Starcraft 2 and the e-sports eco-system, part I

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I have been playing a lot of Starcraft 2 recently. A LOT. So not really a surprise I haven’t blogged at all the past 2 months (the game launched end of July). But I thought I should put on my MBA hat (on top of the nerdy gamer hat), and analyze a bit the gaming eco-system, especially since a lot of it is related to social media.

I plan to cover this in a series of posts. This first post will give a quick overview of “esports“.

Overview

Gamers have played competitively since the inception video games (the wiki article linked above gives a historical perspective). Commercialization began in the late 90s, thanks to the popularity of First-Person-Shooters (FPS) such as Quake (which I think gave birth to a lot of the gamer vocabulary today – such as pwnage). But where commercialized gaming really took off, as most people probably knows, is South Korea. The common catalysts quoted are that Korea had great broadband infrastructure, and during the Asian Crisis of 97-98 many people took on Starcraft as a way to kill time (though this second one sounds more unlikely). Anyhow – Starcraft, the Real-Time-Strategy (RTS) from Blizzard, really took off in Korea, and starting from around 2000, Korea has had professional Starcraft gaming, involving professional teams, full-time players, television broadcasting, and around the year tournaments.

Globally, various organizations have attempted to create major global tournaments (the Olympics or World Cup of gaming). Two competitions that I believe have had good longevity are the World Cyber Games (WCG) and the Electronic Sports World Cup (ESWC). Total prize money for WCG has steadily risen to around $500,000 from $200,000 a decade ago, split over 10 or so games. This is by no means a huge jackpot (for majority of pro-gamers it’s not a sustainable career), but the growth has driven up the popularity of e-sports.

Major Game Genres

Judging by the prize money involved (check out the above links for WCG / ESWC, for prize money per type of game), FPS and RTS are by far the dominant genres, though there are a few up-and-comers such as MMORPG (World of Warcraft) and DotA (a custom map on Warcraft III, which really doesn’t fall under any major genre). Other popular genres including guitar hero, fighting, racing and sports simulation (football etc.).

Interestingly, by and large most of the competitive genres are solo play (one-on-one). While most games, such as Starcraft, support team-based play, the major competitive format has been solo gaming. This has given rise to a series of individual stars over the years, most of which only enjoying celebrity status within the community, but a few who have actually made legitimate money and fame (again, mostly Koreans – look up the Wiki entries on “Nada” Lee Yun-Yeol and “Boxer” Lim Yo-Hwan, probably the two most famous professional Starcraft players ever).

In contrast, the only major team-based genre is FPS, and especially the hit game Counter-Strike. Counter-Strike popularized the 5v5 format, which has been adopted into DotA. Of course, many FPS games are competed in solo, such as Quake.

Major Countries

In terms of where most pro-players are, this is heavily biased by game genre. Korea by and large “owns” RTS, especially Starcraft and now Starcraft 2. The Korean pro-leagues offer the highest prize money (the recent first Starcraft 2 pro-league, GSL Season 1, featured a ~$90,000 cash top prize) and attracts the best players globally, however most of the top players are Korean.

Warcraft III, another popular RTS, is slightly more diversified, with good European and Chinese players alongside the usual Korean suspects. My personal opinion is this is due to Starcraft’s overwhelming popularity in Korea, which has kept many great players away from Warcraft III.

In FPS, the scene is very different, heavily dominated by North American and European teams and players.

Business model of professional teams

Again probably pioneered by the Koreans, the professional team setup involves a manager (who also acts as the agent for his players) and anything from a handful to dozens of players. Players earn salary and are often provided accommodation and food; any prize money won is split between the player and team (I’m not sure of typical ratios).

Teams get income from competition winnings and sponsorships / advertising. Typical sponsors are major IT manufacturers (Intel, Samsung etc.) as well as specialized gaming equipment makers (e.g. Razer, which offers professional gaming grade mice / keyboards). Teams may be based out of a Internet cafe (which sponsors the team), which offers an environment to train in.

Growth Issues

There are several major issues with e-sports / pro-gaming that have hindered commercialization efforts. First of all, outside of Korea, where Starcraft is a national past-time, core gaming remains a subculture in society, mainly followed by adolescent males – the demographics base makes a big media play (such as a dedicated gaming channel on cable) very difficult. Furthermore, this base of core gamers are further segmented by the types of games and the specific games they play (again in contrast to Korea, where most of the commercialization revolves around Blizzard RTS games, such as Starcraft, Warcraft III, and now Starcraft 2). This limits the total advertising dollars and overall market size.

Secondly, the inherent short product life-cycle of video games goes against the needs to build stable spectator sports. New games, even sequels such as Starcraft 2, need to innovate on the gaming mechanics to sell; this however makes following the games harder (imagine if football or any other sport had major changes to its rules and therefore strategies every 2-3 years).

Thirdly, the steep learning curve for a spectator who has not played the games also blocks market growth. Most of these core games are incredibly complex, for example any RTS would feature 30 or more different types of units, each with unique attributes and mechanics. Also, the mechanics of certain games makes spectating boring at times (in Counter-Strike, there is usually pro-longed periods of stalemate with short bursts of intense action).

