Consumer – Ben Davis

Video Games on ESPN, or How to Lose a Bro in 10 Days

Gerald Levin of Time Warner, left, with Stephen Case of America Online, announcing A.O.L.'s $165 billion deal to acquire Time Warner in January 2000. — Gerald Levin of Time Warner and Steve Case of AOL in 2000 after announcing the merger of Time Warner and AOL. The merger is regarded as one of the worst of all time.

In the first part of this post, I defined the idea of a consumer identity cloud and connected it to the recent media merger frenzy. If you haven’t read that, you should! Also, as you can see above, I learned how to add captions to pictures on WordPress.

Here, I’ll break down some more of AT&T’s recent moves and share why it all may be moot anyway.

AT&T’s After-Dinner Snacks

Post-merger ruling, a fortified AT&T made a few moves in rapid succession that pointed to its ambitions over the near future:

June 25: AT&T acquires AppNexus
July 10: AT&T acquires Alienvault
July 11: AT&T invests in Magic Leap and becomes its sole U.S. wireless vendor

Let’s go line by line to try to break these down.

AppNexus

AppNexus is a programmatic ad exchange. Programmatic ad buying means using data and technology to enable the purchase of ads in real-time. AppNexus is the largest independent digital ad exchange, which is a nice way of saying that it is smaller than the two largest players in the digital ad business, Google and Facebook. Those two companies collectively controlled 57% of the digital ad market in 2017, which is a slight decrease from 2016. That decrease was driven in part by strong growth from Snap and Amazon. All of these companies have strong and/or novel claims on their customers’ identity clouds.

AT&T is unique from these companies in that its businesses are rooted in broadcast media. Broadcast media is one-to-many entertainment, while digital media companies specialize in one-to-one content. One-to-many means that one broadcast stream is shown in the same manner to many end users. One-to-one means that the content viewed is personalized for each user. One-to-many aims to maximize aggregate profits while one-to-one maximizes profit algorithmically.

As AT&T looks to build out more of the latter, an ad exchange like AppNexus could enable it to do some interesting things with both real-time and scheduled ad buying. AT&T likely thinks that this will feed back into them being able to better monetize Time Warner content. I’m very doubtful they will be able to do that in a net-positive way given Time Warner has such a limited claim on identity. AT&T’s portfolio of assets via Time Warner is bulky and not well-suited to the flexibility and virality intrinsic to one-to-one content. Owning a portfolio of 10-20 disparate broadcast channels drives little-to-no advertising cross-sell because there is no fixed point of reference (read: identity) and data aggregation.

There’s also a growing gap in the U.S. broadcast television space between supply of ads vs demand. Ad spend is up 16% since 2010 while watch time is down nearly the same amount:

**Red is supply of ads (spend) and green is demand (viewers).**

Surely, something has to give here.

Knowing this, it’s totally plausible to see Netflix, Amazon, HBO, and Apple become the dominant media advertising force. This could result in some awful income disparity dynamics, which are summarized in this thoughtful article by Shelly Palmer: “If you can afford to pay for (Netflix Amazon HBO Apple), you’ll enjoy the most compelling content served with the best on-demand user experience. If you can’t, you’ll be stuck with unwatchable fodder that is created as cheaply as possible and designed so that the fewest number of viewers will tune out.”

On top of all this, there are more entrants into the media and advertising business than ever. Target, Kroger, Wal-Mart, and Albertsons all recently launched advertising efforts. That’s right – grocery stores are getting into the ads business. This is a crowded and claustrophobic space.

Alienvault

Alienvault is an 11-year old threat intelligence business that looks to be one of the laggards in the startup cybersecurity space. This is firmly a B2B play.

