This is what I was doing this morning — browsing through our sources of traffic in GA — when something jumped out at me. The direct visitors to our site had started climbing rapidly in mid September, faster than any other category. This is strange, because you would expect that “direct” visitors, who have typed your address into the browser address bar, to grow more slowly than “referral” visitors, who came by clicking a link to your site, or than “search” visitors, who found your site using a search engine.

Digging a little deeper, I found that the increase was strictly among new visitors. This might be explained by press coverage in a printed publication or a TV mention, situations where someone heard about us but didn’t have a link to click. But I didn’t know about any recent coverage, and this sort of influx of visitors is normally a spike, not sustained growth.

What had changed after September 18 to catalyse this growth? Mid September… My conscious brain was working through any changes we had made on the site during the last month when my subconscious brain tapped it on the shoulder and said: “iPhone 5?”.

Of course. The first people who ordered the new model started receiving them on September 20. And I could quickly confirm that all the additional direct visits from new users were people using the version of Safari in iOS 6.

Still, what exactly was going on? I know there are some privacy settings changes in iOS 6, so my first thought was that Google Analytics was no longer able to distinguish between new and returning visitors. Indeed, the pageviews per user did seem to be dropping.

This didn’t account for the difference though. First, the decline in pages per visit seemed to start earlier than September 20. And second, returning visits from iOS 6 did not go to zero, so clearly GA was able to detect return visitors in some cases. It was something else.

Now that I knew what I was looking for — something in iOS that was impacting analytics — it was only a short search before I found the answer in an article by Danny Sullivan (Search Engine Land). According to Sullivan, it is indeed privacy related, but the issue is that iOS is not allowing Google Analytics to see the referrer (the bit of info that tells it where you came from) when you search from the search box in the Safari browser. (For the nerds, Safari is sending the searches through Google SSL search.)

The analytics for iOS in particular supports their theory. Right around September 20, iOS traffic sources start to shift from Google to “direct”. The rate is probably reflecting the penetration of iOS 6.

My take-away from all this is that the move towards privacy might have a big impact on 3rd party analytics services. Not only GA, but any other service that is running on someone else’s server and gathering info about your visitors via a tracking pixel or JavaScript that you put in your pages. In other words, all of them.

Now might be the time to invest in self-hosted solutions. Several years ago it was all about self hosted analytics, then Google bought Urchin and the move towards 3rd party hosted analytics began. Privacy could put a stop to all that and take us back to the days of running something like Urchin on our own servers. Although losing the power of GA would be sad, a resurgence of self hosted solutions would be awesome. If you have ever tried to find a good and affordable analytics tool to run on your server, you’ll know what I mean.

Yet people bought, and are still buying, PCs in far greater numbers than Macs.

It must be the file formats, we say. Microsoft Office dominates word processing and spreadsheets and people need to share those documents. Yes, there is a pretty good version of Office for the Mac, but it is never quite as good as the Windows version.

It must be the Windows hold of the enterprise market. It is much more convenient to have a computer at home that is similar to the one you have at the office.

It must be the ubiquity of Windows. The fact that so many people have Windows PCs makes it much easier to find help and advice.

These are all true, but there is another factor that is much harder for Apple fans to understand: Not everyone sees the beauty. We’re wine connoisseurs watching, with condescending bewilderment, as the rest of the party happily drinks $8 box wine.

Sure, the simplicity of Apple design makes a huge difference for users in the early stages of a new concept’s introduction. What the Mac was to the GUI, the iPod was to MP3 players, the iPhone was to smartphones, and the iPad is to tablets. Apple does a fantastic job of introducing the world to these complex new product categories. But as we as a society begin to get comfortable with the concepts, we can tolerate more complexity. Simplicity is always important, but it becomes relatively less important over time. Other things — like “is it the cheapest one”, or “does it come in neon pink”, or “does it have a USB port” — become more important.

We thought people were choosing the Apple product because of its elegant simplicity, but most of them were really just choosing the simplicity. And to someone who doesn’t resonate with Apple’s aesthetic sensibilities, the elegance becomes a constraint when Apple prioritizes it over things like extra ports, customizability and expansion options.

So it will be with tablets. And while it is too early to tell whether Surface the product will be successful, Surface the concept of a credible, non-Apple iPad alternative is inevitable. And who better to deliver it than Microsoft, a brand on more of the world’s computers than any other.

Ha ha, we scoff. Who wants to do Microsoft Office on a tablet? Office is boring. And tablets have a completely different use case to laptops. Who would want one to run full Windows?

Answer: Lots of people. People with different priorities, working different jobs, living in different countries. People we don’t quite understand.

For one thing, most authors in the long tail of content that flows through Readability have no idea that Readability even exists. But another big factor was that many authors who did know about Readability reacted angrily to the model. It seemed presumptuous of Readability to collect payments on the behalf of authors, without said authors ever agreeing to the model. Some prominent authors expressed their anger. Daring Fireball’s John Gruber called Readability ‘scumbags’.

Fanning the flames of the subsequent disagreement on Twitter and in the blogosphere were two Internet heavyweights and Readability advisors, Anil Dash and Jeffrey Zeldman. Both are held in very high regard because they have a record of actively pushing the web forward. Dash focusing on its potential for positive cultural impact, and Zeldman on advancing web standards. In this context it is easy to see why they would be attracted to Readability. The service is tackling the hard problem of finding new business models for authors, and it is making the web a better experience for readers.

The problem: These noble goals have blinded Readability and their advisors to the extent that their sense of entitlement regarding other people’s content angers the people that created that content. So I suggest that there are two important things to learn from the kerfuffle surrounding the Readability payments system.

The Sting of Entitlement Matters More than Money

Dash has repeatedly and correctly pointed out that Readability is not the only company to derive revenue from a read-it-later service. Competitors Instapaper and Pocket do much the same thing for their users. On the face of it Readbility, which tried to compensate publishers, should be more popular with authors than competitors who make no attempt to do so. Right?

Wrong. It turns out that many authors care less about the money, and more about the fact that Readability is representing them without their consent. As a publisher, I understand this reaction and it isn’t entirely rational. Even if the financial outcomes were equivalent for Readability and Instapaper, and even if the user experiences they offered were identical, I would find it easier to accept Instapaper deriving direct benefit from someone buying their app than to accept Readability deriving benefit from collecting revenue on my behalf.

The Readability model just felt dishonest and entitled. Although I thought that John Gruber’s ‘scumbags’ comment was over the top, it perfectly captures the way I feel about Readability in the pit of my knotted stomach whenever I think about their payment plan.

Product Developers Will be Held Accountable

With hindsight it is clear that Readability’s model was impractical because there is such a long tail of content and authors. So now there is nearly $150,000 in a bank account, most of which won’t make it to authors.

