In December 2010 I decided to open source my investment strategy, in the form of a slide show and presentation called Ten Hypotheses for Tech Investing. When you open source ideas, you expose them to improvement. I presented the Ten Hypotheses to many smart people, including executives at Google, Facebook, Twitter, Yelp, the New York Times, Wall Street Journal, NBC, and many others ... and they shredded them. It was fantastic!!!
From that process emerged ideas like the Hypernet. While I characterize the Hypernet as a hypothesis, it already exists. We use it every day. In reality, the first four of the Ten Hypotheses are new interpretations of the present, rather than predictions about the future. This blog post will focus on those four hypotheses.
The world thinks about the online world in terms of a network layer (The Internet) and a software layer (The Web).
The online world is no longer so simple. Apple introduced the iPhone in January 2007, and with it a new model of online user experience: apps. Today, app-centric smartphones and tablets represent half of all connected devices. Half. On app-based devices, the Web is just one application among many, rather than the center of online activity. It is a huge change.
Since the online world now consists of two pieces of equal size, I believe the traditional vocabulary is obsolete. I have proposed that we refer to the new network layer -- the sum of the wired Internet and the mobile data infrastructure for cellular and Wi-Fi -- as the Hypernet. Its software counterpart is the Hyperweb, which today includes the traditional Web and app model, but which may evolve to include other technologies in the future.
Why do we need new vocabulary? Everything about the app market works differently from the Web. The failure to recognize this is one reason why Web leaders like Google have been unable to build profitable businesses around apps. When companies incorrectly define their market -- as the railroads did in the face of competition from trucks and jets -- they leave themselves vulnerable. Hence, the need for new vocabulary.
When Google started in 1998, it transformed Web monetization with index search. To make that happen, Google adhered to the cultural norms of the open source community by focusing on the long tail, making everything free, commoditizing content, and encouraging an "anything goes" atmosphere. This was no problem when the Web was small, but once it hit critical mass the "techie" Web experience began to lose its allure. One factor was the static nature of the Web itself. For more than a decade, the web has been stuck with HTML 4 as its platform and Flash as its media format. No wonder content was commoditized. There was no way to differentiate without spending more than customers would pay.
Any time a product stagnates, as Windows did after 1995 and the Web has done in recent years, it is vulnerable to competitors. In this case, the competitor was Apple and platform was iOS.
What Apple did with iOS was to create a user experience that was "one minus the Web." Instead of open source, Apple used a proprietary operating system (iOS). Instead of long tail, Apple focused on branded products. In addition to free, Apple encouraged the development of paid applications. Instead of commoditizing content, Apple enabled limited differentiation among apps (but huge differentiation relative to Web). Instead of "anything goes," Apple offered a secure environment. On top of that, Apple charged $400 to $800 for the hardware that delivers its user experience ... using content and data that for the most part are already free on desktops.
What happened? Consumers adopted Apple's model faster than any technology in history. When you include the dollars spent on hardware -- how can you not do so? -- it is possible that Apple's ecosystem may be larger than the Web ecosystem. Whoa!
For the leading Web companies -- Google, Microsoft and Facebook -- the economic consequences of Apple's success have been masked by other factors, but they have been enormous. We'll start with Microsoft. Before the iPhone, 95% of connected devices ran Windows. I don't know what Windows' share is today, but it must be less than half that, as Microsoft's share of app phones is roughly zero. For all intents and purposes, Microsoft lost half its addressable market to app-based devices. The same is true of Google. Before the iPhone, Google accounted for roughly three-fourths of index search, which accounted for about 90% of Web search. The other 10% of Web search was controlled by a rapidly growing group of specialized search engines: Wikipedia, Facebook, Twitter, Yelp, Realtor.com, Match.com, etc. In the app model, customers use apps to search, not Google. It is my understanding that for a given consumer, index search happens with the following frequency by platform: desktop web 100%, iPad 10%, iPhone 1%. Given that high value transactions are moving rapidly to mobile, it seems unlikely that index search will provide Google with the control point it has grown accustomed to. Margins must fall. Notwithstanding the huge unit volume of Android, Google has yet to produce any profits from smartphones. Even though Google's Web business continues to grow, the company has lost half its addressable market. The third Web giant is Facebook. Like Microsoft and Google, Facebook has not been able to migrate its profit model to mobile. All three derive their online profits from a business that will continue to lose share in coming years and may even begin to shrink.
