subscription streaming has more or less ended the strategic importance of music to tech companies. In the past, any music you bought for your iPod had proprietary DRM and could only be played on Apple devices
.. Your music library kept you on a device. With streaming these issues mostly go away.
.. if you do switch to a different service you’re not giving up tracks you’ve paid money for, just a list of your favourites. Switching became easy.
.. Since music no longer stops people from switching between platforms, it’s gone from being a moat .. to a low-margin check-box feature.
.. A Taylor Swift exclusive for Apple Music might drive some iPhone sales, just as a cool new ad campaign might, but there’s no strategic lever here – no lock-in.
.. whenever I talk to music people or book people, very quickly the conversation becomes a music industry conversation or a book industry conversation. What matters for music are artists and touring and labels and so on, and what matters for books are writers and publishers and rights and Amazon’s bargaining power in books and so on. These aren’t tech conversations.
.. The big tech platform companies rolled into these industries and changed everything, but then moved on to bigger things.
.. Amazon has a big ebooks business, but Prime and perhaps Alexa are the strategic levers.
.. Tech needed content to make their devices viable, but having got the content (by any means necessary), and with it of course completely resetting the dynamics of the industry, tech outgrew music and books and moved on to bigger opportunities.
.. the shows that are watched mainly because they’re broadcast at 8pm on Saturday will suffer, and so will the channels that are watched because they’re high up on the program guide. Channel brands, shows and episodes are unbundled. We’ve been talking about this in theory for over a decade, but finally, praxis is here.
.. Amazon and Netflix have entered TV content creation and ownership in ways and on a scale that no-one from tech ever did for music or books. Amazon did try to get into book publishing and has a significant self-publishing arm, but it had little success recruiting existing mainstream authors
.. neither Apple nor Spotify created a record label. In TV, though, Amazon and Netflix are already spending more on commissioning original and exclusive content than many traditional channel brands.
.. Cancel the subscription delivery service and you lose access to all Amazon TV shows.
.. For Google and Facebook, there’s no subscription to cancel – there’s no binary (renew/don’t renew, cancel/don’t cancel) decision you might take that would cut off your access to that great TV show. You don’t close your Facebook account – you just go there less. You might stop paying for the Youtube TV service, but that won’t cut off your access to any other part of Google – nor would anyone want it to – the purpose of these businesses is reach.
.. cancel Prime and you’d lose Amazon, but what do Google & FB have to cancel? Without some platform decision to lock you into, content is marketing, and revenue, but not a lever.
.. You pay an average of $700 or so every two years (i.e. $30/month) and Apple gives you a phone. Buy an Android instead and you lose access to the (hypothetical) great Apple television service. This is why people argue that Apple should buy Netflix.
.. From a pure M&A perspective, buying Netflix and immediately limiting its business to Apple devices would halve its value – why buy a business and fire half the customers? Buying it without such a restriction would have no strategic value – Apple would just be buying marketing and revenue.
.. Apple has always preferred a very asset-light approach to things that are outside its core skills. It didn’t create a record label, or an MVNO, and it didn’t create a credit card for Apple Pay – it works with partners on the existing rails as much as possible
.. it does so with nothing like the kind of negotiating power that it had in iPod days – Amazon and Netflix (if not also Google and Facebook) have seen to that.
.. Part of ‘content is king’ was the idea that (at least in theory) content companies can withhold access to their libraries entirely, and in the past one might have presumed that that meant they had the power to kill any new service at birth. In reality, rights-holders have always had too strong a need for short-term revenue to forgo broad distribution, and few of them individually had a strong enough brand to extract a fee that was high enough to justify exclusivity.
.. They always have to take the cheques – individually to meet their bonus targets, and collectively to meet their earnings estimates.
.. for a media company to give a tech platform exclusivity is immediately to build up that platform’s power over the media companies.