Why predictions of the iPhone’s death (at the hands of Android) are greatly exaggerated

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The comparison of the growth rates of the iPhone and Android phones is continually a topic of hot debate, in no small part propelled by the highly vocal and emotional fans of both camps. It almost seems conventional wisdom that iPhone vs. Android will be Mac vs. Windows, Part II.

Personally, I believe that on so many layers, this topic is really a non-topic. It provides entertainment value, no doubt, in the form of daily tech soap opera (bloggers jumping on every new data point released and typically extrapolating it beyond meaningfulness to arrive at flame-bait headlines). But from an industry analysis point of view, or a company analysis point of view (scrutinizing Apple / Google), the market share comparisons are really just one data point – it’s meaningful, but certainly not to the degree that the blogosphere claims it to be. Apple’s future is not in jeopardy if iPhone loses pole position to Android.

Over at Wired, Fred Vogelstein takes a crack at this topic. His main point is that if you sum up all the iOS devices (iPhone, iPod Touch, iPad), they are still outselling Android, by as much as 42%. While this may be encouraging to the Apple camp, there is no reason we can expect this to hold, especially when other Android powered devices (e.g. Android tablets) eventually hit the market.

I don’t have any doubt that Android devices will outsell iOS devices. If it hasn’t happened already, it will happen soon. There is no reason to believe an OS from a premium manufacturer (Apple) with an extremely limited range of SKUs can outsell, on a pure volume basis, an OS that is free to use and which is backed by some of the biggest consumer electronics companies in the world. On a dollar value basis, it might be a different story, but still not that likely. On a dollars of profit generated basis though, highly possible (Apple generates more profit than rest of mobile industry combined, with only 3% unit volume share).

That said, the main reason people are obsessed with these market share numbers seem to be the underlying assumption that iPhone and its eco-system will lose its draw to developers, and by extension to consumers, if it is relegated to a minority market share. I think there are at least a couple of counter-arguments to make here.

First of all, being the minority market share platform does not translate into a lack of quality apps, to the extent that it will hamper mass-premium consumers’ (Apple’s core segment) interest in the platform. For example, if you flip the argument over the number of apps in the Android vs. iPhone app stores on its head, you may well say that even though Android has a smaller number of apps, the eco-system is already sizable enough, so that for any functionality there will be “an app for that”. Another example would be none other than Macs – what’s the market share that Mac OS holds in all personal computers? Single digits? Do mainstream Mac users complain about the lack of quality apps (note the emphasis on mainstream – specific categories like hardcore gaming is lacking on the Mac, but even that is seeing improvement)? Holding these two examples, I would argue that with the developer community Apple has already amassed, it would be hard to foresee a drastic dying out of quality apps, even if Android floods the market.

Secondly, if you take a step back and look at the broader trend in computing, it is definitely headed in the direction of platform-agnostic. Some tech purists would even decry the whole notion of apps – everything should be realized on the browser, over the web. If you look at the desktop space, there is indeed the trend of “fat” clients (local apps) losing out to “thin” clients. Indeed, Google is perhaps one of the biggest proponents of this – its whole challenge to Microsoft is based on the browser. If we believe that the same trend will apply to mobile devices, then the apps craze we are experiencing really is just a transition phase – at some point, most of the apps you want would be delivered to you on the browser, as opposed to an app you download (again, Google’s Gmail mobile version on the browser is arguably better than Apple’s Mail app). And let’s give credit where credit is due – when Apple launched the iPhone in 2007, Steve Jobs’ initial vision was to have web apps (browser-based apps) instead of local apps. The app SDK and the app store only came out a year later, due to popular demand. (So you could say that Jobs had already envisioned an end-game where the browser was the point of delivery for apps, not the app store – his vision was perhaps just ahead of its time.)

If you sum these two arguments together, the bigger point is that iPhone will not lose its richness of apps in the face of Android capturing majority market share – it’s big enough already of a market so that there will be quality apps developed, and apps will be platform-agnostic anyway down the road. As long as Apple continue to bring innovation to its devices, it should not be overly worried about losing market share leadership – its whole strategy is founded on premium products, which implies that it won’t be market leader from a revenue / volume perspective. That’s why I wrote the headline of this post.

PS: Also, for people who continually say this will be a rerun of Apple vs. Windows in the 80s, please pause for a moment and reflect on the Mac’s continual resurgence over the last decade. This is again very indicative of the broader trend. In other words, one could almost claim that the “network effects” so famously championed by Wintel is close to becoming irrelevant, because the Internet has leveled the playing field for the small market share OSes.

PS2: And even if we are to talk of the platform wars of the 80s, we should get the facts straight. The following is my reply on a Quora question (similar topic really) awhile back:

First of all, it’s not really windows vs. mac, but PC vs. Mac. I would say by the time windows 3.0 came out, the platform war between PCs and Macs (at least the first war, not including Mac’s resurgence in recent years) was already over.

If you look at this article on Ars Technica, http://arstechnica.com/old/conte…
as early as 1986 PCs already had over 50% market share of computers, and it over-took the mac platform’s shares a few years before that. So in that sense, there never was a windows:mac war, at least not until very recently.

