Transcript

Jen

This is The Web Ahead, a weekly conversation about changing technologies and the future of the web. I'm your host, Jen Simmons, and this is episode 24. I want to say thank you so much to this week’s sponsor 5 simple steps, fabulous books about web design, practical books how to make great websites, make them better, we’ll talk more about them later. And my guest today is Horace Dediu. Hi Horace.

Horace

Hi.

Jen

Those of you who are big fans of 5by5 may know him from his fabulous podcast, The Critical Path, and I really never been a person to follow business news or business analysts whatever whatever, I’m like, "Yeah, I don’t know, I make creative stuff, that’s what I do." And probably many of you listening feel the same what, but this show that’s been on 5 by 5 now for a little over a year is just so amazing and I’ve learned so, so much and it’s helped me really think about the business of what we do and the web especially as someone who’s involved in the web industry and it follows technology very closely like "what does it all mean, and where are we going and how do I understand the stock prices and the..." So I thought it would be great to have Horace on the show to talk about the web from a bit more of a business understanding and an analyst understanding whatever that is.

Horace

Mhmm.

Jen

So Horace, talk a little bit about who you are and what you think it means to be a business analyst or what it is...how you see your role in the world that we’re living in right now.

Horace

Well I didn’t start out as a business analyst, in fact I’m not even technically qualified to be one. I think I’m [1:47 inaudible] I started out as an engineer. And I was in software engineering for the most part through the 90s, the decade the 90s. So I came from that and went to business school because I wanted to learn more about what made my work successful, how to be more successful in my work. It wasn’t about really wanting to be a businessperson, it was more about understanding the role business had in technology itself. And after going through business school I went and did a startup and I didn’t really go back into kinda the traditional business school professions which are consulting and investment banking and so on. So I stayed in technology and I went on to work at Nokia. And it was only there that I was put in a role to analyze a potential competitor from a business point of view which at the time was Microsoft, which is curious given what’s happens since. But my role became one of being a business analyst with an understanding of the technology as well. During the last, that decade at Nokia approximately, the 2000 decade, I came to actually become more curious about how change happens because what happens, what’s interesting in business theory, if I may call it that, it isn’t as you might think in technology or in science based on axioms or particularly provable facts, but there’s something of a business theory out there. I didn’t, I thought there wasn’t a good explanation of how businesses, how they fail and how they succeeded. There wasn’t a great explanation of this phenomenon. We tend to assume that businesses are steady state or that they’re somewhat immortal even, some even suggest that the corporation is an immortal entity, and it isn’t. In fact, I was witnessing success and failure [at] very rapid rates, more rapid than they’ve ever been. Certainly we can remember historic failures, but nowadays, it seems like failure happens on a sort of weekly basis. And so I started to study this and I was using a framework for analysis which was based on Clay Christiansen, who’s one of, a professor of mine at Harvard business school, and he coined the term disruption as it applies to business. And disruption initially called "disruptive technology" but it actually got recast as being sort of a disruption of a business due typically to a technology as a catalyst. And so when I looked back at my own life and my own experiences in my career, I started to see that the pattern did fit very well, in fact success and failure were determined by this disruption theory and then I began to learn more about it and apply it. And I now tend to preach it if you will and try to actually think through what’s happening on a daily basis and explain it to people as a disruption. Or if not, a sustaining, there’s a counter to disruptions is something that isn’t disruption is called sustaining. And so this dichotomy between when is it that something, a technology, or an event happens, when is it going to be helpful to you, if you are either a technology person or a manager, or even working in government. Things happen and you have to make a decision, "Is this thing that just happened going to be disruptive to me or is it actually going to help me?" and can be put into a personal perspective, professionals, doctors or physicians, or practitioners in healthcare having to face these questions. "Is technology disrupting my profession, or is it?" Or if you’re an actor, or if you’re a, you know, movie maker, is technology disrupting my profession, so I think it’s a wonderful framework and I’d love to sort of think though with you maybe today, on how it may, or sort of what is happening in the web. Are apps, for example, a disruptive force, or a sustaining, to those in the profession of building websites or web experiences? And that’s what I do. That’s what I do as a chronicler. I make a living doing it because I write about it and then I speak about it, and then I occasionally consult about it.

Jen

Yeah, I mean I, it seems like we all know that we’re in this time where there’s all this opportunity, people want to go make the next great start up and make tons and tons of money, and they’re looking for a way to do that, or people are passionate about the technology and they’re very excited about the new stuff that’s coming out, the new this, the new that, the new phone, the new HTML5 API and there’s a hunger I see in the world that we’re in to find innovation and amazing, amazing new things. And I think it feels to me like there’s so many conversations who, "oh we’ll talk about news, well people in the newspaper industry are really upset and frustrated and feel like their world is falling apart, and meanwhile there’s people who are all excited about that old model breaking up and new things coming out instead. So here you talk about it all, and you talk a lot in your podcast about different industries, as far as disruption and innovation and the job to be done. I feel like that’s another, in the web design world there’s a lot of conversations around like, content, content strategy, "let’s start our project with thinking about content strategy," or "hey you really should be thinking about your user experience, and your user experience design, don’t start picking out your colors and whether or not the corners will be rounded, start with really looking at the content on this website." And I believe all that, I also think it’s fascinating to think about what is the job to be done by the website and all these ideas that you have about jobs to be done and how people in their own, planning their own web projects could think about it in that framework and think.

Horace

Yeah.

Jen

Well let’s back up and what it, why is this website even exists in the first place, what’s the job to be done with that web site.

