Amazon and Apple’s astonishing attempts to do everything and be everything

Reading the headlines today, and adding in various data points, leads to some remarkable inferences about what Amazon and Apple plan on doing.

A Big Day for Reading the Tea Leaves about Amazon and Apple’s plans

First, let’s start with the big news coming out today.

  1. Amazon is rumored to be in talks to buy Texas Instruments’ Smartphone and Tablet Chip Making Operations. Apparently, Amazon has decided that it might as well make the chips for its current Kindle Fires and for its future Kindle Phones. Note: Apple has also gotten into the business of designing its own chips in the last few years.
  2. Apple seems likely to cut off its ties with Samsung (Samsung makes the chips that go into iPhones). Apple has been designing its own chips the last few years and is now rumored to be moving manufacture of its chips to other chip manufacturers.
  3. Apple hired an ex-Amazon and ex-Altavista search technology executive to run Siri. Given that Apple recently ditched Google Maps, and given that Apple has bought some search technology in the last few years, it’s a safe bet to assume that Apple intends to build its own search engine.
  4. Apple’s iPad Mini is rumored to be priced between $250 and $650 (16 different models).
  5. Microsoft has launched a Xbox music streaming service.

Apparently, the new doctrine for big technology companies is to do everything and be everything to all people and sell everything to all people.

Control Everything, Sell Everything

Apple isn’t content to sell high-end phones and high-end Tablets. It also wants to sell low-end Tablets and make Map Software and build Search Engines.

Amazon isn’t content to sell books and CDs and DVDs. It wants to sell phones and make phones and make chips and produce movies and publish books.

Google isn’t content to be a search engine. It wants Android phones and Android Tablets and Google TV and Google Fiber and driverless Cars and Glasses you can wear to get RoboCop Vision.

Microsoft, even King of Software Microsoft, is suddenly in love with hardware and services. It wants to integrate software and hardware and move into selling services and ecosystems.

It’s really very strange. It’s as if the 5 companies live on the same street and are caught in a never-ending cycle of neighbor envy.

Or … perhaps … this is the new future for technology.

The Controlled Ecosystem as the New Internet

The Internet is amazing. Except that everyone is trained to spend nothing on the Internet. To expect everything for free. The problem is exacerbated by sites like YouTube and Facebook that focus almost completely on getting humongous amounts of low quality user-generated content.

And on top of all that is Google with its Search Engine. Making sure that all the value flows to it. That individual sites and content creators only get crumbs.

In fact, Google has gotten so good at hoodwinking people into -

  1. Thinking that all value is created by Google and not by the people who actually run and create sites and content.
  2. Thinking that it’s OK to share ALL your private information with a company just because it has ‘Do No Evil’ as its marketing logo.
  3. Thinking that all those YouTube and Google Site links showing up first in Google Search results are natural.

That the FTC is just about ready to launch an anti-trust investigation. Not to mention the EU is going to open a Privacy case.

Basically, Google has turned the Internet into a Toll Bridge. And it is slowly using its dominance in Search to promote and build up other businesses (albeit ones that earn little to no profits) – Android, YouTube, GMail, Chrome, Google Docs (the list goes on).

Google is a threat to Every Other Tech Company

Regardless of which big technology company you are, you have to be wary of what Google is doing -

  1. Apple has to worry about Android Phones and Android Tablets.
  2. Amazon has to worry about Google Shopping and Google’s Tolls.
  3. Microsoft has to worry about Chrome, Chrome OS, and Google’s Office competitor software.

In its drive to map out every human being’s synapses and predict how to make money from them, Google is devouring entire profitable industries. It is exchanging profits for information. Betting that that information will be move valuable in the long run. That it will be the key to unlock people’s wallets and minds. It’s willing to give away Android for free to protect search and increase the amount of user information it has. It’s willing to offer its Office Software for free to get more and more companies and people to share their data with it.

Google’s product is people and people’s intent to buy things.

If you’re a company like Microsoft or Apple or Amazon that sells hardware and/or software and/or physical products, then you have to be very worried by companies like Google (and to a lesser extent Facebook) that want to give away hardware and software in return for user information and a Matrix Link to the user.

It’s a completely different business model. To understand users. To get them in via free software and/or cheap products. Then to sell users and their wishes and aspirations to advertisers. Or to use them in other ways.

The only defence against Google is to build your SEPARATE Ecosystem

Apple and Amazon and Microsoft don’t have a choice.

Google has used its dominance in Search to start dominating other areas. It can pretty much shut out or slow down ANY product or technology or company.