AT&T actually gets the most money from businesses, which I didn’t know until doing research for this article. AT&T has four business units (all figures FY 2017):

Business Solutions, 43% revenue contribution, 54% operating income contribution
Entertainment Group, 32% revenue contribution, 18% operating income contribution
Consumer Mobility, 20% revenue contribution, 29% operating income contribution
International, 5% revenue contribution, -1% operating income contribution

If the business unit’s contribution to operating income is higher than it’s contribution to revenue, that business unit provides higher operating margins than AT&T’s overall business. Of these four (excluding International), Business Solutions and Consumer Mobility deliver higher operating income than AT&T’s overall contribution margin. So something like Alienvault will allow AT&T to bolster its B2B offerings and fatten margins in its largest business unit. I’ll leave it at that.

Magic Leap

Magic Leap is a secretive AR/VR company that managed to raise $1.9 billion dollars before announcing or releasing a single product. I’m extremely bearish on Magic Leap because I think that AR content will only be cohesively delivered by a full stack identity manager like Apple or Google, but if you’re anywhere near optimistic then AT&T getting involved is a smart move.

Magic Leap will release its first device later this year, which will likely cost thousands of dollars (Update: they launched their product and it costs $2,295). If you think that most interactive media will be streamed from the cloud and not delivered on-prem, then this device will require substantial data throughput to enable delivering real-time audio spatial information layered on top of the real world. AT&T’s upcoming 5G network would be a perfect way to power those types of interactions. However, without key partnerships, I don’t see a device that is only affordable by a very small number of households and which has no touchpoints to our existing identities succeeding in any way that justifies Magic Leap’s current valuation. However, AT&T is at least thinking towards a future in which entertainment is delivered in more interactive ways. Which leads me to my final point.

Dumb Content Through Dump Pipes

The term ‘dumb pipes’ is used to describe a piece of technology used to deliver data to some end source without providing any additional layer of intelligence or enablement. The delivery method (the pipe) has no additional value-add (it’s dumb!). In our case, the internet services provided by AT&T are dumb pipes that enable a connection between the consumer and higher-level services/applications. Most mobile phone providers have dumb networks in that all value-add services happen at the endpoint used by the consumer. For example, your home internet provider enables you to access the internet through the delivery of data over their network. Yet, it’s services like Facebook that provide the value-add at the endpoint of that connection.

There are a few other meanings to the term as it is applied in network theory, but I’m generalizing by saying that dumb pipes don’t enable anything beyond the delivery of the data they transmit. AT&T owns the actual copper wires powering their network, which means that AT&T is stuck with dumb pipes at a time when media is increasingly enabled by end-user interaction. Alas, the repeal of net neutrality means that AT&T can take its dumb pipes and in effect make them discriminatory towards other content, but I won’t go there.

At a simple level, old media companies like AT&T want to try and deliver next-gen content in the same way that they’ve always delivered broadcast television. Take the news that Blizzard and Disney have signed an ‘exclusive multi-year broadcasting deal’ to stream the Overwatch league championships on ESPN. Blizzard is a video game publisher and Overwatch is one of its most popular recent titles. ESPN is going to be showing more video game competitions.

While this deal still may be successful on a cash flow basis, it kind of misses the entire point: delivering new forms of content on an old medium may seem forward-looking but is actually highly regressive. The real innovation comes from finding novel ways to provide layers of interaction on top of the content (which is more difficult to do on a dumb network). See these two recent efforts by Facebook: first, they launched the ability to add polls and game-show features to their Facebook Live video platform, and second, they started testing augmented reality ads. Forget that the former of those two announcements is a blatant ripoff of HQ; the important point is that Facebook is leveraging its extensive user identity clouds to enable new forms of interactive media and advertising on top of the videos played on its website. Also, these innovations will only be possible on Facebook.

This is where ESPN showing Overwatch competitions misses the point. Disney doesn’t understand that the birth of a new form of content has always been accompanied by the invention of a new way to consume that content.

