The Bull Case for Snap Inc.

Subscribers were not surprised regarding the slowing user growth of Snap Inc., which became clear in their IPO filing. We have been tracking quarterly user data via surveys for over a year and we noted the spike in user growth (which is what I think prompted them to file) and the follow on slowdown in user growth (which I don’t believe they anticipated). While all available data suggests they will have a hard time growing their base for some time, I think it’s helpful to look at the potential arguments for the upside for Snap.

A New form of Personal Entertainment
Viewing Snap as a new form of personal television, particularly the short form variety, is essential to understand the kind of company they are becoming. The key for Snap is not just getting every professional content producer they can to produce content for Snap apps and service but also to maintain an active community of user-based content creation as well. For example, if you look at the series of stories they produced around the Super Bowl yesterday, they included a mix of produced and user-generated content. It made the experience compelling and unique, something you could not get on your big screen broadcast. This combination of produced and user-generated entertainment is one of the things I believe appeals to a wider audience — more than just the mostly Gen Z and Millenial user base Snapchat has today.

There is no question the ultimate upside for Snap must include some assumptions of user base growth and, in particular, beyond the under-30 demographic. Getting more compelling produced content is key to attract the older-than-30 crowd. Interestingly, more content producers will likely continue to produce for Snapchat (like this example from the BBC to bring Planet Earth II to Snapchat). Through Snapchat Discover, publications have been mixing video and text leading to an article. I’m more optimistic about publishers who focus on the video element, not just the text/article.

In many ways, the upside for Snap must be viewed more like YouTube than anything else. While it has been a while since YouTube has released active user numbers, our estimates peg YouTube around 1.3 billion people who have watched at least one video monthly. Ultimately, YouTube is the model I’d look at for Snapchat than anything else, with the exception that the vertical video format is a clear differentiator for Snap over YouTube. This may seem like a backward step but I genuinely believe young people appreciate not having to turn their phone sideways with vertically produced video — with YouTube, you need to re-orient the phone to get the full screen experience. Again, this may seem like a little thing, but re-orienting your phone between widescreen and portrait is seen as inconvenient.

If Snap can continue to get users engaged with their unique style of short form, personal TV experiences, then they certainly have a chance to be relevant in the ever changing media/TV landscape.

Grabbing the Next Generation
Another angle for Snap’s bull case is their projected upside depends on future generations. Perhaps they don’t acquire the above-30 yearr old crowd in droves but, if they continue to be relevant and compelling as future generations get smartphones, you can argue their upside potential is based on people who are not yet owners of smartphones but who will be in massive numbers over the next ten plus years. This is a true long view for Snapchat but not out of the realm of possibility that they are the inevitable personal TV experience for future generations. Personally, I think this scenario is more likely to add to their user growth than their chances to acquire Gen X users and beyond.

The part that causes me pause is millenial parents who perhaps are more skeptical of Snapchat going forward and caution their kids against it. We hear frequently from parents who let their teen or pre-teen kids use things like Facebook or Instagram but not Snapchat. It will be interesting to see if this perspective sours young kids on Snapchat or fuels their desire to use it even more.

I fully expect a lot of noise, both good and bad, to come out around Snap’s IPO. Some of it is likely to get quite ugly. Ultimately, investors are going to need patience with Snap and be long on their upside for the public market to yield what Snap needs to continue to invest in their products and services holistically. As of now, what I’m hearing from many investors is they may be more short than long, assuming the stock will rise a bit but then drop in the same way Twitter, Fitbit, GoPro, etc., have all done.

Whatever happens over the long arc of time, Snapchat management is likely going to have to manage the investor community closely to make sure they understand where they are going and inspire the confidence they can reach their ultimate upside.

Are We About to Enter The Era of Mobile Televisions?

One of the companies we have great respect for is NPD. In fact, some of our best industry friends are from this company. They recently sent me a press release with their updated research forecast for devices connected to TVs. Here is the news they sent out and a chart showing that 231 million devices are expected to be connected to the Internet by 2018.

“By the end of 2018, 231 million installed devices are expected to be connected to the Internet and able to deliver apps to TVs, representing 82 percent growth from 2014 to 2018, according to the Connected Home Entertainment Forecast report from global information company The NPD Group.

