The Genius Of Steve Jobs Or Why Google And Facebook Must Make Big Bets

The ghost of Steve Jobs haunts Google and Facebook. Unlike Apple, which has always aligned its interests with its users, both Google and Facebook must serve two masters: users and customers. They are not the same. Indeed, the divergent demands of these two groups has placed both web giants at a long term competitive disadvantage against Apple — one that will cost them billions to correct and will likely never be fully resolved.

Steve Jobs repeatedly veered from conventional Silicon Valley wisdom. His successes were legion. Given Apple’s current size and dominance, it’s easy to forget how so many of the big strategic gambles Jobs made were almost laughable at the time.

  • Vertical integration
  • Make both hardware and software
  • Keep design in-house
  • Create a global retail chain
  • Lock down your ecosystem
  • Make money on the hardware
  • Focus on fashion
  • Touchscreens are superior to physical keyboards

Google is, despite occasional shout outs to “openness”, absolutely following the Apple playbook which Jobs crafted decades ago. Facebook will follow as best it can, I suspect.

It’s not going to be enough.

Jobs made an even more profound strategic decision, one neither Google nor Facebook can ever match. It was a decision stunningly obvious in its simplicity, yet even today, despite Apple’s success, is still rejected throughout the Valley. That primal Jobsian strategy?

Your users are your customers and your customers are your users.

Sounds so simple, so obvious, yet think of nearly every start-up success in Silicon Valley this millennium, every hot new business model trend. Is the actual end user the actual paying customer?

In nearly every case, the answer is no.

In this disconnect, there is much weakness.

By linking Apple’s fortunes with the happiness of its actual users, Steve Jobs unleashed a slow-motion revolution that haunts Google and Facebook even now. Others, too. Even once dominant Microsoft, which remains radically dependent upon corporate buyers — not the actual users of their product — is hurting.

Obvious is not always easy.

The High Cost of Serving Two Masters

The divergent interests of users and customers is why Google and Facebook have been on such a massive buying spree recently. I do not expect a slowdown.

Big tech acquisitions

The latest acquisitions are not, as so many confounded analysts suggest, a sign Google and Facebook lack Apple’s “focus”. Rather, the fault lines in the Google and Facebook business models demand these acquisitions. That is, to make users happy and to make advertisers happy and to ensure an uneasy peace across both consumes enormous resources. Google and Facebook will always need to keep the checkbook handy. It’s not a lack of focus which explains their acquisitions. Just the opposite, in fact. Their focus is on a two-headed beast.

Before I go any further analyzing Google and Facebook acquisitions, I must acknowledge there are other, less critical factors at play:

  1. Real Control
  2. Fake Money

Google’s and Facebook’s founders have radically disproportionate voting control relative to their total ownership share. They can buy, even on a whim, and almost without explanation. Steve Jobs had no such control, nor does Tim Cook. Essentially, Larry Page and Mark Zuckerberg can buy whatever they wish without a single voice being raised.

In addition, the respective CEO-owners of Google and Facebook are fortunate enough to have inexplicably high PE values. $GOOG is at 31, $FB is 92 — that’s not a misprint. $AAPL on the other hand, trades at a stunningly reasonable 13. Whether you think the market is appropriately valuing these three companies is a separate issue. For now, the market is throwing money at Google and Facebook and money is of no use if it’s not being spent. I suspect if the market pushed Apple’s share price to a PE of 31, that Cook would likewise go on a shopping spree.

These two fortunate, albeit anomalous realities notwithstanding, the primary motivator behind the massive Google and Facebook spending sprees is, in fact, their respective CEO’s keen understanding of what their businesses require to succeed.

Think of a gushing well that nonetheless requires continuous priming. 

Encourage. Capture. Present.

To continue earning billions, both Google and Facebook must:

  1. Encourage use — to the point where they pay whatever is necessary to get billions more people online.
  2. Capture our personal data — including where we are, who we are with, what we are doing, even how we are feeling.
  3. Offer screens, tools, services and platforms so their paying customers — advertisers — can effectively present their message.