Readability made a promise to their customers — that they would compensate authors — and now they can’t deliver on that promise.

Much of Readability’s defense of this failure, and particularly Zeldman’s defense of Readability’s actions, centers around the fact that they are trying to do something good for readers and for authors. But even if the Readability team was entirely motivated by the altruistic goals of improving reading on the web and finding a better business model for authors, it wouldn’t matter. It isn’t Readability’s goals that anger authors. It is their actions.

The lesson is that trying something novel, even with good intentions, does not give you a free pass. As a product developer you will be held accountable for the outcomes related to your product. If you fail, you will have people to answer to and “but, I was trying something good and cool” will probably not be sufficient to get you out of hot water.

Lessons: Unlearned

Readability’s approach to shutting down the payment plan illustrates that their take on the lessons from the failure of the payment model is very different to mine.

First there is the unilateral decision regarding how to deal with the unclaimed payments. Depending on how you look at it, this could be the authors’ money or the readers’ money. Deciding what to do with it without consulting authors or readers shows the same sense of entitlement as collecting the money on the authors’ behalf in the first place.

The decision to explain things in terms of the failure of an experiment, instead of apologizing for getting things wrong, shows a belief that startups can take money from customers without being accountable for delivering what they promise in return.

Then there is their decision to give the money to “non-profit organizations that speak to the spirit of supporting reading and writing”. The implication is (1) that the positives of giving to a non-profit outweighs the negatives of their entitlement in making that decision unilaterally, and (2) that this is some measure of compensation for the failure of the model.

But the end doesn’t justify the means. Giving to charity may well be the only practical way forward, but that doesn’t mean everything’s ok. Without a clear and explicit acknowledgement that this was a flawed idea that failed, and a sincere attempt to involve authors and readers in their decisions around what to do with the money, the flames will continue to burn.

Bridges: Burning

Reading the comments on the announcement post, it is clear that there are both trolls and reasonable people calling foul. Unfortunately, Zeldman’s passionate, angry defense of Readability seems to be directed at both and is rapidly diminishing their chances of making things good.

I can get over being called a troll by my erstwhile heros of the Internet. But I do wish that folks at Readability were internalizing more of the real lessons here. This episode shows all the hallmarks of a classic PR stumble — a sense of denial, underestimation of the concerns, angry surrogates digging the hole deeper — and they will be the biggest losers when it all dies down.

In the Beginning

Early in the life of a social product like Twitter or Tumblr, there are no ads. The product is conceived without advertising in mind, but rather with a very well intentioned focus on user experience.

The reasons for this focus are easy to explain. First, the people building the product have a vision that is all about end user value. They might be solving a problem for themselves, or addressing a pain point they have identified. They are not driven by the passion to create a vehicle for ads.

Second, for a small user base in the early stages of growth, it hardly makes sense to waste time thinking about selling or serving ads. And until your online business represents a lot of eyeballs, no advertiser or ad network of note is going to be interested in working with you. From my experience, and my chats with people who have much more experience than I do, you need millions of ad impressions to be interesting to a network, and millions of unique users to be interesting to the ad agencies directly.

Third, for any product idea there are soon many competitors, and it is hard to be the one investing some of your focus on ads, while your competitors focus purely on user experience.

We Can Introduce Ads Later. Right?

Maybe not. In the delicate cocktail that makes a great user experience, advertising is a powerful, overbearing ingredient. Adding it to the mix after the fact is almost impossible to do without changing the flavor to something completely different. And probably not very palatable.

Even if the new ad supported product isn’t awful, it is not the same product that users grew to love. To them the addition of ads feels exactly like the bait and switch that it actually is. At best, the ads are an annoyance that devalues the product. At worst, they are a sign of that the makers of their beloved product are “selling out” and have lost their way.

This seems obvious, so why are good product people, who are in other respects thoughtful about the minutia of user experience, so naive about this aspect of their product’s design? The answer is that they never considered it. And this wasn’t an oversight. It was intentional. Advisors and investors encouraged company leaders to delay thinking about monetization. The high order bit, in fact, the only bit that matters, is to grow the number of users and their level of engagement as quickly as possible².

The result if the company is successful? A product that wasn’t designed to generate advertising revenue, and a company that doesn’t have any advertising DNA.

The Ads are a Lie

The startup got to this point because the focus was never on building a real business with profitable products. After all, the product that matters to early stage investors is not the one the startup is selling, it is the startup itself. History tells them that with enough traction from users, one can sell a business without a single cent of revenue for $1 billion dollars.

When the investors say “the business model can come later”, they are adding “after the exit” in mental parentheses. These days that exit most often comes in the form of an acquisition. The acquirer might want the technology, the users or just to eliminate an upstart competitor. Post acquisition, they will set about integrating the new products into their own business model, whatever that may be. All is well.

In a way, the notion of advertising as the business model has served its purpose as a way to be in denial about the absence of one.

And this is truly why the ad-based model is so popular. It is a model where entrepreneurs and investors can convince themselves and others that a bait and switch is doable. It would be much harder to accept, for example, that an online service was going to launch for free and then start charging later. The suspension of disbelief is based on the lie that ads don’t cost the user anything, when of course, they do.

The race is to get acquired before the lie is revealed. In later stage funding rounds it might be necessary to start dabbling in monetization in order to maintain the lie, but woe is the startup that runs out of growth hype, funding runway and acquisition prospects. It has to stand on its own two feet.

The Incumbents Win

For a company to be truly successful with an ad-based business model, it should start with one. After all, if the product isn’t sufficiently compelling with the revenue generating components in place, then it probably isn’t the basis of a viable business.

Sure, there is the eyeball scaling issue, but on the face of it this challenge — getting over the scaling hump into profitable territory – is exactly the sort of problem that VC money should solve. The wrinkle is that VCs focused on the exit won’t insist that their money is used to build a profitable business. They would prefer a buzz fueled phenomenon with a stratospheric valuation that preferably has no anchor in the boring reality of profit and loss.

These whacky incentives create an environment where many startups really aren’t working towards profitability, but rather towards an acquisition exit. They are building experiences, not businesses. And since they don’t have the shackles of P&L reality, they can do things that make it hard for businesses with real goals of profitability to compete.

The result is a reduced likelihood that large incumbents will be ousted by new upstarts in the consumer market. The incumbent just makes the upstart an offer. And since the upstart has no real revenue prospects on the horizon, its an offer they can’t refuse. And that’s a real pity, because large companies are where successful startups go to die.

In fact, large companies are also where many unsuccessful consumer startups go to die, via the acqui-hire. Typically these are startups that built innovative products, got some impressive user traction, but didn’t get to the nice fat acquisition before they peaked and started the decline. In this case, the acquirer gets a waning user base and some proven product talent at a bargain basement price. The founders save face. The investors get something rather than nothing. Everybody makes out ok, except… the customers.