Horace

Yeah, yeah, the job to be done is one of the things that came out of disruption, but it’s really can stand on it’s own as a method of planning opportunities or discovering opportunities, assessing opportunities, deciding basically where to put your investment, whether it’s time or money. And the interesting part of "job to be done" is that, why it’s even coupled with disruption, because one of the sinister things about disruption is that it’s hard to perceive it’s happening. And often it happens because somebody’s coming at the problem from a different angle than what would be, lets say would be the money would suggest that you should be doing this, right? They would see it as "no, perhaps money isn’t the best voting engine. Perhaps there’s something that’s being unmet. And then you discover opportunities by looking at these subtle, subtle questions about what is that that people really want, rather than what they’re actually paying for today. And that’s the, that’s why it’s couple to disruption, because those who disrupt tend to solve a problem that no one else has solved before, and the root of it is actually a saying from the 1970s that I forget the original person who coined the phrase, but it was a professor also at Harvard, I think he said "Seldom do people buy what you are selling." And that means simple that you build something you think you’re building it for one purpose, but somebody buys it for a different purpose. Or another way to phrase this is to say that, "when people buy...people aren't interested in buying a drill, they’re interested in getting a hole in the wall" and if you could develop dot dot dot. And so you could think, "oh, so the problem I have to solve is making holes in walls, I don’t necessarily need to sell drills. If I could innovate by sort of make a hole in the wall machine, then I could probably do a lot...solve this person’s problem and I wouldn’t have to build a factory to make drills. That thinking happened early on, and it’s only been more recently that practitioners of this idea have come and built tools for us to actually analyze what is it that people really want. And I had a conversation with one of the pioneers of this theory, his name is Bob Moesta, and he looked at, he’s been looking at this also for a long time and he pointed out how it applies in all manner of industries, it applies in all manner of job functions, and the curious thing, when I...the light that went on in my head when I was talking to him about it is that, it feels more like a lot of people in design are doing, traditionally, you know design was a ghetto, it was a place where you know, people with an artistic inclination could make beautiful things it was sort of the, industrial design it was called, and now it’s getting more to the point where people are concepting in design what is it the product does, in fact Jobs said "design isn’t how it looks, it’s what it is" or what it does, so that’s, that I think that notion that understanding what the product is hired to do has become, accidentally perhaps, a design role. But that too needs to be thought of by all the other persons in the organization, I think developers, and I think managers, and I think marketers need to understand the job. Some people say, actually it’s a marketing job to figure that out, some say it’s management’s responsibility to understand what their customers want, but in fact everybody needs to understand this. And some may be need to know the tools better, and practice this methodology a bit more, rigorously, and that might be someone in design or marketing, but the jobs is really one of those things, where you step back and you understand deeply what people react to. And often the answers tend to come back as being more psychological, more that the problem is really rooted in the person’s psyche rather than actually something tangible. Case in point, and this is again an example given by Christianson, it’s this milkshake, what do you hire milkshake to do, and it typically is, you might think well I need something to have as a sweet dessert or something like that, but in fact studies of the behavior of buying a milkshake turns out that it’s many times it’s hired as a breakfast food to be drunk in the car because it’s convenient in a vehicle rather than using a food product that’s sticky or makes a mess. So there’s a convenience factor in the morning, and there’s another reason it’s hired in the afternoon and evening as a reward for children, and that these are two different jobs that the same product’s been hired to do and it’s suboptimal to both. So if you actually figure out how to make a good breakfast drink, maybe you make it a little bit healthier and have a little bit of fruit in it, then you’ll do great selling it to the morning commuters, and then you make a smaller drink, not large enough for adults, and then you’ll do better selling it in the afternoon, and you don’t get that insight unless you actually observe people and try to find out with inquiry as well, what are they actually going to do with the product. You have to watch them very carefully. It lends itself well to the web because you can watch and even capture data about behavior without being there. And you see what people actually click on, where their gaze tends to wander to. And if that’s, maybe you might pick up through the data without having to get into the messy interview process, you get through the data, you can tease out, "Oh, I see what they’re actually hiring this page to do, or what they’re hiring this site to do." And you know, you can think of it in all kinds of contexts, and that leads you to perhaps not just optimizing your site or your service, but also perhaps discovering new things you can do. So that’s what "jobs to be done" is. Again, I think every entrepreneur thinking about entering a new business ought to answer that question first, what am I hired to do, what does the customer really need done. And then try to build it accordingly.

Jen

And what do you think, I mean, 25 years ago there were no websites. None. And now we have who knows, no one actually knows how many.

Horace

Mhmm.

Jen

What do you think the jobs that websites, like what’s the job to be done with, you know culturally and in general, what are some of the jobs that websites are getting hired to do. It’s just amazingly giant industry there’s so much money in this industry.