.. Similar problems apply to the somewhat chimerical idea that content companies should go direct to consumer – few of them have the skills, fewer have the brand and content, and fewer still, again, have a shareholder structure to allow the short-term revenue hit.
.. the device is the phone and the network is the internet. The smartphone is the sun and everything else orbits it. Internet advertising will be bigger than TV advertising this year, and Apple’s revenue is larger than the entire global pay TV industry.
.. This is also why tech companies are even thinking about commissioning their own premium shows today – they are now so big that the budgets involved in buying or creating TV look a lot less daunting than they once did.
Behind the Messy, Expensive Split Between Facebook and WhatsApp’s Founders
After a long dispute over how to produce more revenue with ads and data, the messaging app’s creators are walking away leaving about $1.3 billion on the table
How ugly was the breakup between Facebook Inc. FB -0.18% and the two founders of WhatsApp, its biggest acquisition? The creators of the popular messaging service are walking away leaving about $1.3 billion on the table.
The expensive exit caps a long-simmering dispute about how to wring more revenue out of WhatsApp, according to people familiar with the matter. Facebook has remained committed to its ad-based business model amid criticism, even as Facebook Chief Executive Mark Zuckerberg has had to defend the company before American and European lawmakers.
The WhatsApp duo of Jan Koum and Brian Acton had persistent disagreements in recent years with Mr. Zuckerberg and Chief Operating Officer Sheryl Sandberg, who grew impatient for a greater return on the company’s 2014 blockbuster $22 billion purchase of the messaging app, according to the people.
.. Many of the disputes with Facebook involved how to manage data privacy while also making money from WhatsApp’s large user base, including through the targeted ads that WhatsApp’s founders had long opposed.
.. Messrs. Acton and Koum are true believers on privacy issues and have shown disdain for the potential commercial applications of the service.
.. Mr. Zuckerberg and Ms. Sandberg have touted how an advertising-supported product makes it free for consumers and helps bridge the digital divide.
.. When Facebook bought WhatsApp, it never publicly addressed how the divergent philosophies would coexist. But Mr. Zuckerberg told stock analysts that he and Mr. Koum agreed that advertising wasn’t the right way to make money from messaging apps. Mr. Zuckerberg also said he promised the co-founders the autonomy to build their own products. The sale to Facebook made the app founders both multibillionaires.
.. Small cultural disagreements between the two staffs also popped up, involving issues such as noise around the office and the size of WhatsApp’s desks and bathrooms, that took on greater significance as the split between the parent company and its acquisition persisted.
.. During the height of the Cambridge Analytica controversy, in which the research firm was accused of misusing Facebook user data to aid the Trump campaign, Mr. Acton posted that he planned to delete his Facebook account.
.. David Marcus, an executive who ran Facebook’s other chat app, Messenger, confronted his former colleague. “That was low class,” Mr. Marcus said
.. When Mr. Acton departed Facebook, he forfeited about $900 million in potential stock awards
.. Mr. Koum is expected to officially depart in mid-August, in which case he would leave behind more than two million unvested shares worth about $400 million at Facebook’s current stock price. Both men would have received all their remaining shares had they stayed until this November, when their contracts end.
.. It is also the antithesis of what WhatsApp professed to stand for. Mr. Koum, a San Jose State University dropout, grew up in Soviet-era Ukraine, where the government could track communication, and talked frequently about his commitment to privacy.
.. Mr. Koum, 42, and Mr. Acton, 46, became friends while working as engineers at Yahoo Inc
.. WhatsApp, which launched in 2009, was designed to be simple and secure. Messages were immediately deleted from its servers once sent. It charged some users 99 cents annually after one free year and carried no ads.