I think one key distinction between the platform wars of the 80s and android:iPhone is that in the 80s it was primarily driven by b2b, not b2c. IBM was late to the personal computers space, but they were the driving force behind making personal computers legitimate for business – they could go to a sales pitch with a business client with a perhaps inferior product but still sell it, and they could generate serious developer interest in developing for the PC. The killer apps of the 80s were spreadsheets and word-processors, sold to businesses. Apple could have better versions of such products on macs, but they couldn’t sell to businesses as quickly as IBM and clones like Compaq could, which is dictated by company structure and channel strategy – they are positioned as a consumer products company, and the only verticals where they made serious progress were education and publishing (where their products were clearly far far superior). That’s where the network effect kicked in and made Macs a niche.

Flash forward 25 years, and smartphone adoption is primarily driven by consumers, not businesses (blackberries being the exception). This is in Apple’s core area of expertise. It will still be challenging to fend off a group of competitors’ collective efforts (Samsung, HTC etc.), but as long as Apple retain a significant portion of the market, it will be in good shape. Apple doesn’t need to be market leader to be hugely profitable and have a sizable eco-system of 3rd party apps etc. – just look at macs today, as a general consumer you have majority of the apps you need to be happy with it (games being one major exception, which is also therefore a good business opportunity).

So back to your original question, I’d say Android:iPhone will play out very differently compared to Windows:Mac. Android might still end up with a more market share, but iPhone will have enough share and a big enough eco-system so that Apple won’t have to go through the kind of existential challenge it had back in the mid 90s.

The complexities of the Android eco-system, and its implications

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Google’s Android OS for mobile handsets is arguably Apple’s strongest competitor in the marketplace. The most recent numbers from Google are 160k activations daily, which implies a run-rate much bigger than iPhone’s recent quarter of 8.4 MM units.

There is no doubt that Android has been a success, especially in terms of offering consumers more choices. US consumers now have a perhaps overwhelming number of smartphones to choose from, across the major carriers. This is certainly a great development.

What I want to focus on in this post, however, is looking at Android from the eco-system players’ perspective – Google, the handset manufacturers, the carriers, and the app developers. My position is that while Android is full of promise as a platform, some fundamental dynamics of the eco-system will make it very challenging to navigate, especially in terms of financial gains – at the end of the day, these players are in it to profit.

I would like to start by going through each player’s objectives from participating in the Android eco-system. Starting with Google, its objectives are:

  • Gain a permanent foothold in mobile, ensuring Google’s future when the web becomes increasingly mobile-driven
  • strategically, prevent dependence on Apple in mobile, limit its bargaining power
  • Increase traffic to Google properties, most notably search, which will in turn grow Google’s ad revenue
  • Offer users a consistent Google user experience across mobile devices
  • “Lock” users into Gmail, Google Maps, Youtube etc. (think Microsoft shipping IE with Windows)
  • Develop a mobile go-to-market channel for future Google products

In essence, it’s all about Android being the hook which will retain the user in using Google products.

What about the handset manufacturers’ objectives?

  • Develop handsets that rival the iPhone’s value proposition, capture market share in the booming smartphone segment
  • Differentiate from competitors
  • Reduce OS R&D costs

And the carriers:

  • Retain some degree of control in the device, unlike Apple’s terms with AT&T
  • Prevent becoming “dumb pipes, up-sell users on carrier VAS (value-added services) such as mobile video, ring-tones, gaming etc.
  • Reduce Apple’s bargaining power
  • Differentiate from other carriers

There is one thing all players agree on – counter the iPhone; but beyond that, there are some immediate points of tension. As smartphones seem to converge on the single big touch-screen form factor, hardware manufacturers will find it increasingly difficult to differentiate in shape and design. In that sense, HTC / Motorola / Samsung would very much want to tweak the UI or customize the OS, but that would quickly run into conflict with Google’s wish to offer users a consistent experience; and practically speaking, UI may really be too much a core part of the OS for the manufacturers to customize. Hence, manufacturers face the dreaded prospect of following the footsteps of PC manufacturers – low differentiation leads to low profits.

At the same time, carriers and Google’s interests aren’t that well-aligned, either. Google recently shuttered its Nexus One online store, which was hailed to disrupt the status quo of handset distribution by offering a contract free model instead of the typical carrier-subsidized model. Obviously this did not please its carrier partners. On the flip side, carriers perennial fear of becoming “dumb pipes” drove them to loading up Android phones with hard-to-remove bloatware, which consumers generally dislike and probably is making Google cringe – and just serves as more ammo for Apple’s value proposition of a refined experience.

My point here is that the logical implication of these interlocking conflicts is compromise. Google aggressively wants Android to become the de facto mobile OS – so much so that not only is the OS free to manufacturers, Google is also reportedly sharing search revenue with carriers / manufacturers. (Pretty amazing that you can think of this as almost the opposite of Apple’s original iPhone terms, where Apple got a share of AT&T’s revenue.) Manufacturers will get away with deals such as putting a Baidu search box on the phone, which would obviously go against Google’s interests. Carriers will get to keep their finger in the OS.

Sometimes these compromises result in degraded user experience, such as bloatware. Most often, they call into question the financial returns on Android. It would be a very difficult task to model how much incremental revenue Google will generate by owning Android, as opposed to not owning an OS and just receiving mobile search traffic from all devices. Manufacturers will get to ride the smartphone boom for a while, but then will again be hard-pressed for innovation – again, the PC manufacturers come into mind. The biggest winner from all this seems to be the carriers – especially Verizon – they finally have options other than Apple, and they can keep their old business model.