All their respective acquisitions are to maximize these three building blocks: Encourage. Capture. Present.

internet.org

Thus, while couched in feel-good language, it’s shrewd business to encourage more people go online.

Last year Facebook and other tech companies launched Internet.org, a global partnership to make the internet available to the two thirds of the world’s population that doesn’t have it.

Thus, cool-sounding “AI” projects are really little more than a means of better extracting maximum value from the captured information of a billion plus users:

By teaching a computer to think, Facebook hopes to better understand how its users do too. So today the company announced that one of the world’s leading deep learning and machine learning scientists, NYU’s Professor Yann LeCun, will lead its new artificial intelligence laboratory.

Thus, a few years from now, when we spend as much time inside ‘virtual reality’ as we now do staring at our smartphones, Facebook will need to have a suitable platform for its advertisers to present their message. Enter: Oculus Rift.

SWOT

Of course, each company has its own unique strengths. As the graph below illustrates, I contend Google does a far better job of capturing user information — via Play, Wallet, Android, search, Maps, etc.

Both Google and Facebook do an equally good job of encouraging use.

Facebook offers advertisers more and better options to present their message — Facebook, Instagram, WhatsApp.

capture encourage Facebook google

We should therefore expect both companies to acquire other firms, talent and technologies that enable them to further enhance their existing strengths and to shore up their weaknesses. For example, Facebook needs to build or buy tools to more effectively capture critical personal data. Might this lead to buying Foursquare, for example, with all its user-location data?

As we increasingly look to our wearables and smart watches, expect Google to buy or build tools to ensure their advertisers can present their message onto these new screens.

There’s still another consideration for potential acquisitions. The companies currently are split in the type(s) of information they are best at encouraging, capturing and presenting.

think do express feel

Facebook’s superiority is better suited for encouraging us to share how we feel, and its platforms allow users to more fully express themselves. Google by contrast, is far better at capturing what we want and what we are doing.

Given this, I suspect while both Google and Facebook will acquire companies that help them shore up weaknesses across the feeling-doing-wanting-expressing spectrum, the really big money will be spent on ensuring their current leadership is almost impossible to surpass.

Focused Acquisitions

Was $19 billion too much for WhatsApp? Likely. As was $2 billion for Oculus and $3+ billion for Nest. Fair enough. But, these acquisitions do not reveal a lack of focus – just the opposite:

  • Driverless cars will present ads and content in a captive environment without distraction.
  • Internet drones, lasers and balloons encourage more of us onto the web and onto the many and varied Google and Facebook platforms.
  • If any of us spends any appreciable time in the “metaverse”, then Facebook’s Oculus Rift gamble will enable advertisers to present a stream of messages into our eyes and ears, without any of the real world’s messiness.
  • Google Glass can (soon) present the latest reviews of the newest restaurant as we walk past — or instantly display where we can get a better price on our favorite gear.
  • Nest will help Google capture our home information.
  • WhatsApp encourages us to share a great deal of personal information.
  • Instagram encourages us to express ourselves.

The list goes on.

Therefore, when you read financial analysts, such as Felix Salmon, who insist Facebook’s latest acquisitions aren’t related, they are missing the big picture.

Look at his big purchases — Instagram, WhatsApp, Oculus. None of them are likely to be integrated into the core Facebook product any time soon; none of them really make it better in any visible way. I’m sure he promised something similar to Snapchat, too.

Wrong. It’s not about being “integrated into the core Facebook product.” Rather, it’s about encouraging use, capturing use, and maximizing its value to advertisers — which means enabling those advertisers to present their message to every user at any time, in all places, on all screens.

And it will never end.

Apple must make its customers happy. That’s no easy task. Google and Facebook, however, must make both their customers and their users happy. That’s much harder. The checkbooks will remain at the ready.