Horace

Well, let me step back before answering that question and there is a way to actually follow the money and understand where the fuel for all the web is coming from. I don’t have data to prove this, and I, maybe I’m wrong, I‘ve heard it anecdotally from others that if you simply add up the revenues from the largest web properties out there, Google and Amazon and eBay and some of the bigger names out there, and then ask the question, "Well what’s actually driving their investment and their profitability," and then ask about the whole ecosystem. And the thing that I head, which again may be controversial is that most of the web is actually funded by, the lights are on because of, advertising. And it’s interesting to think that all of this, all of the benefit we get from the web is ultimately rooted in the fact that somehow, a purchase, a transaction needs to occur at some point in the physical world that subsidizes the internet. And that’s, that’s a bit, I’ve found that a little bit surprising, and I didn’t realize it but I suppose if you do add up all the transactions, Amazon certainly Google certainly is advertising is their core business, 96% of their business is ads, and then maybe add a few more things, you know even eBay, then you sort of see that behavior. But I see that in one way as not a great thing, because it seems very limited, right, advertising itself isn’t the biggest industry on the planet, for comparison, I don’t have the exact data about how much the internet is worth in terms of ad money, but the, two percent of the world’s GDP is spent on telecommunication, mobile telecommunication, and that’s a $1.5 trillion business and so only two percent. Now I would imagine that the internet ad business is a bit less that $1 trillion, but still, fundamentally asks this question that, "Is what’s driving the whole industry really advertising and if so, isn’t there a lot more opportunity to create value in new ways?" What I think hasn’t been crossed as a chasm is the notion that the internet itself, the transactions that occur, are for internet based content or internet based value product, or if you, you know, whatever the container maybe. So in other words, that the internet itself should be generating the things that keep it alive rather than having to defer to an off-line transaction. And that’s something I think it points to a great opportunity, so what is the whole internet hired to do right now? I think the whole internet is hired to sell physical products, and I think they’re sold and transacted off line primarily, but I think that’s a limitation that’s, you know, arbitrary. I think that limitation could be beyond, you know, in terms of really creating an economy, and ecosystem around virtual goods as well. And just to put another twist on this, I mean if you took the mobile internet, now this is what’s interesting in contrast to the fixed internet, or I should say the desktop internet, is that we have this notion that apps and the economy of mobile interaction is based more on apps, which have a transaction value in and of themselves, but also there are advertising models behind those. But apps to not to advertise the same way, or the same things that are advertised online. And I even think that most of the ad dollars generated through mobile are very different than the ad dollars generated through non-mobile internet. And We see evidence of this for example with maps, that someone I think pointed out that it’s something like 26% or maybe 30% of all ad revenue for Google on mobile is through the maps franchise they have there. So apple is trying to get a bit back from, you know some money out of that themselves. Then we have again apps and in-app advertising and then we have the browsing experience which is very different because of the constrained devices, that we have a very different type of way of advertising, and a different type of interaction and people don’t discover things the same way. And I think the ad, we’re seeing some evidence of this because android has taken off to such a degree that we now have nearly a million devices activated every day, so that 365 million a year, right, at the current run, right, plus iOS which is burning, you know going crazy as well, which is not as nearly as many, but maybe over 150 million a year as well, and so as all these devices are lit up with good browsing and good apps, that has not yet impacted Google’s bottom line, so the fact that they suddenly have half a billion more customers’ eyeballs hasn’t driven Google’s valuation at all. Their stock has been very flat and their growth has been very slow. And this is just one of the, you know, or not very slow, but it’s slower than the growth of android. Android is growing crazy at 300% a year, and the company’s growing at 30% so that means to me that something weird is going on in mobile, versus the traditional. And this is again, every time you see a crisis or a weird anomaly like this, you have to step back and say, "What’s the cause?" because that gives you an opportunity. What might be happening in terms of, the internet has been built for so many, although very long, but it’s still a decade or more, has been sort of optimized around the advertising model and the commerce models and everything else we’ve built on the desktop, and now with mobile suddenly things don’t work. You try to adapt but somehow it doesn’t do the same thing you expected it to, right? You’ve got the audience, but you don’t have the engagement, so now the challenge is for people who are either in the web domain or in the app domain to figure out new ways of optimizing for this new audience, and what are you going to optimize around, is it advertising, perhaps it’s something else, something completely new. And there’ll be more people in mobile than there will be in the fixed, and the mobile is especially dominant in emerging markets and maybe that’s one of the clues maybe, maybe those people aren’t the typical buyers, so what do you sell to them? And so this is I think one of these opportunities where, it comes along once in a lifetime because we’re seeing a huge transition happen, I think the opportunity of the web itself like you pointed out that there wasn’t a web 25 years ago and suddenly there is and that created a whole economy and now we’re seeing yet again the same thing happen all within one lifetime, which is pretty, or even one career, which is pretty amazing.

Jen

Yeah, well it feels like the web is knocking at a lot of other businesses it’s disrupting a lot of other, you know, people who traditionally did things using print, printing physical papers now a lot of that’s moved to the web, or I think it’s widely expected that television broadcasting which used to be across you know, across the air, broadcasts on rabbit ears as we called them, and then it’s moved to cable in the 80s and 90s, and now it seems to be moving into, it’s still, the cable the wires, but it’s a, IP TV or totally different technology, and same with phone calls, everything been completely disrupted.

Horace

Mmmm, yeah, exactly. Now that’s, so, you’ve latched onto exactly the pattern you know, as technology has come in, we didn’t know or anticipate that there would be a huge knock on effect in the business models and which companies would be successful in the future. Every time this technology comes in, some people embrace it and some reject it, and suddenly, you know, it changes the world and turns industries upside down or inside out. And that’s happened again, you mentioned publishing broadcast media, and it seems to happen all, there’s this speed of change which is extremely frustrating because sometimes it’s very slow, it seems like nothing’s happening. eBooks for example, ebooks, I was actually involved in an ebook venture, you know in 1998, and that was way too early, but that was already the third time people had tried to make ebooks, they had been trying since DVDs, or sorry, CD-ROMs, they had been trying before that with, you know, some kind of cartridge concept for TVs and all these other weird ideas for how to bring reading material.

Jen

Like hypertext.

