The business of SaaS

Understand why SaaS businesses work and how to grow them.

Software-as-a-service (SaaS) is a billing and delivery model for software which is so superior to the traditional method for selling software licenses that it restructures businesses around itself. This has led SaaS businesses to have a distinct body of practice. Unfortunately, many entrepreneurs discover this body of practice the hard way, by making mistakes that have been made before, rather than by spending their mistake budget on newer, better mistakes.

Apple Watch Is a Bridge to the Future

Apple Watch likely outsold Amazon Echo during the holidays despite Apple Watch selling for nearly 10x more money.

.. Based on unit sales, the Apple Watch business is currently about the size of the Mac business.

.. the device has become a bridge between the present and future. By including a screen, Apple Watch retains the familiarity found with smartphones, tablets, and laptops/desktops. At the same time, Apple Watch is giving wearers a glimpse of the future by introducing new ideas around how artificial intelligence, voice, digital assistants, and smart sensors can come together to produce a new kind of experience.

 .. We are witnessing nothing short of a revolution with Apple Watch. The device holds the potential to become more disruptive to the current computing paradigm than even Apple may want to acknowledge. This potential is becoming easier to see as time goes on.
.. For companies with business models based on grabbing as much of our attention as possible, Apple Watch does not represent a preferred revolution. This is likely one reason why Android Wear has failed to amount to much for Google. There just isn’t much incentive for Google to put Android on the wrist.

.. a segment of the iOS developer community that ranges from indies to multinational companies. This group is becoming nervous about Apple Watch because it’s not clear how the device will support the existing app ecosystem.

..  News of major companies backing away from Apple Watch support has led this community to think that Apple Watch is in trouble. In reality, this is backwards. The current app ecosystem, not Apple Watch, is in trouble.

.. Apple Watch likely won’t support the same kind of ecosystem that we are accustomed to with iPhone and iPad. Apple Watch ends up being designed more for what may come after the App Store.

..  most of my interactions with services and features on Apple Watch end up being through the Siri watch face and various cards featuring glanceable amounts of information and data chosen for me by a digital assistant. These cards are personalized for me based on the time of day and my schedule.

.. We move away from pulling data from various apps and getting pushed mostly useless notifications to being pushed a curated feed of data that is always changing and tailored

.. thinking of a product or feature that may one day serve as a legitimate iPhone alternative, there is a small but passionate group who thinks a paradigm around voice is the answer.

.. Unlike Amazon and Google, who are desperately trying to position voice as a way to leapfrog over the current smartphone/tablet and app paradigm, Apple is approaching things from a different angle. Instead of betting on a voice interface that may push some information to a stationary screen, Apple is betting on mobile screens that are home to a digital assistant. Apple is placing a bet that consumers will want the familiarity of a touch screen to transition to a future of greater AI and digital assistants.

..  Apple Watch will eventually become completely independent of iPhone.

.. Apple also has invested significantly in getting the health, fitness, and medical industries to embrace Apple Watch. Items like GymKit allow Apple Watch wearers to pair their device with fitness equipment.

.. Later this year, there will be more than 40 million people wearing an Apple Watch on a daily basis.

.. As competition for our attention moves away from smartphones and tablets, it will soon become evident that Apple holds immense power in being the largest wearables software provider in the world. This power will manifest itself in Apple’s digital assistant occupying a growing role in hundreds of millions of users’ lives.

The Collapse of Complex Business Models

Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

.. In the mid-90s, I got a call from some friends at ATT, asking me to help them research the nascent web-hosting business. They thought ATT’s famous “five 9’s” reliability (services that work 99.999% of the time) would be valuable, but they couldn’t figure out how $20 a month, then the going rate, could cover the costs for good web hosting, much less leave a profit.

I started describing the web hosting I’d used, including the process of developing web sites locally, uploading them to the server, and then checking to see if anything had broken.

“But if you don’t have a staging server, you’d be changing things on the live site!” They explained this to me in the tone you’d use to explain to a small child why you don’t want to drink bleach. “Oh yeah, it was horrible”, I said. “Sometimes the servers would crash, and we’d just have to re-boot and start from scratch.” There was a long silence on the other end, the silence peculiar to conference calls when an entire group stops to think.

The ATT guys had correctly understood that the income from $20-a-month customers wouldn’t pay for good web hosting. What they hadn’t understood, were in fact professionally incapable of understanding, was that the industry solution, circa 1996, was to offer hosting that wasn’t very good.

This, for the ATT guys, wasn’t depressing so much as confusing. We finished up the call, and it was polite enough, but it was perfectly clear that there wasn’t going to be a consulting gig out of it, because it wasn’t a market they could get into, not because they didn’t want to, but because they couldn’t.

.. The web hosting business, because it followed the “Simplicity first, quality later” model, didn’t just present a new market, it required new cultural imperatives.

.. “If you want something to be 10 times cheaper, take out 90% of the materials.” Making media is like that now except, for “materials”, substitute “labor.”

“Web users will have to pay for what they watch and use, or else we will have to stop making content in the costly and complex way we have grown accustomed to making it. And we don’t know how to do that.”