Published by

Brian S Hall

Brian S Hall writes about mobile devices, crowdsourced entertainment, and the integration of cars and computers. His work has been published with Macworld, CNBC, Wall Street Journal, ReadWrite and numerous others. Multiple columns have been cited as "must reads" by AllThingsD and Re/Code and he has been blacklisted by some of the top editors in the industry. Brian has been a guest on several radio programs and podcasts.

23 thoughts on “The Genius Of Steve Jobs Or Why Google And Facebook Must Make Big Bets”

  1. it is 10 times easier for Google and Facebook to please their costumer than it will ever be for Apple because of a single word ( FREE)

    Apple have no room for mistake because of the premium folks pay for their Gear, while Google and Facebook have made ​​a lot of mistake without really paying a price.

    isn’t that magical?

    1. That’s an interesting point but both have their consequences. When a market is very early in the development cycle free is certainly an attractive option. However, as a market matures people outgrow the downsides of free (like heavy advertising, etc.,) If you recall there was a time TV was free but only advertising supported. Now over 80% of Americans pay for advertising supported TV. It is the nature of mature markets growing up and beginning to value some of the things that cost a bit more for a wide variety of reasons.

      Facebook and Google are playing very important roles in getting people connected to the internet for the first time via smartphones with low cost hardware and services. But as history dating back to the industrial revolution shows us, this is not always the only and dominant model once maturity and then post maturity comes to a industry or a segment.

      1. i don’t think it’s about Market maturation as much as it is about tangible Good versus intangible Good

        the majority of customer are not willing to pay an High Price for web service and software as much as they would let say for an iPhone

        1. I think you’re right in the general point that the majority of customers don’t want to pay a high price, period. But Apple very successfully targets the segment of customers who do pay for value, and that goes beyond hardware. Value is value, and I’ll pay for it. Apple will continue to do very well as they dominate this ‘best customer segment’.

          It’s interesting that so many people base their analysis of Apple on segments of the market Apple doesn’t even serve. Is it any wonder there’s so much poor analysis of Apple?

          1. i disagreed
            many people base their analysis of Apple on segments of the market they are which is precisely the most difficult and the most challenging to serve one where they cannot make any mistake.

            imagine what would Happen to Apple with just a bad IPhone Launch, let say some Phone explode or get burn because of batteries issue

            stuff like that happen and that will impact deeply their most important product

            Also let’s not forget that the High End segment is the most valuable one but it is also the smaller one. and unlike the PC, where most users hated Microsoft, Apple have real competition this time around that real challenge to them.

          2. Apple has had product flops before, they fix the problem and move on. According to the media Apple has already had a few ‘disasters’ re: the iPhone, and yet Apple continues to succeed. Also, the iPad is arguably a much more important product going forward for Apple. The meme of Apple as ‘the iPhone company’ is a myth, a talking point for the anti-Apple crowd.

            The ‘smaller’ segment Apple focuses on is large enough that Apple is steadily marching towards a billion users, I think that’s big enough. Watch China over the next two years, it should become painfully obvious how large the ‘best customer segment’ is.

            Again, you’re basing your analysis on your understanding of customers Apple doesn’t serve. Apple has very little real competition. There are companies that operate in the higher end segment and do bits and pieces of what Apple does, but there is no company delivering a whole solution the way Apple is doing it. Couple this with a billion users and Apple becomes its own market.

            The next ten years isn’t going to be very much fun for the anti-Apple crowd.

          3. 1- Apple has had product flops before

            R- There is a big difference between a product flop as it was the case with their Map than a big issue with a product as iPhone that people payed a premium for.

            2- The ‘smaller’ segment Apple focuses on is large enough that Apple is steadily marching towards a billion users,
            R- it’s not as easy as you would like it to be when their Market share diminish year over year along with earning per share.