Why Amazon won’t necessarily win the e-book wars

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I got into a fairly heated debate with a friend (like I always do) today over recent developments in the e-book market. Namely, some industry analysts are making bold statements that Amazon will win the e-book wars (case in point, Om Malik’s post). I’m generally skeptical of such predictions, because the technology market evolves at such a rapid pace that “dominant” market positions are rapidly gained and lost. But I will attempt to develop this discussion a bit further.

I think when people talk about Amazon Kindle’s competitive position in the market, they usually compare it to two distinct set of competitors:

  1. “Direct” competitors, such as Barnes & Noble’s Nook, the upcoming Borders Kobo, Sony’s eReaders etc. The device play is a single-purpose device, hence directly competing with Kindle hardware.
  2. “In-direct” competitors, such as Apple’s iPad, and other future tablet devices. These competitors are in some sense “in-direct”, in that reading is just one of many key features, and Amazon can utilize them by providing Kindle apps, which to a large extent nullifies their threat and turns them into distribution channels.

If I may, Amazon’s competitive advantages against these competitors are usually seen as follows, in no particular order:

  • Brand power and experience in online retail.
  • First mover in driving e-books adoption, and hence enjoys higher market awareness as well as being further along on the learning curve compared to competitors.
  • Specifically against the iPad and iBooks, a much better book selection.
  • Again perhaps specifically against iBooks, cross-platform availability – PCs, Macs, other mobile devices. Or as some people say, Amazon gets it that it’s not about selling devices, but selling books.

I think people often discard brick and mortar players straight away (“what do they know about digital?”, “they are late to the game”), and then only focus on comparing Amazon and Apple. Probably most people in tech would see iPad as the Kindle’s biggest threat, and in that comparison, Amazon’s “it’s about selling books, not selling devices” mentality clearly gives people confidence in picking them as winners.

Frankly, my biggest concern with Apple in the e-book wars is how much organizational will they have in competing. How serious are they about it? After all, it is just one of many functions. If they are dead serious about it, they can do the following:

  • They will probably catch up in the size of the catalog;
  • they can definitely make a better user experience, by merit of tight hardware / software integration and far superior application experience;
  • They can also try to catch up in making iBooks available cross-platform, which is actually quite straightforward technology-wise since they use the ePub book format, so if the publishers allow it your books purchased in iBooks should be able to be viewed on any ePub reader on any platform – obviously this is the ideal world and there will be plenty of challenges;
  • And they can probably make “shady” moves like what they are doing with iAds – block Amazon as it is not an “independent” retailer, in the same way they are attempting to block AdMob because it’s not an “independent” ad network. I’m not suggesting I agree with this last tactic, but if they do something like that it becomes an aggressive device versus device play, which at the current sales rate, the iPad would have a far bigger installed base.

So it seems there’s plenty of strategies and tactics for Apple. Again, my biggest doubt is whether they have the bandwidth and the interest to compete with Amazon.

What about the brick and mortar guys? Well, interestingly there’s plenty of options here too, upon doing some research (frankly, I’ve ignored the Nook completely since its launch). I’ll focus specifically on Barnes & Noble, since in terms of market awareness they seem to be the most serious competitor to Amazon from the physical retail side. What are its competitive advantages, if any?

  • Perhaps surprisingly, more innovative features, such as the ability to lend a book to your friends (though severely limited, most likely due to publishers), and free in-store reading, to name a few. Obviously these aren’t killer features – yet – but they suggest that at least the Nook team is trying new ideas and not just playing catch up.
  • Physical retail presence. On the one hand, Kindle’s adoption has been severely limited by its lack of physical retail presence (which Amazon is finally addressing by moving into Target); on the other hand, B&N can seriously leverage its retail stores to sell Nooks – directly to the device’s target consumers. This is something that Amazon cannot easily match, and if done right, is a huge marketing vehicle – the obvious case study is how Apple uses retail.
  • Supporting the open ePub format. A huge fuss was made over this at the Nook’s initial launch – and while it might not matter that much yet (and plenty of proprietary formats have market dominance – e.g. Microsoft Office, or Adobe Flash), it is at least ammunition for marketing, and in the long run, the format wars may actually mean something (more on this later).
  • E-book retail experience through the Fictionwise acquisition. Fictionwise has probably been in the e-books business longer than Amazon, and prior to their acquisition was one of the largest independent e-book retailers. The Fictionwise team at least inspires some confidence in B&N’s capabilities in software and all things technology, and may bring them even deeper insight in the market landscape than competitors. And of course, Fictionwise understands how to support multiple platforms and have done so for a long time (much longer than Amazon in this regard? Since the Kindle for Mac app only came out recently) – it seems B&N needs to market this point a lot more.
  • Brand recognition. Sure, Amazon is one of the top brand in mind when it comes to online retail, but for book lovers B&N probably means a lot too – especially for mass-market to late stage adopters.

So I would say that from these points, B&N is at least a legitimate contender. Sure, they are playing catch up, and they are currently stumbling on execution somewhat (just from what I’ve casually read), but I wouldn’t discard them that easily. Two minor data points for consideration: the first is the somewhat suspect report from DigiTimes that Nook shipped more units than Kindle in March (via Crunchgear); and the second is the fact that they have released four firmware updates in roughly half a year – of course it means patching up lots of bugs, but you can also read it as the team being snappy and energetic about refining the user experience and adding features. Amazon on the other hand has been somewhat slow (at least in my personal feeling) in rolling out cross platform applications (Kindle for Mac seemed to take forever) and updating the device with new software features – of course, this is just based on my anecdotal experience.