The Customers Lose

Wherever the outcome is on the continuum from big acquisition success story, to a face-saving acqui-hire, to messy death, the customers are pretty much in the same boat. The product as they knew it, and in which they invested precious time and energy, will go away. If they are lucky, they might have the opportunity to extract their data in some way. And there might even be an alternative service eagerly welcoming the refugees. Even in the best case, however, it is not the outcome that customers hoped for.

The more this movie is repeated, the more consumers are going to take an interest in the business aspects of the services they use. The “too good to be true” spidey sense that we apply so effectively in the real world will start to get applied to online services. We will start to care that the companies we use to store our memories and connect with others are viable businesses. We will want to either pay them money, or see evidence of an advertising model that is sustainable.

That there are incentives to create companies without business models is a systemic problem. This isn’t to say that monetization-free startups aren’t innovating (they are), or that there aren’t exceptional cases where a startup finds its business model later (Google!), but if you would prefer to see a vibrant market of consumer Internet services that is less dominated by giant corporations who gobble tiny ones, then the incentives will need to change.

Fortunately, as the long term results of the current system become clear and as consumers become more savvy, the invisible hand of the market will make it so.

—

1. When I use the terms “advertising” and “ad-based” I mean a broad range of business models that involve getting a third party to pay you in return for some sort of promotion to, or information about, the people who use your product.
2. Revenue is sometimes even considered less than a “nice to have”. Without it, the sky’s the limit on the valuation of the company. With it, the valuation is brought sharply back down to earth.

—
Thanks to @toddwseattle and @sp990 for reading and commenting on earlier versions of this post.

Let’s break this down. In one corner, we have Samsung, which has been manufacturing and distributing phones for decades. It has relationships with all the mobile operators in China.

In the other corner we have Apple, who has been breaking into this market for just over two years. In a notoriously tough carrier ecosystem, Apple originally partnered with China Unicom, and more recently with the smaller operator China Telecom. But not with the nation’s biggest operator, China Mobile. Despite this handicap, and thanks to demand for the iPhone, they have one third the market share of entrenched Samsung. Demand is so high, in fact, that 15 million people on China Mobile are using jailbroken iPhones at slow 2G Internet speeds just to have one despite the lack of official support. And Apple had to stop selling the iPhone in its retail stores because demand for them caused “crowd disturbances”.

Yes, definitely Apple that should be worried.

Sarcasm aside, the mistake being made here is one of predicting the future of smartphone market share in China based on a tactical supply side advantage, rather than on the demand side fundamentals. Of course Samsung is in a better position with respect to the carriers. And of course this is something that Apple should address as a high priority. And they are. In 2006, Apple had relationships with zero carriers and Samsung had relationships with all of them. But Samsung has been losing their distribution lead ever since the iPhone launched and Apple started collecting mobile operators.

Not China Mobile though. Maybe integrating support for China Mobile’s unique brand of 3G didn’t fit into Apple’s schedule, or maybe they just haven’t agreed on terms. Based on the couple of times that I was in meetings with China Mobile executives, I wouldn’t be surprised if it’s the latter. They own the mobile market in China. Whatever the details, Apple has made some tough trade off decisions and decided not to support China Mobile’s network. For now.

And while the supply side factor of distribution reach is important, it is not nearly as fundamental as the demand side factor of people wanting your product.

At this point some people will say that Mac was always nicer than Windows and that didn’t seem to help Apple much in the PC market. But Windows was dominant because of the demand side economy of scale (or network effect) associated with the app platform.

Others will say that since Samsung is Android based, it will create a Windows-like, app platform network effect, but they are confusing OS footprint with app platform footprint.

If the logic isn’t convincing, maybe a case study will be. Consider Japan. iPhone launched there in July 2008 on the number 3 mobile operator, Softbank. By September that year it appeared to be hitting a bump in the road. Sales were slowing and according to Yukari Iwatani Kane of the WSJ this was because of the high price point and a lack of features that the mobile-sophisticated Japanese market expected.

Last week we learned that Apple became mobile phone market share leader in Japan. Not share of smartphones, but share of all phones. This despite the fact that NTT DoCoMo, Japan’s largest mobile operator by far, still doesn’t carry the iPhone.

Samsung is definitely winning some battles in China, but unless it produces a product that can cause a riot, it will lose the war.

The gist of the article is that Apple hardware is falling behind. The company is “under pressure” and will soon be “feeling the heat” from new technologies like Samsung’s foldable display. This argument is flawed on several levels.

1. The Many Faces of Samsung

There is not one “Samsung”. The Samsung division that makes display technologies is separate from and largely independent of the division that makes phones. The former will happily sell whatever they can to Apple, including fancy new flexible display technology.

In fact, you can bet that if their flexible displays are close to production-ready, then Samsung’s display technology team is actively trying to sell Apple on incorporating the technology into future iOS products. After all, there may be gazillions of Android phones being activated every day, but there is no single purchaser of specific component SKUs larger than Apple.

2. First Movers Take One for the Industry

History teaches us that being the first to use a new technology is hardly a guarantee of success. In fact, in the case of a technology that makes fundamental changes to user experience it is much more likely to end badly for the first mover. Apple was nowhere near the first company to make a phone with a touch display. It was the first to do it right.

Understanding this point is one of Apple’s strengths, having learned hard lessons from products like the Newton. So there is zero anxiety in Cupertino about Samsung’s phone team beating them to the punch with a foldable display. More likely, having hosted the Samsung foldable display sales team in Cupertino, Apple’s team has concluded that the technology is interesting and something to watch, but still way too risky to be incorporated into the iPhone or iPad. Besides, they can wait for other products come to market with this novelty and observe how consumers react. They can wait for the hardware technology to reach maturity, because you can bet that the first few generations will be far from consumer-ready.

3. Remember the Software

One common misconception about a technology like a foldable display is that the hard part is done once you have figured out how to make a display that is flexible. But that is only the beginning. A flexible display is a fundamental change. Until now, ALL computer and device screens have been hard, flat surfaces. All user interface design assumes that they are hard, flat surfaces. When this changes, the user experience implications are probably as extreme as they were for moving from punch cards to keyboards, or from keyboard only to keyboard plus mouse, or from physical keys to touch screens.

What often happens with new, game changer hardware technologies is that the first-to-market products combine the new technology with the old software user interface. So if we do see Samsung phones with foldable screens, the software UI will probably look almost identical to phones that have normal screens. It is only later when the user experience design is rethought from the ground up for a flexible display that the potential will truly be realized. And when this happens, it is very likely that a vertically integrated player, with their end-to-end control of hardware and software, will do it.

Samsung and software? Samsung and User Experience? Not so much.