Take long-form scripted series, for example. Shows like the Sopranos are some of the earliest modern successes of this type of content. They were enabled by DVRs and on-demand streaming, plus online forums for fans to interact. Sports, as we know them today, have been enabled by HDTVs, Twitter, instant highlights via YouTube, and internet fantasy sports leagues. Put another way: new forms of content must be accompanied by something akin to a new go-to-market strategy for that content. Disney senses that e-sports will be huge, but I’m not convinced it will be because casual fans can watch them from their living rooms.

In Modern Identities and Misguided Mergers, I said that AT&T had no choice but to buy a content producer like Time Warner. In the same vein, AT&T has no choice but to do things like stream Overwatch on ESPN. That’s the only enabling relationship it has to next-gen content.

Overwatch also plays second fiddle to the phenomenon that is Fortnite (I’ve written about it and the New Yorker has an excellent piece on this subject). While AT&T might not know this, Facebook certainly does, and launched their recent media efforts with the stated goal of being “more participatory and community-centric.” I made this exact point in my last post: “unique media properties like…Fortnite have exploded in popularity by satisfying consumers’ needs for highly interactive and communal content.” Facebook wants its video content to have the same features as these hit games. Modern gaming platforms are their own social networks.

Another feature of these new social networks is personal emojis from companies like Bitmoji. The notion of a persistent online avatar has been around since the beginning of the internet but has only started to take off most recently with the proliferation of apps like Snap (who bought Bitmoji in early 2016). Apple is going all-in on this too with the launch of Memoji on iOS 12. Snapchat is even taking Bitmoji to its logical next step and plans to launch a game platform this fall. These things may look trivial, and they might be, but today’s youth are building their online identities around them. The next big thing in tech looks like a toy.

The successes of Bitmoji and Fortnite were made possible by the rich social graphs enabled by new media companies. These entities have thrived on top of the data that AT&T delivers. Future media interactions will be agnostic of the device you are on but will be enabled by the online identity you subscribe to.

Putting a Bow On It

It’s pretty simple:

Modern media consumption is driven by identity
Identity is driven by the sum of all actions we take on the internet
Those identities are controlled by new media
Old media is merging distribution and production but with no gains in leverage
Media is becoming increasingly interactive
Interactivity is enabled by identity
New media continues dominance and old media suffers

-Ben

Links:

Modern Identities and Misguided Mergers

The fun and, often, the tragedy of writing about the internet and its sub-biomes in 2018 is that something you wrote a week ago may be rendered obsolete and antiquated within a few EC2 clock cycles. That or Ben Thompson writes a piece on the same subject that makes yours pale in comparison. Positions that may seem innovative and forward-looking one week may seem quaint and common knowledge the next.

A couple of months ago I wrote Media’s Big Bifurcation, and I’ve been thinking about the topic at length ever since. I also happened to write that piece on the eve of a federal judge’s ruling to allow AT&T to proceed with its bid to acquire Time Warner. Despite the fact that that ruling will undergo a token appeal process, it is widely expected to close, which will define the landscape upon which all media companies compete for the next three-to-five years. Given how rapidly this space is changing, I’m probably underestimating the length of that time period and the overestimating the impact of the ruling.

In this post, I’ll talk about what I think that landscape looks like and why AT&T really doesn’t have a reasonable shot of being a driving force upon it.

You Are What You Eat

The AT&T deal is endlessly fascinating. At its core, it’s a merger between a vertical distributor and a horizontal content producer. I’m struck by just how per-ordained the whole thing feels: AT&T is showing that old-line media companies still have little conception of what motivates modern media consumption, but the move is also the only one that AT&T could make. It had no choice. The only way for AT&T to move forward was by leveraging the scale of its distribution networks to enable and prioritize its newly-owned production capabilities.

