Ben Thompson - Stratechery Daily Update 2014-02-05 lyrics

Net Neutrality!, Microsoft is Seizing Their Mobile Opportunity Thursday, February 5, 2014 — blog post / forum thread Good morning, One company I haven't written about in a while is Twitter. This despite a torrent of news stories and new releases over the past week especially. On one hand, all of the news, particularly around new products, is good to see. On the other hand, it all feels a bit…staged. Consider this Steven Levy piece - How Twitter Found its Money Mojo. It's a fine story, although Levy's framing - that no one thought Twitter could make money - is obviously ridiculous to anyone paying attention (I myself wrote that Twitter would easily monetize but struggle to grow back when they announced their IPO, and held that opinion for a long time before that; I wasn't alone). Anyhow, the content of the story isn't the point; rather, you usually do the big Levy feature around a big announcement or new product. But the only truly big news around Twitter this week is it's earnings, set to be announced later today. And it's really hard to take this PR blitz as anything other than an indication that they won't be good. Anyhow, I might be wrong; if they're great, perhaps the PR blitz was designed to get a lot of momentum, but regardless, look for more on the company tomorrow after the call. I plan to cover both the earnings and all of the product announcements over the last two weeks. On to the update: Net Neutrality! In a stunning move, Tom Wheeler took to Wired to announce his proposal for far stronger net neutrality rules than anyone expected: This week, I will circulate to the members of the Federal Communications Commission (FCC) proposed new rules to preserve the internet as an open platform for innovation and free expression…I am proposing that the FCC use its Title II authority to implement and enforce open internet protections. Using this authority, I am submitting to my colleagues the strongest open internet protections ever proposed by the FCC. These enforceable, bright-line rules will ban paid prioritization, and the blocking and throttling of lawful content and services. I propose to fully apply—for the first time ever—those bright-line rules to mobile broadband. It's that last point that is the biggest surprise: the Open Internet Order that the FCC adopted in 2010 only applied to wired broadband. You'll recall that the Open Internet Order was struck down in a Verizon lawsuit because it was enacted under the FCC's Title I authority; the fact Wheeler's proposal - based on Title II, as recommended in the Court order adjudicating that lawsuit - will also apply to wireless shows what a terrible strategic decision Verizon made in challenging the previous order. Moreover, as this excellent explainer from GigaOm notes, Wheeler's proposal also addresses peering: The FCC also took on an incredibly esoteric issue called peering that caused consumers a lot of pain in 2012 and 2013 as the major ISPs and Netflix basically engaged in a trade war in the middle of the internet. ISPs wanted Netflix to pay them to open more doors for Netflix traffic to flow through, while Netflix wanted to build its own doors into the ISPs' networks the way it had done with so many other ISPs. The ISPs eventually won that fight, because without those doors Netflix couldn't deliver the bits its customers demanded, and their experience suffered. Netflix likened ISPs' behavior to extortion and called for the FCC to make peering a network neutrality issue. And to everyone's surprise, it now has. This rule will let edge providers complain to the FCC about peering and interconnection deals, and any complaint will go through the enforcement office for the FCC to determine if it is “just and reasonable”…The FCC is basing its authority to do this on Title II. This bit about peering is particularly interesting; in Netflix and Net Neutrality I was skeptical of Netflix's position, as it seems like they are asking non-Netflix users to subsidize Netflix users, and I still think that's the case. Moreover, as I argued in that piece, net neutrality is, quite literally, not free: the price is either less investment or (more likely) metered usage. As this must-read writeup in the Wall Street Journal of how Wheeler's proposal came to be notes, Wheeler's primary concern was continued investment: Senior FCC officials say [Wheeler] was always open to shifting his position and became convinced that the tougher stance advocated by Mr. Obama wouldn't discourage broadband companies from upgrading their networks. In his Wired piece, Wheeler says he is confident because of the example set by mobile (voice) networks: All of this can be accomplished while encouraging investment in broadband networks. To preserve incentives for broadband operators to invest in their networks, my proposal will modernize Title II, tailoring it for the 21st century, in order to provide returns necessary to construct competitive networks. For example, there will be no rate regulation, no tariffs, no last-mile unbundling. Over the last 21 years, the wireless industry has invested almost $300 billion under similar rules, proving that modernized Title II regulation can encourage investment and competition. Last-mile unbundling (allowing multiple ISPs on the same network) is my preferred method of guaranteeing net neutrality, but as I wrote last fall, it's not politically possible in the United States. Ultimately, Wheeler has chosen the exact same compromise I did in my piece last year: In the end, each of these options presents a different set of tradeoffs among three competing ideals: Continual investment in faster and more accessible broadband Non-discriminatory treatment of data Unlimited access There is no approach, at least given the United State's political realities, that allows for all three; this is “Fast/Good/Cheap Choose Two” applied to Internet access…While