January 19, 2010

Last week we pitched the diabolo effect as a guide in the current chaos of new electronic devices and services. Spot the business whose platform enables a maximum of applications to run on a maximum of architectures. Providing both predictability and flexibility, it answers a self-reinforcing market demand and aligns all participants, be they users, application developers or machine architects, into a durable and highly profitable order.

So can we put our theory into practice? Lest we be humbled in the end, better begin with a dose of humility.

Dominance for one is not the same as "the winner takes all". In its heyday Microsoft never reached 100% market share. There is an independent demand for status symbols and Apple's success is based in large part on its remarkable ability to feed consumers with a succession of such objects of desire. To add that the best fashion houses survive to their creators' retirement detracts nothing from Steve Jobs' marketing genius.

Also better beware how the meaning of words shifts over time. The diabolo model was inspired by how Microsoft displaced IBM more than twenty years ago. Potential users today are the billions (1) who carry a cellphone whether in their pocket or as a necklace ornament. Those who wanted to access a personal computer were in the millions (2) when Microsoft was running circle around the information system engineers serviced by IBM.

Who the users are and what they want naturally influence all participants. Although computers were invented to speed up computing, they soon catered to corporate accounts. With Microsoft they started to replace the secretary at the office and made one affordable at home. Today the consumers need to communicate and keep themselves informed and entertained.

This triple consumer demand has so far determined the traditional hardware segmentation between phone, computer and television. It is true these borders are undermined by the current deluge of smart electronic devices, which even threatens to absorb newspapers and books into their common fold. But does it follow all devices must fall under a common diabolo?

Much as content producers are wont to distinguish facts from fiction and device manufacturers work from pleasure, these legitimate distinctions are secondary. Whether using a device better suited for work or play, won't the consumer always prefer the device able to access all information sources at will even with less than optimum convenience? Don't people check Wikipedia on their smartphone? This is what drives a diabolo effect.

Still one needs to identify the pinching function. It used to be the operating system. Now it is the recommendation engine. Can there be another solution to the great paradox of our Information Age? An overaboundance of data coupled to a strictly limited amount of personal time.

We have already shown how Amazon, eBay, Google, Netflix and countless others are doing it explicitly, like Netflix, or implicitly, like Google. I have suggested that's where newspapers ought to invest. To rest my case, I turn to Miguel Helft's article on Hunter Walk's mission at YouTube (*). Currently the site aims at entertaining but relies on active searching by the user. So Hunter Walk wants it to suggest videos "in the hope of allowing [the users] to abandon the keyboard and [...] experience YouTube from the couch". If the consumer is king, better become the favorite fool.

In this context, Google is Fortune's designated favorite. It owes this position to its brilliant business model which combines two recommendation mechanisms, one to deliver information to consumers for free and the other to auction the consumers to the advertisers. It also executes the diabolo strategy. YouTube proves it wants to master all necessary recommendation techniques. Its push to digitize all books shows it aims at having all information sources fall in the upper diabolo cup. It undermines the resistance of communication providers to being sucked under the lower cup.

This is not only obvious but self-conscious. To Miguel Helft (**), "Vic Gundotra, a vice president [...] at Google who oversees mobile applications" declared "all of Google's mobile moves [have] one objective" pushing the industry to open up". To Andrew Edgecliffe-Johnson (***), Nikesh Arora, Google's president of sales operations and business development, prophesied "radio, print, TV are all getting distributed over internet protocol, so distinctions [between online advertising and advertising] will vanish at some point in time".

Still, when a business executes a strategy, the devil is in the details and Steve Jobs has the reputation to sweat them better than most. Ironically though, Apple's initial success may contribute to Google's final victory. Hasn't iTunes seriously eroded the negotiating power of music majors and hasn't the iPhone broken the tight control of communication providers over their users? This is a double gift to all diabolo players, Google included.

Focusing again on the battle between Apple and Google, what counts, as John Gapper noted (3), is which offer is the more open, not whether it is open or closed. But open to whom? As a developer, I notice for now Google's Android supports Java and the iPhone does not. But will not the winner ultimately be the one whose diabolo best enables advertisers to follow consumers across multiple devices? My bet is on Google.

Miguel Helft reports two arguments against this outcome. As communication providers have well trained consumers to pay for service, "advertising [may not] remain central to the Web economy as consumers shift to mobile phones from PC's". But if consumers are so willing to pay, why are most cellphones subsidized? When Google is fully able to offer mobile consumer access to its advertisers, won't subsidized calling plans soon follow?

The second reason is that "people's reliance on search engines" will decrease. But Google is not a search company. It is a double recommendation mechanism, a universal intermediary between consumers and both information sources and advertisers. Assume then a Boston user looks for a summer rental. Won't she search the web on her PC? But as she takes a break, wouldn't she appreciate her tablet magazine to display glossy photographs of Cape Cod houses? And what about taking a phone alert on the road as a new rental comes on the market, which fits her needs?

There is however a case where the communication function may well support a distinct diabolo. Companies are ready to pay to equip their employees and to pay again to protect them against distractions. As the prefered enabler of mobile corporate employees, RIM can escape Google dominance, even if it lets its users access selected Google services such as web searches. The more RIM opens its Blackberry platform to third party developers for sharing all information relevant to the corporation, the better. Oracle built its own diabolo next to Microsoft, did it not?

Meanwhile Google seems to have met his match in China. Could the devil in the diabolo be in the principle as well as the details? Next week's topic!

Philippe Coueignoux

• (*) ..... YouTube in a Quest to Suggest More, So Users Search Less , by Miguel Helft (New York Times) - December 31, 2009
• (**) ... A Rival Looms Over the iPhone, by Miguel Helft (New York Times) - January 5, 2010
• (***) . Google's business chief targets ad revolution, by Andrew Edgecliffe-Johnson (Financial Times) - December 29, 2010
• (1) around 5 billions according to the entry for cellphone in the Wikepedia. Smartphones of course are still but a small fraction of this total.
• (2) less than 150 millions in 1993 according to the entry for personal computer in the Wikepedia
• (3) see Google's half-open battle with Apple, by John Gapper (Financial Times) - January 7, 2010, quoted last week