The real issue, as I see it, is that media consumption has become inextricably linked with identity. I think most people have a good idea of the existence of that relationship but don’t fully comprehend its scale and scope. Facebook and Google have built massive businesses by delivering content that is tailored for (and by) their users’ online identities. The news we watch is driven by our political identity, the content we consume on Snapchat and Instagram is driven by our social identity, the ads we see are linked to our consumption identity, and the video we watch is driven by some combination of all three. This is truer now than at any time in recent history. We are what we eat.

Which brings up the point – what does it take to make a valid claim on someone’s identity? I’m trying to define the relationship between a provider and a consumer: knowing that the provider/creator hopes to have a good idea of who is on the receiving end, what exactly does it take for that provider to have a valid notion of that consumer’s identity? That claim can either be made by the consumer providing data (passive) or by providing dollars to forgo the need to provide data (active). Although the point is slightly more nuanced, you can simplify by dividing on whether or not a service is free or paid.

Consumers differ from businesses in their consumption patterns in that they ‘make decisions based on factors outside of whether the product solves their problem.’ Consumers make decisions based on factors outside their apparent utility functions. I think that most people ultimately use a service because they are told to. And the most likely place to be told to do something is on one of the main services you already use (Google, Amazon, Facebook, Apple). The ability of these companies to unite and incentive actions across a wide range of jointly connected services has helped them reach a market cap of over $600B at the time of writing.

The sum of a user’s actions across the properties of one of these companies is what I call a consumer’s identity cloud; digital interactions and events which create a feedback loop of consumption and enablement across a wide range of services. The cloud is often used when speaking about software delivery, but the concept is just as applicable here. I took a minute and wrote down all the things that an identity cloud contains and came up with the below list:

Payment info
Photos / video / music / books
Preferences (spanning media preferences to demographics used for ad identities)
Voice assistants
Notes
Calendars
Purchases
Travel info
Email
Tasks
Avatars (online identities like Bitmoji)
Health info
SSO to other websites (basic info portal)
Smart home info
Location data

Large tech companies have touch points on each of the bullets above and I’m sure you could think of many more.

Media consumption has become an important complement to a consumer’s online identity. Some companies already bundle it with their other services (think Prime Video), and those that don’t, want to. Microsoft is reportedly making Movies & TV app for mobile while Apple is in the news both for its recent content spending spree and its desire to create a subscription bundle across a wide range of media formats. What’s most apparent about these efforts by Microsoft and Apple that they are increasingly full-stack. I touched on this point briefly in my prior post, but media companies are moving towards having offerings all up and down the interactivity axis. Companies aren’t happy to just deliver TV – they want to add podcasts, and music, and movies. Netflix is venturing outside video into radio content. Instagram launched IGTV. Amazon owns Thursday Night Football, and Facebook just paid 200M for Premier League broadcast rights in Southeast Asia. New media today wants their offerings to be tangential to as many aspects of your identity cloud as possible.

This is all supposedly done in the name of the consumer. But if we are what we eat, what then is AT&T, on the cusp on subsuming Time Warner?

Horizontal, Vertical, and Backwards

The media world has had a remarkable reshuffling in the past decade, to say the least. However, the past few months have been filled with enough plot twists, partnerships, and misguided mergers to make the last ten years seem tame in comparison. This year has been the year that old media distributors, providers, and conglomerates – the Time Warners, Fox’s, Comcasts, and AT&T’s of the world – finally put their foot down and loudly proclaimed that while they still had only a vague understanding of what incentivizes consumers in the 21st century, that wasn’t going to stop them from making last-ditch efforts to dictate the way we will consume content over the coming years.