Google is letting people have everything for free – news, music, software, everything. Even when it doesn’t own stuff it lets people pirate stuff (with the obligatory ‘report piracy and then we’ll turn it off, after 1 million people have stolen your content’ loophole).

So you can’t win on the Internet.

The only solution is to build your own Ecosystem. Build a safe little Ecosystem of Good Intent, populated by Customers of Good Intent, who don’t mind paying ‘creators’ for their creations. There’s no other solution. Because if Google (or other ‘sharing is caring’ technology companies) are given a free run – they’ll devalue everything to zero. Because their product is customers and if they can get the content they need to ‘procure’ customers for free, why wouldn’t they.

To truly control your ecosystem, you need to control the device too

That brings us to the device.

If you don’t own the device, there’s no effective way to build a safe, protected ecosystem. Google can come in and say – Here’s $100 million. Put us as the default search engine. Then it’s game over.

The Internet is already controlled by the established players like Google. You can’t compete against the Internet.

The only solution is to replace it with your own device and your own ecosystem.

If you need a device, you might as well make it yourself

Apple probably wants to make a device it can sell at a high premium and strengthen its brand value.

Microsoft probably wants to make a device that lets it feature Xbox and Office and Windows.

Amazon probably wants to make a device that is a shopping portal.

If you look at iPhone+iPad, and Microsoft Surface Tablets, and Kindle Fire – That is exactly what is happening.

These companies are making the EXACT PERFECT device that is suited to the type of ecosystems they need, and to the type of content they sell.

Astonishing & Audacious Attempts to Annex All

We’ve gone from a world where Intel made chips and Microsoft made software and HP made computers to a world where companies want to do EVERYTHING themselves.

What is Amazon building?

An ecosystem where a user fires up a Kindle Fire and a Kindle Phone, watches movies produced by Amazon, buys products from Amazon.com, reads books published by Amazon, and goes to sleep in Amazon branded pajamas.

What is Apple building?

An ecosystem where a user goes to a Starbucks and shows off his iPad and then goes to work and works on his iMac and then sits on the bus and plays on his iPhone and then sits in the living room and streams movies to his TV via his Apple TV. The cherry on top – He also buys all content and all his games and apps from iTunes.

What is Microsoft building?

An ecosystem where users use a PC at work and a Surface Pro Tablet at home and listen to music from Xbox music and watch Netflix on their HDTV via their Xbox and buy games on Xbox Live.

A Fragmented World with Multiple Ecosystems/Internets

Companies have a dual motivation -

  1. Get away from the Internet and the dangerous attempts by Google and Facebook and other Internet companies to keep all the value for themselves.
  2. Build their own ecosystems and keep users involved there and capture 100% of the profits from users.

It’s incredibly compelling.

Can you imagine the amount of frustration Amazon must feel when it has to pay Google to put up Ads for EVERY Amazon related search term?

User searches ‘buy book at Amazon’ and unless Amazon pays Google’s Toll, the benevolent Search Engine company will sell the #1 spot to Target or B&N. Please Note: There is a painfully non-obvious, tiny ‘Ad’ at the far right. That helps avoid legal implications. Because without that tiny ‘Ad’ at the top right it would be as obvious to curious humans as it is to Google’s optimization algorithms that most users don’t know the first few links are Ads.

Can you imagine the amount of money Amazon could make if it could get users to buy EVERYTHING from Amazon?

$1 Profit on a toothbrush, 35 cents on a $2 ebook, $27 on that new computer – It all adds up.

If Amazon relies on Google it has to pay $1 and 20 cents and $5 to get those sales (it must pay Google for clicks (i.e. traffic)). If, instead, Amazon builds cool, Tablet replicating, mini Amazon stores – Well, then it has to pay ZERO tolls to Google.

Fundamentally, there’s HUGE motivation for companies to CONTROL EVERYTHING, OWN EVERYTHING, SELL EVERYTHING THEMSELVES.

There’s huge risk, as we’ve seen with apple ditching Google Maps and with failed efforts like Amazon’s A9 search engines.

However, if Microsoft, Amazon and Apple don’t build up their closed ecosystems, then they are guaranteed to get eaten by Google’s ‘Free Lunch for Your Information’ strategy.

Crux

At least one and perhaps all three of Apple, Amazon, Microsoft are going to survive Google’s attempt to shift e-commerce from selling products to customers to selling customers to advertisers.

The only way they will survive is if they build their own Ecosystem. Free of the influence of companies like Google.

For the companies that manage to build their ecosystem, there is an immense benefit – they can gradually capture nearly all of the profits their ecosystem customers generate.