… Bureaucracies temporarily suspend the Second Law of Thermodynamics. In a bureaucracy, it’s easier to make a process more complex than to make it simpler, and easier to create a new burden than kill an old one.

In spring of 2007, the web video comedy In the Motherhood made the move to TV. In the Motherhood started online as a series of short videos, with viewers contributing funny stories from their own lives and voting on their favorites. This tactic generated good ideas at low cost as well as endearing the show to its viewers; the show’s tag line was “By Moms, For Moms, About Moms.”

.. Once the show moved to television, the Writers Guild of America got involved. They were OK with For and About Moms, but By Moms violated Guild rules. The producers tried to negotiate, to no avail, so the idea of audience engagement was canned

.. The most watched minute of video made in the last five years shows baby Charlie biting his brother’s finger. (Twice!) That minute has been watched by more people than the viewership of American Idol, Dancing With The Stars, and the Superbowl combined. (174 million views and counting.)

.. “Charlie Bit My Finger” was made by amateurs, in one take, with a lousy camera. No professionals were involved in selecting or editing or distributing it. Not one dime changed hands anywhere between creator, host, and viewers.

.. it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future.

Build a Better Monster

We’re all trying to understand why people can’t just get along. The emerging consensus in Silicon Valley is that polarization is a baffling phenomenon, but we can fight it with better fact-checking, with more empathy, and (at least in Facebook’s case) with advanced algorithms to try and guide conversations between opposing camps in a more productive direction.

A question few are asking is whether the tools of mass surveillance and social control we spent the last decade building could have had anything to do with the debacle of the 2017 election, or whether destroying local journalism and making national journalism so dependent on our platforms was, in retrospect, a good idea.

We built the commercial internet by mastering techniques of persuasion and surveillance that we’ve extended to billions of people, including essentially the entire population of the Western democracies. But admitting that this tool of social control might be conducive to authoritarianism is not something we’re ready to face. After all, we’re good people. We like freedom. How could we have built tools that subvert it?

.. The economic basis of the Internet is surveillance. Every interaction with a computing device leaves a data trail, and whole industries exist to consume this data.

.. It is the primary source of news for a sizable fraction of Americans, and through its feed algorithm (which determines who sees what) has an unparalleled degree of editorial control over what that news looks like.

.. Together, these companies control some 65% of the online ad market, which in 2015 was estimated at $60B. Of that, half went to Google and $8B to Facebook.

.. These companies exemplify the centralized, feudal Internet of 2017. While the protocols that comprise the Internet remain open and free, in practice a few large American companies dominate every aspect of online life. Google controls search and email, AWS controls cloud hosting, Apple and Google have a duopoly in mobile phone operating systems. Facebook is the one social network.

.. There are two interlocking motives for this data hunger: to target online advertising, and to train machine learning algorithms.

.. A considerable fraction (only Google and Facebook have the numbers) of the money sloshing around goes to scammers.

.. The more poorly current ads perform, the more room there is to tell convincing stories about future advertising technology, which of course will require new forms of surveillance.

.. The real profits from online advertising go to the companies running the casino—Facebook and Google.

.. we assumed that when machines reached near-human performance in tasks like image recognition, it would be thanks to fundamental breakthroughs into the nature of cognition. We would be able to lift the lid on the human mind and see all the little gears turning.

What’s happened instead is odd. We found a way to get terrific results by combining fairly simple math with enormous data sets. But this discovery did not advance our understanding. The mathematical techniques used in machine learning don’t have a complex, intelligible internal structure we can reason about. Like our brains, they are a wild, interconnected tangle.

.. The algorithms learn to show people the things they are most likely to ‘engage’ with—click, share, view, and react to. We make them very good at provoking these reactions from people.

.. If you concede that they work just as well for politics as for commerce, you’re inviting government oversight. If you claim they don’t work well at all, you’re telling advertisers they’re wasting their money.

Facebook and Google have tied themselves into pretzels over this. The idea that these mechanisms of persuasion could be politically useful, and especially that they might be more useful to one side than the other, violates cherished beliefs about the “apolitical” tech industry.

.. All the algorithms know is what they measure, which is the same for advertising as it is in politics: engagement, time on site, who shared what, who clicked what, and who is likely to come back for more.

The persuasion works, and it works the same way in politics as it does in commerce—by getting a rise out of people.

But political sales techniques that maximize “engagement” have troubling implications in a democracy.

.. One problem is that any system trying to maximize engagement will try to push users towards the fringes. You can prove this to yourself by opening YouTube in an incognito browser (so that you start with a blank slate), and clicking recommended links on any video with political content. When I tried this experiment last night, within five clicks I went from a news item about demonstrators clashing in Berkeley to a conspiracy site claiming Trump was planning WWIII with North Korea, and another exposing FEMA’s plans for genocide.

This pull to the fringes doesn’t happen if you click on a cute animal story. In that case, you just get more cute animals (an experiment I also recommend trying). But the algorithms have learned that users interested in politics respond more if they’re provoked more, so they provoke. Nobody programmed the behavior into the algorithm; it made a correct observation about human nature and acted on it.

