things about supporting developers – we’ll maintain our APIs, help you grow your business, meet with you regularly, and so on. It’s everything a developer could wish for: a big powerful company that’s agnostic about OS and wants third party developers to thrive.
It all sounds great, but hearing Facebook talk about developer commitment is a bit like hearing a French president swear loyalty to his wife. Facebook embraced developers once before, when it encouraged them to build games and other apps on top of its desktop platform. The resulting surge in Facebook apps helped to crush MySpace. But once that battle was over, Facebook gradually lost interest in developers. The company didn’t even hold developer conferences in 2012 and 2013.
So it’s reasonable to ask: Is Facebook committed to the long term this time, or is this a tactical maneuver that’ll end as soon as Facebook is more established in mobile? I think in this case Facebook’s long-term interests are more closely aligned with developers. But does Facebook itself understand that?
Will Facebook become a predator in apps? Microsoft once had an incredibly vibrant third party app economy on Windows. But in its drive for revenue growth, the company eventually turned predator, trying to take over almost every major app category: graphics, antivirus, accounting, etc. That strangled application investment on Windows, and drove developers into the web. In many ways, you can trace the decline of Windows to the time when Microsoft turned against its own developers.
Here’s Mark Zuckerberg on his attitude toward developers, in a conversation with Wired:
“We’ve always believed that there were going be a lot of different ways to share content, and that we were never going to build all of them ourselves. We try to build the most important ones. But on top of that, you’re going to see dozens of other apps that developers build that each use the Facebook login, Facebook to share, the mobile “like” button, push notification from Parse, app installs through Facebook, and Facebook monetization tools in order to turn their apps into businesses.”
I would feel so much better if he’d said “hundreds of thousands” of developers instead of “dozens.” But maybe he doesn’t want to sound threatening to Apple. Which brings me to the fourth issue:
Can Facebook walk the tightrope with Apple? Google and Facebook are mortal enemies. The Facebook Audience Network reinforces that; both companies want to be the dominant ad supplier on mobile, and only one can win. But Facebook’s position relative to Apple is much more ambiguous. Today Apple is willing to cooperate with Facebook, allowing it to operate more or less freely on iOS, and partnering with it when appropriate. Mostly the two companies stay out of each-others’ way. With Facebook now advocating cross-platform APIs and positioning itself as a powerful hub for mobile advertising, will Apple continue to take a benign view of the company, or will it start to systematically restrain Facebook on iOS? If that happens, it’ll be much harder for Facebook to establish standards. To use a military analogy, Facebook really shouldn’t get itself into a two-front war. It needs Apple as an ally, or at least a neutral.
I think there’s a good case for Facebook and Apple to work together against Google, but that would require both companies to restrain their egos. That’s not easy to do in Silicon Valley. Mark Zuckerberg’s next big test may be his diplomatic skills.
The bottom line: Will Facebook be a facilitator or a predator in mobile?
What is Facebook’s vision for its long-term role in mobile? Does it want to be like Amazon Web Services, facilitating a robust ecosystem with lots of apps, and taking a small revenue cut from many of them; or does it favor the Windows model, in which it treats developers like a field of vegetables, to be harvested as soon as they start to ripen? We can’t tell today, and Facebook itself may not know yet. So it’s too early to judge what Facebook’s new strategy will mean for the industry. But I think one thing is clear: what Facebook’s doing in mobile is important, and it could change the rules. The company can’t be ignored.
