newnetland

European Tech Analysis

Implications of the Microsoft Wunderlist deal

Posted on Written by

Surprisingly there has been quite a lot of talk going in both directions about Microsoft buying 6Wunderkinder, Berlin based maker of to-do app Wunderlist. The Wall Street Journal (paywall) has been reporting a price tag between 100 and 200 million $.

I wrote a short piece about it in German on neunetz.com. To make it short (or even shorter): In hindsight the deal makes perfect sense and when I heard rumors of a big exit coming to a Berlin startup I should have guessed something like this.

Microsoft is building up a top notch productivity app suite for all platforms. Besides Office and Outlook it has Skype, which they bought some time ago and just recently Microsoft bought Sunrise, a great mobile calendar app.

Wunderlist is a popular to-do app for web and for almost all operating systems out there right now. As I said: A perfect fit.

Anyway, here are some comments from others about what this might mean for the German and the Berlin startup world:

London based Angel investor Gil Dibner:

Wake up call #1: Berlin rocks. (..)

Wake up call #2: Enterprise is where it’s (sometimes) at. (..)

Wake up call #3: There is a very hard bar, and this stuff is hard. (..)

Let’s assume that Sequoia took the lion’s share (75%) of the Series B round or about $14M. If so, their stake in WunderList would be around 18.75% of the company and worth around $28M at exit. Not bad (and a healthy IRR), but only 5% of the value of the fund. That means that Sequoia would need to exit another 19 WunderLists in order to return capital to their investors. This, of course, is not their model. To begin to really move the needle for US investors, a company like WunderList would have to exit at $500M which would have generated $93M for Sequoia. At the $1B exit level, WunderList would have generated $187M for Sequia. Still _less than half their fund size_, but now we’re starting to talk about real money.

Jan Sessenhausen (Early Stage Tech at Tengelmann Ventures and former investor in 6Wunderkinder):

A key problem of the local startup ecosystem is (or hopefully: used to be) the lack of exit options. The local players are either financially to weak, not ambitious or innovative enough to be a relevant channel for large size exits. And the large players are basically all US-bound (and mainly on the West Coast) with their German subsidiaries being mostly sales & service organizations with little relevance on product development or even own R&D. As a result large US technology and software firms rarely bought German tech startups, they often did not want to deal with the hassle of having some satellite dev team somewhere in Germany which seemed hard to manage.
(..)
Let’s all hope this trend continues, since it is crucial for our ecosystem and maybe also wakes the local players up that there is relevant and valuable tech being developed by this new generation of German founders! And by the way, this also brings money into the ecosystem…

So in summary: Not a bad exit, but not a great one either. But, more important, another step towards a more mature ecosystem.

(Sidenote: Funny how most people seem to completely ignore the two blockbuster IPOs by Rocket Internet and Zalando last year. Both companies with both their staff going into the thousands will have tremendous impact on the future Berlin business world.)

Zoë Keating and the problem with streaming services being shop *&* record collection

Posted on Written by

Zoë Keating on YouTubes terms for its subscription service:

This new music service agreement covers my Content ID account and it includes mandatory participation in Youtube’s new subscription streaming service, called Music Key, along with all that participation entails. Here are some of the terms I have problems with:

1) All of my catalog must be included in both the free and premium music service. Even if I don’t deliver all my music, because I’m a music partner, anything that a 3rd party uploads with my info in the description will be automatically included in the music service too.

2) All songs will be set to “montetize”, meaning there will be ads on them.

3) I will be required to release new music on Youtube at the same time I release it anywhere else. So no more releasing to my core fans first on Bandcamp and then on iTunes.

4) All my catalog must be uploaded at high resolution, according to Google’s standard which is currently 320 kbps.

5) The contract lasts for 5 years.

Ben Thompson wrote a piece analysing Keatings position and YouTubes terms, coming to a rather simplistic conclusion:

In fact, while Keating may be a radical, I think she’s also entirely rational: I’m increasingly of the opinion that all-you-can-eat subscription services like YouTube Music Key or Spotify are a downright bad idea for niche artists.

I can see where he is coming from but I think he is missing a rather large part of the picture. Namingly how people consume music once they are on one of these streaming services.

While it might be a a bad deal for Keating it doesn’t necessarily mean she can stay off streaming services and make her fans pay for downloads forever. With on demand streaming services the shop (you get access, you pay per flatrate) is simultaneously your record collection (‘saved’ music, playlists etc.).

This means for musicians being on a streaming service or not has more implications then just deciding where and how to charge. It directly affects where and how your music can be listened to.

Here is a thought experiment. Why is exponent.fm, Bens podcast, free? It is high quality niche content. According to Bens original point in the article he shouldn’t put it out for free. At least not all of it, but instead charge the few who are interested in it. Why isn’t he doing that?

Play it through in your mind. The podcast only works with a private feed after you paid for it. How are you going to listen to it? In the browser, like an animal?

The best of the best podcast clients on iOS and Android can not be used for this.I don’t think that this is acceptable friction for most of the paying users. Hardly any one would use an inferior player to listen to content they had to pay for when at the same time everything else comes with a better and unified user experience right over there, a finger tap away.

The whole eco system and its network effects matter. They are putting constraints on what musicians like Keating can sensibly do.

Friction matters. And in this instance it increases with every new user of one of those streaming services. It’s another persons music collection an artist like Keating doesn’t want to be in. And now we haven’t even talked about discoverability on these services. (which becomes more and more important.)

I feel for Keating. Because I also think the people at YouTube know this. Hence their terms and ‘negotiation tactic’.

[Broadly speaking, all this (how you organize your consumption) is why flatrate subscription services differ across industries (movies, music, books, etc.)]