Fundamentally, my problem with claiming “Amazon will eventually win” is that e-books are really just going through early adoption (and perhaps reaching the first stage of mass adoption), and there are still plenty of big problems that nobody has figured out yet. For example:

  • Technology wise, how do you address the use case of lending books? How can I lend you the book I bought on iBooks to your Nook? And it’s not just personal to personal lending, but even more importantly, how do libraries shift to e-books – how do they manage their database and support myriad devices? Would the format wars have a huge implication here? I’ve read somewhere someone comparing Amazon’s azw format to Betamax and ePub to VHS – I don’t think it necessarily holds, but it does highlight potential issues.
  • Business wise, what are the differentiating factors for e-book retailing, besides price and availability (catalog size and cross-platform support)? If we compare this to the evolution of physical retail, obviously we are at a very early stage: right now players are mainly competing on price and availability, which is perhaps similar to the early days of retail, where the player that had better distribution won – simply because its consumers could access its products. Surely there is vast unexplored space in how to create differentiated shopping experiences.
  • What is the function of current physical retail space, when more and more books are consumed digitally? Will players like B&N simply close its shops, or is there room for transforming the stores of physical bookshelves into socialized book shopping hubs (tied to the previous point)? Are there any other functions they could play?
  • Also, from an industry value chain perspective, are there alternative models with potential to disrupt? For example, currently players pursue a hardware + software strategy; would we see the rise of independent device makers that can support any e-book retailer (not just multi-purpose devices through apps)? Would we see specialist application developers that support multiple retailers and offer a superior user experience?
  • Moving further up the value chain, how do e-books dis-intermediate publishers? Amazon and Apple already support self publishing; it’s not too far-fetched to see them as replacing traditional publishers completely in future. If that happens, we would see a lot more exclusives – e.g. one author’s books are only available on Kindle, another one only on iBooks. And combining this with the previous point, can we envision specialist device makers as the new “retailers” and the Amazon et al as the new “publishers”? Conversely, the existing traditional publishers can obviously step into this role themselves and retain their position in the value chain – if Amazon, Apple and B&N all become cross-platform, it ironically opens up the door for exclusive deals, since the consumers can still get the books they want on their devices, just from different retailers for different books. This is just one of many potential ways retailers can differentiate.

Looking at these open questions, I think it’s safe to say that this market still has a long, long way to go. I do not challenge that Amazon is the leader in this space currently, but I dare say the market is still up for grabs, and different competitors bring different competitive advantages to the table. Amazon is certainly well positioned – hence the conservative title of this post – but to say it’s game over and Amazon will definitely be victorious, well, is premature. And really, critics do it all the time – remember how many doubters of the iPad there were in January? And another one of my favorites – techies talking down Hulu when it was first announced back in 2007. Do people even remember the other online video startup that the whole tech world was going crazy over back then?

Twitter, Facebook and Google: the competition under convergence

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Last Wednesday I attended the first Twitter developer conference (Chirp), at the Palace of Fine Arts in San Francisco. While Chirp is very much being shadowed by today’s Facebook f8 conference (both companies seem to see each other as major competitors), it was still a coming-out party of sorts, a declaration that Twitter is now big enough to host a conference with 1,000 developers.

My biggest takeaway from Chirp was how ambitious the Twitter team is. For a company that has long been under critics’ fire for not having a business model, the core of its strategy remains surprisingly attached to “getting the product right” first. The company’s priorities, according to CEO Ev Williams, is “0. Infrastructure; 1. Friction-free; 2. Relevance; 3. Revenue.” Revenue was decidedly last on the list.

Infrastructure is easy to understand – Twitter has been hurt by scaling pains so many times that it makes sense that the company is focused on coping with the growth first and foremost. Friction-free is about making the service easier to use, especially in the context of retaining new users, which was Ev’s rationale for the Tweetie acquisition. Friction-free is also the thinking behind the @anywhere initiative – so that users can use Twitter anywhere on the web, and not be interrupted by having to open another web-page etc. Relevance is partly about search, and partly about new features such as location and annotations.

And this is where things start to get interesting. For a long time, Twitter itself did not have an inbuilt search function; a number of 3rd party developers offered competing Twitter search products. The leader of these products, Summize, was eventually acquired by Twitter; but as Ev described it at Chirp, it was more like a merge of equals (size of team etc.). While the Twitter team didn’t talk a lot about search, I felt the key to the service’s relevance, and future business model, would be search – how do you organize this world of information (to paraphrase Google’s mission) stored in the billions of tweets, so that value can be extracted?

This is by no means an easy task. The distinctiveness about Twitter is its timeliness – you can literally find out what’s going in the world right now. However, this also makes search, or any other type of data organization, technically complex. Annotations and other types of meta-data helps reduce the complexity, as well as efforts to understand the users’ intent – are you looking for info on a specific location or event – but it will still be a daunting problem. (Google and Bing has had access to Twitter’s data-stream for a while now, but whether it’s for lack of trying or the complexity of the issue, their current use of Twitter data in their search results seem largely inconsequential.)