Flexible displays will probably be big. First movers will initially generate some buzz, and later be ridiculed as the first products fail to meet expectations. At some point, perhaps a lot later when flexible displays are a forgotten technology, other companies will bring products to market that set reasonable expectations and meet them with delightful user experiences. These companies will get history’s credit for being first to market.

When the IBM PC was born, the relationship between Microsoft (operating system software vendor) and IBM (hardware vendor) ushered in a new, horizontal model. With hindsight, IBM made a blunder when they allowed their contractor, Microsoft, to retain ownership of the operating system (OS), but this was only one part of the equation. Crucially, a layer of software decoupled the OS software from the electronics hardware, and the PC’s brain was a micro-processor that was available from Intel, a 3rd party silicon vendor. These factors and others enabled the industry of PC clones that followed when Phoenix cloned the key interface layer between hardware and software (the Basic Input / Output System, or BIOS).

Lawsuits followed, but when the dust settled the industry was horizontal. And Microsoft owned the most important piece of the value chain — the OS. The OS was the key because it defined the app platform, and apps, in turn, are what created the network effect that exploded into 95% market share. Hardware, on the other hand, was “commoditized” because virtually anyone could make a PC from components. In fact, college students like Michael Dell started doing just that from their dorm rooms and grew companies that later eclipsed IBM in the PC market.

So in the PC value chain, there was intense competition in the hardware part, and little to no competition in the OS part. The rule is that value flows to the part of the value chain that is most “concentrated” (fewest competitors) because that is where companies aren’t pressured to lower their prices, and nowhere is this more apparent than PCs. Microsoft with the biggest profit margins we’ll ever see, and the PC manufacturers struggling to make a few points of margin.

Mobile Computing and the First Signs of a Cycle

In the late ’90s and early ’00s three precursors to mobile computing devices started to go mainstream, the phone, the personal data assistant (PDA) and the portable media player. Initially these were all vertical plays, but Microsoft saw the potential of mobile computing and got in early with a compact version of its Windows operating system, Windows CE.

The problem was that the market for mobile computing was nascent. Only the earliest of early adopters were prepared to do things like edit documents on a device, or send email from one, or download music to one. At a time where the thing people needed most of all to convince them to buy one of these devices was simplicity, Microsoft’s horizontal approach led to confusing products. Not only did they have too many features, they were confusing in that multiple companies were collaborating to bring them to you. It is a Compaq piece of hardware with Microsoft software and… what does it do again? Who do I call when I’m confused?

The devices that did take off were different. Simpler. Palm Pilots acted as an extension of your PC address book and calendar. Blackberrys delivered only your email. iPods were walkmans that could store all your music. The successful products were focused on one single value proposition.

This might have represented the beginnings of a pattern that we will see repeated whenever there is a fundamental shift in user experience, or a new computing modality. In the early stages, simple, vertically integrated products that minimize complexity are successful. I don’t only mean user interface complexity, I mean everything about the user experience. “What does it do?”, “Who makes it?”, “Where can I buy it?” and “Who will help me use it?” must all have simple answers.

How simple? Much, much simpler than you think. Very few people in technology understand the level of simplicity required to create a new category, so the odds are that you aren’t one of them.

Steve Jobs was one of these people and he hired a lot of the others. They made the iPhone, which catalyzed the mainstream smartphone market. Even Jobs’ description of the iPhone during his launch keynote reflects the need for simplicity. He teases the crowd by describing three separate dedicated devices, a new iPod, a phone and an Internet communications device.

“An iPod, a phone and an Internet communicator. An iPod, a phone… Are you getting it? These are not three separate devices. This is one device. And we are calling it, iPhone. Today Apple is going to reinvent the phone.”

Beautiful simplicity that launches Smartphones across the chasm.

Steve Jobs and the Horizontal Storm

With the iPhone, Apple is in its vertical element. The capability to design and execute on all aspects of the product is their home turf. This gives them the edge in the new mobile computing cycle. It represents their emergence from a long period where their model was not suited to the dominant horizontal model in the computing industry.

But how did they weather the horizontal storm that Jobs inherited when he returned to Apple in 1996?

1. They hit bottom. When Steve returned, he could cancel products left, right and center without sacrificing much profitability. There was little to lose by trying a new direction.
2. They focused their vertical chops on a profitable niche. A beautiful, differentiated iMac that had high appeal with a smallish subset of the PC market created a profitable base to start the return.
3. They found and dominated an adjacent vertical opportunity. Who knows whether Apple or Jobs knew the potential of the iPod at first, but when it became evident they executed flawlessly doing what they do best: an end to end offering that took a technology based value proposition mainstream.

By 2006 they had the brand, the capability, and the resources to introduce a product that led the world into the era of mobile computing. And also, back to an industry where the dominant player is vertically integrated. I don’t think they sat around the boardroom plotting the overthrow of the horizontal model. They were probably just playing to their strengths and passionate in a belief that “if you love software you have to build your own hardware”. Their specific motivations are irrelevant though. The outcome is that their own product changed the industry rules and brought the game back to their home field.

Once Horizontal, Always Horizontal

Apple didn’t make a big wrenching change when Steve Jobs returned in 1996. It stopped trying to change and it returned to its roots — making profitable end-to-end products. Prior to that the company had bowed to the pressure of a conventional wisdom that Microsoft’s horizontal platform strategy was better, but their attempts to make a business out of licensing their platform wasn’t going well at all. There were any number of reasons, but most of them derive from the simple truth that making platforms wasn’t Apple’s bag. They hadn’t hired the kind of people that were good at it. Passionate Apple employees didn’t have their heart in it. It wasn’t in their DNA.

And here is a fundamental truth that so few people acknowledge. Building a business on a horizontal platform and building a business on a vertical product are completely different things. So although Apple and Microsoft have many superficial similarities — they both build operating systems, write application software and design user experiences — their differences run far more deep.

The horizontal platform is all about strategic collaboration with partners. This is a technical challenge and a business challenge. Technical, because you need to support all of your hardware partners all the time. Not only their current products, but their previous generation hardware too. And a business challenge because your economics are completely dependent on extracting profits from the value chain at your partners’ expense, while keeping them happy enough not to flee your platform.

Try to imagine the mind-bending complexity of building something as sophisticated as Windows for the thousands of distinct products that use it as their OS. Then imagine the constant negotiations with your big partners, and the massive programs you need to set up to manage the thousands of small hardware partners that you can’t deal with directly.

Apple deals with orders of magnitude less complexity when it comes to hardware supported and partnerships with other companies. Windows engineers can only test a new OS on a tiny fraction of the actual PCs that will run it. Apple can test a new OS on every machine that will run it. Apple has few partnerships, and when it does partner it does so when it has a lot of power in the relationship. It doesn’t have partners that are also customers. It doesn’t have any confusion about who’s more important. It’s you, the consumer. Microsoft, on the other hand, tries very, very hard to do what you want, but it also has to answer to Michael Dell.