“The two largest drivers of growth will be the increased acceptance of connected televisions in the homes of U.S. consumers, as well as the continued adoption of streaming media players such as those offered by Google, Apple, Roku, and Amazon,” said John Buffone, Executive Director, Industry Analyst, Connected Intelligence, The NPD Group.

Forecasted # Installed & Internet-Connected Devices* Attached to TV

Base: U.S. Internet households

*Devices include connected TVs, streaming media players, video game consoles, and Blu-ray Disc Players

Source: The NPD Group/Connected Intelligence, Connected Home Forecast

I have to admit, this projection is impressive and my first reaction is this forecast is conservative. Many people have 2, 3 and even 4 TVs in the house and, with Chromecast costing $39 and other options (except Apple’s new Apple TV) being well under $80, one would think, at the very least, they would have two or three of theses devices by 2018.

I happened to be with my friend Stephen Baker of NPD this week and, as we rode to the airport together, I asked him about this research. He says there are around 105 million homes in the US and this research projects about 80% of those homes will have at least two of these devices (with some having a bit more). That’s how they came up with the 281 million sold annually by 2018.

But he also stated that, in the future, demand for TVs will decline. Today, while people buy TVs for many rooms in a house, NPD thinks in the end most will have just two large screen TVs and will use tablets for viewing in other rooms in the house. Indeed, with pretty much all of the major networks creating online versions of their content or expanded shows on Netflix, Hulu, and other streaming services, using a tablet for TV viewing makes sense.

One of the companies that is hedging their bets on this is Samsung. They recently introduced an 18-inch tablet that, on the surface, seems to be huge for a tablet. But they actually see this more as a mobile TV and, while not positioning this specifically as such, they are hoping many buy it and use it for that purpose. On a personal level, I have a 13-inch Samsung Galaxy tablet on my bedside table and have it connected it to my Slingbox and the other streaming services I subscribe to and use only as a TV. It works perfectly and kept me from getting a TV for the bedroom.

Although the iPad Pro will never be positioned as a TV, it too is connected to my Slingbox and streaming services and I have caught myself using it on the patio and other rooms in the house many times since I started testing it. Actually, I started doing this with the original iPad when it came out and love the idea that a tablet could deliver a mobile TV experience.

I believe Samsung is really on to something with this 18″ tablet/TV concept. When Dell brought out their 18″ all-in-one, we also used it for that purpose. It was a mobile TV. Of course Dell did not design it for this use but many used it that way anyway. And to be fair, some of the larger tablets and smaller all-in-ones that have come out have probably been used as a mobile TV too.

Last year I spent some time with Intel’s chairman Andy Bryant and he told me that his kids discovered that the Dell 18 inch all-in-one was great for streaming media and games. Once he saw that how his kids used the Dell product he was hooked on the idea of larger tablets and smaller all-in-ones being used for these purposes.

But with Samsung being a major TV vendor and partially positioning this new 18” tablet as a mobile TV, if it is even mildly successful it could launch a whole new purpose for larger tablets. In the past, a mobile TV had to have a TV tuner inside for it to even be classified as a portable television. With video streaming and products like the Slingbox and direct delivery of TV content from the networks and specialty sources like HBO, Showtime, all one needs to have is a good WiFi connection to turn any tablet into a TV and a movie playback device.

The only drawback at the moment is the lack of access to live local content but that sacred cow will soon fall as more and more people become switchers and force the local stations to stream their services in the near future. Actually, in my case and using my Slingbox connection to the TV in my study, I get all the local content I want, making any tablet and especially my 13″ Samsung tablet a full blown mobile TV.

This is an idea whose time has come. People are very mobile these days and are watching streamed TV shows and movies even on small smartphone screens and small to medium-large tablets like the iPad Air. However, while watching video on smaller screens is OK, once these devices get to the 13-18 inches size, their potential to deliver an actual TV-like experience will become much more desirable and the concept of a mobile TV could really take off.

RealNetworks: They’re Still Here

Real screenA lot of new consumer apps that present a big variety are the work of developers fresh out of Stanford or MIT. And then there’s Ron Glaser (by the way, from Yale).

Glaser’s RealNetworks has been involved in computers and lately mobile devices, used to receive and send video. It has succeeded while many other companies have failed, and it has managed to come up with ideas.