Still, if the Twitter team can crack this nut, then they may have on their hands a truly blockbuster product. The beauty of Twitter is how many different usages people have come up with for it – as a communications tool, it is simply an enabler of numerous services. If they can make their information much more organized through search, then the value of the communication tool is enhanced, as well as the services built on top of it. The recent story of how Twitter can be used to predict box office success is just one example of the potential value.

(This post was written over several days so the thought-flow is somewhat broken.)

When I was interviewing for my summer internship, I got asked the question “if you had funding to build a new search engine, what would you do?” My response was you can either tackle the existing search problem through a drastically different algorithm, or focus on specific verticals (e.g. travel) or new markets (mobile, location). If we change the phrase “search engine” to “method of organizing information”, then certainly both Twitter and Facebook are taking on a differentiated approach from Google. While the three companies may at face value be in very discrete markets, they are on a unavoidable collision course in terms of competition. While Google is all about indexing the static web, Facebook and Twitter are built on the social web, and they may well grow to become the Google killer that many have been searching for.

This is not as far-stretched as you may think. Think about the last time you performed a search. Did you ask any friends first? Was it only when they said “I don’t know” that you replied, “don’t worry about it. I’ll just Google it.”? Google search is powerful and hugely useful, but only to the extent of how useful the static pages it indexes are. When you do a search on a specific question, you often have to tinker it a few times. Click on a few different search results. Read through them. Often the pages won’t have the answer to the exact question you have, but enough info to give you pieces of the puzzle so you can piece it together. This is still much, much more efficient compared to doing research at the library, but the power of the social web is that you are not confined to static pages and information – the odds are that there is some person out there who knows exactly the answer to your question, and the power of the social web is that it enables you to ask that person directly. Quite a few of the people I follow on Twitter use it as a magical search engine – you pose a question on Twitter and your followers answer it.

Of course, this is just one specific scenario where social web services such as Twitter and Facebook have the upper hand against Google (and for the many, many instances where you need static information Google is still the better option – e.g. what is the year that the US was founded); but it does highlight Google’s key vulnerability – its lack of presence in social. Be it Orkut, Wave or Buzz, Google has repeatedly shown its inability to come up with a competitive social networking product. Maybe Google simply doesn’t have the social genes in its DNA – which is fine, as for the foreseeable future they will still make a killing in Adwords/Adsense. But the danger for Google is that search gets demoted from a primary instinct into a secondary instinct, the same way that Kayak / Mobissimo / Bing Travel and other vertical search engines have made Google irrelevant in travel search. It will still be a huge market, but only a less efficient/user-friendly alternative. And it’s clear from Facebook this week and Twitter last week that these companies have huge ambitions too in organizing the world’s information – hence the competition will be inevitable.

One last note – while Facebook has seemed to garner much more attention and praise with its announcements, Twitter’s efforts, especially in mobile shouldn’t be disregarded. The news today that Twitter has acquired SMS service Cloudhopper may sound insignificant to those of us who are used to iPhone apps and 3G networks, but in the grand scheme of things SMS is still such a viable and active method of information delivery. It will be interesting to see how Twitter uses SMS to its advantage.

Holding off from buying iPad 1.0; eager to buy iPad 2.0?

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I think I qualify as an Apple fan. I bought an iPod in 2004, back when it was still black and white displays. I also have bought two different generations of iPod nanos, an 2nd gen iPod shuffle, a 1st gen iPod Touch, and I finally made my first MacBook purchase last year. I’ve also bought an iPhone 3G and now use a 3GS. I have an iMac at home back in Beijing; my dad is thinking of buying an Apple server for his office (though I strongly discouraged him about it).

When the iPad was first announced, I quickly made the decision that I wanted one, and I justified my decision by telling myself that it would be an laptop replacement for school. I’m pretty big on paperless, and prefer reading cases on my laptop instead of printing them out; so the dream product for me (for this purpose) would be a tablet with a stylus to take notes. The iPad doesn’t support a stylus, but from the original announcement, and the fact that there’s plenty of iPhone apps that support PDF viewing, I thought I could justify splurging $500 on the iPad. (And yes, I decided fairly early on I only wanted the $499 version. I don’t need 3G access and from my previous usage statistics I don’t need big storage.)

However, when the iPad reviews came out last Friday and the product shipped last Saturday, I realized that this 1st gen device does not pass as a laptop replacement, even for the relatively lightweight usage of school (email, PDF, and some basic Office apps). Then again, I’m thinking of using the device in the sense of a traditional computing paradigm, whereas from the onset Apple was looking at the device as an iPhone-esque paradigm, a closed system and a tightly controlled user experience.

The tradeoffs are numerous and huge in implications. Jobs and Apple criticized netbooks for being a device of compromise which doesn’t really excel at doing anything; they claimed that the iPad is “magical” and “revolutionary” in that it sets out to accomplish what netbooks were originally intended to do – convenient access to basic computing tasks (email, web, video) – without sacrificing the user experience. What was sacrificed was an open file system; multi-tasking; flash; multiple channels to access and purchase software. To state the obvious, the iPad copies iPhone’s user environment, rather than that of the MacBook.