It's not too late for Microsoft, Google and Facebook. All three can respond to this disruption as Apple did a decade ago. Microsoft may already have made the critical first move. The acquisition of Skype gives Microsoft the only product with a larger engaged online audience than Facebook. Skype is perfectly positioned for mobile, especially in the developing world, and Microsoft got it for a small fraction of its strategic value.
To a much greater degree than Microsoft, Google has experimented with new business models. Unfortunately, some of these experiments have come off the rails. I believe Google has irretrievably messed up Android's architecture and business model, and made a terrible mistake in buying Motorola, but the company still has fantastic human capital and more cash than Croesus. But it has to recognize that it no longer controls the most important value streams in the online world. If Google wants to be a market leader in the future, it will have to reinvent itself. If it were to make a proprietary Motorola phone with Chrome OS, then Google would have a chance to leverage its strengths to compete with Apple.
Facebook was very slow to figure out mobile, but it has far fewer barriers than Microsoft and Google. The company has just introduced mobile ads. If Facebook were to introduce mobile use cases that are valuable (e.g., peer-to-peer wireless "friending"), it might find that the business model in mobile is better than in desktop.
The key point here is that Apple's position of market dominance is unstable. Giant tech companies with giant cash positions have been left out of the Apple ecosystem ... and they will eventually seek a way to get back into the game. Google, Microsoft, Facebook, Cisco, Intel, Oracle, and others have the scale, the cash, and the compelling incentive to develop an alternative to Apple's app model. One or more of them may succeed.
But success for these companies will not be significant if it is measured by market share of Apple's ecosystem. They need a new and really big ecosystem. I believe the new ecosystem will be based on HTML 5.
I spent six months trying to convince entrepreneurs and investors that HTML 5 will change the world before I realized that my message was not getting through. So I spent the past year developing and deploying HTML 5 functionality on behalf of my band, Moonalice. One of our HTML 5 tools enables live HD video over 3G cellular with no buffer. Another enables fans of Moonalice to listen to any of 400 shows. Both applications are live on http://www.moonalice.com, but they only work on iOS. Why? Android does not have a standard HTML 5 implementation. Most people at Google don't know that.
I have been told that HTML 5 is "just another programming language." For content creators, however, HTML 5 offers the possibility of production values previously unheard of in the online world.
I am convinced that the pendulum of technology swings between commoditization and high production values. Before 1984, there were no production values in tech content: green ASCII text against a black background was the standard. Then Apple introduced the Mac, with Adobe's Postscript. Postscript enabled WYSIWYG, desktop publishing, Photoshop, PowerPoint, Acrobat, and increasingly high production values. From 1984 to 1998, content looked better every year. Then came Google and the commoditization of content. That lasted for ten years before Apple's app model enabled limited differentiation. HTML 5 will remove the limits.
Online content has depended on Adobe Flash for video and animation for more than a decade, but the limits of Flash are significant, especially in mobile. It was never designed for today's mobile use cases, much less the ones that are coming. Each instance of Flash on a webpage increases load times and instability. In mobile, the overhead is so great that that live video experience on 3G networks is exceptionally lame.
HTML 5 incorporates the functionality of Flash into the HTML standard. In mobile, the overhead is tiny in comparison to Flash. But that's just the beginning. As the tool set gets fleshed out, HTML 5 will transform the creation and presentation of content. HTML 5 will be a creative canvas unlike any in the past history of technology. Unlike the HTML 4 world we live in today, where every page looks similar and all can be compared in an index, HTML 5 will enable huge variation in production values, from the sepia of Kansas to the 3-D Technicolor of Oz. Before Google, higher production values translated into higher economic value, and I believe that will be the case again, only more so. In fact, the process has already begun with iPhone applications. Major League Baseball has done a brilliant job of translating production values into revenue. What they and others will be able to do with HTML 5 must be left to the imagination for the moment, because HTML 5 is still a very young language.
Cross-posted from Roger and Mike's Hypernet Blog
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There is also this strange idea being suggested that search engines have a share of the internet. Even Apple doesn't have a share of their apps. Every application developer I work with is focused on making the same application work on browsers, Android, and iOS. How do you measure shares when most people use both mobile devices and traditional laptops to access the same applications with different presentations?