Apple should review App Review

Posted on Written by

Apple wants to enrich iOS by giving apps more ways to interact and present themselves on the platform. Extensions, the widgets, the new file approach. But this, this or this shows that Apple is quite unsure how to approach this change in their control of iOS. Or, to be more precise, they seem to want to expand the platform possibilities but at the same time keep control of the direction(s) all this is going in.

The ‘today view‘ is for ‚viewing‘ what is going on ’today’. No matter that you can do more, that developers did more and that users wanted more. Or that Apple did not explicitly say you can not do way more than that.

The problem is not that Apple doesn’t seem to want the richness that is possible, for whatever reason. The problem lies, as John Siracusa articulated very well on the recent episode of ATP, with the fact that Apple seems to be unable to articulate beforehand what exactly they allow developers to do and what direction it is they expect all this to go. This leads to invested time and energy by developers that now got wasted. ‚They‘ -big and small third-party-developers- don’t forget that. New features on iOS will not be as exploited as they could be going forward. That is unfortunate for the platform. (and hence everyone involved; Apple, devs, users)

Apple won’t loose developers other this. The current mobile platforms are different enough to not have this kind of repercussions. But iOS is loosing potential apps. The tension between Apple as the platform provider and its developers should go down not up.

It will be interesting to watch how Apple will handle this going forward. iOS will become more and more complex and richer with possibilities with the arrival of the Apple Watch and the integration of Smart Home devices and more.

They can not expect to keep a close eye on every corner of their emerging super platform. The future of iOS is just too complex (and so the needed guidelines). And App Review doesn’t look right now like it can scale well. If they still try they might seriously hinder innovation on iOS.

Would Microsoft fork Android? Not likely.

Posted on Written by

Windroid: What if Microsoft forked Android? Venturbeat:

Windroid could still support Windows Phone apps in parallel, enabling Microsoft to piggyback the Android app ecosystem while building out its own.

A Windroid phone could have exclusive (or, at least the best) integration of Word, Excel, Powerpoint for productivity, Skype for communications, Xbox for entertainment, Nook for reading, Bing for search and navigation, IE for browsing, and so forth. Microsoft is the one company that can replace nearly all of Google’s services one-for-one with a compelling alternative.

Fascinating idea. It is true that Microsoft is one of very few companies which could indeed offer alternatives to Googles services that hardware vendors are so dependent on.

But I don’t believe this will ever happen.

First: This is not in Microsofts company culture. Microsoft is (deservedly or not) too proud to even consider this. They build their own OS from start to end, end of story. No matter wether it actually still makes sense or not.

Secondly: This step would not necessarily lead to those obvious looking consequences as laid out in the article. In fact, have a look at what multihoming did to IBMs OS/2 as it was going with this very strategy. Ars Technica on OS/2:

OS/2’s DOS box was so good that you could run an entire copy of Windows inside it, and thanks to IBM’s separation agreement with Microsoft, each copy of OS/2 came bundled with something IBM called “Win-OS2.” It was essentially a free copy of Windows that ran either full-screen or windowed. If you had enough RAM, you could run each Windows app in a completely separate virtual machine running its own copy of Windows, so a single app crash wouldn’t take down any of the others.

This was a really cool feature, but it made it simple for GUI application developers to decide which operating system to support. OS/2 ran Windows apps really well out of the box, so they could just write a Windows app and both platforms would be able to run that app.

Given the reach on each platform the decision from a developers perspective was easy to make.

Now look at the scale of Android and compare it to that of Windows Phone. The differences in installed base are not that far off from Windows versus OS/2 back in the mid-nineties.

If Microsoft would go the multihoming route it would just serve the Android ecosystem. Piggybacking and enforcing its own ecosystem would not work this way. 

Define web platform

Posted on Written by

What is a web platform? The term that is being used by lots of people to describe web services new and old is actually not understood by many. A portal like Yahoo is not a platform. eBay is a platform. Amazons core business as an online retailer doesn’t fall under the term ‘platform’. Amazons marketplace however is one.

Online marketplaces are platforms. Etsy, Amazon Marketplace, eBay.

You got an API? You got yourself a platform. From Facebook to Twitter, every web service with an API is a platform. And there are lots of them.

Now how you define platform?

A platform is infrastructure. 

A platform is also a promise like Horace Dediu once said.

A platform is the basis for, and here we finally come to the definition, a two-sided market.

In a two-sided market two (or more) distinct groups of users come together. They both are subject to cross-side network effects meaning one group extracts more value out of the platform the more members of the other group are using it and vice versa.

Wikipedia:

In two-sided networks, users on each side typically require very different functionality from their common platform. In credit card networks, for example, consumers require a unique account, a plastic card, access to phone-based customer service, a monthly bill, etc. Merchants require terminals for authorizing transactions, procedures for submitting charges and receiving payment, “signage” (decals that show the card is accepted), etc. Given these different requirements, platform providers may specialize in serving users on just one side of a two-sided network. A key feature of two-sided markets is the novel pricing strategies and business models they employ. In order to attract one group of users, the network sponsor may subsidize the other group of users. Historically, for example, Adobe’s portable document format (PDF) did not succeed until Adobe priced the PDF reader at zero, substantially increasing sales of PDF writers. Relative to Apple computer’s initial pricing, Microsoft also steeply discounted systems developer toolkits (SDKs) leading to more rapid development of applications for MS Windows. 

Cross-side network effects and differing price sensitivities between the distinct groups are the basis for every decision by platform providers.

If you want to understand the world of web platforms you have to understand the dynamics of two-sided markets.

The goal of this blog is to explore this emerging world which is dominated by these network economics and starts to touch every sector of the economy.