App Internet: Explaining The Google/Verizon Riddle

Have you wondered why the odd couple of Verizon and Google have teamed up to propose tiered pricing for wireless Internet access? It's a way for Google to fight off App Internet.

The next wave in technology will consist of applications that seamlessly leverage the power of the local device (a smartphone, a PC, a tablet), and the power of the Cloud. iPad apps are the best early example. This model will challenge two old approaches: 1) the Microsoft model of applications running locally, and 2) the Web/Cloud model with applications running remotely. App Internet incorporates elements of both and combines them to create an improved experience.

Despite its efforts with Android, Google makes approximately 98% of its revenue and 100% of its profit from old model two:  Web/Cloud. And that approach heavily relies on the segment of basic technology that is improving in price/performance at the slowest rate:  the network. In contrast, processors and storage (the technologies powering local devices) are improving at much faster rates.

Google wants you to run your applications (search, mail, calendar) at a remote server, and in the process continually move all your bits back and forth across the network (with ad impressions delivered with each to and fro). This bandwidth-hungry approach makes Google a powerful ally of Verizon. And it explains why Google wants to raise network prices in the future and potentially give itself a network cost advantage -- because its model won't ultimately keep up in price/performance or popularity with App Internet.

App Internet: The Next Wave

Like most CEOs, you're probably feeling good because your company finally has a great Web site. But don't get too comfortable. The way you connect to your customers is about to change again...

Two ways of computing have dominated over the past 20 years. The first I'll call the "Microsoft model" -- where local personal computers do most of the work. The second model is the Web/Cloud model, in which most of the work happens on remote servers. Both are outmoded. The Microsoft model fails to leverage the economies of scale in the Cloud; Web/Cloud fail to leverage the exponential growth in the power of local storage and processors. 

So what comes next? Something I call the "App Internet." In this model, powerful local devices (PCs, smartphones, tablets) run applications that simultaneously and seamlessly take advantage of resources in the Web/Cloud. If you want to see this model in action, check out iPhone and Android applications.

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Apple Versus Nokia: The Primacy Of Design

If you're a typical CEO, you probably find design to be somewhat of a mystery. In a thoughtful moment, you may have pondered whether there is a quantifiable return on the design of your products.

Here's one case where design has massively inverted the economics of a business.

Nokia and Apple reported Q2 earnings two weeks ago.

Apple offers two phone models. In the second quarter, the company sold 8.75 million iPhones for $5.3 billion in revenue. Forrester conservatively estimates that Apple's net profit in the phone business was $1.1 billion, for a net margin of approximately 21%.

Nokia offers over 86 different models of cell phones globally. The company sold 111 million phones in Q2 for revenue of $8.8 billion. We estimate its net profit in the phone business to be $286 million, for a net margin of 3%.

How can this be? You can point to Apple's stranglehold of AT&T, or its retail stores, or its formidable brand. But all of those advantages are muted without one essential element:  design. Of hardware, of experience, of software, of subtlety. 

Why iPad Wins

Back in April I voiced doubts about the iPad because I couldn't figure out where it was going to live. This led me to agree with Forrester's assessment that Apple would only sell three million iPads in calendar 2010. 

Obviously, we got the shipment forecast wrong -- it looks like Apple is on track to deliver between seven to ten million iPads this year. People may have come to the same conclusion I did -- the iPad is an important executive tool, differentiated from the PC and the smartphone.

The iPad is my meeting aid. Board sessions, client visits, or internal operational reviews invariably turn to digital -- the iPad gives me access to that world. Someone refers to a client -- I can quickly look at their Web site. There's a guy sitting next to me from Goldman Sachs -- I quietly look him up on Wikipedia and remember that we met 10 years ago (and that he's running Carly Fiorina's campaign in California).  A client brags about his company's iPhone app -- I can quickly scan it.

Phones and PCs don't perform well in this role. The phone's screen is too small -- and its presence signals that you aren't paying attention, you are rudely checking email. PCs don't work in meetings because the screen acts as a barrier between you and other participants. Using a PC in a meeting subtly lowers your status -- you devolve from thinker to clerk typist when you swing that screen open.

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The Social CEO Q&A

I presented on The Social CEO at Forrester's Marketing Forum. During Q&A I got a number of good questions from the audience that I didn't have time to answer -- here are my (late) responses.

Q: "Are customers really interested in what the CEO thinks? Aren't they more interested in the message from the company?"

A: They're interested in both, as long as the CEO has something enlightening and valuable to say. Hey, why buy products from a company run by a schmuck?

Question:  "Is there any data that shows the ROI of having a social CEO -- or do they not want to be measured?"

Answer:  The CEOs that I hang out with are measurement-crazed, and that's part of the problem. They may use the squishy measurement of social return as an excuse not to do it -- and that keeps them from gaining the "soft" returns -- fortifying the brand, attracting new customers, retaining customers, and winning new employees. 

Q: "How much do you need to monitor your CEO's blog? And how is that done? It can't be easy."

A: The Social CEO should have a strong support team -- that monitors and reviews Twitter and blog traffic at least every 24 hours.

Q: "What are the ways to build followers, especially for B2B companies?"

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The Social CEO Part Four: CEOs Should Be "Social Light"

CEOs are not social, for good reasons. But I believe that some should be -- as a means of talking and listening to customers, attracting new employees, and strengthening their company’s brand. So how should CEOs do it?

Start with the POST methodology:

1) People. Target the CEO's audience.