This makes the iPad, as it is, primarily an entertainment device. There is nothing wrong per se with this positioning; Jobs’ hyperbole that the product is “revolutionary” still has some merit, in the sense that the device is beautifully intuitive to people with little prior experience with computers. The iPad to computing is akin to the Flip to video recording, or compact cameras to photography. It’s an entry level device (albeit a luxurious one) designed for the mass consumer.

Interestingly, this design philosophy has sparked a philosophical debate among heavyweight bloggers: Doctorow from Boing Boing fears that the iPad era means an era of stifled grassroots innovation and creativity (users are “infantilized” – kids can only play with it, but are restricted from exploring it and programming it – unless you hack it first), while Gruber argues that there will still be creative kids. I’m more inclined towards supporting Gruber’s position. The proportion of users who are interested in programming may decline, but that’s more due to computing becoming accessible to all rather than there being fewer aspiring programmers. I would even argue that the App Store, closed and arbitrary as it is, has leveled the playing ground a lot more for new programmers (ease of distribution and access to users), and therefore there should be more aspiring programmers than ever before.

That being said, the geek in me craves for a more open product than the iPad. I want the flexibility of having access to the file system, of having more than just the App Store to go to find software, and I need multitasking. I need to be able to type up a word document while also doing some web search. Apple has a pretty good history of improving its products – just look at the 1st gen iPhone and see how much it has improved (no 3G, no App Store – in hind-sight can you imagine people actually bought it?) – and give it ten months and I might be seriously tempted to get a 2nd gen iPad.

Will Flash ever work on mobile?

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There’s been a couple of interesting posts on implementing Flash on mobile devices in the last few days. First, An Adobe Flash developer on why the iPad can’t use flash looks at the issue from a UI perspective – namely how some of the UI design elements we take for granted on desktops / laptops, such as mouse hover-over, are not native to the touch paradigm, so that even if Flash can run on the iPad / iPhone, a lot of Flash usages still would not function properly. Instead, either the mobile OSes come up with ways to emulate a mouse interface (or introduce a lot more complicated input methods), or existing Flash apps have to be redesigned with the mobile audience in mind. The first route goes against the touch paradigm, while the second route means a lot of work for developers (so it can almost be argued they might as well forego Flash altogether).

The second post shows a fairly slick youtube video of Flash on Android, through a Farmville demo:

http://www.youtube.com/watch?v=r9whFavOb2U&feature=player_embedded

If you look closely enough, you can see that 1) there is an issue with mouse hover-overs; 2) for a intensely interactive Flash app, there is “money left on the table” in the sense that it is not customized for touch and the controls feel clumsy (or maybe it’s just the demo person…).

Which leads me to the provocative title of this post. The whole demand for Flash on the iPhone and other mobile platforms is based on how it gives consumers the “real web.” However, if you think about the main uses of Flash, which is 1) video 2) games 3) ads, I would say that consumers don’t care about whether ads can be displayed, and as the above example illustrates, games (and other forms of highly interactive Flash usages) probably need to be redesigned anyway (which calls for custom apps). Which leaves video – and this is where the competitive landscape plays an interesting role. The biggest video site, Youtube, is owned by Google, and Google is definitely going for HTML5 + H.264 and moving away from Flash. (Tangent: Google is also getting some criticism for not truly supporting the open web, as H.264 is a licensed technology.)

So the bottom line is, while Flash has dominance on the web now, it definitely faces the danger of becoming completely irrelevant in the mobile space. This may not be a terrible thing – moving to a unified standard such as HTML5 and away from proprietary codecs – except of course for Adobe.

Haas MBA Google Trek and initial impressions of the Droid

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Last Friday, a group of 50 Haas MBA students visited the Googleplex. During the 3-hour afternoon visit, we had an enjoyable tour of the campus, and engaged a panel of Googlers (many of them Haas alums!) from various products and functions in a lively round of discussions. A big shout-out for my classmate and former Googler Lauren Gellman for organizing this spectacular trip!

Haas MBA Google Trek 2010

Besides having a great time talking with the Googlers, I was also lucky enough to win one of the 5 Droids handed out in a surprise lottery (you can see the winners showing off their gear in the photo). The phone, targeted for developers, comes with a one-month free trial from Verizon, as well as a nice discount for a 1 year or 2 year contract.

This is the first Android handset I have used, having been a loyal iPhone user since January 2009. There are things I immediately like about the phone, and it really is almost a completely different experience from the iPhone. I know there are plenty of Droid reviews out there (since this device has been out for a quarter now), but here are some of my first impressions:

  • Great support for Google products – really, no surprises here. The turn-by-turn navigation, a coveted app by many, could well be one of the killer apps for this device. (I am curious how well that works on the road, especially in areas with patchy reception – this was a key differentiation point Nokia was trying to emphasize for its Ovi Maps, where the maps are stored locally and require less data transmission – and therefore less dependence on reception – on the go.) And of course the Google Voice app is great, but it does make you wonder how Verizon feels about it.
  • Background apps – Pandora while surfing? No problem. However, it’s not apparent what apps are running in the background, which could both be a drain on your battery and also a potential nuisance – I realized I was always on Google Chat, even though that wasn’t my intention.
  • Poor support for business users. This is not a phone ready for corporate America. It supports Microsoft Exchange, but apparently the “corporate email” app doesn’t support search. That’s right. No inbox searching. That alone is enough for me to hold on to my iPhone. (I could, in theory, forward all my emails to Gmail, but I’m sure there are plenty of users like me out there who prefer to keep their work-email and gmail separate)
  • Very slow charging on USB? I have a habit of carrying only the USB cord, and not the adapter, for my iPhone. For some reason, the Droid charges at a very slow pace via USB – something like 15% an hour, which is not satisfactory.
  • The physical keyboard is redundant. Yes. I’ve gotten used to typing on virtual keyboards. Having to actually push down feels painful, and there is no auto-correct. In this regard I’d probably like the Nexus One a lot better.
  • App market. Good number of apps already, most of the web2.0 services are present, but much less presence of old-school stuff – e.g. WSJ, FT, NYTimes etc.