Horace

Yeah, hypertext, exactly. So we had these weird, and so when we were doing it in 98, we thought that, "Now is the time that finally that electronic reading will take off. And that’s what e-ink actually started as a company, spun off of MIT, there’s a lot of excitement, a lot of startups. And then the dot com crash happened, and adobe by the way was in it as well back then, tried to push its PDF technology for ereading. And what the point is though, you never know exactly the trajectory of this technological change and how it really affects business. Some people just give up and they you know move on and it hits right after they leave, so that’s sort of what happened here with ebooks is a lot of the startups that tried it early on failed and then you know just took off with amazon initially. Who would have thought in the late 90s that the ebook industry, or even the whole publishing or book publishing industry would become determined by dominated by an online retailer, that is outrageous, I mean everyone would have thought that it would be determined by either Microsoft or there would be you know, because they were in it early, or Adobe would set some standard, as they did with PDF, or perhaps it would be a hardware company like Sony who would sell a lot of these reading devices because they were a consumer company. Nobody would have thought Amazon, which was just a very rough around the edges type retailer that was just barely doing things on...you know in a shoestring manner. Their whole site, everything looked immature, and yet they came up as the dominant force in publishing only to be having apple as a challenger later on. That’s fascinating and this is why it’s so unpredictable that even if you understand the technology deeply and you know the trajectory of technology, you don’t know the trajectory of the business models that will be successful with it. So in that sense what I’m studying also now trying to get my head around is what’s going to happen to broadcast TV. What’s going to happen to film. And there you see again an analysis based on existing players, and sort of a debate will it be between Hollywood and Silicon Valley, or will it be between distribution and production, or does the device matter, and does the storefront matter. Maybe it just will be someone completely new we have never heard of that will actually become the next for and dominant force and disrupter of broadcast TV. It could be even Apple, they’re sort of a serial disruptor, and this is why I study them so much, is because I find them one of the most prolific disrupters and self disrupters as well, which is the hardest form of disruption, by the way. And so perhaps they will be the ones to sort of as Jobs said, really crack the nut. But we’ll have to wait and see. But I think the web is part and parcel of the whole disruption, what it is, and when you listed these things that happen, it’s a couple of things that are thread across all of them is that, they’re about really bringing power to the end user and sort of democratizing things, that’s kinda become the buzz word to describe it. But also you have Moore’s law, which enabled a lot of computing power. We have a Metcalfe’s Law, which allows, which you know defines the value of networks. We have things like the shrinking of things, rather than just becoming more powerful, they got smaller, and battery technology got better so things became portable, so the basis of improvement went from being fast and being small and more convenient. We’ve had...one of the things that’s happening is the globalization is that no longer do you think of, or you shouldn't think of the US as your market, it should think sort of well, "it’s the world, perhaps we should start in one place, but we’re eventually gonna do a global opportunity here" And so these are on-going sort of secular trends that are affecting technology in general, and as a result some of the industries that are predating the web, predating many of these technologies are facing disruptive forces. I think publishing is just one of them that may be the earliest to feel...music was probably the earliest, but now publishing is becoming very, very difficult, and self-publishing would make more sense. So anyway, I don’t want to dive too deep into books and publishing, I’m in the middle of doing one myself, so it’s kind of...

Jen

Yeah.

Horace

It’s an interesting topic for me.

Jen

And I do think it’s a perfect example the kind of thing that I mean I think you’re if you look at the numbers it’s interesting to think about the big business of the web and how tied into advertising it is. I also think that a lot of us we’re not building trillion dollar businesses on the web, we’re building businesses that are much smaller and the web sites that get built have...you know their job is to provide service or provide a digital product...or to provide...That’s where it gets interesting to me, like, so I understand something like Amazon or something like a store that’s shipping you a physical book like Five Simple Steps, I understand where I can get an ebook sent to me, what about some of these other websites are about, the job is to communicate or to facilitate communication between, well that’s what supposedly, I mean that’s not really what Facebook is about but supposedly people use Facebook not to get fed advertising but they get, they use Facebook in order to communicate with their friends, or to communicate with their family, or to be able to put things on the web easily because they don’t really have the technical skills to do that on their own.

Horace

So you have this.... The problem is also the analysis is where do you start from what perspective. The consumer perspective is one thing, there’s also the case of Facebook and other advertising based businesses, your customer, the one paying is not the user. It’s the user’s actually perhaps the product that’s being sold. So back then the question is maybe, what do advertisers hire Facebook, or the web to do? And it’s interesting to me also to look at it from that perspective but you as a designer or as a web site builder have to balance these two things at all times. If the payer and the user are different people, then you have to understand how to please both because one gets you the other. So that’s another discussion but I think the, one of the challenges I observed as far as advertising is, traditionally brands were what, were advertised on broadcast media, so you had ad campaigns which, and still do, which are essentially about brand development and brand management and creating perception in users an attachment, hopefully lifelong attachment to a particular brand so you want to be able to target persons early on in their lives when they have, in their formative years when they actually form brand impressions, and those are the greatest ad campaigns in history that were, you know, Pepsi choice of a new generation. I think if you go back and you sort of find and you Google some sort of what’s the greatest ad campaigns in history, and they all basically ran in the 1970s and the 80s, and [there] has been none since and the reason is that the population and the demographics have changed, and much of the young people, the most impressionable, and the most attractive audience for brands is using mostly online media and yet the budgets haven’t moved there. The budgets haven’t moved there because it’s not easy for those brand managers to measure the performance there. And it’s not that they’re being foolish or naive or ignorant about the opportunities because their hands are tied and not transfer the money because it would be wasted. And so that’s the problem that we’re seeing today is that, and again that’s an opportunity. If someone could say, and I think this is what Apple did with iAd, they tried to figure out a way to get brand advertising, premium quality ads into their apps, and it’s a tough sell. It was a tough sell for apple even. And so but, someone has to think through, "how do you couple the audience which is increasingly savvy" and I think you know this is one of Facebook’s challenges and opportunities, and maybe why it’s so attractive as investment to some people is that they maybe are the ones are the last hope for the brand managers to sort of really go and target the most important audiences. This does you no good to try to sell let’s say, certain healthcare products to older people or a certain cosmetic or certain consumer goods to older people because they’ve already committed to a particular brand for their whole life. We’re like that, and that’s the trouble with humans. So anyway, that’s one of the things that I think is a great opportunity. It’s one of these story arcs in terms of what is the not just the job to be done, but what is the disruption that is happening. Because if you think of it also from the other point of view, if this new medium doesn’t permit or doesn’t somehow resonate as a brand advertising channel, then who is going to feed it, and what are the sort of, what would you advertise. Not to go back to apps again necessarily, but when you think about a lot of the apps that are consumed on iPhone or even android, they’re really based on games, and games are really played by young kids typically, younger, I have a six year old and he plays a new game every day. And they’re free and they have ads in them, but most of those ads are actually for other games. They’re not really things that he...he doesn’t have any money to buy things with, so what he wants to do is mostly get new stuff to play with, so then he gets another game and in that game there’s nothing more than an ad for yet another game. So that seems like a bubble, that’s a problem. That means that there’s nowhere a transaction that’s actually gonna happen to sustain this whole thing. It’s essentially a pyramid scheme. You know, why buy ads...who buys ad spaces on a competitors game, it’s another game. So anyway, that’s to me is an interesting dynamic, paradox I suppose. So yeah, I’m not sure I’m answering any question here [Both Laugh].