In 30 seconds, here’s a quick timeline of recent media mergers:

September 2016: Shari Redstone calls to merge CBS and Viacom
May 2017: Sinclair Broadcast Group announces its intent to buy Tribune
July 2017: Discovery buys Scripps Networks
May 2018: CBS and Viacom trying to merge again with a perceived end goal of selling to Verizon or Amazon
June 2018: Judge okays AT&T/Time Warner merger
July 2018: Comcast drops bid for 21st Century Fox leaving Disney as the remaining bidder. Disney gets Hulu
July 2018: Justice Department appeals AT&T/Time Warner, gets expedited appeals process
July 2018: Ajit Pai comes out in opposition to Sinclair-Tribune merger

The ruling by an antitrust judge to allow the merger of AT&T and Time Warner means there is no longer any distinction between content creators and distributors. Companies must do both, well, to be a player in the current media world. At the risk of oversimplifying a massively complex issue, I’d like to break this down into a couple points:

There is no longer any middle ground between massive scale and being a small nimble player

Netflix just came out publicly and said their content budget for 2018 would be $13 billion, which is $5 billion over the $8 billion that they had previously planned to spend. The company that can predict if you’ll like a show with near-perfect accuracy underestimated its own budget by nearly 40%. (Update (8/12): I read some more about this and I think a lot of the misalignment here is due to how Netflix amortizes it’s content investments. Regardless, the point still stands). All the mergers I listed above are with the intention of increasing surface area and scale. Entertainment bundles will get bulkier and more unwieldy.

Meanwhile, smaller players either have limited claim on identity (see You Are What You Eat) or they lack budget. As I mentioned in Media’s Big Bifurcation, Cash-strapped and nimble companies alike will avoid competing in this space, simply because the only game in town is massive budgets funded on the assumption that revenue per use (RPU) will increase into perpetuity. Smaller companies can’t play that game, so they innovate in other ways. There is no middle ground.

It doesn’t matter that most of the original content on Netflix is crap – as long as the amount of content they produce keeps growing, to succeed they only need a fixed percentage of that to stick (Netflix also has AT&T’s HBO beat in this race):

Netflix Emmy nominations:

2018: 112
2017: 91
2016: 54
2015: 34
2014: 31
2013: 14
2012: 0

— Jon Erlichman (@JonErlichman) July 12, 2018

AT&T / Time Warner is a vertical/horizontal merger that creates very little additional leverage

I think that vertical media companies are emboldened by the net neutrality repeal. However, they fundamentally misunderstand a few key points in addition to the notion of consumer identity + new media spending.

A massive firm like AT&T tightly integrates through the value chain and controls all aspects of its product, from owning the hardware used to provide cell service all the way through to managing the end customer relationship. A content provider like Time Warner distributes its media properties across all sorts of devices and end customers. AT&T builds a more successful business by using integration throughout the value chain to cut costs and deliver a better customer experience; Time Warner succeeds by getting its content onto as many screens as possible.

This excellent HBR article from 2016 is prescient about the rising new media players: “(Apple, Twitter, Facebook, Amazon) are market-share leaders in advertising, hardware, e-commerce, and social networking. These are businesses competing on networks and connections. For them, content isn’t core, but it is an important complement. Each of those companies is betting that it doesn’t need to buy a media powerhouse (but) can acquire content at a lower price by partnering, producing content itself, or by seeking out content from digital publishers and millions of other sources.”

AT&T is acquiring content through traditional M&A because it doesn’t have the aggregation power to drive publishers to creates for its services free of charge. When really, content creation and purchasing should be viewed as a venture investment. One of the defining characteristics of venture investments is that they follow a power law curve, meaning among other things that a small number of hits make the vast majority (90%+) of returns. Netflix just needs 10-20% of its content to succeed massively to make the strategy work. AT&T may try to bundle the content with its other services (in effect lowering the price of the content), but any gains in subscribers there come at the expense of Time Warner’s profits. This is a zero-sum game. AT&T could try to develop a novel delivery of original content, but we’ve seen how telecom companies do at that strategy.

In old media’s mind, the war for eyeballs will be won by vertical mergers emboldened by the recent repeal of net neutrality. It will be won by jamming dozens of channels which are the TV equivalent of flyover country into licensing deals which force consumers to continue paying for 50x the content they actually want. It will be won by raising prices on the only semblance of a modern OTT content offering they have. Modern consumption patterns are enabled by information identities which are themselves an amalgam of all activity we do online and AT&T has only a vague claim on all of that.