It’ll be interesting to see which of Amazon, Apple, and Microsoft win their race to build self-sufficient, profit-generating ecosystems. It’ll also be interesting to see whether Google’s attempts to use its Search dominance and Search profits to destroy the value in everything else will work.

Another sign the Kindle for iPhone party might be ending soon

This post on why iFlowReader are closing shop is fascinating.

It touches on four things that this post will cover -

  1. Kindle Tablet is absolutely necessary for Amazon if it wants to keep dominating eBooks. Amazon can depend on Apple iOS and Android as much as iFlowReader can, i.e. not at all.
  2. Nook is a hugely important counter-weight to the Kindle.
  3. It’s exceedingly careless to not realize what an app store fundamentally is, i.e. the app store company’s personal kingdom and a means to find out the most profitable products. Most app store companies will want to take over these profit streams (because they are for-profit companies), and usually will.
  4. Reciprocation means that every move like this has consequences. When an Ecosystem owner takes advantage of an Ecosystem participant – the owner is eventually well rewarded for its ruthlessness. If a mass destruction of eReading apps and eBook App companies happens – It might be Apple jumping the shark.

Let’s start with the first.

Kindle Tablet is absolutely necessary for Amazon to keep dominating eBooks

Let’s work through a bunch of assumptions and facts.

  1. Kindle Reading Apps are just software. Out of all the elements – books, software, hardware, ecosystem – they are the easiest to replace.
  2. The core books are the same no matter what delivery vehicle you use. It’d be exceedingly foolish to imagine that your software can’t be replaced. If physical books can be replaced, then a piece of software can definitely be replaced.
  3. There’s lots of money in selling eBooks. Whether you approach it from the perspective of selling bits in the ether, or whether you approach it from the perspective of huge volume, there’s little doubt that $23.5 billion a year in book sales might morph into $10 billion+ a year in ebook sales eventually. And that’s just in the US.
  4. It’s very easy for any ecosystem owner to take over ebook sales. All they have to do is either kick out other ebook sellers or put their own ebook store as the default.
  5. Companies with power never spurn the opportunity to capture the lion’s share of the profits. There’s no company in the world that says – We’re happy with 5% of the profits even though we totally dominate the supply chain and could take 90%.

All of that is a convoluted way to say – If Apple sees Amazon make lots of profit from ebook sales through iOS devices, it will take over that profit stream.

iFlowReader just demonstrated an App Ecosystem’s True Purpose (1 out of a few)

iFlowReader is just collateral damage. However, its experience points out a few interesting things -

  1. The Agency Model might have been the first step down the slippery slope of Apple taking over iDevice ebook sales. It seems a bit crazy but it’s worth considering.
  2. The Apple directive to hand over 30% of ebook sales means any apps selling ebooks will not only struggle to make a profit, they will probably run into significant losses.
  3. Apple might be asking for 30% of sales, but it’ll usually be 50% to 100% of profits.
  4. A lot of the companies selling ebooks will have to close down.
  5. Apple will, in effect, be left with all the ebook profit streams that other companies had created/found in the iOS system. Whether it’s individual book apps, eReaders like Kindle for iPhone, or some other means of selling books – everything will flow to Apple.

Lest we devolve into a pro-Apple, anti-Apple conversation – Nothing against Apple. It has just demonstrated how to take supreme advantage of other companies. Surely, the shareholders don’t care that some small app developer company is dying.

In fact, Apple has done every other company dependent on iOS a favor by demonstrating the precariousness of depending on someone else’s ecosystem and someone else’s customers.

 Let’s switch back to the Kindle Tablet.

Kindle Tablet is the only way Amazon can gain a direct channel to Casual Readers

Apple and Google have made very strong moves to eat up the profit streams Amazon and B&N spent so much money and effort to uncover -

  1. Google has opened an eBook Store that is the default eBook Store for Android.
  2. Apple has introduced this ‘30% of revenue, 90% of profits’ tax levy.

Amazon should have done what B&N did – it should have released a Kindle Reading Tablet to appeal to casual readers. It’s mystifying that Amazon still doesn’t have a Kindle Tablet out. Everything that happened to iFlowReader, and the fact that it, quite rightly, laid all the blame on Apple, should be a stark reminder to Amazon.

All those glorious Kindle for iPhone ebook sales are about to be snapped up by Apple. Although Apple will settle for 90% of the profits and a Thank You!

Nook is a hugely important counter-weight to Kindle

If we look at the eBook and eReader landscape, this little iHoodwinked fiasco highlights the danger of a single company dominating one or both of eReaders and eBooks.

There is no guarantee that the dominating company won’t pull an Apple.

Give us all the profit streams. You can keep the struggle to survive.