What Apple does have is the ability to execute almost all aspects of the end-to-end product. And they can afford to have an undiluted, single minded focus on the people that purchase their product. Unlike Microsoft, it has no confusion about who the customer is. Engineers, designers and managers spend all of their time think about products, the problems they solve, and the people that use them.

All of this is to say that when people talk of Microsoft becoming like more Apple and adopting a vertical strategy — or back in the day, Apple becoming more like Microsoft and licensing their OS — they completely miss the massive, wrenching change that this would represent. Microsoft will have product successes, like Xbox, but it is, and probably always will be, a platforms company.

The Platforms Guy

If Apple is made in Steve Jobs’ Image, then Steve Ballmer is made in Microsoft’s image. The large, blustering, bumbling exterior belies a very smart, capable core that is struggling to weather two storms: (1) the shift in power from from client to cloud and (2) the return to dominance of a vertical industry structure in the fastest growth area of computing: mobile.

Steve Ballmer can’t take many lessons from the way Steve Jobs weathered the horizontal storm. Microsoft’s remarkable profitability means that it will not hit bottom for a long, long time. It can’t easily do the iMac trick and retreat into a niche, because horizontal platforms need market share and scale in order to succeed. And it can’t do the iPod trick of finding a nascent category to dominate, because horizontal platforms don’t do well in the early stages of a market when consumers need clarity and simplicity more than anything else about the value proposition.

Microsoft has to do something different. It has to find the next important horizontal platform, accelerate us towards it, and then dominate it completely. Is it in the living room? Maybe, so let’s build the leading entertainment platform that connects to the TV. Is it the preeminent starting point on the web? Maybe, so lets make MSN the most important portal. Is it the communications network? Maybe, so let’s buy Hotmail (then) and Skype (now). Is it the index of the web? Maybe, so we better not cede that to Google. Can we make it the mobile OS? Maybe, so let’s get in early, build one and try to replicate the PC licensing model. Is it the platform for web applications? Maybe, so we’ll create a platform for the cloud called Azure.

Is this hard? Yes. It might be impossible. Is it crazy? No. If you are a platform company and you plan to stay true to your nature, then this is a completely rational strategy. It does, however, take its toll.

First, Microsoft can’t go anywhere quietly. As soon as the giant appears at the door of any category, every journalist, pundit and competitor knows exactly what Microsoft has in mind. There is very little scope for subtlety. Gulliver can only make a frontal assault, because the front moves to Gulliver.

Second, anything but domination will be considered a failure. Both internally at Microsoft and by the press.

And third, there will be many failures along the way. Some of them successes by any other standard, and others hopeless failures by any standard. Either way, they will represent opportunity after opportunity for gloating pundits to ridicule Microsoft. And to ridicule the personification of Microsoft, Steve Ballmer.

Opportunity in Obscurity

Ironically, all the ridicule does have a silver lining. Although Microsoft is still making money hand over fist on Windows and Office, it has all but left the industry consciousness. Mary Meeker’s “Internet Trends” presentation at the Web 2.0 summit in 2010 mentioned Microsoft precisely once, more than 30 slides in, as one of three companies introducing innovative gaming input methods. Notably, it isn’t listed in the Global Public Internet Companies about 5 slides earlier. The surprise isn’t so much that Meeker reinforced perception rather than reality, but rather that almost no-one pointed it out. In an even more striking contradiction, Meeker’s 2011 presentation omits Microsoft in her list of “mega-leaders”, but acknowledges that they are behind only Google in global monthly unique visitors in the very next slide.

More recently, Tod Hixon’s Forbes article, “The Post-PC Era Starts to Make Sense”, doesn’t mention Microsoft at all. Even if you don’t believe that Windows Phone 7 and XBox warrant inclusion, surely Microsoft at least deserves a mention for representing the PC-oriented incumbent. Hell, even IBM makes it into Hixon’s piece.

The silver lining is that competitors will underestimate Microsoft’s ability to return to relevance. It is looking less and less like Gulliver. At the same time, it is continuing to adapt to the new realities of cloud and mobile computing.

In the cloud, Microsoft has its Azure platform. Here are two interesting things about Azure. First, it is apparently one of two 3rd party cloud platforms providing infrastructure for Apple’s iCloud (the other is Amazon’s AWS). The cloud is the area where Apple’s DNA is weak, and that is one thing to draw from this. It also brings into focus the extent to which Google has replaced Microsoft as Apple’s nemesis.

The second interesting tidbit about Azure is that it has recently released support for Node.js, a bleeding edge open sourced technology for building code that runs on servers. This is a different Microsoft.

In mobile, Microsoft has Windows Phone 7, widely acknowledged to be an excellent user experience, but struggling with market share percentage in the low single digits. Microsoft has partnered with Nokia, another powerful company that pundits have already counted out. The result of their collaboration, the Lumia 700 and Lumia 800 phones, are receiving extremely positive reviews from everyone who sees one, and initial market response in Europe is good. Lumia 900 is eagerly anticipated in the US, and tech bloggers are raving about it. Having a good product is definitely the first step, and Microsoft has achieved that.

In a Mirror, Darkly

With competitors looking the other way, Microsoft’s biggest obstacle is itself. The cash cow businesses will not cede the throne at Microsoft easily. My knowledge of internal Microsoft politics is more than two years stale, but I would guess that even today, Windows, not Windows Phone or Windows Azure, is the more powerful internal group.

Perhaps an even more difficult challenge for Microsoft is switching to the mindset of the underdog. Microsoft was so dominant for so long, that hubris is part of its DNA. In the quest to find a market for Windows Phone that is “Microsoft large”, executives are likely to favor a massively broad approach that maximizes addressable market and distribution reach. In the process they will smash themselves on the battlements of iOS and Android.

If, on the other hand, they have the humility to focus on a few key market segments that they can dominate completely, then they might gain a solid foothold that positions them for a comeback. Microsoft is more focused on user experience than Google, and it is more experienced in the cloud than Apple. That powerful combination may end up weathering the vertical storm.

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Disclosure: I was a Microsoft employee and I still own Microsoft stock.

Instapaper is successful for good reason — it offers a lot of value to users. If you have the iPhone or iPad app and you have opened one of these apps while connected to the Internet, then the text of the articles you have saved will be available from that device even if it is offline (e.g. in the subway). The Instapaper UI allows you to read the articles without the distractions that the original publisher of the content saw fit to place near the article. Ads, for example, do not follow articles into Instapaper. The saved articles also serve as a useful archive of the things you found interesting enough to save for later.

So it was from the perspective of an appreciative end user that I recently started questioning the Instapaper model. After all, Angie and I make our living as a small web publisher. There are probably YLF readers using Instapaper to save Angie’s articles for later. When this occurred to me I immediately experienced a rush of involuntary emotions. The knee-jerk reaction of someone with a small online business where advertising revenue puts food on the table, who has invested time in designing and building the site, and who watches his wife spend many hours researching and writing most of the site’s content.