In my next post (coming within a week!) I’ll talk about what AT&T did after the Time Warner deal and cover why it may all be moot anyway.

See you soon,

-Ben

Links:

Media’s Big Bifurcation

My media consumption over the past week (beyond music and the written word) consisted of three things:

Niche industry-focused podcasts on my commutes to and from work
High-production-quality serial video content when I want to unwind in the evening
Hours spent with a group of friends playing Fortnite

So, I made that third point up. But an increasing number of people are doing one or many these three things, and the media landscape is being rapidly altered as a result.

Specifically, the massive amount of money being spent by Amazon, Netflix, HBO, Hulu, and others are rapidly bisecting the media world along the axis of engagement and interactivity. Please note that I’m intentionally (and ignorantly) excluding all written content from my definition of media here and for the remainder of this post.

The world right now, and into the near future, looks something like the image below. Content distributors-cum-creators with massive warchests and seemingly endless appetites are making up an increasingly large portion of what I call ‘neutral’ content consumption. Neutral content is content that doesn’t require any interaction by the viewer during consumption – mainly video and music. The pile-up of creators in the neutral media space has pushed smaller shops to compete elsewhere. The amount of $$$ competing for the next big series has led to an explosion of creativity by innovative companies who are fighting for viewer’s time at the poles of entertainment interactivity.

Each of these segments below serve specific consumer wants. The long tail of content / interactivity permutations == the long tail of niche consumer jobs-to-be-done == the highly-specific and tailored desires of young urban populations.

Media World v5

As the major players fight for programming rights and distribution power in neutral entertainment, nimble start-ups and creative game houses alike are finding unique ways to capture viewers looking to fill different pockets of time and intention than simple television provides. Both segments of this newly bifurcated market will grow as the power and heft of the major media houses grow – the growth and heft of the dark blue mass in the graphic above possibly means that we are guaranteed to see faster growth in the orange and green segments.

At the high-end, unique media properties like HQ and Fortnite have exploded in popularity by satisfying consumers’ needs for highly interactive and communal content. Consumers of this type of content want to have shared experiences. These products allow people of all skill levels, ages, and backgrounds to participate in mass phenomena in ways that simple unidirectional TV viewing never enabled.

Experiences with high interactivity are inherently low stakes and have rewards that provide outsized create enjoyment versus their nominal utility gained. Media at this level taps into humanity’s desire for unique, shared experiences built upon simple surprise and delight.

Technologies that thrive at this end of the spectrum are slightly less platform agnostic than those below them, and I think this will only increase as VR and AR technologies eventually move past infancy and vertical content platforms develop around specific devices.

Immersive entertainment is also increasingly aided by the ability to share experiences afterward on third-party video platforms. I won’t pretend to fully understand the drive behind watching other people play video games, but I know that there’s an enormous amount of money behind it.

At the low end (green boxes), lightweight media consumption has gathered around the burgeoning podcast multiverse. Content at this end of the spectrum can be vertical industry-focused, serially formatted, general news coverage, and just about everything else you could imagine.

Pure audio devices like Apple’s Airpods feel like they were designed for podcasts. To a certain degree, the rise and prevalence of wireless audio-only is the driving force that has moved sound to become a strictly passive mode of consumption. I think voice as an input probably best works when its use is completely integrated into our environment, and I’m excited to see this take shape. Traditional early tech adopters have helped Airpods go mainstream, and I don’t ever want to go back.

Estimated stats since I got my AirPods a few months ago:

+20% increase in podcast listens

-100% time spent untangling headphones at the gym

+33% in weird looks from ppl (they’re still kinda odd looking)

Overall grade: coolest gadget in a number of yrs

— Ben Carlson (@awealthofcs) March 21, 2018

I think the need for passive entertainment is also increasingly driven by the ~1-2 hours a day that urban commuters spend taking public and alternative forms of transportation. I take a bus service called Chariot to work in the morning, and every single person on the bus has a pair of headphones in, and they are each listening to The Daily or the latest Serial knock-off.