Reading through the points above, it’s interesting to note how many of them are talking about consumers’ habits. For example the point about the keyboard – if I came from the blackberry world I probably would love the physical keyboard (remember all those people who hated the virtual keyboard on the iPhone when it first launched?), but I’ve grown accustomed to virtual keyboards. Same for the email search – my work-around would solve the problem, but it is asking me to change my behavior, so I have a strong distaste for it.

One final point – I want to comment on how fundamentally different the Droid is from the iPhone. I felt it was a phone for geeks and engineers. The UI was less polished, but there was much more that the user could customize (menus, widgets etc…) You need to spend time to play around with it. The iPhone, on the other hand, is a device ready for mass adoption. It’s frustrating for geeks who want to do all kinds of things (but can’t), but perfect for everyday users who can just use it intuitively. Very different philosophies, and therefore potentially a sharp divergence in consumer segments going forward.

The Strategic Implications of Chrome OS

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Excuse me for the grand title, but I’ve been writing too many marketing papers recently…

Google held a press release for Chrome OS today. All the major tech blog properties are covering it. Just check out the first page on techmeme and you’ll get a good rundown of all the discussions going on.

What I’d like to talk about is how Chrome OS might impact the computing market. Google has taken a page from Apple’s playbook by deciding that Chrome OS will be available only pre-shipped with certain devices (netbooks, at this point), as opposed to being an OS that you can get and install on whatever machine you have.

This is actually a big deal. By doing so, Google is moving away from the traditional PC hardware / software paradigm and moving towards a model more typically found in other consumer electronics – the future Chrome OS devices will be more similar to your TV or other home appliances than to your laptop or desktop, in that its feature-set is pre-defined and not customizable (unless you are a hacker). It will be a simple, straight-forward user experience – when you boot it up, all it shows will be the Chrome browser window.

Commentators are divided over the OS, but the differences really are due to very different vantage points. The infoworld article boldly titled “why Chrome OS will fail – big time” focuses on how Chrome OS is not a substitute for Windows or Mac, and thus claims it fails. Robert Scoble on the other hand focuses on how Chrome OS is really about low cost supplemental access to the web, and a competition over web standards and tools – HTML5 vs. proprietary frameworks like Flash or Silverlight.

My concern with Chrome OS is really about the bigger picture of netbooks – having never bought one myself (though quite tempted at one point when the EeePC first came out), I am still not a big believer. Netbooks are a niche category on a rapidly converging field, squeezed between ever-more powerful smartphones one the one end and laptops on the other. In one sense there’s a definite value proposition for it – a $100-200 device that you can just boot up and google a recipe while you’re cooking, or just do some casual browsing while you’re on the couch does have some marginal benefit, but the emphasis here is really on “marginal”.

For Chrome OS and netbooks to succeed, Google is really betting on a couple of big industry trends. One is that HTML5 adoption will be smooth and major web properties will convert to it, instead of running on proprietary platforms such as Adobe Flash or Microsoft Silverlight. Of course in this aspect Google does have some control, since it owns Youtube, so at least it can ensure that the biggest video site on the web will be compatible.

The second big trend is the wide-spread availability of wi-fi, since the device is Internet only. Google and its hardware partners can opt for 3G capabilities, but that’s a harder sell because of the additional telecom fees. In one sense, wi-fi is pretty widely available, but it’s far from ubiquitous, and while the device will still sell, people will talk about it less if they don’t use it on the go that conveniently. To a certain extent, this point is more of a technical issue, but Google and friends will have to come up with some solutions to make the device more usable.

In sum, Chrome OS is perhaps just the beginning of the future – a future where every device is a thin client to access the web and everything is stored in the cloud. It may be too early for its own good. Only time will tell.

PS3 levels the Netflix playing field with Xbox 360

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The announcement yesterday the Ps3 now also supports Netflix streaming to the TV just made the console wars a little bit more interesting. Xbox 360 has supported Netflix streaming for the past year, but the caveat was that you needed a Xbox Live Gold account, which costs $49.99 a year (or $39.99 on Amazon right now for a 20% discount). The Ps3 deal doesn’t include that – though there is the awkward technical requirement of having to put in a special Netflix blu-ray disc into your Ps3 when you want to stream.

That’s really a small annoyance, if you are already a PS3 console owner. So from one perspective the PS3 has just “one-upped” the Xbox. However, for Xbox owners, the Netflix deal is really just an additional reason to buy the Gold account. I got my Xbox 360 Elite yesterday, while my b-school roomies got Rock Band. I think the services on offer for the Gold membership is already quite compelling, and as an existing Netflix user, I would be willing to pay the additional $40-50 for a yearly membership.