Jen

Well it’s interesting because I feel like so many of us get really frustrated talking about advertisement on the web and thinking about why, like why is it such a frustrating discussion, and I think in some ways because it feels like and I may get in trouble here, but it feels like so much of the advertisement that ends up on websites is so awful, it’s just, it makes the website slow, it jumps out in front of the experience. You know you go to the website to read a newspaper article and instead you get just this obnoxious dancing crazy stuff over on the side distracting you and cluttering up everything and also I feel like there’s not a lot of innovation in that slice of the industry. There’s an entire industry that has built up, maybe about 15 years ago it got started to serve these ads. It first started out as "Hey, we’re making websites, hey you should, hey you could advertise on my website, there’s value here, you know, and so there was sort of the people who owned websites were begging people to spend money on advertising to come and spend money on their website, and the prices were very very low because it was a new thing. And it was like, well a full page in the New York Times is gonna cost you this many hundreds of thousands of dollars, but a front page ad in the corner of the new york times .com homepage is going to be you know, way less, a small fraction because we don’t know what that’s worth, so we’re just gonna, so the prices started out really low, right, and then finally it seemed like people got into the idea of like "Oh ok, we should do this, we should put some money into web advertising," but they wanted everything easy and fixed and something that they could understand and something they could sell to their bosses and something that they could do a campaign and come up with art and put that art across a whole bunch of different websites, so all the standards got created and there’s an industry organization that controls those standards, but then there’s all this bureaucracy that around that and so there’s not a lot of innovation, so here we are oh mobile, responsive web design, oh let’s use HTML5 and not use flash, and let’s use this and not that but you’re stuck with you know, you talk to the people who own the website and you come up with all these new ideas, but you can’t, you’re locked in to "but we have to stay similar to old because of the ads, because the ads are in the system, because there’s this javascript we have to run on the page, we have to make this be 400 pixels wide, we have to..." You know it’s just a lot. It’s like this anchor around your ankles, like dragging you back into ugliness, annoyingness, old stuff slow stuff. You know?

Horace

Exactly, and so this is where you see Siri coming in for example, this is where you see someone that cuts through that in a way that’s...you can’t work within the system so innovation I am thinking of a pithy way of putting it but basically, it’s sort of un.... if you have no way to innovate, somehow there’s this constraint based system that it needs to fit into, that doesn’t allow it, it kinda get squirted out, you know you can imagine it’s like there’s this pressure vessel and the innovation just wants to exist, so it just kinda like ends up saying, "OK I’m gonna have to find a way out of here" and so the innovation jumps out of that thick of a system into something completely new. And this is where I think stepping back a moment and exactly like you pointed out, everyone feels frustration in that system. You can’t make great stuff and then the prices don’t seem to be improving. Consumers don’t like it, developers don’t like it, and even the ad buyers don’t like it, and yet you know someone steps out and says, "what about we approach this from a different angle." And one of the things that is not good enough about advertising in general in the web is that it’s still not very well targeted and the premise, or the promise, of Google has always been that we know what people want and we give it to them when they ask for it. And perhaps the promise of Facebook is that we know much more about you and we can actually offer you a better, maybe something you may not even know you want because we know so much about you and there’s sort of this ability to psychoanalyze someone through their activities. That knowledge will be increasingly getting richer and deeper from Facebook’s point of view, and Google’s probably also doing similar in trying to get some more insights across all their properties. And then Siri comes along and says, "well I know more about you and I know you because of how you interact with your device, where you are, what...who’s in your address book, etc." and so that knowledgebase gets then, and then you have a constraint in what you can present back to the user because they don’t have the ability to skim through things, so you have to give them a very, very precise answer, so you’re going to capture precise questions and return precise answers, and that allows for you a different opportunity to advertise. I don’t, we don’t know what advertising would look like in a voice interface, but I think there’s a potential there. So I’m optimistic I don’t have the answer to say, "well this is definitely solvable, or this is how," but I do believe that these things tend to evolve and emerge rather suddenly and it used to take, again decades, for new technology to really change the world. Now it seems to be taking years if not months, and so already we’re not even one year into Siri and now it has APIs that are being opened up, we’re seeing new partnerships emerging around how to...who Siri connects with and who serves behind the scenes. Apple is becoming a hub for a new type of eco system. We’ll see how that affects, or whether in fact this will disrupt the screen based advertising models or whether we’re going to see somehow a folding of, or an embracement of this technology within the web as well, or within other forms of screen based interaction. And I don’t know the answer to, but I think it’s great to step back and see these things, and if have the right perspective, you see these happening, and then you step back and you say "maybe we should look at that sand invest in it." And that’s a very good example, that when you see something and knowing you see something that doesn’t seem to be improving in a right direction, you feel like you’re completely constrained and you have an iron ball around your ankle, that’s when you have to step back and say, "OK, maybe a different way to approach this question."

Jen

Yeah, and I think we do see some of that on smaller scales with more intimate, more personal ad networks. Like on your website, you have a pretty popular blog, asymco.com. And you write lots of analysis about different things; you have tons and tons of stats. I think Marlon Mann calls you Chart Boy because of all the charts that you make.

Horace

Yeah.

Jen

And it’s ad supported, right? You have um...