Passive entertainment serves the job of filling time that would not easily be spent doing something that required significant concentration. Passive entertainment is platform agnostic and makes up for its lack of a communal experience with viral word-of-mouth feedback loops incubated in offices, apartments, and every in between.

We’re at a time of great experimentation in all media models. The massive pile-up in the middle of our media consumption patterns has driven both producers and consumers to find more innovative ways to compete and consume. Companies are creating never-before-seen content at the high end of interactivity, and pure-use modular devices like Apple Airpods are enabling effortless consumption of passive content at the low end. The future is so bright.

Notes:

The Containerization of Everything

One of the major forces in computing right now is the deployment of software via ‘containers.’ From Docker: “A container…is a lightweight, stand-alone, executable package of a piece of software that includes everything needed to run it: code, runtime, system tools, system libraries, settings.” Software is deployed through a container to make sure that it runs the same no matter what system it is on.

I think that this trend is exactly the same as what is happening in the consumer durable and certain sectors of the CPG markets. Before I unpack that statement, let’s discuss why software containerization has become so popular.

The idea behind containers is quite simple: software is running on a wide variety of devices, and the developer wants to ensure that the software runs the same everywhere. TechCrunch has a great 101-level piece on containers if you’d like to read more.

There are many forces at work behind the development and proliferation of containerization, but I’d like to call out two in particular.

Varied operating environments: Computing was first done by a large mainframe, then individual desktops via a client-server relationship, and now via mobile-cloud. Computing is done on a large number of differentiated devices connected to a central OS endpoint via the cloud.
Abstraction away from source code: Everything done on software ultimately goes back to the 0s and 1s communicating with the CPU. However, services are increasingly built multiple layers above the binary. Think CPU -> server -> AWS -> Intercom

Containers, and the software they enable, are empowering companies to deliver focused digital solutions to singular customer use cases. And networks like Instagram are enabling consumer brands to do the exact same thing!

I wrote last week that brands can use Instagram in a targeted manner to create feedback loops within their desired demographic. These brands capitalize on Instagram’s uniform consumer experience to sell a solution to a specific use case (#firstworldproblems). A few varied examples:

Bevel (started with a razor designed to protect the skin of black men, built into a cosmetics brand for people of all colors)

Bonobos (started with one product, a better men’s chino pant, recently sold to Wal Mart for $310 million)

Andy Dunn, the CEO of Bonobos, has a fantastic piece about the need for a brand to nail one product: “If you don’t start with a relentless focus on an amazing first product, odds are you won’t even get a seat at the table” + “the best way to get volume is to sell a lot of one thing, not a little of a lot of things.” + “Make one thing great. Get one thing right. That earns you the right to go from product one to product two.”

Containers -> software; Instagram -> consumer brands.

Life many software startups, modern consumer brands use web platforms to reach users trying to solve specific use cases – often these use cases are ones they didn’t know they need solving.

To Dunn’s point – most don’t earn the right to go from product one to product two. More on that soon.

– BPD

Notes:

Instagram is the Ultimate Consumer Accessory

Much has happened since I last wrote a piece here.

I started working at Intercom in a challenging Sales Ops role. It’s been a whirlwind, and I love working there. We have a world-class blog and podcast that you all should read and listen to if you don’t already.

But now I’m back to thinking and writing critically about the important things happening in the tech world.

I first mentioned Instagram in this post from January. At that time, Snap was two months away from their IPO and one month away from filing their S1. I wrote, in more or less certain terms, that Snap was in trouble because a) Instagram Stories were crushing it and b) brands weren’t getting effective results from their ads on Snap.