Social dynamics on sites where people share links can compound this radicalizing force. The way to maximize engagement on Twitter, for example, is to say provocative things, or hoist an opponent’s tweets out of context in order to use them as a rhetorical bludgeon. Twitter rewards the captious.

.. So without explicitly coding for this behavior, we already have a dynamic where people are pulled to the extremes. Things get worse when third parties are allowed to use these algorithms to target a specific audience.

.. Political speech that tries to fly below the radar has always existed, but in the past it was possible to catch it and call it out. When no two people see the same thing, it becomes difficult to trace orchestrated attempts to target people in political campaigns. These techniques of micro-targeted political advertising were used to great effect in both the Brexit vote and the US election.

.. This is an inversion in political life that we haven’t seen before. Conversations between people that used to be private, or semi-private, now take place on public forums where they are archived forever. Meanwhile, the kind of political messaging that used to take place in public view is now visible only to an audience of one.

.. Politically engaged people spend more time online and click more ads. Alarmist and conspiracy-minded consumers also make good targets for certain kinds of advertising. Listen to talk radio or go to prepper websites and you will find pure hucksterism—supplements, gold coins, mutual funds—being pitched by the same people who deliver the apocalyptic theories.

Many of the sites peddling fake news during the election operated solely for profit, and field-tested articles on both sides of the political spectrum. This time around, they found the right to be more lucrative, so we got fake news targeted at Trump voters.

.. Apart from the obvious chilling effect on political expression when everything you say is permanently recorded, there is the chilling effect of your own peer group, and the lingering doubt that anything you say privately can ever truly stay private.

.. Orwell imagined a world in which the state could shamelessly rewrite the past. The Internet has taught us that people are happy to do this work themselves, provided they have their peer group with them, and a common enemy to unite against. They will happily construct alternative realities for themselves, and adjust them as necessary to fit the changing facts.

Finally, surveillance capitalism makes it harder to organize effective long-term dissent. In an setting where attention is convertible into money, social media will always reward drama, dissent, conflict, iconoclasm and strife. There will be no comparable rewards for cooperation, de-escalation, consensus-building, or compromise, qualities that are essential for the slow work of building a movement. People who should be looking past their differences will instead spend their time on purity tests and trying to outflank one another in a race to the fringes.

.. Moreover, powerful people have noted and benefited from the special power of social media in the political arena. They will not sit by and let programmers dismantle useful tools for influence and social control. It doesn’t matter that the tech industry considers itself apolitical and rationalist. Powerful people did not get to be that way by voluntarily ceding power.

.. Consider the example of the Women’s March. The March was organized on Facebook, and 3-4 million people attended. The list of those who RSVP’d is now stored on Facebook servers and will be until the end of time, or until Facebook goes bankrupt, or gets hacked, or bought by a hedge fund, or some rogue sysadmin decides that list needs to be made public.

.. We need the parts of these sites that are used heavily for organizing, like Google Groups or Facebook event pages, to become more ephemeral

.. These features are sometimes called ‘disappearing’, but there is nothing furtive about it. Rather, this is just getting our software to more faithfully reflect human life.

.. You don’t carry all your valuables and private documents when you travel. Similarly, social sites should offer a trip mode where the view of your account is limited to recent contacts and messages.

..  I’ve pushed for “Six Fixes” to the Internet. I’ll push for them again!

  1. The right to examine, download, and delete any data stored about you. A time horizon (weeks, not years) for how long companies are allowed to retain behavioral data (any data about yourself you didn’t explicitly provide).
  2. A prohibition on selling or transferring collections of behavioral data, whether outright, in an acquisition, or in bankruptcy.
  3. A ban on third-party advertising. Ad networks can still exist, but they can only serve ads targeted against page content, and they cannot retain information between ad requests.
  4. An off switch on Internet-connected devices, that physically cuts their access to the network. This switch should not prevent the device from functioning offline. You should be able to stop the malware on your refrigerator from posting racist rants on Twitter while still keeping your beer cold.
  5. A legal framework for offering certain privacy guarantees, with enforceable consequences. Think of this as a Creative Commons for privacy. If they can be sure data won’t be retained, users will be willing to experiment with many technologies that would pose too big a privacy risk in the current reality.

.. At a minimum, we need to break up Facebook so that its social features are divorced from the news feed.

.. But it cannot simultaneously be the platform for political organizing, political campaigns, and news delivery.

.. Shareholder pressure doesn’t work, because the large tech companies are structured to give founders absolute control no matter how many shares they own.

.. The one effective lever we have against tech companies is employee pressure. Software engineers are difficult to hire, expensive to train, and take a long time to replace. Small teams in critical roles (like operations or security) have the power to shut down a tech company if they act in concert.

.. Unfortunately, the enemy is complacency. Tech workers trust their founders, find labor organizing distasteful, and are happy to leave larger ethical questions to management. A workplace free of ‘politics’ is just one of the many perks the tech industry offers its pampered employees. So our one chance to enact meaningful change is slipping away.