The only difference I see is how the apps are marketed. Google lists everyone like a phone book but offers premium spots on the page for money. Apple tries to get money off of selling the right to develop on their platform and through money generated by the device itself. These are drastically different ways of approaching marketing, but I don't see how they lead to a new term for the internet.
Perhaps, I'm missing another difference the author actually thinks is the game changer, if he's paying attention, I really am interested what that difference is.
Apps have always existed, its short for application, the only difference is that Apple made something called an API to interface with mobile devices they sell. This is not the first API, in fact there are even API's in your browser for things like Facebook. Its a marketing scheme that allows third parties to leverage the marketing of Apple cheaply in exchange for providing content to Apple customers.
I agree that HTML 5 is indeed a good direction for the future, but I don't see it as a next step from what Apple did. HTML5 is an advancement in standards that has nothing to do with marketing, any one company, or any specific type of device, much like HTML 4 once was.
On a wireless option, there's going to be a problem if you run Hulu, Netflix, or do some other serious streaming. Until there's capacity at a reasonable price, the wired options, (DSL, Cable, Fibre) will remain viable.
As far as Microsoft is concerned, I've always looked at them as an OS company. Right now, I'd like to buy Windows 7 Professional. Trouble is, the hardware out there for sale is an electromechanical dinosaur from the past.
My money is chasing a solid-state PC, namely something that boots from a OCZ RevoDrive PCI-E drive, along with a couple of 1-2 gig drives for data storage, or something equivalent. This thing about booting from a "hard" drive, or some kind of retrofit of an SSD onto a SATA interface isn't something I'm interested in. That holds up my purchase of a new Microsoft OS. The components are available, but no one is putting it all together.
Microsoft could have a second wind with the introduction of the solid-state computer. ;-)
Check out a demonstration. (5 min, 14 sec)
http://www.youtube.com/watch?v=OZ_WWqeJAj0
From a technical perspective, neither the Internet (IP) nor the Web (HTTP) care whether they are communicating over wired (Ethernet) or mobile (WiFi/GSM) link layers. The whole point of the Internet is to act as a standard interface between heterogeneous local networks. There is one global Internet with one global Web riding on top of it.
The confusion stems from a dramatic evolution in web development.
The web was originally dominated by static HTML documents, then by HTML documents generated by server-side template engines (PHP, Perl CGI), and then by interactive HTML documents manipulated by client-side Javascript and HTTP requests for data in XML/JSON (AJAX).
Now the web is evolving toward applications which are delivered over HTTP and request remote data via HTTP, but which may not be delivered as HTML and may not use HTML at all.
This last case describes iOS and Android apps. They use HTTP web services, but they use platform-native layout and execution engines rather than HTML and Javascript.
Now consider the case of Sencha Touch. This is a Javascript framework which generates and manipulates HTML5 on the client side. The application is delivered over HTTP as pure Javascript which runs in a web browser, emitting HTML5 as its output.
The technical differences between iOS/Android apps and Sencha Touch apps matter to the developers, but they don't matter much to users, and this entire class of client-side web apps poses similar impediments to indexing web content for search and advertising.
These client-side web apps offer amazingly rich and fluid experiences, but they look like black boxes to traditional web crawlers and ad servers. When the GoogleBots hit those URLs, they see the code rather than the content.
This is a problem for Google's business model, but it's a problem regardless of whether the future is SDK apps like iOS/Android or HTML5 apps via frameworks like Sencha.
This is why the web is sprouting content sharing apps like Google+ and app hosting platforms like Google App Engine. The content in these client-side web apps only makes sense to those apps, so if your business model depends on making sense of web content, then you need that content to reside in your app or those apps to run on your platform. Otherwise it's gibberish.
Where is the web going? Rich applications backed by massive clouds. The SDK vs. HTML5 debate is important, but not nearly as important as which cloud provider collects the most user accounts and the most content items. The web of code only makes sense within its cloud and doesn't make sense to any other cloud, so the advantage goes to the biggest cloud.
a correction for your story:
A browser is just an "app" always has and always will be. There are protocols that predate web browsers and are still in use for working on the internet.
Not the whole world. I think the most popular way to think about it is with the 5-layer model: Application, Transport, Network, Data Link, and Physical.
While it's cool and all to create new marketing buzz words there's really no need to be condescending by making up a word so you can re-frame concepts that we already understand.