I did the healthy thing. I tweeted.

I’m torn about @instapaper & @readability. As a user I like them. As a publisher I feel that they monetize our content without permission.

Marco responded:

Instapaper’s mechanics respect publishers and their pageviews more than any similar service.

I agree with this. On Instapaper’s information for publishers page you can read about preparing your webpage so that Instapaper will parse it correctly (as a tech-savvy user you can even customize the way Instapaper represents ANY site when you save it for reading later). And if you object to Instapaper using your content, you as a publisher can opt out.

And as Marco pointed out to me in email, Instapaper has engagement benefits for a publisher:

The most common use-case by far is this: someone opens up a page on the publisher’s site, looks around for a bit and reads the first few paragraphs, clicks the Read Later bookmarklet, then reads the rest in Instapaper. This gives most publishers as much value as any other viewing method, and since it helps people read longer articles attentively instead of just skimming them briefly and clicking away, most publishers have noted increased engagement and return rates from Instapaper users. (In fact, almost every staff member at publishers I’ve spoken with has used Instapaper themselves.) Publishers almost universally agree that this use of Instapaper is beneficial to everyone.

But here’s the thing: However much Instapaper has our benefit in mind, it is monetizing our content in a way that we did not explicitly approve. And while there might be an engagement benefit for us as publishers, as a user of Instapaper I know that I spend much less time in the publisher’s world and more time in Instapaper than I used to. After reading a Daring Fireball article on John Gruber’s site, I’m very likely to read another DF article. After reading a DF article on Instapaper, I’ll probably go from that to something completely different. Bottom line: The benefits for publishers argument isn’t a slam dunk either way.

And it isn’t like RSS. Although many people consume our content in RSS readers, it was our choice to provide a full RSS feed in the first place, and if we choose to do so we can put ads in the feed.

Drawing the Line

In the market of read-it-later apps, Marco is the good guy. While speaking to him it becomes clear that he has been thoughtful about the impact on publishers when designing Instapaper. His competitors, on the other hand, are going much further in repurposing other people’s content without much consideration for the original publisher. Primarily this comes in the form of being able to click links and save them for reading later without ever having gone to the publisher’s site. When this happens, the publisher never sees any advertising revenue and doesn’t get the opportunity to present their content in the context of their own design.

Then there is the feature of rendering multi-page articles in a single page. We don’t do multi-page articles on YLF, and I am sometimes annoyed by reading them on other sites, but I do respect the publisher’s right to offer their content in this way. We as readers can then make the trade off and decide whether the value of an article overrides the annoyance of clicking multiple pages to read it. Despite a lot of user pressure, Marco does not offer the feature of piecing multiple page articles into a single page (his competitors use this as a key differentiator).

So as a publisher the concern isn’t as much the impact of Instapaper as it is the impact of a wide range of parasitic apps that have repurposing your content as their business model. If it is ok to ingest a publisher’s content without their consent and then monetize that content, where does one draw the line? If the argument is that the app offers a better experience than the original publisher, then is it ok for me to ingest the content of the Salon.com and present it in a nicer, more convenient interface alongside my own ads?

A Middle Ground

A couple of years ago one of our readers brought it to our attention that a small company was copying Angie’s blog posts (almost verbatim), compiling them into a PDF document, and sending this document to their members as part of a paid subscription. I don’t think anyone would condone this. It is a blatant example of someone stealing and monetizing our content. One clear difference between this and a read-it-later app is that these people weren’t even crediting the original source of the material. But let’s say they had clearly noted that all the content was taken from YLF and was written by Angie, would it have been ok to package it and sell it to their members in a format that their particular readers found more convenient?

I don’t think so. I think there must be a model where publishers have more say in how their content is monetized AND and where users get the benefits of read-it-later features and apps. Napster showed us a better way to distribute digital music, and then iTunes showed us a way to do it while respecting the creators of the music. Will there be an iTunes of online publishing?

One Instapaper alternative, Readability, has already tried a middle ground that includes publishers in their monetization model. In Readability’s original model readers could optionally become subscribers, and then 70% of their subscription fee was paid to the original publishers of the articles that were saved by the user. I don’t think this is the solution. For one thing, publishers had to know about Readability and sign up to receive their payments. And while it felt like nice gesture on their part, we as a publisher did not agree to participate in Readability on these terms. We have not had any involvement in the pricing of the subscription and we did not negotiate our cut. In a way, Readability was on more shaky ground than Instapaper because it is making a tacit acknowledgement that writers and publishers should participate in the economics of a save it for later reading service.

Also, the Readability subscription is now free and I can’t see any mention of the original model on their website, so that experiment doesn’t seem to have been an unqualified success. I talked to a Readability representative and they told me that although it is still available “We don’t really mention the paid option on the site, since paying is entirely opt-in.”

The App Response

Read-it-later apps can function because web pages are designed to be machine readable. Ultimately human readable of course, but before you see a page, your browser needs to interpret its native language of HTML, CSS and Javascript. This means that apps like Instapaper “scrape” and ingest the content. Few publishers created their web pages with this in mind. It is just a side effect of the openness of the web.

Traditional publishing business models were in trouble long before read-it-later apps came along, but new publishers with lower overheads are doing quite well on an ad-supported basis. That might change as more and more of a publisher’s content is consumed somewhere other than the place they intended. These new publishers might find themselves looking at some of the same options that traditional publishers have been wrestling with.

The first of these options is the Internet paywall, which major publishers like the Wall Street Journal and the New York Times have embraced in different ways. A more recent approach rides the resurgence of native apps that was catalyzed by Apple’s iOS App Store ¹.

Publishing via an app allows the publisher to tightly control their user experience and business model. And it allows them to side-step the ugliness of any public conflict with apps that are scraping their content.

On the other hand, by going to an app the publisher gives up a medium that was designed to deliver hyperlinked content to the masses. And they give up the ease of web based sharing and all the viral advantages associated with that. There’s a lot of baby going out with the bath water.

Trade offs notwithstanding, this shift is happening and in the process some content is migrating from the web to native apps. Of course, the content will still be flowing over the Internet, probably even using the web’s HTTP protocol, but the point is that it won’t be readable in a general purpose web browser, but rather in the custom, publisher-specific web browser that is the publisher’s app.

The Web as Solution

I like apps for many things, but I also want to live in a world where the open web is alive and well. When people talk about the web versus apps, it is surprising how often they discount the single, incredible innovation that defines the web and is not available to apps: the hyperlink. Apps create silos. Delightful silos, but silos nonetheless. They are connected to the web, but they are not in the web. You can link from an app to a web page, but you can’t link from the web to an “app page”. You can’t find an “app page” using web search unless the app developer creates a page that mirrors that content.