I love the idea of unlimited data, I also am aware that nothing comes for free; in the case of unlimited data, the cost we are paying is underinvestment and/or discriminatory treatment of data. Remember, the U.S. mobile industry Wheeler is modeling his approach from has some of the most expensive mobile data plans in the world, and there is every reason to expect those high prices to continue with these new rules. It's a high price to pay in every sense of the word, but ultimately, one I believe is worth it. This is good news. Microsoft is Seizing Their Mobile Opportunity Yesterday was Satya Nadella's one-year anniversary as the CEO of Microsoft; I didn't write anything because I already said my piece in my Christmas Gifts for Microsoft Daily Update: It's going to be hard to top Microsoft's 2014 gift: Satya Nadella was named the CEO in February, and while the difficult search process made it seem like he was a fallback option, it's hard for me to imagine – especially with the benefit of hindsight – a better choice for the job… You can read the original if you want to see why I was so pleased, but my "gift" for Microsoft in 2015 was a buildout of products and services that sat on top of iOS and Android, particularly the development stack. And while there hasn't been too much news there - yet - Microsoft continues to move quickly on the application side. First up was last week's launch of Outlook, and I'm linking to The Verge simply because of the headline: The Best Gmail App for the iPhone is now Made by Microsoft: Microsoft is displaying great urgency in putting its Outlook name on the app just two months after buying Acompli, and though the only noticeable change so far is the switch to its Segoe UI typeface, the roadmap for improvements should be an equally aggressive one. Indeed, I was stunned at the speed of this release, but then again, that's exactly why Microsoft bought Accompli in the first place. I wrote at the time: That price is certainly steep, particularly for an app that rarely broke the top 100 for its category, but I like it: for Microsoft, seeking to fill in the space between the cloud and OS on mobile, time is a far more precious commodity than money. Moreover, I'd expect even more Microsoft acquisitions over the coming year. Reportedly, one of those acquisitions arrived today. From Bloomberg: Microsoft Corp. agreed to buy Sunrise Atelier Inc., a maker of calendar applications for iOS and Android devices, for about $100 million as the software maker seeks to offer more products that can run on competing operating systems, a person familiar with the deal said. Humorously, this was the first comment in the aforelinked The Verge article: In case you can't see it, Vlad Savov, the author is endorsing Sunrise as the best calendar app; I guess now he can write a sequel! And, actually, that's kind of a big deal: at least according to Savov Microsoft makes the best email and calendar apps on the iPhone. That is excellent news for a company seeking to be a mobile-first cloud-first productivity company, and I don't mind one bit that Microsoft bought their way in. In fact, I thought this bit of criticism from Om Malik was not just unfair, but downright wrong: It is a pretty damning indictment that Microsoft had to spend hundreds of millions on front end apps for its own platform –Microsoft Exchange — and it should send alarm bells ringing. Exchange is something Microsoft understands better than most and it should in theory be able to develop good apps as front end for it. And yet, it has to go seeking help elsewhere. Mind you, this is not some new technology and neither it it a new market (like Minecraft) focused on a new demographic. In the mobile OS sweepstakes, Microsoft has been left eating dust by iOS and Android. Actually to insist on building it themselves would have been characteristic of the old Microsoft; stuff like "Windows First" is simply the symptom of a more fundamental problem that infects far too many organizations: "Not Invented Here" syndrome. Sure, Microsoft should have built the best Exchange apps back in 2008, but they didn't, and now their delay is a sunk cost to the tune of $300 million. Kudos to Nadella for paying it without blinking. Moreover, this gets to what irks me about Ballmer apologia like this bit in Mary Jo Foley's Nadella one-year commemoration: [Nadella] was fairly aggressive on the shake-up front over the past year. Though a number of the initiatives with which many credit to him are actually strategies that Ballmer put in place before he left, such as open sourcing much of .NET and introducing Office on iPad before touch-first Office for Windows, Nadella has given them his backing. I'm sorry, but putting Office on the iPad was the bare minimum for what Microsoft needs to do on mobile, and Ballmer couldn't manage that for over six years! Why oh why do people want to give him credit? Not only should Office have been on iPad years ago, but so should a whole host of new applications that reinvent productivity for the Mobile First era. It's great that Nadella is finally beginning to make that happen, and moreover, making it happen with Microsoft's most abundant resource: money. What is fascinating to consider is that the greatest beneficiary of Apple's unsustainable App Store policies - which hurt productivity applications the most - may be Microsoft. Their business model depends on monetizing through the cloud, not the App Store, which means they are the best placed of any company to make money building productivity applications for the App Store. It's especially ironic if you believe that Apple neutered the App Store to prevent another Microsoft; by doing so, Microsoft may in the long run have the space all to itself. Thanks for being a supporter. If you enjoy these Daily Updates and find them useful, please send a friend here to sign up as well! 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