Horace

Some of it is. I mean, I didn’t have ads for a long time and I was very nervous about it because I really was focused, and this is a good point I’m sort of self analyzing here, but I really was thinking at the beginning that I wasn’t going to be a traditional blog because a traditional blog tended, to me. I mean the reason it probably gained an audience in the first place was because it felt that it was unique in a way, it was not going for being a massive hit, to me that meant being controversial, being provocative, being off the cuff, being glib, being all these things which mainstream blogs were at the time, I mean maybe they still are. I mean, the Gizmodo type approach, being highly targeted to an audience who is sort of an early adopter of technology savvy audience and I wanted to have a different voice and have a more measured approach and that didn’t mean to me that I was going to gain a huge audience, but perhaps I would gain a smarter audience. And the evidence was also in the comments: it wasn’t getting a lot of abusive comments, a lot of trivial comments. A lot of people were simply reflecting the content in their comments and also thinking thoughtful thoughts and contributing in that w ay. And I said, "this is great" I’m enjoying this, I’m learning from this, I don’t need to do ads because I can probably find a way to make a living through the brand that I’m creating and being a quality brand. And so I resisted, but eventually what convinced me is first because I was a big fan of John Gruber and John Gruber’s site was using some ads, and I thought, "Well that’s the right way to do it" from my point of view as well because these are essentially not intrusive, they’re part of the content itself. And they’re also not...there might be one visual ad but it was only one. And it was always discrete and appropriate for the audience. And so, I simply all I did was copied, really frankly John’s approach, and all I did was I found, or rather someone found me that invited me to be part of this syndicated ad network, which is the syndicate, and an entrepreneur basically started it and I said, "Ok, we’ll work together." So that’s the way we did that. It wasn’t initially that my goal was to get into that business, but it made sense at some point to adopt it. And now we might be looking at other opportunities as well beyond this format. I think there’s a limit to what you can do with text and I think right now I’m pretty much at the limit with text and as you pointed out charts and images. But if I wanted to do something interactive, I’d want to go to a, either spoken word or video, and how to do that is very challenging. Podcasting works for me, and that’s good, but I’ve done a conference, I think live events are interesting, but there’s so much more, and I always think about where it could go as a trajectory, you know this writing process has so many more dimensions it could go into. Some people are happy with one, and I know technically have three: I have written, podcasting, and live, there’s more even I can think of, and each one of these will come with a different, if you will, business model or a different way of taking the value and capturing the value that the audience brings. And I still want to think through that, but definitely it’s going to be, I prefer the openness of a free unimpeded access to the material rather than having a pay wall. But let’s see how that goes along.

Jen

Yeah. What do you think is a good approach for somebody or a team of people who are wanting to, they have a strong idea for a website, they really want to make it successful, how do you feel like you approach thinking through these theories and...

Horace

Well to sort of advice for someone starting into this, I think that’s one of the most challenging things, is to be able to give good advice because I don’t think first of all it’s not the case that there isn’t a book like I said in the very beginning. There isn’t a textbook. There is no textbook approach to business. But then there are many things in life which have no text books, right, if you think about it we didn’t have text books in how to be good children, or good parents, or how to grow up, how do you get through life. A lot of these things you learn through support networks, or we learn through trial and error, and we learn through intuition, and I think business is one of those things that has some interesting, by the way just to step back, you know the notion of the guru that you go to see on the mountaintop and then you ask some deeper questions and they answer in a very cryptic manner, most interesting questions are not answerable with this kind of cookbook approach, and that’s why these gurus are an attractive metaphor. I think that...and that’s why we even use the phrase guru as someone who is deeply knowledgeable about something but tends to answer in a cryptic manner. So my answer would be there are a couple of these things that.... good rules of thumb one of them is plan. You hear sometimes these aphorisms "plan to learn, or plan for failure." I think planning is important but you shouldn’t be planning or, you should be extremely flexible in your planning and do have a plan to learn. And this sounds great but it isn’t practical because most people say, "well in order to get funded, or even to go forward, I need to have an actionable plan, and then once I do get funded, I need to execute that plan, and if I fail to execute that plan, my funding will be withdrawn." And so what’s the point of having changing plans all the time. That’s exactly the dilemma, right? We have, you have to live as an entrepreneur, you have to deal with that question, balancing the fact that you need deliberate planning and then the same time you need to have infinite flexibility, it sounds completely impossible, but you go back in history and you study every great company, they’ve always ended in a different place than the one they wanted to get to when they started. I think Google went through six different business plans before it stumbled upon the one they’re using now. And so they were able to do it because probably every step along the way it made sense and they were convincing enough to their partners or their funding source that they should do this. So you need to be somewhat very persuasive and juggling these thing and angel [55:56 inaudible, maybe angle?] perceptions with your partners, and that may include your employees, "sorry we spent all this time going in the wrong direction. Now we need to change and do something else." There’s a sunk, there’s this notion of abandoning what you thought was a successful plan. And that...are you there?

Jen

Yeah, it’s cutting out.

Horace

Sorry. Ok, sorry, I’m just hearing different background tone. But this idea of iterating and this idea of being able to sell and to convince people as you go along and being able to abandon ideas, that’s really important. Being flexible and I guarantee the more flexible you are, persistent you are, the more likely you are to succeed.

Jen

So it seems like a willingness to constantly reassess and be honest with yourself and your own company about what’s working and what’s not working, and then...