I think that the massive advantages of being in the web as opposed to being attached to it will keep many publishers there. And if the hyperlink-fueled  growth of the web itself is anything to go by, they will thrive, even as apps and services scrape and monetize their content. Their user experiences will improve, and they will figure out how to make the in-situ consumption of their content so compelling that readers will be loathe to read it elsewhere.

And for inspiration they need look no further than the class-leading read-it-later apps like Instapaper and Readability. These apps succeed because they solve a problem for people. There is no doubt that much of their value proposition exists precisely because publishers have such broken user experiences today. Publishers should ask themselves why people need a third party service to get a “reading friendly” experience. And they should think about how they might partner with offline consumption services like Instapaper in a model where everybody, especially the reader, wins.

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1. I don’t view opting out as viable option because (1) it probably isn’t practical to for publishers to play whac-a-mole with emerging read-it-later apps and (2) opting out paints the publisher in a negative light when the annoying message appears telling users that this publisher doesn’t allow their content to be read later.

How do we know the world is crying out for decent products? The iPad. In 15 months the iPad was making more money for Apple than their entire Mac business. This is unbelievable. The iPad is a very nice product, but it isn’t that great. More accurately, it is good. And almost everything else is abysmal.

Abysmal, in that return rates for tablets are routinely measured in double digits. In that most products ship with egregious bugs that we would never tolerate in other product categories (and that are often magically solved in a software update). In that many products ship with performance issues that clearly make them unusable in their primary use case (e.g. phones with less than a day of usable battery life). And perhaps most of all, in that even the simplest tasks are hard to perform by all but the most expert of users.

Why is this happening? For decades the industry has been producing good PCs. They aren’t perfect, but most people buy a PC and get good use out of it for a quite a long time. Why are phones and tablets so different?

The Last Universalist

Consider the following: Every single engineer at Microsoft could go home tonight and build a PC from components, install an OS and give it to their parents. It would work and it would be useful. Mom and Dad would do email and browse the web and occasionally call the engineer for some simple tech support.

In contrast, not a single engineer at Microsoft could go home and build a phone. Forget for a moment the major issue of getting the components. Let’s say one could pick up everything you needed at Fry’s, including the enclosure. I’m saying that not a single engineer has all the skills and knowledge required to build a phone that a consumer would actually use.

I used Microsoft engineers in my example, but the same thing could be said of Apple engineers, Facebook engineers, Google engineers, and probably every engineer in the Valley. The point? There is a massive difference in complexity between a phone and a PC. No-one you know can build a phone. No-one you know can help you to fix one. You’re more likely to have a person in your family that can fix your BMW than you are to have one who can fix your Droid.

Now, part of the reason our engineer can’t do this is an issue of packaging. Phones are smaller and a lot of engineering goes into jamming all that electronics into such a small space. But that is only part of the story. We know this because few companies seem capable of making a good phone, or a good tablet, or even a good set top box. The real story is that the internal complexity of our post-PC smart devices is out of control.

This makes me think of Henri Poincaré, a 19^th century mathematician. He was considered to be the Last Universalist, that is, the last human being who was considered to have excelled in all fields of the discipline. I remember the moment I became aware of this because the thought that mathematics had grown to a point where individuals could only ever hope to grasp a piece of it was fascinating and a little scary. Think about that. As we learn more and more about math, it doesn’t get simpler, it gets more complex. The more progress we make, the less any individual understands of the whole. At the same time, our increased collective understanding allows us to build more and more complex things. There’s the scary. None of us understands these new wonders completely.

Even we make our products more simple for users, they get more complex inside.

The PC: Simplicity through Standards, by Mistake

Although the PC is an extra-ordinarily complex object, an historical anomaly made it simple. A standardized architecture with well defined interfaces emerged, creating uniform, industry-wide abstractions that tamed the inherent complexity of a computing device.

This wasn’t intentional. From IBM’s perspective, it was a series of incredible missteps in business strategy and managing their IP that allowed one company to create a uniform software platform and several others to copy their way to greatness with hardware clones. By mistake, the PC became a seldom achieved win-win outcome in a game of prisoner’s dilemma.

And to prove that lightening does strike the same place twice, we have the Internet as a second historical anomaly.

As fantastic as the win-win results of the PC and the Internet were for everyone involved, even IBM, we are unlikely to see this happen again in our lifetimes. The steady state outcome for prisoner’s dilemma, after all, is lose-lose. In this context, lose-lose means that companies generally fight to keep advantage through proprietary technologies and interfaces, and we never see the massive forward momentum that is generated for the industry as a whole when win-win open standards emerge.

But in the lose-lose outcome, most consumer electronics products are internally a complex, proprietary mess. One of the hidden benefits of an open standard is that it stops talented, well meaning engineers from reinventing interfaces to make them slightly better. Even if internal standards exist, few companies have the discipline to hold to them, so much of the complexity is reinvented for every product cycle. Not because engineers and management are bad, but because they are ambitious and unconstrained.

Solution 1: Forcing the Standard

Is Android, an open-ish platform, the answer in the quest for standards when it comes to phones? Not really. It is a software standard of sorts, but the standard runs only skin deep. There is no corresponding hardware standard (e.g. no equivalent of the PC BIOS) that constrains hardware design. Instead, every new phone has its own “board support package”, a non-standard layer of software than tries to abstract away hardware differences. Then the OS must also abstract away more differences. The result is compromised performance and compromised reliability.

Of course, the sheer number of new Android based phones will probably generate some really good ones along the way. But it would be surprising to see any of these individual examples become great product lines that stand the test of time.

Windows Phone 7 does better than Android at taming complexity by being more restrictive on hardware, but until WP7 has market scale, this just means that phone OEMs will focus on Android as their primary vehicle for differentiation. WP7 will stay a side project. Hence Microsoft’s need to do a huge deal to get Nokia’s full attention. If they can leverage this into scale, then they might be able to use that scale to create some hardware standards. This is the scenario where Microsoft makes an incredible comeback. It isn’t likely, but it is possible and it is the reason that ruling them out completely is short sighted.

Solution 2: An Obsession with Simplicity

Apple masters the complexity through an incredible discipline of simplicity at the product line level. Any other company would, by now, have diversified the iPhone’s success into a proliferation of SKUs. Just consider the number of times since the iPhone’s launch that smart people have been predicting smaller iPhones, bigger iPhones, iPhone Nanos, iPhone shuffles. It never happened. Why? Apple understands the role of product line simplicity in taming engineering complexity.

I should also point out that although I have focused on engineering complexity, this is really only part of the picture. Business complexity is arguably just as important and debilitating, particularly in an industry where players like mobile operators, content providers, and the distribution channels have colliding business models that are all in various stages of disruption. But just as product line simplicity helps to Apple tame engineering complexity, it helps them to deal with business complexity. With a single popular product, Apple could out negotiate these other players in ways that OEMs like Nokia and Samsung could never do with larger, but fragmented product lines.