It’s most recent effort has been RealTime, designed to generate a program with photos, videos, and music on a phone, tablet, or PC and play it to any of these or to other viewers, such a Roku. It’s a good offer, but it fits in with a lot of other related competitors.

Glaser is one of those guys involved in this sort of effort for a long time. He was at Microsoft in charge of program efforts back in the day before the Windows 95 release. He left for RealNetworks to start the PC video business. He has had an active role with the company except for a departure of about two years early in the current decade.

Flash GordonMany of you may not remember the early days of what computer video was like. People had to get their signal on dial up phone systems–and with not very fast modems. The computers themselves were slow and the displays not very good–single color monitors were not that rare, especially in offices. Video was bad too.

The result was an image on the screen not much bigger than a postage stamp. Despite the small size, the video was not that great in quality. And the image would freeze as the signal dropped.

But bit by bit, videos became more important. Video, bigger and better, became key elements of ads, movies, and everything else. In time, devices became places to see shows and events, both on PCs and eventually phones too (and not necessarily the smart kind).

RealNetwork has long since fallen out of leadership in video as so many other have jumped in. In 2011, the company released a product called Unifi that allowed you to link media and other information over many devices in the cloud. It was an an appealing project (I was involved in project advising) but RealNetwork was beaten by others who got there first.

The company is still working with an assortment of projects, including video services, games distribution, and the Rhapsody music service.

TV’s Future: A Nasty and Growing Fight

Cable cut (© steheap - has been regarded as a sure thing that the cable TV system is approaching the end as television distribution moves onto the internet. Many reports say it’s going to happen soon. But the the latest evidence shows us the events moving the world of network TV are going to be slow, complex, and filled with some confusing fights.

The latest is odd and seems to have no real effect with the cord-cutting future. Verizon announced FiOS Custom TV, a $60 a month service for subscribers that allows the basic service–a collection of 49 local broadcast stations and a weird bunch of channels from CNN to The Church Channel–plus two “channel packs.” These choices include entertainment, kids, lifestyle, pop culture, news and information, sports, and sports plus. Additional channel packs could be added for $10 a month each.

The whole thing seemed like a minor pricing move but set off an explosion from horrified key network operators. ESPN, a unit of Disney, announced the service violated its contract with FiOS. NBCUniversal and Fox rapidly jumped in with actions of their own. Verizon says it’s entitled to the deal and the whole thing may end up it court.

The jostling of many players. What is really going on appears to be the jostling of many competitors in the fight for the future. Verizon is an odd player. FiOS is a relatively small cable TV carrier; it offers fiber television and internet service to parts of 12 states and the District of Columbia. But Verizon is a massive provider of network service and it’s no surprise it is more interested in expanding content sent out over the network than caring much for the long term about what moves over the cable. (AT&T, with a somewhat similar U-verse cable service, has been staying out of the fight.)

Comcast, the largest TV cable company and one of the biggest internet service providers (though its effort to acquire Time Warner Cable appears to be failing because of federal antitrust plans) has a very different position. Although Verizon is a very large grown child of the old AT&T and has its mind set in the telecommunications business, Comcast was born in the early cable business. Although it is nominally running its own company, Comcast seems to be taking orders from its own subsidiary, NBCUniversal. And it would be tough for Comcast to imitate FiOS when NBCU is keeping its content off FiOS Custom.

Toe dipping. ESPN has actually dipped a toe into the idea of making content available on the internet instead of cable by adding content as an add-on feature of Sling TV’s programming. But Disney is making its feelings about FiOS Custom clear: It has told ABC, Disney, and ESPN to reject ads for the new service. NBC uses the internet–web pages and mobile apps–only through programing with highlight selected programs. CBS is offering a half-hearted on-line service of its network content for $6 a month and available on mobile apps, PCs, and Roku. It’s called CBS All Access, but shows are only available the day after they have been broadcast and most sports events are blocked by their leagues.

The fact is the movement of TV content to the internet is going to be a slow affair. Netflix and Amazon Prime may have the new shows but the market is tougher for networks depending both on broadcast or cable. But they want to keep it a fight and at unless you are willing to accept a limited offering, it will be a while before you are ready for cable cutting.