.. Mr. Zuckerberg assured Messrs. Koum and Acton at the time that he wouldn’t place advertising in the messaging service, according to a person familiar with the matter. Messrs. Koum and Acton also negotiated an unusual clause in their contracts that said if Facebook insisted on making any “additional monetization initiatives” such as advertising in the app, it could give the executives “good reason” to leave and cause an acceleration of stock awards that hadn’t vested
.. Mr. Acton initiated the clause in his contract allowing for early vesting of his shares. But Facebook’s legal team threatened a fight, so Mr. Acton, already worth more than $3 billion, left it alone
.. said the WhatsApp founders are “pretty naive” for believing that Facebook wouldn’t ultimately find some way to make money from the deal, such as with advertising. “Facebook is a business, not a charity,”
.. At the time of the sale, WhatsApp was profitable with fee revenue, although it is unclear by how much.
.. Facebook told investors it would stop increasing the number of ads in Facebook’s news feed, resulting in slower advertising-revenue growth. This put pressure on Facebook’s other properties—including WhatsApp—to make money.
.. That August, WhatsApp announced it would start sharing phone numbers and other user data with Facebook, straying from its earlier promise to be built “around the goal of knowing as little about you as possible.”
.. Some of the employees were turned off by Facebook’s campus, a bustling collection of restaurants, ice cream shops and services built to mirror Disneyland.
.. After WhatsApp employees hung up posters over the walls instructing hallway passersby to “please keep noise to a minimum,” some Facebook employees mocked them with chants of “Welcome to WhatsApp—Shut up!”
.. “These little ticky-tacky things add up in a company that prides itself on egalitarianism,” said one Facebook employee.
.. Messrs. Koum and Acton proposed several ideas to bring in more revenue. One, known as “re-engagement messaging,” would let advertisers contact only users who had already been their customers.
.. None of the proposals were as lucrative as Facebook’s ad-based model. “Well, that doesn’t scale,” Ms. Sandberg told the WhatsApp executives of their proposals
.. Ms. Sandberg wanted the WhatsApp leadership to pursue advertising alongside other revenue models, another person familiar with her thinking said.
.. Ms. Sandberg, 48, and Mr. Zuckerberg, 34, frequently brought up their purchase of the photo-streaming app Instagram as a way to persuade Messrs. Koum and Acton to allow advertising into WhatsApp.
.. “It worked for Instagram,” Ms. Sandberg told the WhatsApp executives on at least one occasion
.. Mr. Zuckerberg wanted WhatsApp executives to add more “special features” to the app, whereas Messrs. Koum and Acton liked its original simplicity.
.. Mr. Zuckerberg and Ms. Sandberg also wanted Messrs. Koum and Acton to loosen their stance on encryption to allow more “business flexibility,”
.. Mr. Acton—described by one former WhatsApp employee as the “moral compass” of the team—decided to leave as the discussions to place ads in Status picked up.
Proposed Social Media Advertising Regulations: Demographic Transperency
Some regulation I’d like to see for social network ads, at least for political ads:
– Make all ads publicly viewable along with the targeting demographics. So everybody can see, for example, that a politician is pushing xenophobia to older people.
– Some kind of “fake news” score associated with a campaign. This one is difficult, but I could imagine a score based on a mixture of “fake news scoring providers” from across the ideological divide and news orgs.
The point is to give voters some transparency into what a politician is actually campaigning on.
YouTube, the Great Radicalizer
Human beings have many natural tendencies that need to be vigilantly monitored in the context of modern life. For example, our craving for fat, salt and sugar, which served us well when food was scarce, can lead us astray in an environment in which fat, salt and sugar are all too plentiful and heavily marketed to us. So too our natural curiosity about the unknown can lead us astray on a website that leads us too much in the direction of lies, hoaxes and misinformation.
In effect, YouTube has created a restaurant that serves us increasingly sugary, fatty foods, loading up our plates as soon as we are finished with the last meal. Over time, our tastes adjust, and we seek even more sugary, fatty foods, which the restaurant dutifully provides. When confronted about this by the health department and concerned citizens, the restaurant managers reply that they are merely serving us what we want.
.. There is no reason to let a company make so much money while potentially helping to radicalize billions of people, reaping the financial benefits while asking society to bear so many of the costs.