Other companies will get there in time with Apple’s soup to nuts approach. Google might do so by digesting Motorola Mobility and becoming more like Apple. Perhaps completely new OEMs, like Amazon, will emerge and join Apple in replacing the old guard. After all, the bar is so low that even Barnes & Noble can create a credible competitor to the current line-up of products in that market so well-loved by analysts — tablets sans iPad.

And Apple’s continued success is anything but certain. They could so easily lose their way and let the complexity sneak in, especially in a competitive environment where the bar is so low. Hopefully Steve Jobs’s unique understanding of the importance of simplicity at every level is so ingrained in Apple’s culture that it survives his passing.

The reality is that for the next decade there will be some good products from Apple, some isolated brilliance from other manufacturers, and for the rest, a sea of crappy products to choose from. What a perfect time for hardware-savvy startups to make a comeback.

Phones are not like Liquorice Allsorts. You don’t buy a bag of them and use a different one each day. Typically, you buy one phone and then use it for a long time. You don’t buy a phone and share it among a group of people. Typically, you are the only person who uses your phone. “Choice” is not a feature of a phone. Choice can be a feature of a category of phones (e.g. Android phones), but you don’t use a category of phones. You use a single phone.

So when Microsoft and Google say that they offer consumers “choice”, they are either misunderstanding consumers or misrepresenting their reasons for providing choice.

To be sure, there are some good reasons to offer choice.

1. Choice increases your addressable market. One could make a strong argument that iOS and Android will start tapping out the addressable market for phones with an iPhone like form factor. There are people that would prefer a physical keyboard, for example, and when the only new market left is these people, then Android will benefit from that.
2. Choice increases your distribution opportunities. If your strategy is to provide an OS and partner with many different OEMs or Mobile Operators, then supporting many permutations will help you. You can use some permutations to create unique offers with certain partners. And you can accommodate their varying points of view on what features are necessary to win. Even Apple with its vertical strategy could get more distribution if they offered more choice.

Choice also, however, comes at a price. Things like supporting another screen size, or having a version with a keyboard, sound relatively simple to many dinner party pundits. Even to professional pundits. But they have MASSIVE consequences for messaging, user experience, risk, cost and productivity. So there are also good reasons NOT to offer choice:

1. Choice reduces the clarity of your message: It is hard enough to get people to understand a complex consumer electronics product without explaining a bunch of permutations. Apple understands this and is fanatical about keeping its product line simple. One form factor, one input method, one screen size, one app store, one OS release for all devices. It took incredible discipline to keep things this way.
2. Choice compromises user experience: Supporting a physical keyboard on iOS would require the experience to be rebuilt from the foundations up, and the result would probably never reach the quality of the current iOS with its focus on the touch screen. UX design is a constant trade off between simplicity and the desire to add features. That is why, even with the worked example of the first TiVo UI, no company, not even TiVo themselves, could build as delightful a DVR experience. Supporting choice means creating products where the ratio of total features to features actually used is larger. In other words, more complexity without more value from the perspective of an individual user.
3. Choice increases hardware costs (and risk): The fewer components you have in your product line, the better. It is easier and cheaper to manage your inventory. And more importantly, fewer distinct components spread over the same product volume gives you more leverage when negotiating prices with key component suppliers. Apple has even taken this to a point where they can lock up world supply for a particular component. This is called buyer power. Without it, you will pay more.
4. Choice increases software costs (and risk): Building something with 3 options is much more than 3 times as hard as building something with one option. Every option that is added to a product contributes to a geometric increase in the complexity of the code base. This is completely lost on most product managers as they complain “how hard can it be to add that ONE additional checkbox!?”. Not hard, but once it is there it will be a gift that keeps on giving as it influences and constrains the rest of the system. Immediately, but also for years to come as the product evolves.
5. Choice is a productivity sink: More meetings. More email. More hallway discussions. More support requests. Every little permutation that gets added to a product has an impact on managers, engineers, marketing, support and almost everyone else in the organization. Viewing each person’s activity as doing, the actual creating of value (designing a feature, writing ad copy) and coordinating, talking to other people about what you should do or how you should do it, each new option you add reduces the ratio of doing to coordinating. It can get so pathological that not only do management roles become 99% coordination, but the organization needs new, non-management roles held by smart, creative people that do nothing but coordinate.

There is another effect that has been documented, but is less definitive. It seems that having more options can undermine our ability to make a decision. Sheena Iyengar’s research (which I found via John Gruber’s Daring Fireball, and which was the spark that lead me to writing this post) included an experiment where people were six times more likely to buy a jar of jam if there were 6 options than if there were 24 options.

I experienced this myself when I had to buy an Android phone for testing our app. After reading countless reviews and visiting several stores I was stumped and ended up putting off the decision for a couple of months. I was finally forced to pull the trigger when we were running out of time, so I closed my eyes and clicked “add to cart” for the Google Nexus. The difference between this and the decision process when choosing an iPhone couldn’t be more stark.

My list of “choice” cons is not exhaustive, but I think it will be sufficient to make the point that building choice is very costly. And since choice doesn’t have any material value for the user after they have purchased their new phone, it should only be built if the addressable market and distribution needs justify the investment. Is this the case for the two main proponents of smartphone choice, Google and Microsoft?

Google, yes. Relative to Apple, user experience is lower in their stack of priorities (this isn’t a criticism, merely a necessity of their horizontal strategy), so they can stomach the UX cost more easily than Apple would. Their volumes depend on serving many, many partners (both OEMs and mobile operators), so pushing distribution as far as they can is important. And they have enough market share that they probably should be at least thinking about what happens when the addressable market gets more tight.

Microsoft, no. With less than 2% market share, Windows Phone is nowhere near the point that addressable market or distribution reach are limitations. And the fidelity of the OS experience suggests that UX is high on their list of priorities. So as a Microsoft shareholder and a fan of Metro, I would love the company to concentrate on one, small part of the market and win there convincingly. The consumers they target won’t care one bit about choice, only that there is this one phone that excites them way more than any other. Before Windows Phone has this sort of localized traction, any effort on increasing the addressable market or opening more distribution channels will not only be wasted, but it will take resources away from the goal of winning in at least one corner of the market.

Which brings me back to my starting point. Phones are not like Liquorice Allsorts. Choice is not a feature. It only has real meaning from a supplier’s perspective. It can give Google or Apple or Microsoft more addressable market or more distribution reach. Demand side value, however, is about millions of individual consumers, where all that matters is meeting each of their individual needs. And all that takes, in each individual case, is one great phone.

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Disclosure: I was a Microsoft employee and I still own Microsoft stock.