These two trends have continued seemingly unabated.

I also noted that Snap’s confusing design was going to be a hindrance to more people using it. Sure enough, Snap announced a redesign of their app to make more clear the separation of content from friends and content from publishers.

We’ve also since learned that it’s not actually Snap’s core messages business that is the issue. The Daily Beast published an article yesterday with leaked numbers from a five-month period in 2017. During the time in question, daily messages sent on Snapchat actually rose from 80 to 87 million, which is a >20% annualized growth rate. That’s not bad. However, Snap’s other products saw flat to declining usage over the same time period.

At this point, Snap is the owner of a very popular chat app with millions of young users who each send hundreds of image-data-rich messages every day. Without a separate source of concrete data about its users, I don’t see a clear path to monetization.

However, 2017, to me, was less about Snap failing to execute and more about Instagram executing at the absolute highest level. 2017 saw Instagram become the most relevant social network outside of China.

Instagram has become the best tool to build a brand, ever. People who are champions of a brand not only get targeted ads from that brand directly in their feed, they actively sculpt and tailor their accounts into the hyper-realized version of that brand’s vision. On top of that, Instagram feeds these images back to its users in a cycle of self-perfection and realization.

It’s as if a brand held a focus session for a new product, and each of the participants, regardless of whether she truly liked the product, changed her opinion to suit the product, and then went out of her way to purchase that product and modify her life to include more of it.

I speak in extremes not for gratuitous effect but to try and illustrate just how effective this platform is. We’ve never seen anything that links aspirations, products, and people so effectively.

A vibrant Instagram has become the ultimate consumer accessory.

I don’t think this is a good or healthy thing.

Two major shareholders of Apple recently pushed for the company to create greater controls for parents over their children’s device usage. They did this out of concern that these devices have created a rapidly worsening health crisis of addiction to electronic devices.

I think that 2018 will see more of this – the largest tech companies struggling to grapple with the adverse side effects that their products have on consumers. 2018 for me will see me writing shorter posts more frequently.

In the words of Scott Galloway –

Life is so rich –

-BPD

Notes:

Intercom website: www.intercom.com
Intercom Blog: blog.intercom.com
Intercom Podcast: https://itunes.apple.com/us/podcast/inside-intercom-podcast/id996103731?mt=2
Instagram and Snapchat: https://benpdavis.com/2017/01/30/instagram-vs-snapchat/
The Verge – Instagram Stories is now more popular than the app it was designed to kill: https://www.theverge.com/2017/4/13/15279266/instagram-stories-facebook-200-million-users-snapchat-clone
CNN – Snapchat redesign: http://money.cnn.com/2017/11/29/technology/snapchat-redesign/index.html
Daily Beast – This is the Data Snapchat Doesn’t Want You to See: https://www.thedailybeast.com/this-is-the-data-snapchat-doesnt-want-you-to-see?via=twitter_page
Jana/Calpers Push Apple to Study iPhone Addiction in Children: https://www.bloomberg.com/news/articles/2018-01-08/jana-calpers-push-apple-to-study-iphone-addiction-in-children

Search, and Such

I read the other day that YouTube is the second-largest search engine on the internet. It achieved that distinction back in 2014. This got me thinking about how searching for relevant content has changed and will continue to change as the content we are searching for increasingly takes on new and novel formats. Continue reading “Search, and Such”

Spending in the Future

Americans have stagnating real incomes and seemingly endless rising housing prices. However, spending has decreased notably across a wide range of goods. Ther are a number of innovative tech companies tackling the underlying issues at work here, and the next 50 years will see a growing selection of higher quality goods and services at more affordable (or at least more equitable) price levels. Continue reading “Spending in the Future”

Instagram vs. Snapchat

There are two juicy stories floating around about Snap today, which are especially poignant in light of Snap’s anticipated public filing for an IPO later this week. Continue reading “Instagram vs. Snapchat”