Instagram’s advertising problem

Companies participating in the consumer technology market have to generate revenue in one or a combination of these four ways:

  • Charging users for hardware
  • Charging users for services
  • Charging users for software
  • Charging advertisers for eyeballs.

If you don’t make hardware, then you’re limited to the other three options. The vast majority of companies that fall into that category are opting for the last option, because it lowers the barriers to entry for users, but perhaps also because it allows those seeking funding to avoid the difficult question of revenue generation until they have an audience.

The assumption seems to be that, as long as you have eyeballs, you can find a way to turn those into advertising dollars. And that’s true to a certain extent, but the ability of different consumer services companies to make money from advertising depends varies very greatly, in a way that is rarely talked about. This has come up a bit recently in the context of Spotify, because the ephemerality of the content is supposedly poorly suited to advertising. But there’s a much bigger problem that affects not just Snapchat but also many others in the current crop of messaging and photo sharing companies, which is that they know almost nothing about their users that’s relevant to advertisers. Continue reading

The risks in T-Mobile’s Un-Carrier strategy

Laptop Magazine just made T-Mobile one of their “Game Changers” for 2013 for its Un-Carrier campaign. I spoke with the author of the piece on T-Mobile and emphasized some of what I perceive as the risks around the campaign, but many of my thoughts didn’t make it into the piece, so I thought I’d share them here.

The concerns I have with T-Mobile’s Un-Carrier strategy are two-fold:

  • Though there are one or two truly disruptive things in T-Mobile’s new approach, much of what they’re doing boils down to discounting
  • Though some of their early moves took advantage of the flexibility in accounting afforded to owners of networks, the more recent ones are taking real risks with inflexible third-party costs.

I’ll take each of these in turn. Continue reading

Articles of Faith in tech

Each of the key companies in the consumer tech market has its fans and its detractors – those who believe the company is destined for future success, and those who believe it’s doomed to fail. Some of these beliefs are founded in facts and figures, while others stem from gut feel, emotional investment in a company, or something else entirely. But ultimately backing any one of these companies requires faith that certain things are true.

This has been borne out to me by recent coverage of Amazon, which has focused on its supposed ability to ‘flip a switch’ to shift from breakeven to profitability at some future point. Some of the smarter commentary makes clear that the picture is a little more complex, but it also illustrates just what you have to believe in order to have faith that Amazon will eventually be able to pull off that sort of a transition.

The stories yesterday about Snapchat turning down a $3 billion cash acquisition offer from Facebook also highlighted divergent opinions about whether Evan Spiegel was right. Though most observers seemed to think Spiegel was nuts to turn down an offer, whether you believe that depends on whether you believe in Spiegel’s vision for how high Snapchat’s valuation could go. He – and presumably his investors – have faith that a certain series of events will play out in a certain way, ensuring Snapchat’s eventual profitability and thus an even higher valuation. 

Each company in this market has a similar story that it tells investors, and your view on these companies and their futures ultimately depends on your ability to have faith in those stories. Some of these stories are told explicitly, whereas others are secret (either because the companies are private and have no obligation to share their strategies with the world, or because of some perceived secret sauce they would rather keep to themselves). But ultimately, each tech company has what you might call articles of faith you’re required to sign up to if you want to believe in its long-term success:

Article of faith – n. something that people who support a particular religion or idea believe completely, although it has not been proved

Macmillan English Dictionary

Let’s look at those articles of faith for some of the most important companies in this space: Continue reading

Google’s strategic decision around maps on iOS

Charles Arthur of the Guardian wrote a very well-circulated piece this week about Comscore’s latest numbers for Google Maps and Apple Maps. The title was “Apple Maps: how Google lost when everyone thought it had won” and I have two main objections to the piece. One is that I’m not sure everyone did think Google had “won” when Google was stripped of its role as the mapping data provider for iOS, and the second is that I’m suspicious of the Comscore data he cites to back up his point. Let’s take these one by one.

The removal of Google data from Apple Maps was a strategic decision – for both companies

Firstly, Google’s removal as the provider of map tiles and other data for the native Maps app on iOS was always on the face of it a loss rather than a win. It was obvious that it would lose many users on its platform (especially as a downloadable Google Maps app wouldn’t launch for three months after the launch of iOS 6, and that for a company that makes much of its trove of user data, this was a significant blow. However, there are two points worth bearing in mind here:

  • First, Google derives value from data, but revenue only from advertising, at least in the context of Maps. Thus, the value it gained from Maps was exclusively secondary in nature. That’s not to dismiss it entirely, but it is to make the point that Google was not fulfilling its primary objective 1 – revenue generation through advertising – through iOS’s native Maps app.
  • Secondly, it is not clear that Google had all that much choice in the matter. Yes, Apple has certainly positioned the shift to using its own mapping platform as a response to broken promises on Google’s part, but the fact is that it was imperative for Apple from a strategic perspective to shift to developing and using its own mapping assets and moving away from Google’s. It’s not clear to me that Google could have fulfilled any of its larger objectives while satisfying Apple’s demands.

As such, it was a strategic decision on Apple’s part to move away from using Google, and a strategic decision on Google’s part to go along with it. That decision involved a calculation on Google’s part that it would derive more value from being able to truly own the mapping experience from Google Maps users on iOS, even a smaller number of users, than it would from being having to play second fiddle to Apple. That calculation was risky for both parties – Apple must have known how hard it would be to provide a competitive mapping experience with no track record from day one (though perhaps even it was overwhelmed by the negative reaction), and Google knew what it was sacrificing and what it hoped to gain. Continue reading


  1. This distinction between primary and secondary value is something I hope to explore further in a future post – every company has both primary and secondary sources of value and necessarily treats them differently.