Aereo Is Dying, But It May Have Saved Internet TV

In 2012, the inventors of Aereo, with investment from Barry Diller of IAC, put pressure on TV producers and networks’ control of content. It was basically a goofy idea: Servers at a data center would employ miniature antennas that would capture broadcasts, convert them to internet signals, and send them to customers who were paying about $30 a month.

Quick legal action came as a surprise to no one. The technology was ruled a copyright violation by the lower courts, who were quickly upheld by the Supreme Court last spring. Aereo slowly faded away and what is left of the company is disappearing. This week, it shut down its Boston office and laid off 43 employees. The company’s threat to the cable distributors is going away.

For Aereo founder Chet Kanojia, the affair is a big defeat. For Diller however, it’s probably the effect he has always been hoping for. The goal was more designed to attack the cable companies control of TV content.

The content distributors have increased their control by making a selective variety of content available to phones and tablets. Mostly however, it has been available only to cable subscribers who have to supply registered identification to receive shows via the internet.

But major players have started to change the game. CBS All Access provides streaming broadcast to over a dozen big cities. In effect, it’s like Aereo for one network, offering content for $5.95 a month. Not all the programming is available though. In particular, the National Football League blocks its games (the NFL has its own deal with DirecTV for internet game delivery). HBO, unlike the HBO GO internet service for cable customers, will offer internet content to subscribers with no cable subscription.

Most broadcasters are moving slowly to the new game. They have always been reluctant to mess with their existing successful relationships. (Don’t overlook the fact HBO came up with the internet channel after its owner, Time Warner Inc., sold off Time Warner Cable.)

But the pressure is likely to become irresistible. As the expense of cable networks extends to both viewers and content owners, direct internet delivery is going to become an ever more popular channel.

Some Potential Downsides for an Apple TV

Another year, another quarterly earnings announcement, a mere month before WWDC, and not a hint of an Apple Television. Don’t hold your breath. While many of us may crave the idea of an Apple Television and certainly millions of us are not pleased with our present television “experience,” there is little for Apple to gain by offering such a product. Indeed, Apple could actually be harmed by offering an Apple Television.

This is especially true for Apple’s two largest markets, America and China. In both, smartphones are commanding more of our time, more of our attention, more of our dollars. An Apple Television may do little more than shift our focus (and thus our dollars) away from the iPhone juggernaut. That would be a costly mistake for the company.

Stay On Target

The iPhone generates more than half of Apple’s revenues and profits. While some may insist this is a reason for the company to further diversify, such a sentiment is ignoring two critical facts:

  1. The total addressable market for the iPhone extends into the billions of units. Nothing else comes close. Nothing. Apple’s primary focus therefore should be on aggressively growing the iPhone user base and maximizing the iPhone ASP, and not on lesser markets such as television.
  2. The gains from an Apple Television (and any supplemental iTunes revenues) must be greater than any revenues and profits they might potentially steal from iPhone. There is no guarantee of this.

apple revenues by product

It is that second point which I think other analysts are missing. An Apple Television carries with it the very real possibility of dampening iPhone revenues. How? By diminishing iPhone engagement.

iPhone engagement — not margins, not prices, not functionality — is what so clearly separates the iPhone from Android. The rumored Apple Television carries with it the potential of reducing iPhone engagement.

Why take such a gamble?

Smartphones in general and the iPhone in particular have succeeded in doing what every other technology of the past 75 years has failed to do — capture our time and our attention at a level equivalent to or even greater than television. The “second screen” — the smartphone — is, in fact, quickly on its way to becoming our first screen. For Apple to risk shifting our focus away from the iPhone, even just a little, could precipitate a decline in iPhone engagement. Any such decline would directly impact iPhone usage, cut into iPhone sales, possibly bleed into the iPhone’s remarkable ASP.

In this light, an Apple Television seems needlessly risky, especially given iPhone growth appears to be slowing so appreciably.

iPhone growth yoy

While Apple no doubt would endeavor to build a television that fosters deep integration with the iPhone, any television worthy of the Apple brand carries with it the very real possibility of drawing our time and attention away from our beloved and far more personal second screen.