Horace

Treat almost anything like an experiment, I would say, well you know real artists ship, this is one of the great stories, and what that means really is build it, ship it, and then learn and then build again. I think that’s one of the critical...by the way the thing that makes the web great and web apps great is that you can actually iterate much, much faster than anyone ever could before. I mean you can’t imagine a car company going around and saying well you know we’re going to try a new car model and if it doesn’t work we’re going to tweak it and do another one. Well you can’t do that in cars because it takes a five years for a gestation period for a car to come to market and you’ve gotta build assembly plants according to what the car’s going to be. And if it fails, you’re out of five years. That’s why you have so little innovation in a way because people don’t try the really crazy things. But that’s the web. The web doesn’t have that constraint, even software industry it used to be that you build to a certain deadline and you built to a certain market, but now you’re able to really, in real time, constantly innovate and change things. So in that sense you have a great advantage, costs are lower than they were. You have much faster cycle time for development; you have tools that are a lot more powerful that they used to be. When I was a developer, back in the...we didn’t even have object oriented really, programming that was a research subject. So there’s so much more leverage you have and you can do things as a small team, they used to take a large team. Used to have, you used to need many more people and much more capital, you also needed to have a market, you needed to have marketing people. I think the minimum size team that you need to start something interesting today is about three: a developer, designer, and sort of a marketing or manager person. And that wasn’t the case fifteen years ago, you needed to hire dozen people to get anything done. So those are great things, I think this is why we have so much innovation, so many new things, so many hundreds of thousands of apps and billions of websites built. The tools are just phenomenal, and everything I’ve done in my own blog has basically been without the help of anyone, of course I have some technical background, but I was able to pick up the keyboard and build a website and build all these things without any capital, number one, and secondly without any technical systems. So yeah, that’s great, I think we live in very good times for that sort of thing, but keep innovating and keep shipping stuff, and keep the idea of this is an experiment we’re going to learn from. I just want to be able to get funded through my experimentation phase until we finally understand what’s the right... and be careful when you do commit cause you start...something will start to generate income and it will be tempting to say "now let’s stick with this." you have to be very wise about when you decide to commit to that trajectory of improvement because that gives you more money. You might, and this is where I think again in my case, opportunity would arise to do ad base, but I said, if it’s ads that compromise the voice or the brand, I don’t’ want to do that, so it might make sense to just wait and keep doing something. The other adage that’s sort of in the disruptors’ tool kit is that you should be very patient for growth. But you should be very hungry for profit, and it’s usually the other way around especially when big money is involved. Typically if you have a lot of cash given to you by either an investor or even a corporate.... if you’re inside a company as an innovator, somebody gives you a huge amount of money, they tend to say "ok, now let’s get a huge audience, let’s build that up first and worry about money later" because you have money, you don’t need money from customers, but that works up to a point because if ever there’s a turn down, either in economic or some sort of catastrophe occurs, and by the way they do occur, we know that, it’s almost inevitable that something bad happens and something unforeseen, in that case people begin to panic and you end up with funds getting cut and all kinds of tragedies. During the stock market crash, I remember reading an open letter from a VC to his portfolio companies, and he said basically "prepare for this scenario where all your funds are cut off." These were companies that were probably very well along a plan, they were executing well, and suddenly the rug gets pulled out from under them, but if you’re profitable even in a very small way, it’s very hard to cut you off because you have some source of income, you have some proof of value. So even in a large company if you’re a small project, give this example from Apple although I don’t have proof of it, basically the Apple TV is one such project. Here it is it’s called a hobby, but I’m sure it’s profitable because the numbers are pretty compelling for that little device, and it doesn’t consume a lot of resources to keep it alive. And Apple just keeps it going for like, four years before it’s actually probably blossoms into a real business and they did that because they really thought there was something in it, but they didn’t structure it in a way, "we’re just gonna assume we’re gonna get 300 million users overnight," we said we’ll just let it, keep it out there for along time, make sure it’s profitable and let it grow on it self, and then at some point we’ll understand enough about the business to turn a bit and change it into something. Flipping a bit maybe to allow apps on it. And maybe some of the piece we’re just not, there’s not enough power in the device to allow that in the early years. This is exactly I think the right way to do it. Be more oriented around learning and make sure you’re profitable early on, even so.... So maybe in a sense then you can even think of it as moonlighting, you do one thing that you really think is your strategic option, then you do another thing to make a little bit of money on the side to keep that option open. And that way you get this kind of...you have your own source of funding in a way.

Jen

Yeah. There’s just so many things to be talked about, thought about. It’s so complex to me the, I mean you’re talking about, we’re talking about advertising, and then you’re talking about apps, there’s been a lot of complains in kinda of the android people who are big fans of android, very excited about how many android apps there are and they kinda complained about apple being too expensive and blah blah blah, but it feels like there’s a bit of a choice in there around if the web grew up in such a way that it became very ad driven, and apps seem to be growing, maybe that’s one of the differences between and app app and, you know an app store app, and a website. Where the app is, the consumer pays for it, they pay a dollar or two dollars or three dollars, and they download it and...

Horace

Yeah, actually maybe this would be a good thing to jump in on because I wanted to...I’m sure people are dying to find out these little, what are my thought on HTML5 vs. apps and that’s one of the ways that potentially the web trajectory could be disrupted to apps. And this has been discussed ever since apps were born, in fact before there was the app store that was the notion that supposedly people would get webapps on their iPhones. I think that there’s a merit to the technology of HTML5 being potentially disruptive, but we haven’t solved the problem of where’s the money going to come from. So it might just get better and better, so that’s the hypothesis of a disruption, that it just gets better, and it seems like it’s not good enough, but it just gets better. But usually, that improvement, the betterment of a technology comes from a fuel of profits coming in and telling it which way to go, telling it this is the path you should follow to get better. It’s that signal of pricing that gives you that. But if you don’t have that fuel, then you’re just depending on intuition or committees or whoever else makes that decision, they don’t know any better than the market does. So what the problem I see with html5 is right now there’s no pricing signal to tell it where to go. And I make no judgment about its improvement potential, I think it’s got perfect or infinite potential, but it doesn’t have the signaling method. And the other thing that worries me is that there...you know apps are actually very well signaling, right? Or signaled by the marketplace. And there are historic examples where a less good enough technology with good market signals always outdid a better technology without market signals, and that’s the examples even to this day I think that the mac being "better" than windows, and UNIX even, UNIX back in the 90s was a superior platform and it finally is now on the desktop, but back then it was a workstation and mainframe and mini computer system. And that also was technically but didn’t succeed in the marketplace, and so there are many examples in history and technologies like XVG have been around for along time, it was technically potentially better than PDF, and yet PDF won. So we have a lot of history in technology where superior didn’t win. And to this day, you know I was a bit struck by they fact that still Microsoft and even Nokia with windows phone claim superiority over example android or even iPhone, and yet they don’t feel success coming. And that’s again another example of that. So yea, I think the HTML is an exciting technology and I think the web has this potential of disrupting native code, but we’re going to need to see the revenue model before I think that really gets realized.