A dominant ecosystem, one which controls eReaders and the flow of eBooks, has no reason to limit itself to only 10% of the profits. Why wouldn’t it take 90% of the profits?

Barnes and Noble, with Nook and Nook Color, is ensuring there’s some semblance of balance. A second eReader and a second eBook Store.

What is an App Store?

Here’s what an App Store is on the surface -

  1. Developers make apps and sell them and profit.
  2. Device owners get more features for their device, sell more devices, and profit.
  3. A share of sales revenue is kept for the Ecosystem’s maintenance.

This is perfect. On the surface we have a great win-win situation.

It is, of course, tilted a bit in the favor of the ecosystem because the ecosystem makes money from every app sold – whether or not the app developer makes an actual profit on total investment. However, that’s fine because the ecosystem company is providing a channel to customers of good intent.

So, it seems to be relatively well-balanced. But, it isn’t. In reality, the odds are stacked heavily in favor of the Ecosystem Company. The House Always Wins.

Here’s what an App Store is in reality -

  1. All of the things in the prior list.
  2. Totally dominated by the App Store owner, and by the App Store owner’s moral compass.
  3. A testing ground to weed out the most profitable sub-businesses in an ecosystem.

While some of the sub-businesses are roped off (for example, music in the iOS ecosystem) there are other profitable sub-businesses. Once these are found we get a very interesting situation – The App Developer found the vein of gold (Ex: Amazon finding ebook profit) but the App Store owner owns the mountain. It comes down to the Moral Compass of the Company and that Moral Compass is Profit.

That’s the point everyone seems to miss. It’s not immoral or right or wrong for an App Store owner to say -

How nice of you to invest heavily, take a huge risk, and discover this amazing stream of money.

Now, let us take it off your hands.

It’s just the nature of a company. It’s a bit strange to expect a for-profit company, that completely owns an ecosystem, to let another company make tons of money from that ecosystem without asking for a cut. It’s even stranger to expect the ecosystem company to not demand the largest possible cut.

That’s what’s happened. Apple has realized ebooks are a goldmine – and that it’s really easy to sell ebooks. It’s decided it wants the goldmine for itself.

There is no way an app developer can guard against this. None. All it can do is build its own channels to customers and invest in other ecosystems – make sure that it doesn’t depend 100% on a revenue stream that is totally out of its hands.

Reciprocation Works Both Ways

Here’s the thing Apple is missing – Reciprocation. If you don’t treat people well, they reciprocate by treating you badly.

Apple needs app developers more than app developers need it.

That might sound strange if you don’t look at things as they really are. But the truth is that the single biggest advantage Apple has over competing closed and pretend-open ecosystems is the range and quality of apps.

Think of each app as a value-add for some set of customers. With 300,000 apps you get a lot of extra value for nearly every owner. With 300,000 apps each individual app’s importance goes down.

However, app developers as a collective group are still the engine.

Apple’s move with the 30% ebook tax is rather interesting. There isn’t really a way to fathom it because 30% of revenue means that almost every single ebook app developer will have to close shop.

There are tens of thousands of ebooks being sold as individual book apps that will have to either give Apple 30% (which is nearly all the profit) or close down. There are big eReader apps like Kindle and Nook selling millions of ebooks every month that will either have to give Apple the entire 30% they get from ebook sales or close shop.

It’s a massive betrayal of developers. Developers who took a chance on the iOS ecosystem. Developers who helped sell iPhones and iPads and iPods.

Every other app developer will notice. It’s a clear message – Come in and make apps and help us sell devices. If you do really well, we’ll just take over your profit stream for ourselves.

It takes away the possibility of building up a big sustainable business in the iOS ecosystem.

It means that unless you are creating and selling your own product, without any partners or invested parties taking a share, you can’t really survive in the iPhone App Store. How many really big businesses (or, for that matter, companies) do we know where everything is done by one company?

It’s almost impossible. Yet, that’s what you would have to do if you want to build a viable business in the Apple App Store.

Apple keeps making stupid moves like this one – which helps the growth of Android and other competitors. Isn’t it making enough money from selling status indicators? Why try to rob developers out of profit streams they put a ton of effort and money into uncovering?

iFlowStream spent 1.5 years and close to a million dollars to build their business. Now, it’s been stripped away. The way Apple is treating iFlowStream means that other app developers will learn to choose other platforms, or will build direct channels to customers.

Whether it’s a closed ecosystem, an open ecosystem, or a pretend-open ecosystem – Someone else controls it. Sooner or later, they either want you to hand over the profits or to make less/no profit. It’s best to build your own site and your own store and your own channel to customers. That’s so much easier and so much purer.

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