The iPhone In Prime Time

Despite television’s decades-long hold on our collective attention span, its days as our “first screen” are quickly fading. A recent survey offered a startling conclusion: time with our smartphone has now eclipsed TV time in the US.

tv vs smartphone

While other studies somewhat counter these findings, the smartphone’s rapid rise in capturing so much of our limited attention is but one aspect of the profoundly shifting “screen” landscape. Recent Nielsen research concludes the obvious; even with the television blaring, our eyes are being drawn toward the smaller, more intimate smartphone screen:

Not only is smartphone penetration growing, with over two-thirds (67%) of mobile subscribers in the U.S. owning smartphones in Q4 2013, but consumer usage of phones is rapidly shifting toward increased screen time with entertainment and social media.

Americans simply can’t bear to turn away from their smartphones even while their favorite television programs are playing. Already, over 40% of us are regularly tapping, talking and staring at our smartphones — “multiscreening” — as the TV fades into the background.

For that multiscreening audience, 70 percent are looking and “unrelated content” (called “stacking”). 


The other 30 percent are exploring related content or taking some action tied to the content or advertising on TV (“meshing”). 


Television is becoming just one more feed inside our smartphone.

The data above is for the US market. The situation facing the original “first screen” is even more dire in China, where the smartphone extracts far more total time than the television.

Chinese smartphone owners spend nearly eight hours looking at electronic screens each day, the third longest in the world, with smartphones and laptops dominating their “screen time,”

Smartphones (170 minutes per day) and laptops (161 minutes per day) dominate their “screen time,” while TV holds their attention for only 89 minutes per day.

Death To The First Screen

Why enter a market that is becoming less relevant in our lives? Why risk detracting from iPhone usage? 

A Kleiner Perkins Caufield and Byers study last year found the average user checks their smartphone 150 times a day. This number is higher still for the average iPhone user, as various metrics consistently show iPhone users spend more time on their device, more time on the mobile web, more time with apps.

Of course, it’s not just about how much time we all look at our smartphone screens but how we use them.

smartphone usage

For a growing number of us in the US, China and every where else, the smartphone is simply more entertaining, more engaging, more attention-grabbing than anything and everything available to us on TV.  Seen in this light, why would Tim Cook and Apple even consider such a product?

The derisively labeled “second screen” has become our first screen, and as with banks, that’s where the money is. Even the most aggressive analysis of the Apple Television’s potential suggest limited upside to the company’s value.

Perhaps Apple is working on a complete re-construction of the very idea of “television,” in which case my analysis is wrong. Or perhaps once Apple has sold as many iPhones as possible, then it might make sense to tackle the television market. If I were Tim Cook, I would take a pass, at least for now. What are your thoughts?

A Mapping Tool for the Rest of Us

Kensington, MD, ethnicity map

Maps are the great data visualization tools. There is something about the ability to take database information, superimpose it on a map, and have an image that makes visual sense instantly pop up.

Unfortunately, this is often a lot harder to pull off than it seems it should be. On one end, there are massive geographic information services, such as ESRI ArcView, that can generate great maps, but are both expensive and complex to learn. At the other extreme, assorted Google mapping services, including web clients and Google Earth, enable all sorts of tricks, but the job of creating really good data superimpositions can be depressingly difficult.

The PolicyMap, a subsidiary of the non-profit Reinvestment Fund, has released a splendid new version of its web-based mapping tool. “For the last six years, we have largely catered to state, local and federal government users as well as banking and housing professionals, college students and researchers looking to better understand geographic data and trends,” said Maggie McCullough, President, PolicyMap. “As interest in data and data visualization has exploded, we’ve rebuilt PolicyMap into a more powerful but easier to use tool that appeals to our traditional customers, as well as newcomers to mapping and web managers looking to elevate their business intelligence, research, analytics or presentation capabilities.”

I created the above map, which shows the percentage of white population by census tract in my neighborhood of Montgomery County, MD, in less than 15 minutes. The original interactive version lets me show the change in pattern over a limited range of time. Almost everything about it is instantly customizable, from colors to data ranges and divisions.

The biggest issue here is an embarrassment of riches as vast quantities of data, often available with good geographic coding, continue to pour online. Federal government data comes from a big variety of agencies: the Census Bureau (including the Current Population Survey and the American Community Survey), Bureau of Labor Statistics, FBI, Health & Human Services, Centers for Disease Control, Department of Homeland Security, and many many others. Data is often available on a variety of of geographic bases, from census-block level up to states, and often additional efforts have been made to normalize the data to get the information onto common bases.