2) Objectives. Create a clear reason for the CEO to be social.

3) Strategy. Establish how many times the CEO will be social per month; who will support the CEO; who will teach and coach the CEO.

4) Technology. Decide what technology platform is appropriate for the CEO.

Here are my recommendations on POST for the CEO:

For people, have the CEO focus on talking to and listening to customers. He or she is already doing this (if not, you've got bigger problems) -- so no leap is required. Bill Marriott from Marriott International and Tony Hsieh from Zappos lead this charge.

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The Social CEO Part Three: Some CEOs Should Be Social

Are CEOs social? No. Are there good reasons they aren't? Yes.

Which brings us to a third question: "Should CEOs be social?"

Yes, if:

1) The CEO has something valuable and distinctive to say. Forget the corporate vapidities or pablum — the world can get that from your press releases or company site. But if the CEO has the urge and facility to be helpful, illuminating, interesting, original, and insightful, open the social valves. 

But keep it in the distinctive voice of the CEO. Your customers want to know the CEO's approach before buying your products; a prospective employee wants a window into their ultimate boss's brain; and a prospective investor wants to research the CEO's philosophy before buying the company's stock. Let the CEO be the CEO. 

2) The CEO is prepared to navigate thorny and unique restrictions. These come from regulators, risk-mitigators, company message concoctors, and lawyers. You can draw inspiration from the outspoken meanderings of Mark Cuban. But remember — he's not running a public company.

3) There is an audience that will, over time, tune in to the CEO's social message. 

4) The CEO employs a specialized strategy for social — what I call "social light." This is a limited but powerful social profile — I'll explain in my follow-on post. 

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The Social CEO Part Two: CEOs Aren't Social For Good Reasons

CEOs have not embraced social for three reasons:

1) Age, 

2) Constraints specific to CEOs, and

3) The present social model is mismatched to CEOs.

The average age of the world's top 100 CEOs is 59. This places them in the "typewriter and whiteout generation" -- many years removed from AOL Instant Messaging, Facebook, text messaging, and other early and late social technologies. Current CEOs lack affinity, knowledge, and comfort with social -- limiting their usage.

CEOs face unique constraints. Their companies possess carefully crafted messages emanating from public relations, advertising campaigns, and investor relations -- a CEO could dilute or scramble these messages in a weak blog or Twitter moment. Regulatory issues surround the CEO -- Sarbanes Oxley, Regulation Full-Disclosure ("Reg FD"), FTC guidelines, European Union regulations -- which limit his ability to speak his mind. CEOs always seek to minimize risks of litigation, loss of intellectual property, offending customers, offending investors, angering employees -- all increased with a social profile. Imagine if Lloyd Blankfein, the CEO of Goldman Sachs, was blogging from 2004-2008 about the high quality of his company's investments -- those posts would be Exhibit A in any case against Goldman. 

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The Social CEO Part One: Most CEOs Are Not Social

I gave a speech at Forrester's Marketing Forum last week in Los Angeles on "The Social CEO" -- why and how CEOs could use social. My talk answered four questions: 1) How many CEOs are social now? 2) Why are current CEOs not social? 3) Should CEOs be social? and 4) How can the CEO become social? I will answer these questions in four posts, starting with the first:

How many CEOs are social now?

Very few, at least in the pantheon of large companies. Here's the research:

1) None of the CEOs of Fortune Magazine's top 100 global corporations have a social profile. We found six defunct Twitter accounts, and one Japanese-language blog. We could discover no obvious presence for any of the 100 CEOs on Facebook or LinkedIn.

2) The CEOs of the tech companies had negligible social presences. Eric Schmidt of Google is an infrequent Twitterer and is not a blogger; Steve Ballmer at Microsoft has no blog and no Twitter account; Michael Dell is on Twitter but is not an external blogger; Mark Hurd of HP, Sam Palmisano at IBM, Steve Jobs of Apple, and Larry Ellison of Oracle have no Twitter, Facebook, LinkedIn, or blog presences that we could find.

3) How about the CEOs of the social companies? Mark Zuckerberg of Facebook is active on his platform but doesn't blog and infrequently visits Twitter. Evan Williams of Twitter Tweets several times per day and blogs, but hasn't posted in 2010. Jeff Weiner, CEO of LinkedIn uses Twitter several times per week and posts to the LinkedIn corporate blog. Mike Jones, co-CEO of MySpace is on Twitter several times per week and has a blog (though no posts this year). 

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The iPad problem: where's it going to live?

As an addendum to my thoughts on the iPad...

In my many years as an analyst, I've learned to listen to those faint, intuitive thoughts that pop into my head about new technologies. They may not be rational, and they may not be entirely analytical, but they are often right. You might call it "gut" -- and in my dual jobs of CEO and analyst, it's been quite useful...

Yes, the iPad signals the future of software, but one simple question is nagging at me:

Where's it going to live?

  • It can't go in your pocket, although some may try.
  • It won't go in your media room at home -- you've already got a big screen in that room.
  • It's not going to go on your desktop at work -- you've got a company computer there.
  • It's not going to live in your office at home -- that's where your home computer lives.
  • Will it go in your backpack? I carry my Kindle and my laptop in mine. So will I pull out the Kindle (10 ounces) and replace it with an iPad (24 ounces)? No -- I'm not adding another pound for my aching back to carry around...
     

Kitchen? Not a place where you'd watch a movie. Bedroom? Yes, you'd read a book there, but you'd rarely check stock quotes or search for coffee shops. 

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