            3- iPad is arguably a much more important product going forward for Apple
            Q – i disagreed, IPhone still and will remain their important product

            – 4 Apple has very little real competition

            R- It that was the case how come their go from 28% market share to 12% in a double digit growing market. also the sells of the Samsung Galaxy segment over the last 2 -3 years including the Note segment which is more expensive than the IPhone was on par to that of the IPhone,

            5- There are companies that operate in the higher end segment and do bits and pieces of what Apple does, but there is no company delivering a whole solution the way Apple is doing it

            Q- Have you ever use an Android High end Smartphone over the last 2 years?
            it is always good to try the competition when trying to defend a company you love

            also know that there is a big difference between the way you as a customer view a company versus and investor who want to invest his money in it which may explain why there is a big disconnect between wall street and Apple Fan

          4. “It that was the case how come their go from 28% market share to 12% in a double digit growing market”

            This! You just did exactly what I said, analyzing Apple through the lens of the entire market when Apple doesn’t even operate in *most* of the market. Why do you think total market share applies to Apple? The obvious answer is because that’s the metric that foretells doom for Apple (even though it’s a faulty analysis).

            “also know that there is a big difference between the way you as a customer view a company versus and investor who want to invest his money in it which may explain why there is a big disconnect between wall street and Apple Fan”

            And this! You’re absolutely correct, there’s a huge disconnect between Wall Street and Apple’s customers. You call them fans and use the word ‘love’ because you don’t understand why Apple’s customers behave the way they do (because it’s not how you would behave) and you don’t understand why Apple keeps getting more and more customers. This same disconnect exists in your analysis of Apple (see your market share argument).

            I can also guarantee that you’ll never believe in Apple’s success (cognitive dissonance). The mantra of the hysterical anti-Apple zealot is “No matter how much Apple succeeds, Apple is not succeeding!”

            To riff on Steve Jobs, you have to let go of the notion that for Android/Google/Samsung etc to win, Apple has to lose.

          5. why do you always bring everything about Apple into a Hate or Love story

            is that Fanboyisme thing

            Could it be that the way you see Apple, and define its success is different from that of others Folks

            Then if you think that Apple is invincible and that it success is all but a guarantee, maybe you need to convince everyone you know, to invest all their savings in Apple Stock to become rich, since you know something that the majority of investors don’t

          6. You’re still missing the key point, Apple’s success is indeed different. I bought a crapload of Apple stock when the iPhone came out. I’ve made six figures in profit so far. The majority of investors do not understand Apple and (like you) do not understand why Apple has succeeded.

          7. Then buy more and more stock and convince everyone you know including those on this site to do the same, since you seems to understand Apple better than anyone else.

          8. It’s not that I understand Apple so much better than anyone else, but rather that much of the analysis of Apple is just so shockingly, breathtakingly (if that’s a word) poor.

    2. Free does make it easy. But, then Google/FB need to please advertisers. So they intrude upon my enjoyment, which makes me visit less. Then I see they violate my privacy, which makes me visit still less…

      1. since when that become a big of a problem?

        for all we know billion of users called these company’s services their favorite, unless you can show me a better alternative for Free things are not going to change soon.

        1. “Free” may not end soon, but it could for Google or Facebook — thus, the major acquisitions.
          See: Yahoo, MySpace and many, many others.
          You’ll note that I don’t write that the free business model is bad per se, rather that to keep it going the CEOs must continue to spend a fortune.

          1. You bring up an interesting point. What company other than Apple is providing a paid for profit ecosystem?

          2. See: Yahoo, MySpace and many, many others.
            You’ll note that I don’t write that the free business model is bad per se, rather that to keep it going the CEOs must continue to spend a fortune.

            i totally disagree
            the way you describe it show you lack of knowledge about Google strength and business model or even web advertising, which may explain why you think that the only pay model will succeed when many trend show it’s the other way around.

          3. Then we disagree. I think by having to serve two masters — both with mostly competing interests — Google and Facebook will need to continue to spend billions to ensure growth.

  2. Brian,

    Bravo for a thought provoking beaucoup original column.

    There ought to be a John Grisham tech blogger award for writing really chewy zestful columns that keep us on our toes! (I’d nominate you over Cringely.)

Leave a Reply

Your email address will not be published. Required fields are marked *