The PolicyMap data also draws heavily from a  variety of private and semi-public sources, especially for financial information. If you want to find American Bankruptcy Institute filing data, Community Development Financial Institutions Fund tax incentive locations, or Environmental Protection Agency brownfields redevelopment sites, it’s all ready to click and pick.

The PolicyMap provides a basic free offering, but the heart is a more expansive subscription service that works to keep prices low (after a free trial), and offers a wide variety of plans that provide great value, considering the richness of the tools and the quantity, range, and quality of the data. A standard service provides up to five seats for $2,000 a year (with some additional charges applying for proprietary data sources.)

It’s well worth a look.

Netflix and Neutrality

When the D.C. Circuit Court of Appeals struck down the Federal Communications Commission’s network neutrality rules, many commentators cited Netflix as the poster child for the horrors that await. Left free to discriminate, internet service providers would either throttle Netflix streaming traffic to favor their own cable content, or would charge Netflix extortionate fees.

Funny thing is Netflix doesn’t seem particularly concerned, and thereby hangs a tale. After saying nothing for a week, discussed the issue in a letter to shareholders that shows it has a much clearer understanding of how markets really work than do the net neutrality advocates. The complete section is worth reading:

Unfortunately, Verizon successfully challenged the U.S. net neutrality rules. In principle, a domestic ISP now can legally impede the video streams that members request from Netflix, degrading the experience we jointly provide. The motivation could be to get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver.

The most likely case, however, is that ISPs will avoid this consumer-unfriendly path of discrimination. ISPs are generally aware of the broad public support for net neutrality and don’t want to galvanize government action.

Moreover, ISPs have very profitable broadband businesses they want to expand. Consumers purchase higher bandwidth packages mostly for one reason: high-quality streaming video. ISPs appear to recognize this and many of them are working closely with us and other streaming video services to enable the ISPs subscribers to more consistently get the high-quality streaming video consumers desire.

In the long-term, we think Netflix and consumers are best served by strong network neutrality across all networks, including wireless. To the degree that ISPs adhere to a meaningful voluntary code of conduct, less regulation is warranted. To the degree that some aggressive ISPs start impeding specific data flows, more regulation would clearly be needed.

What Netflix knows is that the ISPs, who are monopolists or duopolists in most markets, do not operate in a vacuum. Yes, in theory a monopolist can do anything it wants, but in practice it is constrained by its customers, who have their own ways of dealing with unconscionable actions. (The exception would be a monopolist who has total control of an essential good for which there is no substitute, say water. Governments either prevent such monopolies from forming or regulate them closely. Governments, too, have to worry about their customers, i.e., voters.)[pullquote]Mess with us, says Netflix, and face the righteous wrath of our customers, who like us a lot more than they like you.[/pullquote]

Netflix, while avoiding the panicky reactions of some of its erstwhile supporters, is putting down a marker: Mess with us and face the righteous wrath of our customers, who like us a lot more than they like you. And if the customers going get riled up on their own, we’ll see to it they they are riled. And these angry customers can cause a lot of trouble. Ask a cable operator that faced a choice a revolt by customers if it kept a big football game off its service in a dispute over retransmission fees. They always cave.

A slightly more realistic fear on the part of neutrality regulation advocates is that monopolistic carriers could crush innovative startups by providing discriminatory rates that protect incumbents. Never mind that this is the exact opposite of their first fear, but it is not at all clear why such an action would ever be in an ISP’s interest. And if an ISP were to collude with a Netflix against a challenger, they would quickly find themselves in antitrust trouble (see U.S. v Apple.)

What Netflix is saying is that some sort of reasonable neutrality is in everyone’s interest, even in the absence of regulatory requirement. If the ISPs act irrationally (or of we are misreading what is in their best interest), there is plenty of time for a regulatory response. The course favored by the strongest net neutrality advocates, common carrier regulation of ISPs, might have  solid legal basis, but would be far more intrusive than the relatively modest rules the court struck down. Let’s wait and see before we urge drastic action.