Jen

And what is that, what does it look like to have a market signal. What does it...

Horace

In the case of apps, the marketing signal, or market signal came from the app store. Let me also step back. Apps didn’t come to phones with the iPhone, in fact Symbian had apps, in fact apps technically began with Palm, Palm OS, or even before it was called Palm OS. It was the Palm PDA in the 1990s. 1996 is when I think the year it started and already in a year or two later, people were installing apps on their PDAs. And in fact it was a killer app for physicians to be able to do prescriptions and they could tell which of the possible prescriptions would have conflict with each other. The database of potential prescription conflicts was available only on the Palm PDA. And that was a killer app which caused a lot of physicians to buy Palm Pilots. It’s one example of a killer app, and I think it...there were several during the decade that followed with a lot of games actually being on PDAs and later on smartphones, so we had an app ecosystem, in fact the word ecosystem again came from the Palm Pilot era. You know Palm marketers coined the term "ecosystem" when it applies to devices. So all of that was happening, so what happened with the app store though is finally a central place where you could buy and discover, and that’s what really allowed developers to understand how to improve their product. Prior to that you had dozens of stores if you had either a Palm device or you had a windows mobile device or you had a Symbian device, you’d have to go find a website which sold you apps. And I think they were called pocket now, or I forget the names, they’re still around, actually. And now even the android you can do that in the android ecosystem and find your own store and amazon runs its own store beside the one android runs, or Google does. So you have that scenario, but when it became centralized, suddenly it took off and exploded like a supernova. The reason there again was discovery was the ability to tune things and reissue apps and get a quick turn around and quick feedback. Yes it was a lag acceptance, but still a lot better with those compromised with sort of fire and forget the app to a dozen storefronts, so you had this mechanism where you if you tweak this, do you get a response, that’s a learning tool, that’s essentially an experiment, right? And you have a control experiment, you can change one thing in the app and see what the response is. You can track data about it, you could analyze your own performance, you could see seasonality, oh it works better on Christmas, ok good, next year we’re gonna make sure we have a new release right before Christmas and we’re gonna make all these great improvements that are targeting that time of year. Case in point Angry Birds, you have angry Birds seasons, right? So you know people will probably you know get an update at that time and suddenly you get more engagement. So a lot of these things only were possible because of the app store. Now again when you step back and ask, "Well what’s the HTML 5 equivalent of this?" Well it’s just gonna be an app and we’ll be advertising. But we just spoke about the fact that advertising doesn’t resonate as well in this domain and you haven’t solved that puzzle yet. So we don’t know. We don’t know. It may happen, it may be someone who will figure it out. There’s inherent conflict sometimes you just have to point out these deal killers. One thing that I’m nervous, or maybe I should say Google should be nervous about, if they have a killer app on their platform, would that steal eyeballs from their core business of browsing? If let’s say the killer app someone came up with would be some Flipboard or Iinstapaper, or Facebook integration into android, if those things happen, suddenly people’s consumption will gravitate to this new app, and what is it that android exists in the first place for? It’s to enable the ad model that exists for Google in general, and suddenly here it is that is pulling consumption away from them. Their own tool is causing a reduction in their margins. That would be in a worst-case scenario for Google and what would they do in that case. They probably, they can’t kick the thing off the Play marketplace, but they would have perhaps to do something about the APIs or throttle back on their support in general. Who knows? This is where I think that there are some unintended consequences, and so I would look for in terms of technology change, I would look for this kind of, " Well where’s the market gonna teach you something, how would you learn from the this technology, and lets you uncover and discover these great apps and these great experiences. And I think this is sort of questions we’ll see also with respect to an app enabled TV. And maybe if we do have an app enabled TV, apple is rumored to be doing something there. We know already that it’s being done by Google with Google TV. And smart TVs a brand from Samsung so, you know what’s going on there. We haven’t seen a super nova yet there, but will content re-purpose itself through apps through your TV, will that lead perhaps people to tie in content in advertising in novel ways. Will that lead to functionality interaction social all these other layers on top of the content. So it’s really fascination and very very exciting time. I think you’ve asked all the right questions about that. Sadly, I don’t have all the right answers.[Both laugh]

Jen

Yeah, I don’t think any of us do, I think that’s part of what’s so fascinating about it right now. Because we know that things are ready, some things have exploded and changed, and some things are about to, and we don’t really know, it’s hard to know exactly what it is. But if people want to hear more about your thoughts and especially about individual industries, and apple and hardware announcements, they should definitely checkout your podcast with Dan at 5by5.tv/criticalpath and they can read your blog at http://www.asymco.com/which is A S Y M C O.com follow you on twitter, @asymco on twitter. You have this conference which is pretty fascinating, you just had the first one I know you’re thinking of having a second in the US.

Horace

That’s right, it’s called Asymconf, although I don’t’ know if I should call it Asymco Live, but maybe that’ll be something else. [Both laugh] But the Asymconf is 1.0 is already ended, but we’re looking at another one in the US.

Jen

Yeah I was sad I wasn’t able to make it to Amsterdam for the first one, so I hopefully the second.... but people can keep track of that by following you on all these different channels that you’re on. And thank you so much to five simple steps for sponsoring this episode. And people can follow the web ahead on twitter. I have a twitter account called @thewebahead where I post what’s going on, which episodes are coming up next and things like that. And I guess that’s all that’s enough of the business, but thank you so much Horace, I feel like I could just ask you questions for days. [Both laugh]

Horace

Well, sorry we couldn’t do more, but I hope this was worthwhile, but thanks for having me on.